Having a contract is just good business

I once had a client go into a major downslide simply because they never had a signed contract with a customer.

It’s a common mistake. Too many companies think they don’t need contracts with clients, subcontractors, or even with their own employees. They don’t want to be seen as untrusting, I suppose. In a perfect world, that level of trust would work, every handshake would seal a deal, and all parties would have the same expectations.

Guess what? It’s not a perfect world. The way to make it as near-perfect as possible, however, is to have standard contracts in place that everyone signs and commits to. Contracts exist to prevent the possibility of harm and–just as important–to prevent that heated conversation with the client down the road that all businesses want to avoid.

Your relationship with your client is of the utmost importance. You want to be sure there’s a clear understanding of what services are going to be provided, what the costs will be, and how the payments will go ahead. It’s worth repeating: This clarity eliminates any misunderstandings… or worse. Here’s what I mean:

1 The owner or a salesperson meets with a prospective client to determine their needs. He takes lots of notes, goes away, and creates a proposal. He then comes back to the prospect to deliver the proposal. The proposal gives an overview of client needs, as well as an overview of the proposed products and service. This might include a number of extra services requested. At the end of the proposal is the total cost. The prospect reads it and agrees to proceed.

So far, so good. But the sales representative doesn’t have the new client sign a contract. Turns out the proposal was an overview, not a detailed discussion of what the company would provide and do.

Let’s turn the clock ahead to when the services and products are provided. The company invoices the client, but the client is unhappy, and states that he didn’t get what he thought he was going to get. Because they didn’t hammer out the details and sign a contract that included those details, the sales representative left himself open to the client’s interpretation, which obviously didn’t measure up with what the sales representative believed the client wanted.

2 An IT firm specializes in providing on-call IT specialists to small-and medium-sized companies. They match the specialist with the client, and the relationship builds over time. The client is happy because they have the same specialist dealing with their system. The IT firm is happy because they have a contract that details the work to be performed, the payments, and the payment cycle. Unfortunately, there’s nothing on paper that protects the IT firm from having the client offer the specialist a job.

Fast forward to the day when the IT specialist turns in his resignation and goes to work directly for the client. The IT firm has probably now lost both the skilled staff member and the client.

At the end of the day, clarity is key. As in life, the best business relationships grow out of clearly defined expectations. There’s one more bonus: Having contracts for your customers to sign shows professionalism, foresight, and attention to detail. Which is why they want you in the first place, right?

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation, a Toronto-based brokerage firm that specializes in the sale of privately owned, mid-market companies. He can be contacted at www.mercantilemergersacquisitions.com