When my friend Laura called me in a panic one afternoon, I could hear the fear in her voice. “Olivia,” she said, “I think I’m about to get sued.” Laura, a longtime friend and small business owner, had been running her own catering business for years. She was meticulous about her food, her service, and her reputation. But what she wasn’t meticulous about? Contracts.
Laura had agreed to cater a wedding for a high-profile client—a friend of a friend. Everything seemed fine until, two weeks before the event, the client suddenly demanded changes to the menu and added extra services outside their original agreement. When Laura pushed back, the client threatened legal action, claiming there was no signed contract specifying the details.
This wasn’t the first time I’d seen something like this happen to a small business owner, but it hit differently because Laura was my friend. I immediately offered to help her navigate the situation, and what followed was a crash course in why contracts are the backbone of any business. Here’s what happened, what we learned, and the tips I now share with every small business owner I meet.
The Root of the Problem: A Verbal Agreement
When Laura first took on the catering job, she and the client had discussed the details over coffee. They agreed on the menu, pricing, and timeline, but nothing was written down. Laura, trusting that everything would go smoothly, didn’t ask for a signed contract. “I’ve never needed one before,” she told me. “I thought a handshake was enough.”
Unfortunately, verbal agreements can be risky. Without written documentation, it’s easy for misunderstandings—or outright fabrications—to arise. In Laura’s case, the client claimed they had agreed to specific extras, like a dessert station and late-night snacks, which Laura had no memory of discussing. Without a contract, it became a matter of “she said, she said,” with no concrete evidence to back up Laura’s version of events.
The Fallout: When Trust Isn’t Enough
The situation escalated quickly. The client sent a formal letter demanding that Laura honor their alleged agreement or face legal consequences. Laura, who had built her business on personal connections and word-of-mouth referrals, was devastated. Not only was she worried about the financial implications of a potential lawsuit, but she also feared the damage to her reputation.
We immediately reached out to a small business attorney, who confirmed what I suspected: without a signed contract, Laura was in a vulnerable position. Verbal agreements can hold weight in some situations, but proving the terms in court is notoriously difficult. The attorney recommended that Laura attempt to resolve the issue through negotiation to avoid the costs and stress of litigation.
The Resolution: A Hard Lesson Learned
With the attorney’s guidance, Laura and I drafted a carefully worded response to the client, outlining her willingness to make reasonable accommodations while disputing their additional claims. After several tense back-and-forth exchanges, the client agreed to a compromise: Laura would provide a scaled-down version of the extra services at a discounted rate. It wasn’t an ideal outcome, but it allowed her to fulfill the job and avoid further legal complications.
After the wedding, Laura vowed never to make the same mistake again. Together, we created a simple, customizable contract template for her business, covering everything from payment terms to service modifications. Now, every client signs on the dotted line before work begins.
What Every Small Business Owner Should Know About Contracts
Laura’s experience is a cautionary tale, but it’s also a reminder of how easily legal issues can arise in small businesses. Here are the key lessons we learned:
1. Always Get It in Writing
A handshake or verbal agreement might feel friendly, but it won’t protect you if something goes wrong. A written contract provides clear terms that both parties can refer to, reducing the risk of misunderstandings.
2. Customize Your Contracts
Your business is unique, and your contracts should reflect that. Use templates as a starting point, but tailor them to include specifics like scope of work, payment schedules, cancellation policies, and dispute resolution methods.
3. Include a Modification Clause
People change their minds, and clients may want to add or alter services after the contract is signed. A modification clause ensures that changes must be agreed upon in writing, preventing disputes down the line.
4. Protect Yourself With a Limitation of Liability
This clause limits the amount you can be held liable for if something goes wrong. It’s especially important in service-based businesses where things like delays or misunderstandings can occur.
5. Consult a Legal Professional
While DIY contracts are better than nothing, consulting an attorney can help you create agreements that address the specific risks of your industry. It’s an investment that can save you thousands in the long run.
How This Changed My Perspective
Helping Laura through this ordeal made me realize how common these issues are for small business owners. Many entrepreneurs, especially those who build their businesses on personal connections, underestimate the importance of legal safeguards. They focus on delivering great products or services but overlook the foundation that protects their hard work.
Since then, I’ve made it a point to educate my clients about the importance of contracts. I’ve seen firsthand how a simple document can prevent misunderstandings, protect relationships, and save businesses from costly legal battles.
Tips for Implementing Contracts in Your Business
If you’re a small business owner, here are some practical tips for making contracts a regular part of your operations:
Start With a Template. There are plenty of free or affordable contract templates available online, tailored to specific industries. Use these as a foundation but customize them to fit your needs.
Make Contracts a Standard Practice. Presenting a contract to clients should be as routine as sending an invoice. Frame it as a way to ensure clarity and professionalism.
Explain the Terms Clearly. Take the time to walk your clients through the key points of the contract, answering any questions they might have. This builds trust and reduces the likelihood of disputes.
Keep Digital Records. Use tools like e-signature platforms to streamline the process and keep contracts organized. This also provides a digital paper trail for future reference.
Review and Update Regularly. As your business evolves, so should your contracts. Review them periodically to ensure they still meet your needs and comply with relevant laws.
Why This Matters
Contracts aren’t just legal documents—they’re tools that protect your business, your relationships, and your peace of mind. Whether you’re a seasoned entrepreneur or just starting out, taking the time to create clear, well-crafted agreements is one of the smartest investments you can make.
Laura’s story had a happy ending, but it could have easily gone another way. If you’re running a small business, don’t wait for a crisis to take action. Protect yourself now, and you’ll thank yourself later.
