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.
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Hey there, I’m Danielle. Welcome to episode 18 of Simplifying Legal for Small Business Owners. Today, we’re talking about Client Agreements for Service Business owners. This is one of my absolute favorite topics. We sell a number of different client agreement templates in the Businessese shop and I regularly work with clients through my law firm when they need a custom client agreement. I could talk about client agreements all day, but I promise I’ll keep this short.
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.
Now, let’s talk about client agreements.
If you are a service based business owner, your client agreement is one of the most important documents in the legal foundation of your business. For this episode, we’re going to concentrate on some of the most common provisions that appear in a client agreement and some things you may want to consider as you prepare or enhance your client agreement.
First, let’s talk about the term.
The term of the agreement is when it is in full force and effect. In other words, when does the agreement start and when does it end.
The agreement can start on a date listed in the agreement or on the date the client signs. If you prefer a specific date in the future, you can list the date when you want the agreement to start. This is fairly flexible.
There are also a lot of options for the termination date, so consider what makes the most sense for the types of services you provide.
If the services only last for a certain period of time, you can state that it will end on a certain date or after a certain period of time. For example, this agreement will start on the date signed by the client and continue for 90 days.
If you will be providing ongoing services, you may want to state that the agreement will continue until it is terminated by either of the parties.
If your business usually works with a client just once, it may make more sense for the agreement to end after you complete the services.
When it comes to the term of the agreement, make sure it is clear to both you and your client as to when the agreement starts and ends.
Termination of Agreement
Next, let’s talk about termination.
The termination provision will determine how you can end the agreement.
Questions to consider as you review your termination provision:
- Who can terminate? Is it one party or both?
- How much notice is required to terminate? How do you provide notice? Is an email sufficient or does it need to be something more?
- If there is a termination, how will you, as the service provider, be paid? Most common, this is a pro-rata payment for work completed, but there may be other terms. Many service business owners will state that there are no refunds on certain services or on a portion of the payment in full. This can also vary depending upon the type of services you provide.
If you want to learn more about terminations, check out Episode 11, where I talked in depth about ending a contract.
When it comes to your termination provision, my biggest tip is to make sure it’s clear. This is an area that is often disputed, especially refunds, so it’s important for you and your client to know what to expect in the event that the agreement ends.
Compensation within Client Agreement
Next, let’s talk about compensation.
As a service business owner, this is one of the most important parts of your agreement because it directly impacts your revenue.
It’s important to make sure your compensation section is specific. Here are some areas you can consider:
- How will you be paid? Will you be responsible for sending an invoice? Or is it an auto-payment?
- Is it a retainer agreement? When will you bill? What is covered?
- How long does your client have to make the payment?
- Do you charge late fees?
I will say this a lot in today’s episode, but get specific. This can help you avoid potential conflicts with your clients by ensuring they have all of the details.
If you want more information on compensation provisions, check out Episode 9.
Expenses to Consider
Next, let’s discuss expenses.
Usually, this is a fairly simple section of your contract. Will your client be reimbursing you for any expenses? If so, make sure you cover that so there aren’t any surprises when you send the invoice.
A common example is when a graphic designer uses stock photography and the client reimburses them for the license.
Client Agreement Changes and Revisions
Next, let’s look at changes and revisions.
What is your process if the client wants changes or revisions? You can state that the agreement is limited to the services outlined in the exhibit and then advise that an estimate would be provided for approval.
This type of clause is important to help you avoid scope creep. If you haven’t dealt with it, scope creep is when the agreed upon deliverables for a project are exceeded, usually, without an increase in how much you are being paid. In other words, when your client is asking you to do more and more, but they are paying based on the original quote.
If you want more tips on scope creep, there’s a post on the Businessese blog called 5 tips to avoid scope creep and I’ll link it in the show notes.
Confidentiality within Your Agreement
Next, let’s discuss confidentiality.
Do you or your client need to keep information confidential? If yes, make sure you clearly outline what you expect. Sometimes, this may look like a mini non-disclosure agreement, depending on the type of work that you do.
If you want to learn more about confidentiality, check out Episode 10.
Next, let’s look at the status provision.
Often, the agreement will include a paragraph that talks about the status of your relationship to your client. Usually, this will state that you are an independent contractor and may include some aspects of being a contractor, like responsibility for taxes, etc.
Authorization and Usage of Intellectual Property
Next, let’s talk about intellectual property.
First, let’s consider the intellectual property that you may be bringing into the client relationship. Do you provide any of your intellectual property to your clients? This might include handouts or workbooks. If so, make sure you are clear on how they can use that content. Is it for their personal use only? Can they reproduce it or share it? Make sure it says that they can’t sell it or use it in any way that isn’t authorized.
Next, is your client is giving you authorization to use their intellectual property, like logos or images, in the services that you are completing? If so, the agreement should state what you may do with their intellectual property.
Ownership of Work Product
If you are a creative, your agreement will probably also address intellectual property in a provision discussing the Ownership of Work Product.
If you are creating original content for your client, this is a key provision. There are three ownership scenarios that are pretty common in client agreements:
Work for Hire
First is work for hire. Under this type of clause, your client owns the deliverables you create.
Assignment of Rights
Next, is an assignment of rights. Under this type of provision, you assign the copyright rights to your client. This may be done for final approved versions or something you hold until the final payment is received.
License to Use
And last is the license to your client. If you retain ownership of the copyright, but you allow your client to use it in certain ways, you’re giving them a license. If you use this option, get specific about what the permitted uses are.
Check out Episode 13 if you’d like to learn more about content ownership in contracts.
Client Review & Drafts
Next is another one that can be really important for creatives: Client Review & Drafts
If you work in a creative field and your client will receive content from you, you may want to include a paragraph regarding client review. Give your client specific timing expected for them to review drafts if needed. Some agreements will also include delay fees since a long delay from a client can cause your schedule to go off course.
Additionally, if you offer a limited number of drafts, list how many drafts the client will get. If you aren’t specific, they may continue to ask for more and more revisions, which is another example of scope creep. This can have a substantial impact on your profit, so this is an important detail to include.
Next, let’s look at disclaimers.
A disclaimer states that you don’t guarantee future results. This is a good option in creative fields or a service that might lead the client to look for a particular outcome, like Public Relations, SEO strategy, or ads management.
Usually, this type of clause will state that you will use best practices, but can’t guarantee outcomes.
These clauses are nice to have, but they don’t appear in every agreement. Whether you want to consider adding one may depend on the type of services you offer.
Next, Data Security is a really important clause to include if you are going to have access to the client’s logins.
This comes up a lot for VAs, OBMs, and social media managers. If your client gives you logins or admin rights on certain pages, include how these should be treated. Often, this will often state that you won’t make any claim of ownership over the accounts and that they’ll be revoked when the agreement is over.
Next, one of my favorite things that you can address in your client agreement: Boundary Setting
For service-based business owners, setting better boundaries with clients is often a big concern. Especially as your business grows.
There are a few ways to address this in your client agreement and they’re really very simple. But, I think a lot of times, they don’t get addressed early on and then it becomes harder to set the boundary.
First, list your preferred communication methods, like voxer, email, or a project management system. At my law firm, for example, I insist that everything stay out of DMs because of confidentiality. So my primary communication methods are email and Voxer private chats. For some of my outside in-house counsel clients, I also offer slack.
You can add Hours of operation and your typical response times.
You can also include your usual turnaround time for the work product itself if the contract includes timelines.
I’ve also seen some service providers who increase their fees for expedited turnarounds or work outside of normal business hours.
As I’ve said, get specific about this because it can help create a smoother relationship between you and your client.
Scope of Work
One of the most important parts of your client agreement is the Scope of Work.
What services are you providing for your clients? I bet you can guess what I’m going to say here. Yup, that’s right – Get specific. Discuss the deliverables for both parties. It might include other important information like timing or other objectives.
If you’re working with a larger company or you have many people on your team, this is a great place to designate a contact person for each team.
What you include in your scope of work may vary depending on your business, but always make sure you include it and you get into the details.
And, of course, don’t forget to add the standard legal provisions to your client agreement. If you want to know more about the boilerplate clauses, check out Episode 15.
This wraps up the overview of some of the most important parts of a client agreement. Of course, this can vary depending on what field you are in. For example, an interior designer may have a very different agreement from a life coach. But, the areas I reviewed today should help you build a great client agreement for your service business.
Now let’s talk about today’s action steps:
- First, Is your client agreement missing any of the areas I discussed? Is it something that you may need for your business? This might be a great time for you to modify your agreement.
- Next, Have you started offering any new services since you drafted your client agreement? If yes, did you make any needed updates to the agreement?
- Next, Does your agreement have a detailed scope of work? If it doesn’t, please consider adding this. If you prepare proposals for your clients, it might have similar information. For some of my clients, they incorporate the proposal as a statement of work.
- Next, If you don’t have a client agreement, this is an important part of your business, so it’s something you should definitely consider. We offer a number of client agreements through the businessese shop. I’ll put the link to the client agreement page in the show notes.
- Last, As always, if you are not sure if you have everything you need for your client agreement, please reach out to a lawyer. As I’ve said a few times, this is an important document for you to have for your business and it’s something you want to make sure you get right. A little plug for my firm, Liss Legal – if you need help with your client agreement, check out lisslegal.com. I’d love to talk with you more and see if we’re a good fit to work together.
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