Contracts are a part of every business, but they are especially important for service-based businesses. Most people dread contracts and think of them as a burden. They can be seen as scary, overwhelming, technical, boring and costly. Some business owners try to avoid them altogether and prefer to do business the “old-fashioned” way – simply with a handshake. Some business owners use a form contract just as a technicality – to get it done and check it off, regardless of what the contract actually says. Many business owners think that a contract is only important if things go wrong.
If you’re one of those business owners, I’m going to challenge your thinking on all of that.
Of course, contracts are business tools that should be used strategically and thoughtfully. But contracts are really just relationships – relationships with your customers and clients, your employees and contractors, your vendors and suppliers, your business partners and your service providers.
If you plan to be successful in business, you must have good business relationships, right? After all, who is going to hire you to provide them a service if you don’t have a good relationship with them? And who is going to help you to provide those services without having a good relationship in place? Whether inside or outside of your business, building good relationships with people is the key to success.
So I want you to start thinking about contracts as written relationships. They need to be good ones. They should set out what the relationship is, explain expectations, set obligations, and help to avoid misunderstandings. Everyone likes to know what to expect in a relationship and a well-written contract can help put people at ease. By setting out the details in the relationship, it can help to build trust right from the beginning.
There are two types of actions that a business owner takes: actions to move a business forward (Building) and actions to deal with issues that have happened in the past (Clean-Up). A contract helps with both.
Clean-Up: Most people see contracts as providing security in case things go wrong. That is certainly one of its benefits. If you have a good contract, it can help you clean up a mess. It can help you to enforce your rights, make sure someone performs the deal, and provide you with evidence if you need to resort to court action. Those are all great benefits. But it rarely comes to that, does it?
Building: We think the most important benefit of a contract is what it can do on the front end of the relationship. There’s some marketing appeal that can be done here and some ground rules established for a successful relationship. Here’s how we see that contracts can be a great tool to grow a business (and not just protect it):
IMAGE. If you’re providing the contract, it needs to show who you are and how you do business. Hopefully, it’s not sloppy, confusing or contradictory. You want to give someone the impression that you are a stable, respectable, established, knowledgeable and trustworthy business.
TRUST. A contract should be straightforward and honest. By stating exactly how the relationship will work and having clear terms that are understandable, trust can be established right at the beginning. That trust can then generate a good working relationship and increase the chances that the deal will be successful.
TONE. A contract can set the tone for a relationship. It can create angst, or it can create confidence. If there aren’t many terms spelled out in the contract and many issues are left open, then the tone of the relationship may be uncertainty. If the language and provisions are highly formal, then the tone of the relationship may be distant. If the language is optimistic and honest, then the tone of the relationship can be positive.
MOMENTUM. Why are you entering into the deal in the first place? Because you want something to happen. A good contract increases the chances of that thing happening. It’s spelled out in writing – which has a psychological effect on its importance. It’s also good for alleviating misunderstandings – at the beginning when the relationship is getting started and later if someone “forgets” or remembers something differently.
So here is how I’d like for you to start thinking about using contracts:
- To establish a good relationship at the beginning.
- To show you know how to do business.
- To establish trust and reliability in your business relationships.
- To answer unspoken questions about how things will work.
- To create dependability in your business.
- To set a positive tone for how you will work together.
All of those benefits are just on the front-end of the relationship. Now add all of the usual reasons why people use contracts:
- To protect the business if something goes wrong.
- To use as evidence of the arrangement.
- To create remedies if someone acts badly.
- To give options for dealing with messes.
So no more dreading contracts, ok? Use them strategically to grow your business as well as to protect your business. Think of them as two for the price of one. Create good ones and have good relationships as a result. Good relationships in business increases the chances that people will do business with you again in the future and encourage others to do business with you as well.
About Elevate Business Law: At ELEVATE, we help business owners do risk assessments. We aren’t coming from a “no risk is good” perspective because we know that some risk is necessary in business. Our main goal is to help business owners avoid unnecessary bad risks and make better business decisions.