Business owners, especially those starting out, tend to think they cannot afford a lawyer. This is shortsighted. A lawyer who understands business may be an investment at the beginning but will save you money and headaches for many years to come.
Just by implementing a written contract with a clear scope of work and rewarding her clients for paying early, Sam can earn more money, avoid working for free, and have happier clients.
Sam is a business owner who is excellent at what she does, providing graphic arts to her clients. Through experience with deadbeat clients, Sam finally got to the point where she knew she needed a written contract. But she did not know what else she did not know.
When I spoke with Sam, I asked her if she had thought about these questions:
1) How will your problems be resolved if your relationship turns sour?
2) Where will that take place?
3) What happens if your client cancels your services midway through the job?
What about you? Have you thought about or answered these questions for your own business? Sam admitted she did not even know to ask these questions.
Here are some ways a lawyer can help you answer the questions above.
1) “I’m going to sue you for everything you’ve got.” This is the phrase business owners are most afraid to hear from angry or unhappy clients. It’s true for me, too, even though I am a lawyer. Lawsuits are long, expensive, and uncertain endeavors for all parties involved. Statistically, most lawsuits end up settling before trial, so you will not get your day in court.
Alternatives to a lawsuit include mediation and arbitration. If you have ever bought a car from a car dealership or applied for a credit card, most likely the contract you signed included an arbitration clause. Mediation and arbitration are much quicker ways to resolve your problems without going to court. Both sides pick a neutral third party who will listen to their arguments, review the evidence, and make a decision. The cost to mediate or arbitrate is customarily split between the parties. Businesses use these alternative dispute mechanisms to control their legal costs.
2) You can specify in a contract where your problem will be resolved. You have probably signed contracts or clicked on terms of service agreements that require you to go to another state if you want to sue a company. Remember Asiana Flight 214, which crashed at San Francisco International Airport in July 2014? If you were on that flight and wanted to sue Asiana Airlines, would you have to go to South Korea, where the company operates, or would you be able to sue in San Francisco, where the accident happened? It depends on what the fine print on your plane ticket says. When was the last time you – or anyone – read the fine print on a plane ticket?
In Sam’s case, I advised her to put in her contract that if her clients (ex-clients at that point) decide to sue her, they must do so at a court in Los Angeles County, near her business or home. This means she will not be forced to spend money to travel to El Paso, Texas, and hire a local attorney to defend her because an unhappy client now lives there.
3) A strategic contract would spell out what happens when the client changes his mind midway through a project. Assuming you got a deposit, do you have to give it back? If so, how much do you have to return? As a matter of fairness, these questions probably depend on what stage of work you are in. If you consider this possibility ahead of time, you can cover the terms with your client at the beginning so everyone is clear on the consequences.
Learn from Sam’s mistake. Do not leave money on the table by not getting paid or by doing free work. Hire a lawyer to create a contract you can use over and over again, or have a lawyer review the contract you are currently using. It is a smart investment that will save you time, money, and stress. Skimping is definitely “penny wise, pound foolish.”
About Your Columnist
Quyen Tu is a featured columnist for Women Taking Charge, the official blog of Connected Women of Influence, where she explains complex legal concepts in layman’s terms. Her passion is working with and supporting mission-driven entrepreneurs who make an impact in their community. She handles her clients’ legal issues so they can change the world. Quyen enjoys volunteering, connecting people, and challenging herself physically. She aims to visit all seven continents, and plays along with the Jeopardy contestants. Quyen Tu is an Attorney at BCorp Creatives where they specialize in helping successful business owners and entrepreneurs improve the world, starting with their community. We help you do well and do good.