Tip of the Day for Small Businesses: Get It Down in Writing!

Tip of the Day for Small Businesses: Get It Down in Writing!
Community member Lubna Gem Arielle explains why trust is not enough when it comes to business, and why you should keep a written record of what was agreed.

As a small business owner or entrepreneur, it can be tempting to enter into business arrangements informally, believing we can rely on trust and being afraid we will insult or alienate our clients with a suggestion of formality. Funnily enough, I’ve seen ‘both sides’ succumb to this fear, believing it is to accommodate the other!

What seems to fall by the wayside is the fact that if you choose not to enter into a written contract, you will often have a verbal one anyway. What has been agreed will be recorded in people’s heads, possibly with some written evidence such as emails or the narrative of an invoice, relating to some of what was agreed, but with key areas neglected.

The Perils of an Unwritten Contract

A contract formed in this way has weak spots which have very little to do with trust. Let’s look at two key areas.

Weak Spot 1 – Being Human

Almost all of us will admit to falling prey to the consequences of being human such as having flawed listening abilities and memories. How often do you just ‘switch off’ when someone is talking? Do we always hear and remember what was said? At times we may think we remember the date, exact location and most of the conversation and it is the other person who has forgotten – and yet, perhaps that is what they claim, too. ‘Trust’ is often not enough to fill in this gap which can so easily be avoided. Going through a process of discussing, agreeing and recording terms can patch over poor listening – and a written contract is a panacea for forgetfulness.

Weak Spot 2 – Incomplete Agreements & Mismatched Perspectives

Informal arrangements based on trust often don’t deal with key issues. In my experience, people may start off with good feelings, but this doesn’t mean they will be able to navigate bumps with a smile. The reality is that when the unexpected happens, perceptions of and perspectives on what is fair and reasonable can be utterly mismatched.

Let’s look at a typical example – commissioning a website designer. All too often, work is carried out on the basis of an invoice for half of the payment upfront, which may have some outline of website specifications attached. What could go wrong? I’ve heard so many friends, clients and colleagues complain that their website is taking forever – why didn’t the designer say he/she was overcommitted / going on holiday / having personal problems? At the same time, website designers become frustrated at clients being too slow in providing essential feedback or information and too quick off the mark in asking for sneaky extras which all add up.

Specifying the delivery date, timescales for giving feedback and what happens where changes are requested could all have been discussed upfront, when everyone was on friendly terms. That’s the best time to set clear boundaries and expectations. Not doing so means everyone grumbles about what they think is ‘fair’ or ‘reasonable’ and may be bitterly adamant about what the other person should do. They may or may not be able to resolve it. Even though they started out with the flavour of trust, these hazy relationships can end up turning sour.

The Opportunity in a Written Contract and DIY Solutions

A written contract presents an opportunity to discuss, agree and set out agreed terms. Having this drawn up by a lawyer is best, and with complex areas such as employment contracts or financing arrangements, you should always refer to an expert.

However, there may be times where you are entering into a simpler relationship, you may be providing your services at a modest value, or you may be developing and testing something new; and even though you are aware that having a professionally written contract would be wise, you are simply not geared up to obtain professional help. Here, at the very least, you should ensure that you discuss the key issues and keep a clear written record of what you have agreed as a simple DIY contract.

In some ways a contract is a glorified list of who does what and when. With this in mind, you can write your own simple contract in 4 basic steps:

  1. Write out your name and address and the other side’s name and address
  2. List what THEY are going to do and by when
  3. List what YOU are going to do and by when
  4. Add the date and sign it.

Of course you won’t include some of the nuances that a professional would, but it will give you a much better level of protection and assurance than doing nothing. Although a lawyer-made contract is more water-tight, an imperfect contract based on making a list can be good enough, enabling your business relationship to progress more smoothly and successfully to its conclusion without unnecessary disputes.

Written Records – The Halfway House

An alternative approach to a DIY contract is to exchange emails. Simply email the other side with your lists of who is doing what and ask them to confirm by return email. This will give you a clear and valuable record of what was agreed, which is evidence of what was agreed, i.e. evidence of your unwritten contract. As you can see, a signed DIY contract and written evidence of an unwritten contact are very closely related – there may not be much difference between them.

Some records are better than others; compare an exchange of emails with notes alleged to have been taken during the meeting. What if the notes were made on a branded notepad with the logo of the serviced offices where the meeting took place? What if they were made on an iPad? These are all useful, to varying degrees. These days, saved text message streams can also be helpful. The best scenario is for the written record to be in one place, showing some form of acknowledgement from the other side.

Final Thoughts on Trust

When it comes to trust, in my experience, the problem with unwritten contracts rarely stems from dishonesty. I have heard someone saying words with no melody: ‘I never said that.’ Maybe you have too. In those instances, we might be able to find an email or text to remind them; at other times, we might not. However, for the most part, the flaws in informality stem from our humanness – not listening, forgetting and having our own points of view of what ‘should’ be done. It’s so much simpler to get it down in writing – and contracts and written records don’t destroy trust. Far from it. They enable you to have important conversations and, in doing so, to build and nurture your business relationships.

I’d love to know your thoughts and experiences – what makes or has made you hesitate, and what happened when you insisted on a little more formality?

Until next time,

Lubna Gem Arielle
12 March 2015

Lubna Gem ArielleLubna Gem Arielle is the founder of 6 Minute Bites, making contracts accessible to entrepreneurs through experiential training and producing user-friendly terms and conditions. Alongside this, Lubna lectures in law in the MA in Arts Policy and Management at Birkbeck, University of London and advises visual artists through Artquest’s Q&A Service. Lubna is a graduate of the 7 Graces Foundations of Ethical Marketing Course and member of the 7 Graces Community.

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