I’m all about a good framework. I love them because everything makes more sense with structure, particularly tricky legal and tax topics. In this blog, I’m sharing the different types of contracts we have in business, how I go about creating them, and my tips for you to customize your own.
When we break it down, I lump contracts into one of three categories, contracts, contractor agreements, and business/other contracts.
Three Types of Contracts
Your primary client contract is your client service agreement. This is the contract you send your clients that specifies the payment terms, the services you’ll perform, and all those other key details.
A contractor agreement is the document you have a contractor who is working on behalf of your business sign. It’s similar to a client contract, but the difference is that you have it on hand for someone you’re hiring, not someone hiring you. Make sense?
Here’s an example. Let’s assume you’re a copywriter. Another business owner hires you to draft the copy for their website. You’d send them your client contract for a signature. Now, let’s assume that’s a huge project, and you need some help. You might bring in another copywriter to assist you and have them sign an independent contractor agreement.
This nuance isn’t a huge deal, but it’s worth considering in which circumstance it makes sense. For example, I hired someone to fully set up my Pinterest account. She has a whole process and workflow. She should have that written out in a contract. I, as her client, should not be giving her a contractor agreement. It’s more or less her burden/obligation to give me a client contract. On the flip side, my virtual assistant did not have a contract, so I had her sign my contractor agreement to touch on the issues of payment, intellectual property, and confidentiality.
To boil it down, I suppose contractor agreements are ideal when you’re subcontracting work or where the person you’re hiring doesn’t have an agreement, and you want some legal protections in place.
The third category is a bit of a catchall, but I lump your internal contracts in here like operating and partnership agreements, as well as privacy policies for websites. Web terms are like a client service agreement, but they live on your website. When people download your products or make purchases on your website, they check that little box that says, “I agree to the terms of service.” You need to have web terms that essentially serves as the agreement for that offer.
Building Your Client Contract
In my monthly membership, FUNdamentals, members go through a specific process to create each of the contracts mentioned in this blog because contracts are, well, fundamental to a solid business.
The first contract we work through is the client service agreement since it’s arguably the most important. In doing so, I teach the client contracts in four phases and provide templates for each phase to my members. The phases, or sections of the contract are the intro terms, payment terms, industry specific terms, and then the legalese.
This is how most client contracts are generally structured. I also view contracts kind of like the journalistic style of writing, where you start with the most important parts up top assuming that you’ll start to lose attention the further the reader goes.
The top of the contract is generally the introduction paragraph, which outlines the parties and generally lays the groundwork for the basis of the contract. After that, you’ll have the scope of services. This is where you, as the service provider, will promise what it is that you’ll do for the client.
After the intro and scope paragraphs, I add the payment terms. You want to be specific as to what the first payment is and when it’s due. If there are additional payments, you need to outline how much those are and when they’re due as well, along with other details like methods of payment, late fees, and cancellations.
After payment terms, I add industry specific terms. For example, my floral design students always want minimum purchase order terms. Photographers like terms that specify details on photo editing and social media. You get the picture. This is where the specifics and length of contracts will vary per industry. My go-to wedding planner template is fourteen pages, while my template for general business coaching is only five pages.
After the industry specific terms, comes the legalese or boilerplate provisions. These are the ones that barely make sense to anyone. They often get copy and pasted from one contract to another. This section is tricky for that reason. The arbitration clause in your contract may have originated in a lengthy, high dollar commercial lease agreement and moseyed its way into your document through dozens of iterations.
If you purchase a template specifically for your industry, ideally there won’t be any terms in there that wholly don’t belong. Either way, you’ll still want to comb through each section to see if anything needs to be cut or added.
Look through your contract to see if you have each of these sections. Also remember that contracts are only 1 of what I call the layers of protection. You also need solid insurance and a strong business entity. Business entities are things like LLCs. If you want to learn more about those check out this blog.
Contracts Best Practices
Whenever I present on contracts, one of the first questions I get is “Should I hire an attorney to draft my contract or is a template ok?” The answer, as always is, it depends. It depends on whether the template is specific to your business and whether it’s thorough and well drafted. It also depends if the attorney you’re hiring knows how to draft contracts and whether that attorney also understands your industry and business model.
If you’re a life coach, you may be better off buying a template from an educator who has specifically prepared a contract for life coaches than you would be hiring an attorney who primarily does commercial real estate contracts or one who doesn’t even draft many contracts.
What you don’t want is a generic contract from any online contract generator. At a minimum, it should have been specifically written for the type of service you’re providing. The best options are to hire an attorney familiar with your industry if you need something fairly custom. If your business is pretty standard for your industry, a template may be great.
When I say standard for your industry, here’s what I mean. If you’re a photographer, ask yourself if your business model is more or less similar to other photographers in your industry. If you’re all providing wedding photography services through packages of $2,000-$10,000, your services are likely to be pretty similar. Small differences in terms of a 25% versus a 50% deposit aren’t a big deal.
However, if you offer a $25,000 wedding photography and videography package with multiple associates, second shooters, and traveling, you may have scaled out of using a simple template. At that rate, it’d be worth the money to hire a pro.
If you do want a template, here’s what to look for. Find something that’s been written for your service. The more specific, the better. Also, see if the seller does anything to help you keep the documents up to date. Do some due diligence to determine the credibility of the seller. I always recommend buying templates from a website owned by an attorney. If you’re buying one from a non-attorney, consider whether an attorney originally drafted it and helps keep the document up to date.
If you’d like help with your creative contract, check out my membership. I no longer sell one-off templates, but you can get access to all my templated documents in the membership including client service agreements, contractor agreements, privacy policies, and more. If you’d like a standalone contract, there are a lot of great resources out there. I have spoken with several of my peers who have template shops for small business owners. If you’d like a recommendation, hop in the Facebook Group, Braden’s Besties, and ask for a referral.
The next tip on contracts is to properly use defined terms. Defined terms help keep contracts concise. They also help with clarity, and clarity is the number one objective in contract drafting. If the contract doesn’t make sense, it’s ineffective.
Defined terms are those seemingly, arbitrarily capitalized nouns throughout the document. For example, I might say something like “This contract is by and between Braden Drake LLC (hereinafter ‘Company’) and Moria (hereinafter ‘Client’). We are defining the word Company. Any time Company is capitalized, we know that it refers to Braden Drake LLC.
Take this wacky sentence as an example. Client hires Company to negotiate with third party companies for the following . . . “ The second use of the word company in this sentence is not capitalized, which means we’re using it in its normal use of the word, not to refer to Braden Drake LLC.
Another common use of defined terms is something like this, “Client agrees to pay Company $5,000 for the services considered in this contract. This rate will be referred to as the “Total Price.” Client agrees to pay a non-refundable deposit equal to 50% (hereinafter “Deposit”) of the Total Price.
We have defined both the Total Price and the Deposit. This allows you to only change one number, the actual total cost, each time you need to create a new contract. It also helps you be more concise throughout the document. For example, you could say something like “Client understands that in the event of a cancellation, the Deposit is non-refundable for any reason.” Through our defined terms, we know that the “Deposit” refers to half the “Total Price.” So in short, the client ain’t gettin’ that $2,500 back if they cancel, but we have drafted it in a way to make your life easy and mathless.
In law school, I had to take two full semesters of contract law, and that didn’t even really scratch the surface of how to properly draft contracts. Obviously, I’m leaving out a lot here. But, I do have one more consideration for you.
Always be careful of redundancies and ambiguities. If two contract provisions conflict with one another, they may get tossed if there’s a dispute. When you read through each provision of your contract, ask yourself, does this make sense in the context of the rest of my document? Does it conflict with anything? Does it make other provisions more gray or harder to enforce? If so, how can I fix that?
Finally, to help with clarity, here’s my magic solution. Ask a friend to read your contract. You may need to bribe them. Contracts aren’t fun for most people. Specifically, here’s what you do. Say, “Hey, can spend about 10 minutes reading through my contract? I’ll ask you some questions about it.” Tell them to spend however much time you’d expect your client to look at it, and get real about it. Hardly any of our clients are actually reading the whole thing in detail, so your friend doesn’t need to spend two hours reading with a highlighter and red pen in hand.
I also recommend asking someone that’s not directly in your industry. You want someone who wouldn’t necessarily be able to guess what it says and who is relatively similar to your ideal client.
After your friend reads/skims the contract, ask them questions and give them hypotheticals. Here’s a good question to get them started. “If you wanted to cancel my services, 60 days before I’m supposed to perform the services (or before the wedding day), what’s your expectation of what would happen?”
They don’t need to answer from memory. Tell them they can take five minutes to read the relevant provisions. They should be able to find the key info from your paragraph headings and tell you what kind of notice they’d need to give, whether they’d be entitled to refund, or if they might owe you more money.
Think of any other major things you’d want to be super clear for your clients. Add questions on those terms to your question list, and set up your contract interrogation. If the conversation increases your confidence in your contract, you’ll be ready to move onto some additional contractual considerations.