During the past year some of my clients along with myself have experienced some legal woes that have had major effects on our bottom-line. These lessons range from small to large. The bottom line is as a business owner you have to be sure that you protect yourself. You have to be sure that you put the proper systems in place to be certain that someone else cannot come in and snatch your business right from under you; or pursue any legal action that can cause you to have to close the doors of your business.
So this week I am going to share with you five legal lessons learned that me and my clients learned collectively during the past 12 months to ensure that you do not experience the same challenges.
Legal Lesson 1 – Make sure that you have a contract in place for EVERYTHING
You need to have a contract in place for the subcontractors. You need to have a contract in place even for your customers to ensure that you are protected and covered as tight as a swaddled baby. You may be thinking “why do I need a contract with my customers”. Well depending on your industry this is a must requirement. A contract with your customers lets your customers know the scope of the work that you are performing for them. It removes any ambiguities around the types of services that you are offering and the extent to which you are offering them. Because far too often, customers and clients, once they begin working with you, they want to change the scope of the engagement. Second you need to have a clause in your contract that states what would happen if any changes are made or additional services are provided, what those additional fees would be and if anything needs to be negotiated under a separate agreement.
Legal Lesson 2 – Make sure that contract is reviewed by a lawyer
If you want to create your agreements yourself with templates that you find online, make sure that you have a lawyer review them afterwards to ensure that everything that needs to be in the agreement is included in the agreement. To ensure that the provisions of the agreement protect you and to some extent your client. You don’t want your agreements to be completely one-sided to the point where the client doesn’t even want to sign it. So be sure that there are some things in there that protect them as well. Be sure that your agreements include provisions around start and stop times, high-level detailed steps around what will be performed, how the agreement can be canceled by you or the client and who is liable or responsible for legal fees in the event of a lawsuit. Including all of these provisions will ensure that in the event that something happens (knock on wood) and a lawsuit pursues you are protected.
Legal Lesson 3 – Be sure to have agreements with your subcontractors and independent contractors
Subcontractors and independent contractors are vendors who work for you. And what I have found far too often in small businesses is that these contractors want to be treated as employees. Employees are paid on a regular payment schedule. Whether it’s weekly, biweekly, monthly or bimonthly. Often times, when working with a small business, subcontractors and independent contractors want to be paid on the same schedule as your employees or worse yet they want to be paid as soon as a job is completed. From a cash flow perspective, that is a recipe for disaster. So be sure that your agreements includes the details when payments will be received, the proper source document that needs to be submitted before payment is even made and that legal documentation needs to be signed and/or received before any payments are issued. I cannot stress this enough. You need to be sure that they understand that a bill must be submitted before payment is rendered, and that payment will not be issued just because they showed up at your office door. That is not how business is done. Payments are not issued on demand. Don’t allow subcontractors to rule or govern how you pay your bills. It is your job as the business owner to create these policies and procedures and ensure that these procedures are explained in detailed to your vendors.
Legal Lesson 4 – Include a nonperformance clause
This is often forgotten. What happens if that subcontractor does not do what they say they’re going to do? Do you still pay them? If your agreement does not state what would happen in the event of nonperformance, you may be required to still submit payment. Add a process around reviewing a job once its complete, prior to submitting payment to that vendor, and make sure that process is stated in your subcontractor agreement so that they cannot say that they performed and you just did not pay. They need to be clear and understand that their final payment is contingent upon a satisfactory job completed.
Legal Lesson 5 – Have a lawyer on retainer
All of these tips that I am sharing with you, that both my clients and myself have experienced over the past 12 months, can only be enforced if there is a lawyer on retainer. As small business owners we are often scared to hire a lawyer because we are scared of what it costs. But I promise you that it is a more expensive problem to not have a lawyer that it is to have one.
And those are my five legal lessons learned that I wanted to share with you. Now let me be clear – I am not a lawyer and I am not providing legal advice. I am simply sharing with you the lessons that me and my clients have learned so that you can take action to help prevent the same things from happening to you. If any of the legal lessons we learned resonate with you, then be sure to reach out to a lawyer YESTERDAY.
What legal lessons have you learned that could have possibly been prevented?
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