Contracts Can Protect Your Small Business

November 07, 2012

Running a small business allows you to be more informal and personal, but that doesn't mean you should skip the contract.

One of the great pluses of running a small firm is that it’s a much more informal and personal way of working. You’re likely to be part of a close-knit business community, where your colleagues, and often your clients, may become your friends. But in one aspect it’s important for you to run your small business like it’s a big firm: make sure you write down all the important stuff in contracts. Creating written contracts shows how serious you are about your business, no matter if your daily commute takes you from your kitchen to a desk in your spare bedroom, or if your usual business attire is sweatpants and a T-shirt. These contracts can also help avoid a lot of pain and stress if you ever hit problems. Business is often done on a handshake, but what happens if something goes wrong? Disagreements often arise because people misinterpret each other’s intentions, so it’s important that what each party is supposed to do and what each of you is entitled to is put down in writing. It doesn't matter whether you’re the vendor or the client, having a contract takes the guesswork out of a business arrangement.

If you begin to hire staff, then it’s essential you provide them with a proper employment contract. This contract should lay out in plain English exactly what you expect them to do and what may happen to them if they fail to live up to those expectation, including what the procedure is if you have to let them go. Having a contract can help protect your business if a former employee ever sues you for unfair dismissal. Even if people only work for you for a short time, it’s essential you give them a contract. You need to have a contract with part-time workers and contractors for them to be covered by your firm’s professional liability insurance. This will help start the process for your insurer to pay for your defense if you’re slapped with a lawsuit from an unhappy client because of a mistake they made. If you’re a first timer you may want to go to an attorney to help you draft contracts. There are also websites that provide free libraries of sample contracts that you can download and use as a template. Having a clearly written contract can help you avoid messy and costly lawsuits. If you become embroiled in a court case without a contract then you’ll be pinning your hopes on the judge finding you a more credible witness than your opponent. It’s much easier (and cheaper) to win a lawsuit if you have a contract which the judge can read to understand what everyone’s real intentions were.