Because here’s what could happen if you don’t...
It’s sexy not to get sued. And a carefully curated feed won't help you in court when the integrity of your business is at stake.
Here’s the truth: The best time to get your legal sh*t together was yesterday (and something tells me you don’t have a time machine). But don’t let that stand in your way. The next best time is today.
The paradox of being a small business owner
Being a small business owner is anything but easy. I know — I’ve been there. As the owner of Magdalena Studios, That Rad Booth, the Magi Fisher brand, and East & Bay Law, the sister company to The Artists’ Lawyer, I’m no stranger to the struggles and celebrations of starting and growing a creative business.
One thing I’ve become familiar with is the paradox of being a small business owner. Don’t worry, it’s common.
You might think you're not "big" enough for certain things, but your clients (and potential clients) might think you’re "small" enough that you can bend the rules to accommodate them.
It’s a tough spot to be in. You don’t have the same amount of resources as huge brands, so any sacrifice is felt in your business — big time.
But others think that because your business doesn’t have the same bureaucracy as big brands, it’s easier for you to make changes, go above and beyond, or otherwise alter your approach for their benefit.
And unfortunately, contacts are one of the most common areas in which small business owners like you and me experience this paradox.
Here’s an example: A customer wouldn’t expect to be able to return a car after purchasing it, unless it was defective. Whether you buy or lease a car, you know you’ll be legally bound to make monthly payments towards the vehicle until you’ve fulfilled all payments in your agreement. If you don’t, it’ll affect your credit score, legal standing, and potentially put other assets, like your house, in jeopardy. It might even affect your ability to get a job (if the company that employs you runs background checks).
But that same customer might think they can
- Get out of their photography contract because they changed their mind and no longer want the service.
- Miss a payment with no expectation of consequence, because they can no longer afford to make a payment.
- Ask for an additional designed asset, like a business card, without having to pay for the cost of producing it.
Whether it be an assumption that you’ll waive a cancellation fee, allow for missed payments or be accommodating of payment schedule, or respond to an email on a Sunday…getting taken advantage of as a small business is a reality we have to consider.
This is one of the many reasons you need a contract — no matter what.
What can happen if you don't have a contract (with real experiences shared by our customers)
Whether or not you have a legal contract in place, any number of things can happen. You can’t control other peoples’ actions. However, if you have a contract in place, you’re much more protected in situations like these. Having a well-written contract can even help avoid sticky legal situations by creating a foundation of mutual transparency, trust, and respect in your client relationships from the very beginning.
If you don’t have a contract, however, you might find yourself in a situation you can’t get out of. Let’s take a look:
Without a contract in place, you may experience lost funds if a client chooses to end your working relationship, or worse, stops communicating mid-relationship.
Let’s say the client no longer wishes to work with you. Without a contract in place, they may be able to cease payments immediately, avoid paying for services already rendered, or request a refund for services already rendered. All of this money comes out of your bank account, despite whatever effort you’ve put into the working relationship.
A situation like this could also result in future lost funds. Not only do you have to secure new business to replace the business lost in this transaction, but since you’ll be spending your time and energy resolving this conflict, your attention won’t be free to pursue new business opportunities either.
When you have a contract in place, withdrawal terms will clearly outline payment due for services already rendered, a no-refund policy, and/or cancellation fees that can create a financial runway while you secure new business. These types of terms can help you retain funds and/or earn funds for liquidated damages due to the reservation of time on the Company’s
calendar and foregoing of other opportunities.
Lack of security
Without a contract in place, a client may be able to
- Pause or cease communication or cooperation, delaying or extending projects and disrupting other projects
- Change their scope to include fewer deliverables, and expect smaller payments as well
- Share or use trade secrets, confidential information, or intellectual property
- Withdraw from a contract due to unforeseen circumstances, personal (such as a divorce) or global (like a pandemic)
Any of these situations (and more) create a lack of security for and for your business, and can put your work capacity, finances, or proprietary value at risk.
In the event a client is unhappy with the service they received, believes they’re entitled to refunds or additional services and deliverables, wants to renegotiate their scope, or wishes to end your relationship, not having a contract gives you little to no leverage in resolving the conflict. This puts the power in the customer’s hands, instead of allowing both parties to have a fair voice in the matter.
On the contrary, when communicating with a client under terse circumstances, you can always reference the terms agreed to by both parties in the contact…if you have one.
Litigation is the process of taking legal action. All of the above possibilities (and others — we couldn’t possibly make an exhaustive list!) could result in lots of time spent in courtrooms and emailing with lawyers, which is both costly and stressful. We hope it doesn’t come to this, but it can.
Let your contract be the bad guy
When I covered how not having a contract limits the leverage you have in negotiations, resolutions, and disputes, I mentioned referencing the terms agreed upon by both parties.
As a creative business owner, you probably get overwhelmed and maybe even nervous when I share that there’s potential for any of the examples in this article to happen to you. This is normal — and I’m not trying to scare you! Only ask you to take your business and its protection seriously.
I doubt you like talking about contract disputes and unhappy clients, and you may even be thinking, I don’t want to enforce terms like this. You care about doing right by your clients–and your business.
Good news: you don’t have to. Just because your contract includes certain terms, doesn’t mean you have to enforce them. Your contract simply gives you the choice to enforce them. You can always waive terms depending on the situation. I always say: it’s better to have a contract that protects you 100%, and choose to waive certain clauses, than to not be protected in the first place.
If you do choose to enforce contract terms in sticky situations, you can objectively and professionally refer to the terms of the agreement, rather than approaching a tough conversation with heightened emotions, biased perspective, or inappropriate remarks. Legal discussions can get uncomfortable, and I’ve found you’re more able to remain calm when you can avoid taking it personally, and keep it about the terms of the agreement.
This is what I mean by, let your contract be the bad guy. Whether you choose to enforce contract terms or not, your contract does the hard work, making your job easier.
How often you should review and update your contracts
I hope by now I’ve proven that you need a legal contract — no matter what. But not all contracts are created equally. You need a high-quality contract that’s thorough, detail-oriented, and industry-specific. See this post for more on that topic, and shop our legal contract template shop.
So how do you keep your contracts protective despite a constantly changing context? Review and update them! I like to keep a running list of actual client situations I encountered, ideas I have about what should be protected, and stories I’ve heard from other business owners in a document.
Review your contracts quarterly
Every quarter, review your contracts to ensure that all recent situations, ideas, and vulnerabilities are covered.
Update your contracts monthly
If any situation is not covered in your contracts, or if you’ve learned something new in a recent client interaction and want to change your contract terms, be sure to update them monthly so that all new clients receive the most up to date agreement.
You’re never too small to protect your business from unfortunate situations. Every business — no matter the industry, amount of revenue, or tenure, should be legally protected.