3 Things Every Soloprenuer Should Know About Contracts

When you are self-employed, entering into contracts is part of the game of business. Some contracts are really nothing more than simple oral agreements and some are, of course, far more complicated.

Back when I practiced law on a daily basis, I couldn’t believe how often clients got into trouble over signing contracts that they really did not understand. One restaurant owner wanted to get out of his lease. Given that he paid an astronomical rent, he was obliged to make all the repairs and pay all taxes and insurance. I certainly understood why, but what I never understood was why he signed the lease in the first place. When I asked him, his answer was, “It looked good to me and I didn’t want to pay a lawyer to review it. Dumb, huh?”

Yes, you could say that.

Since contracts are such an essential part of our business’ lives, it’s important to make sure you know a few contract basics, so that you can avoid falling into the same type of trap. Below is a list of things every soloprenuer should know about contracts.

1. Contracts have requirements.
Contracts essentially require three things:

1. An offer
2. Acceptance of that offer
3. Consideration

An offer is just that: “I will sell you this widget for $5.” It is specific and clear. When an offer is made, you can accept, reject, or give a counter-offer. You will only have a contract if you accept the actual offer made. If you say, “Let me think about it for a week,” you cannot come back a month later and say you will take the $5 offer. If you counter-offer – “I’ll pay $3” – then the original maker of the offer has the right to accept or reject this new counter-offer. Finally, you must have consideration – a negotiated “this for that” deal. $5 for the widget.

The other important thing to understand is that a contract is also called an Agreement for a reason. Both sides must agree to all material provisions. If you think you are buying a widget for $5 and he thinks you agreed to $6, you have no deal. You both must agree to the deal.

2. Verbal contracts are valid, but written contracts are much better.
Legally, only certain contracts are required to be in writing to be valid: contracts for the sale of real estate, contracts for the sale of goods over $5,000, contracts that cannot be completed in less than a year, and some others.

But even though a contract does not have to be in writing, that does not mean that it shouldn’t be. The rule should be this:

Get it in writing. Get all contracts in writing.

The reasons are self-evident: People remember things differently. People remember things incorrectly. People forget things. People lie. Having your contract in writing avoids all of these possibilities. Ideally, your contract will actually be a piece of paper that spells out all of the important issues. But even if you don’t have that, it is smart to have some sort of physical documentation as to what was agreed to, even if it is a matter of emails going back and forth.

The other problem with a lack of writing is that a court can find that you had an “implied contract.” The judge will look at the course of action between the parties and try and determine your intent, by your actions. Again, something in writing obviates the need for that unenviable fate.

3. Consult a lawyer when necessary.
Look, no one likes do-it-yourself law more than me. Many things can be done on your own without the aid of a lawyer. But when the big bucks are at stake, when the contract is full of legalese, when it’s vital, then it’s time to get your lawyer involved.

By: Steve Strauss
Senior small business columnist at USA TODAY and author of 15 books, including The Small Business Bible.