Why Get Agreements in Writing?
Handshake agreements are great; still, get it in writing.
Today’s topic is building close business relationships. The quick and dirty tip is get it in writing!
I do business on a handshake, and I’ve always liked the idea that a handshake is all you need. Then I learned that Ninjas can kill you sixteen different ways using only a handshake. No one backs out of a handshake deal with a Ninja… or a Pirate, actually. Unless you’re a Ninja or a Pirate, when you’re putting together a joint project, write down the terms in a simple document.
Why Do You Need a Contract?
If you trust them, why do you need a contract? You hear this when billionaires discuss prenuptial agreements with their spouses-to-be. “We’re in love! If it’s true love, surely we don’t need all that icky legal stuff.”
Wake up and smell the coffee: today’s true love can be tomorrow’s tell-all story in a popular gossip rag. You need a contract because it’s the contract that makes it possible to trust.
Contracts Build Trust
A contract forces you and the other party to resolve all the ambiguities, consider the worst-case scenarios, and address them explicitly.
Trust is a wonderful emotion that has nothing to do with law. Contracts are legal devices, not emotional devices. They serve a different purpose. A contract forces you and them to resolve all the ambiguities, consider the worst-case scenarios, and address them explicitly. Once you’ve been through that exercise, you can trust without reservation; you’ve nailed all the details.
You may be assuming things based on friendship. “They’re designing my web site for free.” Er, not necessarily. There are two kinds of friends who do things for you: the ones who are sharks and assume you’re paying full rates, and the ones who let themselves get walked all over. You don’t want to do business with either without knowing the rules.
Contracts resolve ambiguities so you can trust.
What Should You Put in a Contract?
One reason to hire a lawyer is because they’ve seen every way things can go wrong. They help you anticipate the pitfalls and think them through beforehand. The other reason to hire them is because you feel sorry for them and want to give them money. That’s a bad reason.
At least include basic deal elements in your contract:
Who does what? How do you know they’ve done it? We agreed I’m “raising money” to fund our development of the world’s most awesome doggie sweater. Does it count if I close a deal that was in the works before I joined?
Which things are due when? Be specific. Sure, I said we’d have a prototype sweater done “by March.” That means the end of March. What do you mean we need it March 1 to get the sweater approved by the FDA?
Payment terms. When and how much? Does payment depend on milestones? Who decides if they’ve been met? Is “a million sequins” a metaphor, or do I have to number them? Oops.
What if someone doesn’t follow through? Agree on consequences in advance (more on that keep a non performing employee focused on action), so you can proceed if something happens. If you wait until a problem to decide what to do, you’ll end up in court, and the lawyers will end up very rich.
For each category, brainstorm what could go wrong and decide up front how you’ll handle those cases. For example, if one person don’t follow through, does that mean neither of you have to? You can even set penalties in advance, “If either person flakes out, they’ll pay the other $10,000 and dissolve the contract.”
Use Plain English Contracts Whenever Possible
Plain English is valid and legal for contracts! The book How to Write Plain English by Rudolph Flesch teaches lawyers how to make legally precise contracts readable by a five-year old. Then I can understand them. In plain English, “No” means “No.”
I’ll ask my lawyer to review a plain English agreement to make sure I’ve covered all the bases. If not, we talk it through. He suggests 9,816 pages of legalese. I turn it into three sentences of plain English.
If the other side insists on legalese, I’ll do it, because often there’s no other choice. I usually take it as a sign that they’ll screw me if they can. Legalese scares me. In legalese, “No” might mean “Yes.” And it’s legal! For more on what makes contracts valid check out Legal Lad’s episode on this very topic.
Do You Need Contracts When Dealing with Friends and Family?
One special case is loaning money to a friend or family member. Consider it a gift. If they repay it, great. If not, don’t sweat it. Playing collection agent can destroy a relationship. If they miss a payment but take a holiday in the south of France, you’ll want to quiz them on why they didn’t skip the holiday and repay the loan instead.
I loaned my friend money at bargain basement rates. After he was four years behind on his payments, he sent a proposed repayment schedule. But he forgot to erase the part of the spreadsheet showing he was repaying his parents at twice the interest rate he was paying me. Knowing he was essentially funneling my stalled loan to his parents didn’t cement our friendship.
There are now services like Virgin Money that will let you loan money to friends. You register the loan with Virgin and they administer it, track payments, and enforce missed payments. You still authorize evicting your niece from that lovely SoHo loft you bought for her, but they’re the ones who send the nasty letter. Your relationship preserved, you and she can still chat at dinner, as you give her handy tips for successful dumpster diving.
This is Stever Robbins. Follow me at Twitter getitdoneguy or Facebook GetItDoneGuy.
Work Less, Do More, and have a Great Life!
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