Why do I need to use a contract for my business?
Contracts are one of the most important priorities for any business owner. What types of contracts you’ll use, how often, and when to use them depends on what type of business you have. But one thing is certain: all business owners need written, lawyer-drafted contracts to protect themselves.
Why are contracts important for business?
To provide you, your business, AND your client (or business partners or collaborators), with protection! Contracts provide a written document that outlines the extent of your business relationship and the full scope of the work carried out throughout a period of time. Your contract will help set boundaries, manage expectations of the other party, and reduce miscommunication that often causes misunderstandings and at times, leads to legal trouble.
You absolutely should not forego using a contract when you’re exchanging services for money. Even if you’re working with someone you know and trust because you never know what may happen. Even if you don’t think your business is big enough to be worth the “expense” of purchasing a contract from a lawyer, you should still do it. All businesses need to be legally protected, and even small businesses are not immune from costly legal problems.
Contracts give you protection and something to refer to when disputes arise and make solving them a lot quicker and easier since there’s a paper trail to point back to.
What are the main reasons people need contracts?
There are so many reasons why contracts are essential to have… but the main one probably comes down to payments (specifically, not getting paid or a client asking for a refund). The first thing I ask when people approach me with problems like this is always, “What does it say in your contract?” Because having vague wording, or no contract at all, makes resolving these issues much harder.
It benefits you to be as detailed as possible about payment terms, down to when payments need to be made, what method the client will be charged (eg. Stripe or PayPal), and even what happens when the client’s card fails - do they have a certain amount of days to fix it and try again? It’s also important to establish whether a contract immediately ends after a failed payment, or if you revoke access to anything (like course modules for example) until the problem is resolved.
Another common problem that comes up is expectations between the client and the coach/contractor. If you DIYed your contract, or downloaded one that wasn’t drafted by a lawyer, there may not be any clauses or details about what exactly a client can expect from working with you. And when things are unclear, a client may start demanding more from you, such as more frequent meetings, messaging you around the clock, requesting more course materials or resources, or expecting quicker turnaround times. A good contract outlines very clear expectations about what is expected of each party. This is where you set your BOUNDARIES! You’re a business owner now, it’s time to enforce those boundaries.
How detailed should my contract be?
Contracts are all about the little details that go into them. I always encourage people to be as detailed as possible in their contracts about what is expected of everyone.
For example, if you’re a coach, don’t just write: “3 months of coaching” - explain clearly what that 3 month coaching container includes. Something like “1x 60 minute session per week, Voxer access with a 24hr response time through Monday - Friday 9am - 5pm” makes it clear what a client expects from you, and helps you set clear boundaries with them.
If your client is paying you by payment plan, you need to be clear about this too. Make sure the language specifies the entire amount they owe, how much each installment is, how often the client needs to pay, and via what method. For example, “The client authorizes $1800.00 USD to be paid via Stripe, in three monthly installments of $600 each, due on the first of each month.”
This can tie together with your refund policy. It is usually okay to have a blanket ‘no refunds’ policy, because at least that’s clear. But if you’re someone who’s open to partial refunds or a refund after a set amount of days, this is something that needs to be really clear in the contract, including how someone would go about requesting a refund. Don’t end up like a deer caught in headlights when a client asks for a refund. It’s not about if it happens, it’s about WHEN it will happen. That is just the reality of owning a business. Be prepared.
You should also have a clause about your intellectual property, and what the client can or cannot duplicate and share - this can be anything from content, to course materials, to log in details. Having this clause will help you handle anyone sharing your intellectual property, because you can direct them to this part of the contract, and that is usually enough before taking legal action.
If my client and I make changes throughout our working relationship, do we have to draft and sign a whole new contract every time?
It can depend on the person and situation. If both parties agree to the changes, usually there is a clause in your original contract that states modifications are okay as long as it’s in writing.
Do I need a lawyer-drafted contract? Or can I just write one myself?
I always recommend not drafting a contract yourself or finding a random template from Google. Because depending on the type of work you do or the niche you’re in, these DIY contracts probably won’t have all of the little details that account for all of the ‘what if’ scenarios. Because even if you have 20 clauses in there - 10 of which are usually boilerplate clauses that all lawyers put in contracts - you still may not have information that will actually protect you and your business.
FYI: do not use your coach’s contract that she gave you either. If she got it from a lawyer, that lawyer gave her 1 license to the lawyer’s intellectual property. Not a license to sell or share it with anyone else. If you want people to respect YOUR intellectual property, respect others as well.
What contracts or templates should I invest in before starting a business?
You don’t need to overwhelm yourself by buying every single contract right away when you first start a business (unless you have the means, in which case, bundle and save). However, there are three important ones that are worth purchasing to cover your basic essentials:
The first contract I would invest in - which we’ve covered in this post - is a client contract. Depending on what kind of services you’re offering, this could be a client contract for consulting clients, coaching or guest coaching, or an independent contractor agreement if you are the contractor for someone else’s business.
The 2nd most important is a privacy policy for your website, as it’s required by law. Even if no one is filling out a form on your website, you’re still collecting their browsing cookies (for website analytics, for example), which means you are required to have a privacy policy to comply with various privacy laws around the globe.
Finally, website terms of use are good to have on your website early on, because though not required by law, it promotes transparency between you and visitors (and potential clients) on what your policies are. Terms of use usually include a refund policy, governing law (eg. where disputes will be handled), disclaimers... it’s essentially a space to be clear that you’re not making any guarantees (eg. that they’ll make a $X amount of income in a certain time or obtain a certain result just from working with you).
All other contracts can be bought over time as and when you start growing and scaling your business. My Coaching Starter Kit is perfect for those just starting out because it contains a client contract, privacy policy, website terms of use, AND another contract we haven’t mentioned: digital product terms and conditions (for passive products like templates, workshops, ebooks or courses), plus a detailed instruction booklet on how to easily tailor them to your business. It’s an easy way to have legally sound contracts without having to spend hours on research, or spending thousands on hiring a lawyer to draft custom contracts for you!