Small Business Contracts – Why it Matters

When you set up your business, how long did it take for you to formalise contracts? To set up official terms of service? To make sure your agreements are legally valid? Perhaps you never have.

In the early days of our business, many of us get by with informal email or verbal agreements. Whether we don’t have the knowledge or finances to seek professional help, it’s important we understand the risks of not setting up contracts for our small businesses.

Of course, we hope we’ll never get into business disagreements ourselves, but many of us have heard stories like this one about a web developer who agreed to build a website for a local coffee shop. Everything seemed clear in the agreement, so the work started with a handshake; weeks later, however, things got messy when it came to payment. In this situation, the coffee shop owner claimed not to have agreed to all the features, and the developer was left frustrated and had not been paid the agreed amount. I hope you don’t have your own story like this.

I recently spoke to Hayley Mauro, the Head of Commercial Litigation and dispute resolution Partner at Wilson Browne Solicitors and a member of Your Business Matters. Hayley has helped many businesses ensure their security with simple, clear contracts, and she’s given us some advice on setting up contracts, Terms and Conditions, and other business agreements.

Setting Up Contracts for Your Small Business

In our conversation, Hayley emphasised:

“It’s about getting the right foundations in place. You’re not saving money by not doing this properly – the potential costs are so much greater.”

Setting Up Agreements

Verbal Agreements

As I mentioned earlier, many of us get involved in an oral agreement at some point. Agreements like this come with significant risks as they are open to misunderstanding, and any issues will result in disagreements centred around ‘He said…’ or ‘She said…’.

Email Agreements

Agreements arranged over email are better than verbal agreements as the evidence is in writing; however, finding those details or filling in the blanks might be a problem when you need them later. Something more structured is better.

Written Agreement

The importance of written agreements can’t be overstated. A written agreement is the best way to ensure all areas are considered and each party has a record of the plan, but what does your written agreement need?

• Get the basics right. Accuracy is essential; you’ll need to identify all parties involved with full names, business names, and addresses. Checking business details before signing contracts is essential, as you don’t want to be caught out later.
• Clarity is key. Make the language simple, clear and unambiguous.
• Be thorough. Include everything you can think of; while some things may seem unnecessary, it’s better to include things than leave them unknown.
• Make it your own. While it makes sense to do some research when creating your agreement, the final document needs to be your agreement reflecting your business and your needs. Don’t expect the other party to provide the terms – think about what you need.
• Include your scope. What are the deliverables? List everything that is included – and what isn’t! This should include deadlines and dependencies so everyone knows who is accountable and the consequences of any failures.
• Specify payment terms. How much will be paid, when and how? Specifying payment milestones keeps cash flow predictable for both parties.
• Right first time? For creative work, you’ll need to specify how many revisions will be provided, and for products, what happens if things aren’t delivered as expected? You’ll need to consider exceptions.
• Bringing it to an end. Set out termination clauses; under what circumstances might the agreement end early, and how would that be managed?
• Understand your liability. If your agreement doesn’t put a cap on your liability, your exposure in the case of any problem is far greater. It’s important you understand what you’re including and excluding.
• Check what is signed. Having put all this effort into creating a fair and complete contract, make sure the person signing it hasn’t made any changes. They may have questions or suggestions and this is the time to discuss them, but don’t just file the signed document away without checking it’s the same one you sent out.
• To be reviewed. As your business grows and changes, for each new project, and even within an ongoing collaboration as it evolves, there will be many times you need to review the agreement.

Do You Need Help?

Contracts are about protecting your business.

While plenty of online resources and templates are available, making mistakes can be costly to fix later.

In some scenarios, including smaller projects, a well-written template you adapt to your specific needs might be sufficient. As Hayley told us, though, it’s essential to check business details thoroughly and keep reviewing your agreements and terms and conditions as your business grows.

It’s also important to realise that there are certain things that cannot lawfully be capped or excluded when you are seeking to protect your business. You could, therefore, fall into the trap of setting up terms and conditions (or parts of them) that are found automatically unfair if challenged.

If you’re dealing with complex projects or agreements with significant financial implications, consulting a solicitor specialising in business law is recommended as they can ensure your contract fully protects your interests. In fact, as soon as you are able, asking a professional to review your agreements will minimise the risks for you, whatever the agreement.

Signing Your Name

Of course, sometimes you’ll be asked to sign someone else’s agreement – a contract that has been designed around their needs.

Make sure you have read it thoroughly and understand exactly what you’re signing. If it’s complex or you have any concerns, you can ask your solicitor to review the agreement before signing it.

Be prepared to question the agreement and ask for amendments if necessary; it’s much better to have these conversations before the work begins.

Don’t Let Small Costs Lead to Big Problems

So, here are Hayley’s top tips for setting up contracts for your business:

1. Check – and recheck – the basics
2. Be thorough
3. Keep reviewing and updating your documents
4. Check what has been signed

Grow your business with the right support

The potential cost of a poorly written contract, or no contract at all, can be far greater than the investment in getting it right. Setting up clear agreements protects your business, encourages trust with your collaborators, and keeps you on track for business success.

Thanks again to Hayley Mauro of Wilson Browne Solicitors.

If you’re looking for the right professionals to support your business growth, we can help you build your team and business skills. Not only do our networking meetings give you the opportunity to meet friendly and supportive professionals, you’ll also take learning away from every meeting with our Adding Value section. You can find a group for you, right here.