The Small Business Owner Dreams Big
Small business owners do not create a business hoping just to get by. No one ever started a business saying, “I’m going to risk my home, my family’s income and my personal reputation for the joy of making ends meet.” Small business owners’ dreams are anything but small. Small business owners want to create. Small business owners want to employ others. Small business owners want success and a sterling reputation in the community that draws the envious eye from competitors. The dreams are big.
The Lure Of The Prestigious Client
Many small business owners believe success can come from landing the prestigious client. We have all heard the story of how Microsoft began in a garage and landed IBM as a client. In turn, many small business owners dream of landing that prestigious client. The hope is that the prestigious client will propel them to financial success and because there are few, or perhaps even only one client to satisfy, running the business and remaining profitable gets easier.
That opportunity to focus on the big bucks is a false hope. In desperation to land the prestigious client, small businesses leave themselves exposed to liability even when they are not at fault. These small businesses may under bid fees and find themselves in a profit squeeze and unable to pay bills or worse yet to meet payroll. The trap for small businesses begins by modifying a well-written contract to suit the prestigious client, or worse yet, not having a contract at all, but relying on the handshake deal.
Your Contract Is Your Shield
Your well-written contract is your best shield against large businesses that take advantage of your small business. Often large businesses who use smaller businesses change the terms or make other demands after work begins. It is a wretched thing to happen, but often the small business must comply or risk a huge loss. It feels like a sword waiting to swing.
A contract prevents the prestigious client from holding a sword to your head. That sword is the reality that without a contract, the client is 100% in control of the deal. A well-written contract gives you a fighting chance to enforce your agreements with a prestigious client, even if they have massive amounts of wealth to fight and you have none. The important thing to consider is that the contract you use must a contract prepared for your business, and not just your industry. Your shield needs to fit your business and its unique features.
Drafting the Contract
Drafting a contract to use in your business is like a daring feat. As the old stunt shows used to say, “Do not try this at home.” It is a feat best left to the professionals. Now, that is not to say that any old professional will do. Of course, that professional should be an attorney licensed in the state where your business has its home office. And, that attorney should either have experience in your industry, or at least be an attorney willing to learn the important facets of your business so the contract the attorney writes for you will do the heavy lifting it should.
Taking shortcuts by getting competitor’s contracts and changing the names is a temptation into which, far too many small businesses fall. First, a competitor’s contract may not exactly suit your business. Perhaps that business is based somewhere else, and perhaps the competitor’s attorney based the contract on a different state’s law. Yes, that matters! Second, if you use more than one contract to compose yours on your own, you may insert clauses that are contradictions. Remember, every word in a contract has meaning. If you draft the contract and the language is faulty or ambiguous, the courts will rule against you, even if you are 100% correct about your intent and your customer’s intent.
A Contract Can Somewhat Limit Your Liability
A small business owner may think that the business has protection because it is a limited liability company or other entity. And, that is true, to an extent. But, protecting your personal assets is not the same as protecting your business reputation and winning a dispute. A contract can limit your liability in several ways. First, if you go to court, a contract is enforceable. Second, you can use a contract to stay out of court by including alternative dispute methods in the contracts. If you contract has a well-designed alternative dispute clause, the courts will kick a plaintiff against you out of court until the plaintiff complies with the alternative dispute procedures. Those clauses can limit your liability regarding attorney’s fees and perhaps shorten the time for the dispute. Third, the contract can limit damages for a breach on your part.
A Contract Gives Your Business Credibility
In business, a glowing image and reputation is a powerful asset. A well-written fair contract signifies to a customer, even a prestigious one that you are on top of your business. You are not an upstart risk taker and you are not winging it!
After Due Consideration
Your business is your creation. You want success. You want to do more than just make ends meet. A contract written for your business is a powerful tool in your success kit. It is often a one-time expense and a good lawyer who knows business can help you protect your business, your business reputation and your bank account.
Joseph LaFleur, J.D. M.B.A.
Joseph LaFleur is an attorney licensed in Texas. He is a founding shareholder at Winborne LaFleur PC. He also has a Master in Business Administration.