Protect Your Business with a Written Contract

The majority of clients for whom I act as general counsel have ploughed their way through a variety of contracts in their 20 or 30 years of running a business. They know full well the value provided and protection afforded by a written document in which responsibilities on both sides are detailed and agreed upon.

These days, however, I am finding that there is a whole new generation of business owners for whom this is news.

These business-savvy — but first time — entrepreneurs have taken the current economic depression, with its attendant massive corporate layoffs, as a sign that they might want to control their own destinies… they are starting new businesses with the intention of being successful on their own.

And, if they have a passion for their products, strong business skills, financial support and the ability to build a great team, they may just be right!

However, while that passion and purpose are still fresh, let me add a note of caution: As you prepare to sell your product or service to that first, so-important client, consider documenting the transaction with a contract.

Yup, a contract. Something which was handled by senior management at your last job, but which really, truly, guided the work you performed on behalf of your employer. Now that you have clients of your own, this is your job [along with forming the company entity; finding new office space; opening a commercial bank account; and turning off the lights at night!].

Did you know it can be as simple as a letter? It truly does not have to be 25 pages in length, particularly if the needs of your first few clients are small, short-term and uncomplicated. In fact, just like building blocks, it's easier to start with a simple letter agreement and gradually, as your clients become larger in size and needs, work your way towards a more formal, comprehensive contract.

• Be sure you use a complete name, entity and address of both parties. For instance, "ABC Corporation, a Massachusetts corporation with a principal address at ABC Street, ABC City, MA and XYZ, LLC, a Massachusetts limited liability company with a principal address at XYZ Road, XYZ Town, MA." Or "John Jones, a sole proprietor doing business as Jones Associates… and Jane Smith, a sole proprietor…"

• Be sure you specify the purpose of the contract. "ABC sells to XYZ [specify the product or service]." Be specific and detailed… vague descriptions have a way of coming back to bite you when you least expect it.

• Be sure you spell out payment terms. "ABC will send a monthly invoice to XYZ and payment is due [upon receipt or within 30 days, for example]. Overdue or unpaid invoices may be charged interest of [__%]."

• Be sure you specify a starting and ending date. "ABC will begin work [or ship the product] on [date] and will end work [date or completion of performance]."

• Be sure both parties sign the letter.

Voila! You have a simple contract for your first few clients.

Of course, as your client list grows in size and needs, the work becomes more involved and the contracts become more sophisticated. Until then, however, you will have placed the first building block on a solid foundation and you will find yourself ready to grow to the next step. And it all started with a simple letter agreement!