Confused by Contracts? How to Build Clear, Calm, and Confident Agreements

Please note, I am not a lawyer and this should not be construed as legal advice. These are only general recommendations.

Self-employed businesses often have a lot of questions about contracts. Most of them start with a fair amount of trepidation. Contracts can feel like a very formal or even icky document. A non-zero number of us have felt trapped or screwed over by a contract in our personal lives. Why would we want to propagate that damage? 

We might try to get out of needing a contract by rationalizing. If you're working with a friend or a person you respect highly, do you really need a contract? If you've already been working with a client for years, it can feel awkward to ask them to sign a contract. You might even be afraid that if you put it in writing, it'll inspire them to quit you. 

Let's start by reframing what a contract is and isn't. You can call it a contract, agreement, scope of work, or informed consent; we're talking about the same thing. It's putting into writing how you and your client will work together. This document absolutely does not exist to trap the other person in the arrangement. Yes, some contracts are crafted that way, but yours doesn't have to be. In fact, it should include an exit strategy! The terms of the contract exist to protect both you and your client. There are three key things a contract needs to achieve: documentation, clarity, and legal protection.

Documentation

The risk of a verbal or casual agreement is that each party's intent is not documented anywhere. Let's pretend you and a friend decide you're going to produce a widget for them. You both agree on a price and a timeline, but no one writes it down. Human minds are crap at remembering things, and we tend not to be aware of how crappy our memories are. When it comes to the end of the project, how will you be sure you both remember the same things? What happens if you remember a different dollar amount, a different end date, or differences in the end goal? ...well, it sure would be nice if ya'll had written all that down and could refer to it instead of going off memory!

The most important aspect of a contract is that it's written down. I don't care if it's on a napkin or in an email, signed or unsigned. If some level of terms are stated in black and white and both parties agree to them, you're over halfway there! This written record is key to preserving a positive friendship. When you disagree at the end of the contract, we can look back through our records. We'll see that, oops, we did agree to that, check our emotions, and try to right the ship. 

Clarity

The next biggest impact of a contract is getting specific and clear about the terms of the agreement. Let's use this friend you're producing a widget for. Let's say you do document. You put in an email that you'll produce this widget by the first of the month, that it should take 10 hours of work, and you'll get paid $200. If all goes to plan, then you're golden. But nothing ever goes to plan. What happens if it takes longer than 10 hours to produce the widget? Do you stop after 10 hours? Do you complete the project anyway because that's what you agreed to? Do you get paid an additional $20 per hour to complete the work? Or is it more or less than that per hour? 

These questions are why an agreement benefits from being thought through. And this is why a template for a contract is so long and has so many sections! The contract wants to capture a plan for every possible failure (or success!) scenario. If the widget becomes the next Labubu, do you get royalties from it, or is it only that first $200? 

Legal Protection

From my perspective, this is the least important aspect. Yet this is where most new business owners focus. Self-employed businesses care about their work and are well aware of when a client is unhappy. You're going to be taking action to prevent any issue from becoming a legal matter. The chances that things will go so poorly that you'll need to leverage a contract's legal protection are very, very slim. If the terms are thorough and it's in writing, you don't actually need a judge to make a decision. In fact, it wouldn't even make it to a judge. The first lawyer who looks at it would advise you that there is no case. Plus, we all know lawyers are expensive. None of us wants to involve one. Which is why the first two aspects I cover tend to prevent it from escalating. But. 

The point of a contract is to think through all the possible scenarios, including the worst case. To that end, here's what makes your contract more better, legally speaking: 

• Use a good template or have one customized for you. There are many resources for this. Signature systems, payment systems, CRMs, and EHRs often provide them. LegalZoom will sell you a customized contract for $60. If your client insists on using their contract, please read it and don't be afraid to negotiate the terms. And when in doubt, consult a lawyer.

• Have it signed by both parties in a legally binding way. This is not expensive or difficult! Google Workspace now includes digital signature features. Dropbox Sign offers 3 free signatures per month.

• Keep it stored somewhere you have easy access to it. Google Drive, OneDrive, and paper are all equally valuable, but only if you can find it when you need it! 

Lock. It. Down. 

Consider this your sign to take the contract bull by the horns! You'll be LEAGUES better off by merely documenting with clarity. Think of it as putting into writing how you and your client will work together. (Or "have been" in the case of those clients you've already had a relationship with.) A clear written contract provides safety for both of you. It's so that both of you understand what you're agreeing to. And then slap a signature on it for good measure! If that's an overwhelming place to start, take the first next step. You can strengthen your efforts over time.

Interested in learning more about key parts of a contract? Check out Contracts 101 in The Launch Pad.