If you are a service-based business owner, one of the most important things you need to have in your business is a contract.
While contracts may seem out of place in the online business world (especially if you’re a creative!), they will save you SO much headache, prevent so many issues, and protect you and your business.
Today I want to share 10 reasons why you need to have a contract in your service-based business, and some of these are lessons I have learned the hard way in my years of operating my own business.
Prevent Scope Creep
In your contract, you’ll want to define the scope of service. Essentially, what you’ll be doing for your client. I recommend getting as granular and specific as you can, just so both you and your client are on the same page.
For example, in the contracts for my Project Management services, I outline how many calls we’ll have, exactly what deliverables I’ll be providing, etc.
It may seem like overkill to get that specific, but when you have a very clear and defined scope of service, you’ll be able to avoid scope creep.
Scope creep happens when a client hires you for your service, and throughout the project keeps asking for one extra thing here, another extra thing there, and before you know it you’ve done 40 hours of extra work that isn’t billable, and isn’t accounted for in the scope of service.
When you have a scope of service to fall back to in your contract, you can tell your client that their extra requests fall outside of that scope and you’ll be happy to do them for an extra fee.
SET EXPECTATIONS AROUND COMMUNICATION
Your contract should, just like the scope of service, very clearly outline how and when you will communicate with your clients.
This sets the expectations and boundaries from the beginning, and makes sure you and your client are on the same page.
For example, in all of my contracts, I explain that:
I am not going to answer emails, Voxer messages, etc outside of my working hours
I am not going to answer any communication over the weekend
If they need me to do something after hours or over the weekend, there is an hourly rate for that work
I will communicate with them in certain ways, and not in others (i.e. I don’t ever text with my clients, but we’ll use Slack instead)
When I am out of the office/on vacation/out of town, I am not reachable and will get back to them when I am back at work
The reason you want to get that specific is so that you are protecting your energy, your time, and you’re letting them know that you are a professional and are not going to be at their beck and call 24/7/365.
Just like the scope of service, having a legally binding document that outlines all of this gives you something to fall back to when your client tries to push past your boundaries.
AVOID PAYMENT ISSUES
This is a big one! For a lot of us, it can sometimes feel awkward asking for money in exchange for our creative work. And it can feel even more awkward following up on late payments, reminding your clients when their next payment is due, etc.
By having a contract that clearly lays out their total investment, and the payment schedule (if you have one), you and your client will be able to know exactly what payments are due when.
This means that if your client is late, they know (and agreed!) to your late payment terms.
This means that if your client claims they already paid you everything when they haven’t, you have a document that can back you up.
Pro Tip: If you use a software like HoneyBook for your contracts, invoicing, etc. you can create an invoice with the payment schedule that matches your contract. HoneyBook will automatically send payment reminders for upcoming payments, late payments, and keep you up to date!
AVOID REFUND / CANCELLATION ISSUES
In your contract, you’ll want to very clearly state what your refund policy is, and what your project cancellation policy is.
This is so that if a client wants to cancel the project halfway through, you both know what needs to happen for that cancellation to be valid, and what happens to their investment.
By being very clear about this in your contract, you’ll have something to back you up if your client tries to get a refund out of you that you don’t offer, or anything else like that.
If you want to have a kill fee for projects (that is, a fee that your client must pay to cancel their project), you’ll also want to outline that in your contract so that your client knows going into the project what your policy is.
PROTECT YOURSELF AND YOUR BUSINESS
Basically, if you don’t have a contract when you work with a client, you don’t have any legal protection. And while it’s very unlikely that a client will try to sue you, it is much better to be prepared than not.
The contract can protect your business assets, the business itself, as well as your personal liability. (This is also a good time to mention that legally incorporating your business is an important thing to do as well!)
If you don’t have a contract, or you don’t have your clients sign a contract before you begin working with them, you don’t have anything to support your position or claims.
KNOW WHAT TO DO WHEN YOUR CLIENT GOES AWOL
Have you ever had a client ghost you in the middle of a project? They don’t return any emails, don’t pay their invoices, etc?
If you have a contract with them, you can outline what happens in that situation with a “project pause” clause. You want to clearly define what constitutes a pause (or a ghosting), what actions you’ll take when that happens, and how a client can get their project back on your schedule if/when they start communicating with you again.
This can help you still receive any payments you are owed, but it doesn’t leave you in limbo and allows you to confidently put their project in pause mode and take another client.
HELPS YOU ENFORCE YOUR BOUNDARIES
We’ve talked about this already, but it’s so important that I wanted to call it out on its own.
If you are a (recovering) people-pleaser, it can be very hard to say the word no. Especially to people who are paying you money to do things.
By having all of your boundaries around working with clients clearly spelled out in your contract, you are giving yourself a legally binding document/fallback to keep your boundaries.
Instead of saying “No, I don’t feel like answering your emails when I’m watching This Is Us,” you can tell your clients, “As per our contract, my working hours are X-Y and I don’t respond to any communication outside of those hours.”
KEEP TRADE SECRETS CONFIDENTIAL
We usually think about this just for service-provider-to-client, but this actually goes both ways.
By having a confidentiality clause in your contract, you are ensuring that you won’t share any trade secrets or business secrets about your client’s business, but you’re also ensuring they won’t share any of yours.
This keeps both of you happy, and you can feel confident sharing information knowing that it will remain confidential between the two of you.
SHOWS THAT YOU ARE A PROFESSIONAL
When you send a contract to your client before beginning work with them, you are showing them that you are a professional, and you know what you’re doing.
A lot of business owners, especially if they’re stuck in the freelance mindset, don’t think they are ready for or need contracts. So they don’t send them, and that sends a signal to their clients that they aren’t quite a professional yet.
But by sending a contract, and by outlining everything (and more) that we’ve talked about, you are impressing your client AND showing them that you are a professional, and that you take your business seriously.
KEEPS THE PLAYING FIELD EVEN
When you use a contract with your clients, you are keeping both of you on the same page moving into the project. You both know the policies and procedures, nothing is hidden, and you can move into the project knowing that every scenario is covered, clearly outlined, and you don’t have to worry about playing the “What if?” game.
If you don’t have a contract in your business, and you’re ready to get one, I highly recommend grabbing a template from The Contract Shop! Christina Scalera is a lawyer for creatives, and has created insanely valuable contract templates for pretty much everything you can image. You just plug in your own info and go, while knowing that everything that needs to be thought of has been, and is included.