Let’s face it, contracts are the foundation — and failsafe — for any business operations. When you’re a solopreneur, you have to wear all of the hats: content creator, graphic designer, social media manager, accountant, marketer, website editor …lawyer?
You know you need contracts for your small business but you didn’t exactly go to law school. The temptation to just grab any ole’ contract off of the internet or swipe one from a friend is there, but every legal professional in the world will caution you against going that route. But we see small business owners making mistakes like this all the time, especially when they try to DIY. So here are five common contract mistakes you can easily avoid.
Brew some matcha 🍵 and settle in.
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1. Most Common Contract Mistake: Relying on Verbal or Email Agreements
The first contract mistake we see small business owners make, especially in the creative economy, is relying on verbal or email agreements. *cringe* Even high-ticket transactions often take place in the digital equivalent of the gentlemen’s agreement: the email exchange. Girl, you know better.
There are a few reasons that creative professionals, service providers, coaches, course creators, and other entreprepreneurs make this mistake:
- In the early days, when you’re hungry and hustling, you don’t want to complicate a new client relationship with legal-ese.
- You may be on the opposite end, completely overwhelmed by new clients and new work, and not take the time to get contracts signed and squared away.
- Sometimes, our clients admit to simply being in the dark about where to find contracts, what contracts should say, and how to get them digitally signed.
Establishing infrastructure to support legal client agreements should be a foremost priority for your business. We mentioned that contracts are a foundation, and they really are. You can’t build the sky-high business of your dreams without a solid legal foundation that protects your reputation, your work, and your profits.
In case you fall in the “I don’t know where to start” camp, here’s the basic scoop:
What to Put in Writing
Let’s use coaches as an example. The business coaching, career coaching and life coaching industries, in particular, have grown immensely in the past decade. Women are stepping out in many leadership roles, carving their own paths to success and igniting inspirational impact. 🙌
But, to create the kind of impact you truly want to make, you need to ensure you’re protecting yourself and that beautiful business of yours with legit contracts. At minimum, your contract should address the following:
- Defined roles and a description of the coaching relationship
- Ethics clause
- Confidentiality and non-disclosure agreement that protects materials, exercises, coursework, and anything else that is the coach’s intellectual property
- Services, including method of communication
- Schedule for services
- Fee structure and invoicing plan
- Late fee policies
- Schedule for fees
- Information release
- Cancellation policy
- Record retention policy, if applicable
- Termination terms and clause
- Limited liability clause
- Dispute resolution clause
- Severability policy
- Additional waivers
Sound like a lot? It may be that you’re starting to see potential gaps in your contract which has previously left you uncovered as a coach.
Of course, the components above apply to almost every service provider, not just coaches.
The point is this: you spend a lot of time building your business, developing methods, writing materials, and killing it in the field. All of that work, left unprotected, is truly vulnerable. Get a written contract. Get it signed. Verbal agreements or the classic “we agreed over email” simply isn’t enough.
2. Second Most Common Contract Mistake: Ambiguous Terms and Boundaries
While we hope the, “you need an official contract” message came off loud and clear, keep in mind that not all contracts are created equal. A well-drafted contract is an important risk management tool for your business. Even well-written contracts, however, can contain ambiguous terms that leave creative business owners and freelancers open to legal issues.
A contract can be considered ambiguous if the contract is reasonably subject to more than one interpretation. Usually, this means that a specific word, term or phrase is vague and it’s unclear what the parties intended. By way of example, if you’re based in the US and your client is based in Canada but your pricing refers to “dollars”, this term could be considered ambiguous. Are you referring to US dollars or Canadian dollars?
Oftentimes, you may be able to resolve ambiguous terms with your client but, if you’re unable to agree amongst yourselves, your client may bring a legal contractual dispute. Absent any evidence of fraud or misrepresentation, a court will allow the parties to rewrite the contract to resolve the ambiguity.
Most courts, however, will resolve the contractual dispute ‘against’ the party that drafted the contract meaning that your client will likely benefit from the court intervening. This is because the court presumes that the party that drafted the contract may have more knowledge and bargaining power than the other party. This could lead to unnecessary hardship for the party with the greater bargaining power i.e. you!
Ambiguity around boundaries can add another layer of complexity. For illustrative purposes, let’s stick with the coaching industry: coaches are inherently unique, bringing their personal strengths and knowledge to one-on-one or group coaching experiences. This is great for the recipients, whose lives are often transformed by the program, but also challenging when it comes to defining roles, defining relationships, and even defining tasks.
As coaching and service providers often offer a more personal touch, boundaries can very easily become blurred. Demanding clients can drive the relationship the wrong way or take advantage of a contract that doesn’t limit or prohibit certain behaviors.
When a contract doesn’t clearly delineate the terms of the working relationship, including the boundaries of what will or won’t be provided for or allowed, you’ll be at a disadvantage. This can quickly deteriorate the relationship, and even present a huge risk for a reputation hit or severing what could have been a beautiful client relationship.
3. Third Most Common Contract Mistake: Not Reading the Contract
I mean, we’ve all done it. We’re installing a new phone app and our eyes start glazing over as we skim through the terms or we don’t bother reading it at all before blindly clicking “I agree”.
What you don’t know can hurt you. Failure to read and understand a contract is not a defense.
Read it. In its entirety. You may allow your clients to weigh in on contractual terms, which is fine. Every time that contract comes back across your desk, and definitely before you sign it, read it word-for-word. You have time for this. You don’t have time to not do this, in fact. Neglecting to read a contract in its entirety is a huge no-no. The time you save by skimming isn’t worth finding out you are contractually obligated to do something far outside of scope, or something super random.
Tips for Contract Review
Every line in a contract requires review, of course, but confidentiality, indemnification, dispute resolution, termination and renewal provisions in particular merit careful analysis. Here’s a checklist to help you navigate your way through the review process:
- Key clauses and terms
- Identified parties
- Blank spaces (seriously, like a missing date or definition)
- Termination terms
- Renewal terms
- Intellectual property clauses
- Default terms and remedies for default
- Fee structure and schedule
- Late fee penalties
- Significant milestones such as dates and deadlines
- Warranties and limits of liability
- Dispute resolution
- Governing law
In a contract review, you also need to be on high alert for anything that may be missing. This may be case-specific or industry-specific, but we recommend that you pay attention to things like a non-disclosure agreement or confidentiality clause, logo or brand use, and scope of work parameters.
If you’re not sure what your client contract should include, we’ve put together this free Client Contract Checklist so you can ensure your contract covers all your legal bases.
4. Fourth Most Common Contrast Mistake: Failing to Negotiate
Even if your vibe is introspective, creative, and super chill, negotiations should be at the forefront of every contract you enter into – whether it’s with a new client, a new vendor, outsourcing to an independent contractor or bringing on your first employee. Don’t be afraid to step up and advocate for yourself during the contract negotiation process. You have more bargaining power than you think!
Like it or not, contract negotiation is a vital part of business communication. It’s tempting to want to rush through the negotiation process so you can roll up your sleeves and jump straight to work but this can lead to broken contracts, damaged relationships, and yep… lawsuits.
We get it though – negotiations can be frustrating and time consuming. Even if this doesn’t come naturally to you, failing to negotiate terms may have major consequences. You could risk getting stuck in a work relationship that exceeds your comfort zone, which is not a great way to live or operate.
The good news is that it can be an opportunity to help you drive better outcomes, reduce misunderstandings and set reasonable expectations. This is how great partnerships are built.
If you begin with the end in mind, you can turn your contract negotiations in a way that tips the scale in your favor. If you need to counter with different terms, you can do so in a winning way:
- Know your deal-killers: there will be things that you can’t, and shouldn’t, budge on. Have that list in mind before you negotiate.
- Know your value: any industry has market rates for talent; you’ll be more confident during negotiations if these numbers are well-researched.
- Assess potential liabilities and risks: consider unforeseen costs and the potential for something to go wrong. You’ll want to negotiate fair and equitable penalties.
- Understand contract clauses: knowledge is power. Understanding the purpose of the different contract clauses can help you get a better grasp of any agreement you’re negotiating.
- Become familiar with applicable laws: depending on your contractual terms or if you’re doing business with someone in another jurisdiction, you’ll want to become familiar with the laws that may apply to your contract so you can ensure you have everything covered.
- Prepare for questions: anticipate any questions that could be raised to help the negotiation process go quickly and smoothly.
- Be firm: how you negotiate a contract could set the tone and tenor of your working relationship. You don’t have to be ugly but you do have to be resolute.
- Negotiate like a business: be mindful of the way you present yourself and your business during negotiations. Adopt a collaborative approach to your negotiating style and avoid complicating the process with emotions. Let’s keep it strictly profesh, shall we?
Negotiations can reveal a lot, both about yourself and the other party. If it becomes contentious or frustrating, hit the pause button and consider the long-term ramifications. Don’t let yourself get rushed into anything and feel like you have to appease the other party. You shouldn’t feel you have to sign a contract if it doesn’t align with your goals.
5. Fifth Most Common Contract Mistake: Not Doing Frequent Contract Reviews
Here at The Legal Godfairy, we’re out to reframe the way people look at contracts. Most of the people we encounter see contracts as a one-and-done; a document that gets signed and put away. Rather than seeing contracts as a “necessary evil,” we urge you to think of them as living, breathing documents.
Contracts should be regularly reviewed. Things change. The market changes, and your own business will evolve as circumstances shift. The contract you sign on day one with a new client may not be the right contract five years, or even five months, from now.
Frequently reviewing your contracts allows you to improve the contractual terms based on lessons learned, to correct something that was previously overlooked, or to reflect updated regulations or guidelines that may have evolved since the contract was originally drafted.
Although an annual review is a safe default, it may be wise to revisit certain agreements more frequently depending on the nature of the contractual relationship. Here are a few blanket suggestions to optimize and refine terms on a regular basis:
- General Business Contracts — such as non-disclosure agreements or lease agreements should be reviewed periodically to ensure that economic terms remain competitive. Many important contracts will have expiration dates or renewal deadlines. You’ll want to check that each of your most important business contracts will continue or you can use any renewal opportunities to renegotiate as needed.
- Client Services Contracts — as these specifically spell out your responsibilities and liabilities with your clients, we encourage you to be proactive and review your client services contract per project, including any renewals.
- Independent Contractor Agreements — otherwise known as a freelance contract agreement outlines your relationship with anyone who is doing work for you under contract. You’ll want to ensure you’re getting appropriate value when contracting for professional services and because the law is in flux when it comes to classifying workers as “employees” vs “independent contracts”, independent contractor agreements warrant additional oversight.
Find Quality Contracts Online
Contract mistakes, and not just these five, are common. Whether you’re a career coach, a copywriter or a graphic designer, you probably didn’t get into business to deal with snooze-fest legal procedures. And yet, if you are going to be successful, you do have to take care of this aspect of your business.
In the interest of taking this work off your plate, we have contracts you can purchase and quality resources you can rely on. You’re in the business of making your own kind of magic: our business is to help you do that so count on The Legal Godfairy to cover the legal side of your vision.