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What role does your contract play in your service-based business? This might be something you haven’t really thought about. So often contracts are viewed as just a necessity, stating the terms or protecting the business in case a client relationship sours.
While contracts are something you should have for your business, I don’t think entrepreneurs use them to their full potential. In this episode, I want to expand your thinking about contracts and discuss how they’re an underutilized tool service business owners can use for proactive problem-solving. I cover how I apply this in my own business for clients and discuss how to use your contract to solve issues that come up surrounding payment, communication, and scope creep.
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In this episode:
[02:41] – Contracts serve as a tool to proactively troubleshoot issues with clients. Danielle discusses what that looks like in practical terms.
[04:16] – Danielle shifts focus to types of problems you can solve with your contract before they arise, starting with payment issues.
[05:21] – Many service business owners also use payment terms to ensure that this scenario doesn’t happen.
[06:39] – Potential problems can arise related to communication issues.
[07:18] – How can you set proper expectations about communication with clients in your contract?
[08:18] – Danielle talks about another potential problem area similar to communication issues: non-responsive clients.
[09:42] – Having backup contact information can be a way to solve a lack of communication problem between you and a non-responsive client.
[10:16] – Danielle addresses scope creep, a common issue for many service-based entrepreneurs.
[11:55] – What’s the best way to ensure scope creep doesn’t happen? Here’s a simple solution and how to enforce it.
[12:48] – Danielle wraps up the episode with some action steps.
Links & Resources:
- Episode 9: “Contracts: Money & Getting Paid”
- Episode 28: “Managing Drafts and Client Approvals”
- Episode 38: “How to Avoid Scope Creep”
- Liss Legal
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. Welcome to Episode 54 of Simplifying Legal for Small Business Owners. Today, I’m talking about how to solve problems with your contract.
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 doesn’t create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
How Do You Use Contracts?
If you’re a service business provider, what role does your contract play in your business? And, I totally understand – this may not be something you’ve really thought about. Contracts are often viewed as something that has to be done—and little more.
To be fair, I do agree with part of that sentiment. Contracts are something that you should absolutely have in your business, but I don’t think that we use them to their full potential.
For many businesses, the client agreement is there to dictate payment amount, a listing of deliverables, and what happens if things go bad in the relationship. It’s viewed as a way to protect your business in case something goes wrong. I am hoping to expand your thinking so that you can see contracts as an underutilized tool for proactive problem-solving.
Use Contracts to Proactively Solve Problems
In today’s episode, I want to look more closely at client agreements for service business owners and how you might be able to use them a little bit differently.
Your contract is a legally binding document that sets the terms of your relationships with your clients. It can cover so many areas of your client relationships.
When it comes to contracts, remember that your agreement is a tool that gives you the ability to proactively troubleshoot issues that may arise with your clients.
I want to talk for a minute about what this looks like in practice. In past episodes, I’ve talked a bit about my work with service business owners through my law firm, Liss Legal. When I initially meet with a client about contract revisions, I ask what terms they know they want to cover. Then, once I know what they want to include, I ask about problems that they’ve had in the past with clients. This allows me to spot other potential areas that we may want to address and we can create the foundation for how the business owner would like to see the problem resolved. Of course, depending on the type of business that they have, I may be able to make additional recommendations based on problems I’ve seen come up for other similar business owners.
Once we have an outline of those necessary terms, it’s easy to talk through the potential solutions that they want to include in their client agreement. Then, when the issue arises, it definitely cuts down the stress of not knowing the answer. The contract has been drafted to consider how to address the situation.
Remember, your contract isn’t just there to be admissible in the event of a dispute. It can also be used to proactively avoid disputes by putting policies into your agreement.
Problems You Can Solve with Your Contract
Now, I want to shift my focus to some of the types of problems that you can proactively solve with your contract. Of course, there are many areas that you can include, so this is an overview to help inspire you as you consider your own agreements.
First, let’s talk about payment issues. Most contracts that I see address payments. This might show the total amount that is due under the agreement. And this is a good start, but it doesn’t give you a ton of protection. You need it to say more, Probably a lot more than just the total amount due.
To protect yourself from payment issues, there are a number of things you can do.
First, get specific about the payments.
- How do you get paid? Is there an invoice issued or are there other steps?
- When will you get paid? Make sure you have references to due dates, such as due 30 days after the invoice is issued, which is often listed as net 30.
- If you work with international clients, is it clear that the payments should be made in US dollars?
Many service business owners also use payment terms to ensure that they aren’t collecting money after the work has been completed. This may mean that ongoing work is pre-paid or that you are collecting a deposit or payment in full before starting the services.
If this is the case, you can ensure that your contract is clear that you will not start the services until the payment is received.
Next, you can address what happens in the event of a late payment. You can reserve the right to stop the services. You can also add a late fee to the agreement.
If you have ongoing services with automatic payments, you can also include guidelines about the client’s responsibility to keep their payment information updated. Then advise them that the services will stop until payment is received if they don’t update.
These are just a few of the ways that you can solve payment problems in your agreement. But, the more specific you can make the term to address potential situations, the more protection you are giving yourself if the issue arises.
If you want more information on payment provisions, I recommend you check out Episode 9 on Contracts: Money & Getting Paid.
Now, let’s talk about the potential problems related to communication issues. I feel like this probably wasn’t as much of an issue for business owners 25 years ago when cell phones weren’t as ubiquitous. Although, a virtual high five for everyone who remembers the joys of pagers.
Oh, how, things have changed. There are so many different ways to communicate and sometimes people expect a nearly instantaneous response. And, if a client feels like you are ignoring them, that can potentially lead to an unhappy client, which is something all service business owners want to avoid.
If you want to set proper expectations about communication, add something to your contract to address this. Typically, this will include what communication channels you approve and approximate response times. If you only take phone calls that are pre-scheduled, you can include that too.
For example, for confidentiality reasons, I don’t take accept any confidential information from my legal clients via DMs. I also let my clients know that it will potentially be 1-2 business days for a response, although I certainly try to respond faster.
If you have a larger team and you’ll have a particular contact that the client will deal with, you can also address this in your agreement.
I think most communication issues come up because they weren’t addressed from the start. When you initially include these terms, it helps you to avoid any misunderstandings.
The next potential problem area is similar to communication issues and that’s when communication isn’t happening. Yup, I’m talking about non-responsive clients. What happens if your clients aren’t responding to you?
This can be especially problematic if you are a creative service business owner and you are not getting a response with feedback on drafts. That type of delay can stop a project completely until you hear from your client.
How can you solve this? Similar to how you include communication guidelines, you can also discuss how long you generally expect it to take to receive a response from your client. If you’re dealing with drafts, you can also have a section on draft management, advising the client that they will be responsible for giving you feedback at certain points of the project. Don’t be afraid to give your clients deadlines, if needed.
Depending on your business, you may also want to include the ability to pause services if the client doesn’t respond within a certain period of time. In that case, state that all responses are due within a certain number of days and if no response is received, then you reserve the right to stop work.
In some cases, you may want to include a restart fee if you have to pause a project due to a lack of response.
Another thing to try in your contract is to get backup contact information. Make sure you have an email for your primary contact, but if there is a secondary person on the team, get their information too. I also think it’s a good idea to make sure you have all the phone numbers and an address. Sending a letter is usually a last resort for online businesses, but it can be very effective.
If you’d like more information on managing draft and client approvals, check out Episode 28: Managing Drafts and Client Approvals.
Next, for the last issue, I want to address scope creep before we move to action steps. Scope creep is a common issue for many service business owners and it happens when the deliverables for an agreement increase without a commensurate increase in payment.
For example, scope creep can happen when a client keeps asking you to do just one more small thing. But the compensation doesn’t get adjusted to include those small things. This can be really difficult to manage and it has a big impact on your revenue.
If you’re a service provider who works on an hourly basis, scope creep may not impact you as much. Because if you’re asked to do certain tasks, you bill the client and get paid for it. But, scope creep still can happen if you are asked to take on certain tasks that you aren’t supposed to be doing within the scope.
In any case, you can begin protecting yourself by ensuring that you are including a specific and detailed scope of work with your agreement. For some businesses, even if you do hourly work, you may also want to include a section on the type of work that is not included. This has worked well for some VAs who offer different services at different rates. For example, if you do calendar and email management at one rate, but it’s another for social media management, then you can state, this rate does not include any services but those listed in this scope.
The best way to ensure that scope creep doesn’t happen is to address how to handle changes to the scope in your agreement. This is often done with a simple clause that states the agreement is limited to the services in the scope and that an estimate will be provided for any work outside of the scope.
For many business owners, this is easy to include in the contract, but it sometimes feels hard to enforce when a client asks for something outside of the scope. Instead of saying, “no, I can’t do that because it’s outside of the scope,” you can respond with something like, “I love that idea and I’d be happy to help with it. Since that’s not part of our scope, here’s an estimate for the cost.” Or, if you simply don’t provide the service, you can always let them know and refer it out to another trusted provider.
If you’d like more information on this, check out episode 38, How to Avoid Scope Creep.
This wraps up my discussion of how to use your contract to solve problems. Now let’s talk about today’s action steps.
- Before you think about making any changes to your contract, I want you to consider the problems you’ve dealt with in your business. Whether it’s been issues with boundaries or managing drafts, make a list of things that have come up. You can also consider clients that you didn’t like working with. What caused any issues? But, remember, a bad personality is not something that can be fixed with your agreement. But if there were particular actions, include them on your list.
- Next, think about the worst-case scenarios. Where could things go wrong with your clients? What would be an absolute nightmare in your business if it were to happen?
- Now that you’ve thought about past and potential problems, look over your contract to see if you have addressed these areas. Is it something you can address in your contract or is it more about client management? If it is something you can add, consider making the adjustments.
- Last, as always, if you have questions about how to update your contract to address a particular problem, please contact your lawyer for advice. I regularly work with clients on this through my law firm, Liss Legal, and I’d be happy to see if we would be a good fit to work together. If you’d like to learn more, visit LissLegal.com.
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