I recently spoke to a woman about her husband’s business. She told me that this gentleman had to close his 16-year-old Grand Rapids small business 4 years ago. She said that over the course of the 16-year life of the small business it had accrued about $250,000 in uncollected invoices. That is over $15,000 per year that this small business was losing.
The problem that this West Michigan small business was running into was these bills were for $3,000-$5,000. It cost too much to hire an attorney on an hourly rate and not many attorneys were willing to take their case on a contingency fee basis. Basically even if they collected the money owed they would not get the full amount. The kicker in her story was the business did jobs that were covered by insurance proceeds so the clients had the money to pay.
The solution to this small businesses problem is a simple one. With a properly drafted contract they could have not only collected all of the fees owed but the client would not have to pay any costs including attorney fees that the business incurred in collecting the amount owed. Lots of small businesses use contracts that don’t have clauses that protect them if they are using contracts at all.
This is just one of the many issues that a great contract can help you avoid. Other issues like limiting liability, ownership of work issues, warranting work issues and so many more potential disputes that arise out of the work you do can be avoided with the right clauses and terms in your small businesses contracts.
Yes you have to pay an attorney up front to make sure your contracts are properly worded but how much are you willing to pay to avoid a $50,000 dispute down the road? Or $250,000 in uncollected bills? Or stress of wondering if that client is going to sue you over an issue that is out of your control?
To find out about more potential mistakes that your small business might be making, download your free report about the most common mistakes that entrepreneurs are making right now here.