This is the fourth in an ongoing series covering the value legal agreements bring to your business beyond the surface. From boosting your bottom line and expanding your business, to hiring the most talented team and improving every relationship you enter into, this series offers a comprehensive look at how effective legal agreements can enhance just about every aspect of your operation.
As a business owner, you’ve probably had times when you signed legal documents, even though they had legalese terms and phrases that were difficult for you to understand, but you signed anyway. You probably also have had times when a client or team member has signed legal documents you’ve handed to them, even though they didn’t fully read or understand them.
Nearly every legal document you sign will have these kind of boilerplate terms. When those terms become important, they are often referred to as the “fine print.” Even most lawyers find the fine print boring to read. But when deals go bad, these terms often decide who is right and who is wrong. So, you should always understand them before signing any deal.
While every contract is a legal agreement, not every legal agreement is a good one. A good agreement results from a good process. Your agreement process is the key to ensuring everything’s in order, from your policies and procedures to delivering products or services. If you avoid reviewing these processes, you are not only putting your assets and business at risk, but you are also short-changing yourself, your work, and your relationships.
What Is the Difference Between Legal Contracts and Good Agreements?
As we mentioned in the first part of this series, in some cases, you do not need to put an agreement in a formal or even any writing to create a contract. If the proper legal elements exist, a valid contract can be created verbally. As a result, contracts can be created by conversation, an exchange of emails, or even an exchange of text messages. Binding legal agreements can even arise with a single message and actions taken in response, like a request to perform a service followed by a delivery of the service requested.
But are all these contracts and legal agreements good agreements? In pure, legal terms, a contract exists when one party makes an offer, the other party accepts the offer, and both sides agree to exchange something of value in connection with the offer and acceptance. A good agreement, however, requires more. Good agreements result when the parties have connection, mutual understanding, alignment, clarity, and coherence.
This is how many business owners end up in unnecessary, expensive, and messy conflicts. They have contracts but not true agreements. Good business owners are skilled and well-advised about how to stay out of court and out of conflict. One very good way to achieve this is to rethink your relationship to legal agreements by implementing the following best practices:
Get Clear On What You Want From The Relationship
Before you sign a contract with anyone or enter into any business agreement, know what you want from the relationship. For the relationship (or any other arrangement) to work out long-term, both sides must be honest about their expectations from each other.
Sometimes we’re not quite clear about the relationship we want from our partners. That’s why it can be helpful to seek counsel from an objective third party like your Family Business LawyerTM to become clearer on what kind of relationship you want. With your lawyer, you will have a safe space where you can talk about your assumptions and receive feedback that can help guide future interactions.
In that safe space, your lawyer can help you get clear about your agreements by testing your assumptions and surfacing what you cannot see. This kind of legal counseling allows you to work through ahead of time the parts of a business relationship that may bring up uncomfortable feelings. That’s much more efficient from a cost perspective and a time perspective than having those uncomfortable feelings surface down the road in expensive conflicts that could have easily been avoided with the proper planning.
Begin With The Ideal Outcome In Mind
A good agreement process starts with being clear about what you want from the agreement. In other words, what would be true if you could see the future and obtain the ideal result the connection should provide? Consider what would cause you to celebrate a partnership that has exceeded your expectations. Assume you collaborated in the best possible ways and achieved all your objectives as a team. Then ask yourself, how will you have gotten there? And when you know the answers to these questions, you will know what you want to document in your agreements.
If you are hiring a team member, for example, you will want to know – before making the hire -how that team member will recognize their success or failure as a team member. As a result, your agreement with that team member should include and establish clear, objective goals, and how you will measure their success or failure in meeting those goals. Then, document that information in an employment agreement so that throughout the team member’s employment, you both can keep focused on your mutual expectations and how to achieve the goals for which your team member was hired. This is how having customizable agreements helps you make better hires.
On the other hand, you will want to know – before making the hire – how the relationship will end. What happens if the team member chooses to leave? What happens if the team member, through no fault of their own, cannot continue to be employed, such as in the event of illness, injury, or lack of available work? And of course, what if the team member is failing to satisfactorily meet those expectations you so clearly communicated?
You may have certain legal obligations to that team member regardless of the terms you agreed upon, but you will also want to be clear about other issues that routinely arise when the relationship with a team member ends. Will you provide any compensation beyond what you provided for the services rendered, i.e., severance pay? Do you want any mutual agreements about advance notice for ending the relationship? If you do, you will want to be very careful about how that agreement itself may change the entire legal relationship you have. What about obligations to return or the right to keep property you may have provided to the team member like computers, phones, and your business information? Should the team member be restricted in any way from competing with your business after the relationship ends? During the agreement process, all these eventualities should be considered and planned for.
Similarly, anytime you bring on a new client, map out your path for success with that client. Make sure your clients know how to recognize your successes for them. How are those successes measured by your client? Your client services agreement or terms and conditions agreements should identify these benchmarks clearly for your clients.
Also, your agreements with your clients should be clear and precise about how to bring the engagement to a close. When does your obligation to provide goods or services end? What might a client do that will be cause for you to terminate the relationship? What kind of inability or failure to perform on your end will release your clients from their obligations to you? How do you change the scope of the agreement? What happens if you or the client does not honor the agreement?
Perhaps most importantly, your agreements with your clients and customers need to set clear expectations about how you will be paid. How much? When? What happens if payment is late or missed?
Conflict often arises from surprise. Good clear agreements minimize surprises in the relationship. Businesses run better by staying out of court and out of conflict. Creating good, clear agreements will certainly make your business more productive and profitable.
Next week, in part two, we’ll discuss how you can use the agreement process to more effectively deal with the inevitable changes that take place as your business relationships evolve and your original agreements need to be renegotiated.
For now, make the commitment to never sign or send another legal agreement again before it’s been reviewed by us, your Family Business Lawyer ™. This is a foundation of great business practice, and it’s one we support every client with. If you have current agreements that are either in place or ones that need to be signed, contact us. We can review what you have and support you with wise counsel on your entire agreement process. It could be the make-it-or-break-it difference for your business.
This article is a service of Greg Gordillo, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Schedule your LIFT Session today!