Starting a Business From an Accountant's Perspective: The Importance of Contracts
We recently finished up our series on starting a business. Today we are bookending that series with one about starting a business from an Accountant's Perspective. We will be building on the steps from our last series about starting a business.
But will be adding additional steps which as an accountant I believe are important. The first step we will be looking at is the importance of contracts. Whether you run a Service business, Retail Business, or Manufacturing Business. It is very important that you make sure that your agreement with your clients is clear, legal, and benefits you and your clients.
Why are contracts important?
Contract outline the legal relationship between you and your client. They can include
When and how payment is due
What services or products will be delivered
What constitutes acceptance of services performed or products delivered
What if any warranties are available to the customer
Remedies available to both parties for breach of contract.
You can include anything in a contract you like as long as it is not illegal and as long as your client or customer is willing to accept the terms.
The other reason signed written contracts are important is they are the best defense for you and your client if there is a breach of contract.
Though verbal contracts are legally binding they are often hard to prove. But if you have a written, signed contract, the only recourse your customers has is if you didn't properly perform the services outlined in the contract, which would be a breach of contract. But if you have properly perform all duties outlined in the contract, then you can force them to provide payment and if they are unwilling your next step would be to take them to court and the government will force them to provide payment.
What governs contracts?
The Universal Commercial Code or UCC governs contract law in 49 of 50 states (Louisiana is the only state that hasn't fully implemented UCC)
UCC Article 2 details what constitutes a contract, what constitutes contract acceptance, and what constitutes a breach of contract.
So if you are looking at writing legal and enforceable contracts UCC is an important place to start. You will also want to reference any local or licensing code that might affect your specific profession.
Of course, it is always valuable to hire an attorney to help you draft your contracts.
Good, well-written contracts are one of the most important parts of running any business. They protect your business or you the owner from undue liability and provide the client or customer with a specific and detailed outline of the services or products they should expect to receive. Without contracts not only will it be hard for you as the business owner to collect payment from unwilling clients but provide your clients the confidence that you are a legitimate business that cares about your clients.
Have questions about contracts or would like referral to an attorney. Contact us below.