Why your small business needs a terms of business contract

Why-your-small-business-needs-a-terms-of-business-contractIt's unbelievable how many small business owners who still operate on a gentlemans' promise and the understanding that everyone will do the job that they agreed to. It's because most of these people are genuine, trusting and true to their word that it's all the more devastating to see them suffer the consequences of getting stuck with a late payer, or the complications of a client who insists that the project they agreed to encompasses a wider scope than the supplier thought they were delivering on. Without a terms of business contract, you are more likely to endure a string of pretty rubbish business transactions. You'll end up delivering more work for less money, or arguing the toss over the final bill (which I'd bet you anything will take some time to get settled): either way, you'll feel emotionally drained and your client will most likely have had a poor experience too.

A good terms of business documents sets out what both parties agree to do, and should set you up for a positive and fruitful working relationship. It's not about tripping anyone up, or asking either party to sign something that isn't in their best interest. It's simply about  protecting both parties best interests, and ensuring a healthy relationship with your clients.

What you should include in your terms of business

There's no one size fits all solution for terms of business, so to be totally sure I recommend you consult a commercial lawyer. However, as a broad rule, you should include the following:

  • The specific details of what's being delivered
  • What both parties agree to do
  • The payment terms
  • Total project cost (thank you to Mike at The FD Studio for this addition!)
  • Deadline dates
  • What happens if something goes wrong
  • The notice period required to cancel a contract
  • Which law governs the contract

What happens if they won't sign

I spoke to a friend recently whose defence for not asking his clients to sign terms of business was that he was worried he'd scare them off, or that they wouldn't sign. It's as simple as this: if they won't sign, you don't do business. It's not only good business practice to set out exactly how you work at the beginning of a relationship, but it's a safety net to both sides should something go wrong.

They don't have to be dull

While you need to respect the integrity of your terms of business as a legal document, there's nothing to stop you from injecting a little personality into it. When we wrote our terms of business for Ditto, we deliberately used plain, every day language and wrote in a way which fits with our way of doing things. A well presented, thoughtfully written document will have such an impact on the way you're perceived as a business, and will allow you to get on with doing the work you love to do.