Even in a close-knit community, you need to protect your small business. Making verbal agreements may seem like the neighborly thing to do, but it could backfire on you and cost you the business you worked so hard to build.
Verbal contracts are not always enforceable in court. If you end up in a dispute with the other party, you may have no legal recourse if you can’t work out a resolution on your own.
Compelling reasons for a written contract
In order to protect your business and ultimately yourself, you need to seriously consider putting your agreements with others in writing. Below are the most often cited reasons why this is so crucial:
- If the person you made an agreement with leaves the company providing you goods or services, you have no record of it, so you can’t enforce it.
- Unfortunately, people don’t always tell the truth. When you put an agreement into writing, you have some source of legal recourse if the other party doesn’t follow through with his or her obligations to you.
- Verbal agreements are a breeding ground for misunderstanding. A written contract gives all the parties involved the opportunity to make sure that everyone understands their obligations and the other agreed-upon terms.
- Written contracts also serve as a reminder to everyone involved of the expectations of them and when.
In addition, certain contracts have to be in writing under California law in order to be enforceable if you end up in a dispute. For instance, if you enter into a contract in which goods value at $500 or more, your contract needs to be in writing in order to be valid and enforceable. If you purchase land for your business, the purchase and any financing you may need requires written agreements as well.
What does a written contract include?
Contracts require certain elements in order to be complete, valid and enforceable, including those listed below:
- You will need to identify who takes part in the contract.
- You will need to outline the subject of the contract. For instance, if you agree to purchase certain goods from a supplier or vendor, you need to identify what those goods are.
- You will need to specify the “consideration,” which means what you will give or get in exchange for the goods or services outlined in the contract.
- You will need to put in the specific conditions and terms you and the other party agree on.
Everyone who is party to the contract will need to sign it. This serves as an acknowledgement that you both understand the contract and agree to its terms.
The hope is that everyone fulfills their obligations under the contract, but if something goes wrong, you have your written contract to fall back on in order to protect your business and yourself.