Business Mistakes to Avoid: Relying on a Handshake

We can’t tell you how many times we’ve had to tell a client or potential client that they should have gotten it in writing.  Oral agreements, of any kind, leave room for debate – or worse, open the door to conflict.

So you might be thinking, what kinds of things do I need a contract for?

The answer: Everything. You see, contracts affect every aspect of your business whether it’s a partnership agreement, an employee contract, or a contract for goods and services.  Contracts exist to formalize an agreement and if you’ve spent all this time negotiating terms, what’s the harm in taking a little more time to write it all down?

Unfortunately, what usually happens, is that we get into these situations where we’ve known this person for so long, or we’ve done business with them so many times that we’ve built up this foundation of trust, and that’s great. You should trust the people you do business with, but not blind trust because here’s the rub: who here knows what goes on in someone else’s head?  There can be a disconnect between what you say and what people hear.  Even more, there can be a surprising disconnect between what people say and what they later remember saying.  Perception and memory are inherently unreliable. 

Haven’t you ever been to an event with someone or had a conversation with someone and later had completely different accounts of what happened or what was discussed.  There have been tons of studies on this.  Our brains are programmed to fill in the gaps.  So even during the negotiation phase of an agreement, whenever you agree on something over the phone or in person, write it down and send an email to the other party to recap what was discussed.  Preserving a written record in case someone forgets or “forgets” can save you a lot of time and money down the road.  Once you have that written record, you still need to take the next step and formalize the deal.

Let’s be careful with this one though.  It’s impossible to UN-sign a contract.  Make sure negotiations are complete, you understand the whole document, and that the document reflects ALL of the terms you agreed upon before you sign.  All those writings we just talked about usually only make up the business terms of a contract.  You still need the legal terms.

Business terms set out what happens if all goes right.  The legal terms are more concerned with controlling the fallout if anything goes wrong.  Hopefully, you’ll never have to rely on your legal protections, but if you need them, you’ll be glad they’re there.  Unfortunately, many business owners use contracts they find online.  For something with very little potential consequence, that might be ok, but in most cases trying to save money by using a free or cheap template you found online is a bad idea.