Even a business relationship that starts out strong can eventually go sour. Disagreements can happen, people can change their minds, projects can quickly spiral out of control, and more. Which is exactly why you need business contracts.
Think of business contracts like an insurance policy that can ensure you’re covered legally if something goes wrong. Business contracts are crucial for protecting the interests of your business — and the people you do business with. Plus, contracts also provide peace of mind so you don’t have to worry about “what if” scenarios. You can have confidence that you’re prepared for any scenario that may arise.
Here are six reasons why business contracts matter:
#1. Business Contracts Protect Your Business
Business contracts are a proactive step you can take to protect the interests of the business. They act as an official agreement between your business and your client. If you’re wondering what should go in your contracts, some key provisions are:
- Confidentiality: what can and cannot be disclosed
- Ownership of intellectual property: who owns any content that is created under the Agreement
- Payments: how much and when you will be paid
- Termination: how to end the agreement
- Scope of work: what is being done by each party
This makes it clear to clients what’s expected and ensures that if the worst case scenario happens, you have some recourse and know what steps to take next.
#2. Business Contracts Define the Relationship
When you run a service business, your relationship with your clients is paramount and great relationships are built on mutual agreement. That’s why having everyone on the same page about how the relationship will work for the duration of the engagement is important. A business contract should outline the exact scope of work, and what each party is responsible for to complete the project.
Your business contract is also the ideal spot to put the parameters around key dates related to the work you’ll be doing. Many business owners have had the experience of a project dragging on and on, but if you don’t have any dates for delivery or completion agreed upon it can be a challenge to get across the finish line.
Also, it’s not unheard of for clients to just disappear for months and then suddenly pop up expecting you to jump right back into the project. Having language that outlines what happens if a client ghosts you protects your time and provides clear guidance for them how they can expect the situation to be handled — as the old saying goes, “to be clear is to be kind.”
#3.Business Contracts Can Help Manage Complaints
Not every client or customer is going to be 100% happy, 100% of the time, but you can take steps to mitigate possible issues before they arise. If something goes wrong, your contract is your guideline for what action your business will (or will not) take.
Contracts also give context to a complaint — is someone complaining about something already explained in the terms of the contract? Are they disputing something they already agreed to? If so, the resolution should be fairly clear cut. But if not, that’s a signal to you that there may be some negotiating required to address the issue.
Business contracts also offer a chance to be proactive about how you service and communicate expectations with your clients. If you’ve had complaints or conflicts in the past, you can use them to shape your agreements to help you avoid future problems. If the same issue happens again and again, you need to find a solution and have it documented. Remember: your contract is not static and should change as needed to address what’s most important for your business.
#4. Business Contracts Helps to Create and Enforce Boundaries
Contracts shape the expectations of the relationship. A key element of building great relationships is ensuring everyone understands how accessible and available your team will be. Most businesses do not operate 24/7, so it’s unrealistic to expect you and your team to be on call around the clock. By sharing hours of operation, permitted methods of communication (like email or a project management system versus phone calls), and handling of after-hours requests, you’re being clear about how the relationship will function.
#5. Business Contracts Establish Intellectual Property Rights
Ownership of intellectual property can be a complicated area for service business owners and their clients. It’s also a common area of confusion as there are questions about who owns what, so a business contract can spell that out clearly.
Having the terms of the intellectual property outlined in a contract can also control things like listing a client’s logo in your portfolio or discussing results in a case study. By using a contract to handle this, you can avoid having to take extra steps later on to get permission and approvals.
#6. Business Contracts Allow for Better Business Planning
This one is simple. Having all the parameters of your working relationship laid out and agreed to at the start has a really important benefit: you can better plan your workload, set internal deadlines and delegate tasks much more easily. Things like team capacity, work-back schedules, and financial management are far easier to map out when you already know when you’re getting paid or when a project is slated to end.
Make Sure Your Business Contracts are Legit
Depending on your business, the types of contracts you may need will vary, but no matter what, it’s critical to ensure that your business contracts are actually legitimate. Whether you choose to use legal templates from a reputable source (Shameless plug: Businessese is also my company) or hire a lawyer to act as your guide, contracts are not a place to just write something up and have people sign it in the hopes it’ll be legally binding.
With the right business contracts, you can set your business up to run smoothly and create a better experience for both your clients and your team.
Need some help figuring out what contracts your business needs or getting your contracts drafted?
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