Contracts are incredibly important for small business owners. Because of their importance, I’ll be talking all about contracts for the next few episodes of the show.
In keeping with my mission to simplify legal, I’m not going to get into the highly legal side of contract formation. My goal for this particular series is to tell you about the different types of contract terms, so you’ll not only know what you want in your client agreements but also have a better understanding of what to look for in other contracts you enter on behalf of your business.
Today, however, I’m starting with a bigger question: when do you need a contract? The answer: it’s probably more often than you think. In addition, I define a contract, tell you the reasons why business contracts matter, and go over any terms or sections you should include in each type of agreement I cover.
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In this episode:
[02:12] – Before revealing when you need a contract, Danielle discusses what exactly a contract is.
[02:57] – Contracts can take other forms even if typical ones are signed by the parties involved.
[03:33] – A good contract should set out so much more than just the payment terms.
[03:52] – Danielle quickly reviews six reasons why business contracts matter.
[06:02] – Client agreements are among the most important foundational documents for a service-based business and should include these provisions.
[08:07] – As a blogger or influencer, you’ll want a lot of the same terms in your sponsorship agreements.
[08:36] – If you have team members, you need a team agreement. Different terms apply for independent contractors and employees.
[10:49] – Vendor agreements often overlap with a lot of the clauses Danielle previously discussed.
[11:38] – With speaker agreements, look carefully at compensation since it varies greatly across different events.
[12:59] – Keep these two big, recent trends in mind for any speaking agreements you create or sign.
[13:49] – Danielle addresses the last contract category which isn’t that common for all businesses but still worth mentioning.
[14:39] – Danielle lays out the action steps for today.
Links & Resources:
- “Protecting Your Business: Six Reasons Why Business Contracts Matter”
- Episode 004: “How to Protect Your Website”
- Episode 005: “How to Protect Your E-Commerce Website”
- “Independent Contractor or Employee? A Guide for Online Business Owners”
- Businessese on Facebook
- Businessese on Instagram
- Liss Legal
- Liss Legal on Instagram
Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.
Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.
If you've ever felt legal was too scary, too overwhelming, too complicated, or just plain incomprehensible, you're not alone. The Simplifying Legal podcast was created to help.
In each episode, we’ll do a deep dive into a legal topic and give you concrete next steps so you can apply it to your business.
My goal is for you to walk away from each episode thinking, oh, that was easier than I thought it would be.
Let’s get started.
Hey there, I’m Danielle Liss and welcome to Episode 8 of Simplifying Legal. In our last two episodes, we looked closely at legal for each stage of your business and legal strategy. Now we’re shifting gears to talk about contracts. Contracts are incredibly important for small business owners. Because of how important they are, for the next few episodes, we’ll be talking all about contracts.
My goal for this series is to talk through different types of contract terms so that you know not only what you want in your client agreements, but also to give you a better understanding of what to look for in the other contracts you enter on behalf of your business.
Today, however, we’re starting with a bigger question: when do you need a contract? And my answer is that it is probably more often than you think.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
Okay, now let’s talk more about contracts.
Contracts for Your Business
Before we talk about the answer to WHEN you need a contract, let’s talk about exactly what a contract is. I’m not going to get into the highly legal side of contract formation, although if you want to talk about offers, mutual assent, adequate consideration, or performance, I’m happy to do so any time. Since the goal of this podcast is to help you simplify legal, let’s concentrate less on legal theory and more on the parts that matter most to you.
As a small business owner, here’s what you need to know. A contract is an agreement between 2 or more parties that you want to be enforceable by law. In some cases, a contract can be spoken, but for our discussion, we’re focusing on written agreements that are signed by the parties.
Even though the most typical contracts are signed by the parties, contracts can take other forms. One of the easiest examples are website terms and policies. There, you might be clicking a box to say you agree prior to making a purchase. Or, by using the site, you are agreeing to the terms. But, even though there isn’t a signature, it can also be a legally binding contract.
So, if you’re a strictly e-commerce business and no one ever signs an agreement before making a purchase, you likely still have a contract in place if you have terms on your site and they check a box at the time of purchase stating that they agree.
I view contracts as the best place to lay out all of the terms of a relationship. A lot of times, and I completely understand why, people primarily concentrate on the money. And, yes, a contract is typically where you will set out the payment terms, but a good contract should have so much more.
On the Liss Legal Blog, there’s a post called Protecting Your Business: Six Reasons Why Business Contracts Matter, which I’ll link in the show notes. In any discussion of contracts, I think these reasons are really important so I want to review them here too. Here’s the list I shared in that post:
- A contract helps protect your business.
- A business contract helps define the relationship between the parties.
- A good contract can help manage customer complaints.
- A contract helps create and enforce boundaries. And if you aren’t using your contract to set boundaries, we’ll be discussing this in depth in a future episode. I think it is such an underutilized way to protect your business AND your time.
- It establishes intellectual property rights. And, yes, that’s also a topic that we’ll discuss in future episodes.
- It can allow for better business planning, especially when it comes to budgeting.
Needs for Contract
Now that we’ve defined what a contract is, plus what it can and should be, let’s answer the big question for today’s episode: when do you need a contract.
In the most general terms, you should have a contract whenever something of value is being exchanged between you and another person. Usually, this means money, but it can be other things. It could be a barter agreement that you enter with another business owner to trade services, or for an exchange of something else that isn't money.
For purposes of today’s episode, I’m going to concentrate on the types of contracts you would likely have signed between you and another party. Earlier, I mentioned that things like website policies can also be a form of a contract. If you want more information on policies, I recommend Episode 4 and Episode 5.
Also, I’m going to be mentioning a lot of contract terms to include in the different types of agreements – If I mention something you aren’t familiar with, don’t worry – there is probably an upcoming episode in the contract series where we will do a deep dive into just that type of clause.
Client Agreement and Clauses
First, one of the most important foundational documents for a service provider is your client agreement. A good client agreement talks about money, but it also covers so many other sides of your business.
Common clauses for a client agreement are:
- Payment terms, of course. In the next episode, I’ll discuss the most important pieces of your payment provisions. But generally, you need to know what you’re getting paid, how you’re getting paid, and any other details related to payments, which could include things like recurring payments.
- The term of the agreement, which defines when the agreement is in effect.
- A termination provision that governs when and how to terminate
- Confidentiality – this is a big one and it is so important to know what can and cannot be revealed.
- Depending on what type of work you do, ownership of services can be really important. This comes up frequently for creative service based business owners.
- Exclusivity, if it is needed
- If you offer appointments, include a cancellation policy
- Communication provisions, which help to create boundaries and make it easier for your clients to communicate with you and to set their expectation for response time
- If you work in a field that requires client approval, you can also add something that dictates the amount of time allowed for approvals
- If you are a creative, you may want to include limits on drafts.
- And, most important, a really thorough statement of work. This can talk about timing and specific deliverables. Make sure it is clear what you are doing, and if you need your client to do things too, make sure their responsibilities are also covered.
If you are a blogger or influencer, your clients are often the brands that you work with on sponsored content. In sponsorship agreement, you will want a lot of the same terms that I just mentioned, but usually, some of the important are, are ownership of the content, exclusivity, approval of drafts, what the brand can request edits on, reporting requirements and a really specific scope of work.
The next big category of contracts is Team Agreements. If you have team members, you need a contract. First, you need to know if you are working with an independent contractor or an employee, because you will need different terms in your agreement. This is the subject of a future episode, but if you need more info now, there is a Businessese blog post called Independent Contractor or Employee: A Guide for Online Business Owners that I will link in the show notes.
Next, when it comes to team, many of the same provisions that you have in your client agreement will still be important, like how you are paying your team, how to terminate the agreement, etc.
You will want to carefully consider your confidentiality provisions to ensure that you are protecting your business information. If you are a service-based business owner, will this team member also have access to your client information? If so, does your agreement cover that?
Next, you need to make sure you are protecting your business intellectual property, so get clear on how the team may use it. Also, be sure you are clear on who owns anything created by a team member. If you want that content to belong to your company, make sure you include that in the agreement.
Also, if you are a service-based business owner, address your client relationships. Because, if a person leaves, you may want to ensure that you are protecting your relationships, which is often handled in a non-solicitation agreement.
Some employee agreements will also include non-competes, but rules about these can vary from state to state, so make sure you check local laws so you are including something compliant.
It is also key to ensure that your agreements are clear about who owns your business-related accounts. For example, if you have an in-house social media manager, make sure that they cannot claim ownership of any accounts they manage.
In a future episode, we’ll also talk more about employment agreements and handbooks.
The next big contract type is Vendor Agreements. If you are working with outside companies, you likely have vendor agreements. This will often overlap with a lot of the clauses we have discussed. It’s key to make sure that the scope of work is in alignment with what you expect. Also, make sure there are no other surprise terms, like a hidden non-compete or exclusivity provision.
If a vendor will be using your client information, then it is critical to review their data processing and privacy practices.
Also, depending on what your vendors are doing, you may want to include requests that they have certain types of insurance coverage.
Another common category of contracts are Speaking Agreements. If you are working as a speaker, these are a big part of your business.
It’s important to carefully look at compensation because this can vary. Some events may offer a comped ticket only, while others will pay an honorarium and travel. Make sure you have all of the details covered.
It’s also important to know what will be done with your content. Can people record? Will it be offered in any additional formats?
What type of promotion can you do? In other words, can you sell from the stage? Are any offers allowed?
Next, make sure you cover the logistics and key dates. What tech will you have access to? Should you have slides? What are the key due dates?
Recently, there are two other big trends in speaking agreements. First, due to covid, a lot of events were canceled, postponed, or moved to virtual. Be sure to address how to handle termination and how a situation like this might be addressed. At the time this is being recorded, most events are still virtual, but hopefully we’ll start to see more in-person events coming back soon.
And last, many conference organizers and speakers are looking to include diversity, equity, and inclusion clauses in their agreements. For some speakers, this may mean that the speaker lineup is diverse. For an organizer, it may be that the organizer is providing guidelines for content. An easy example of what I’ve seen here might be to use diverse images in any slides.
The last category I want to address today is Barter Agreements. I don’t think these are that common for all businesses, but it is worth mentioning. If you are bartering for services with another company, it is still important to put something into writing so it is clear what you owe one another. Treat it like you would any other client agreement, but in lieu of payment, list what will be exchanged.
I do want to stress that these are not the only types of contracts you will enter in your business. If you have a physical location, you will likely be dealing with leases or other contracts regarding real estate. You could also be dealing with delivery services, product distribution, or buying the goods that make up your product.
My general rule is if you are exchanging money, or anything else is being exchanged, get a contract. This can help alleviate so many future disputes.
Now let’s talk about today’s Action Steps:
- First, take an inventory of your existing contracts. Does anything need to be updated? If so, take the time to do an update.
- Next, review the many roles within your business. Is anything not covered by a contract that should be? If any agreements are missing, investigate adding a contract.
- For the service based business owners – do you have any ongoing issues with your clients? Whether it is scope creep, boundary issues like non-stop DMs, or cancelled appointments, is it something you can address in your agreement? If so, consider making those updates. I truly believe a strong contract can help you avoid a lot of those problems.
This wraps up our discussion of when you need a contract. Over the next few episodes, we’re going to talk a lot about contract provisions. I’m really excited for next week, when we talk about money and payments. When I started the outline, I was convinced it would be really short, but then I realized I had so much to say about the topic.
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