Do you have a business partner? A fellow entrepreneur, friend, investor, or even a family member? Some people think that handshakes and verbal agreements are good enough, but that is not the case! Hiring a lawyer to draw up a written contract is one of the most important things that you can do for your business when you’re working with someone.
It’s hard to spend that money on an attorney – I know! I know that paying the attorneys is one of the hardest things to pay for because it doesn’t generate you revenue right now, it’s money out the door. In the long run, it will cost you so much more.
When I worked with my old company, FITzee Foods, I didn’t want to spend money on a lawyer. I wanted to invest my money into what would bring in more revenue.
When I closed FITzee Foods, I lost 2 million dollars. A guest on Success Unfiltered, Harriet Mills, lost a million dollars.
A written contract is like a prenup for your business or also known as a written agreement. It protects you, and it protects your business.
Harriet Mills took her business on Shark Tank and when she was picked by one of the Sharks, her business partner said NO to getting an investment from a Shark!
Starting From a NO
Harriet Mills is someone who is driven by the word NO.
On a trip to South Carolina, she went into paint and sip studio with a friend and loved it.
“She said, I want to bring this back to North Carolina,” she told her friend. When she approached the owner, they told her NO, that they were not interested in working with her to open another location.
Undaunted, she returned back to North Carolina and started her own paint and sip business. She named it Wine and Design, and the business grew quickly.
It grew so quickly, that they were being asked about franchising in other locations.
Harriet hadn’t planned on franchising – in fact, she had simply wanted a business where she could be a mom, make money, and spend time with her kids.
Now, she was put in a CEO role, and began to learn and grow in her business. She jokes that she’s earned her MBA, with as much as she’s learned.
After almost two years, they began to expand into other locations around the US. Now, they are almost to one hundred locations all over the United States.
That original business that turned her down? It eventually became a Wine and Design franchise.
Creating a Franchise Written Contract
Harriet was baffled when she reviewed her franchise’s written contract because nothing about the Wine and Design business has to do with cars. The written contract had all mentions about cars in it!
The legally binding contract was full of language from the automobile industry and dealt with issues regarding cars, and oil.
When she went to her lawyer, she found that he had done something that is often done in the law industry: he had recycled a previously written contract. He had used an agreement that he’d used with another client, with her.
However, what he had not done was edit the agreement. Instead of creating it and tailoring it for her business, he had simply taken the previous agreement and given it to them as-is.
This led to Harriet having to completely redo all of her agreements a year later.
“I bet he wishes he was our franchise lawyer now,” she jokes, looking at the company’s growth with more than one hundred locations.
One of the biggest struggles through the beginning process of the business was that many people didn’t take the Wine and Design business seriously. They’d look at the business plan, and say “Okay, I don’t know how that is going to make money.”
Don’t worry, though! Harriet and her company have definitely proven themselves!
The Biggest NO
Harriet’s biggest NO came when she appeared on Shark Tank.
After giving her pitch, Kevin O’Leary wanted to become an equity partner in the business. It was all taken care of, except for one thing. Harriet had to ask her business partner to accept Kevin as an equity partner.
Her business partner gave Harriet a resounding… NO.
It was at that moment that Harriet knew it was time to take on the business for herself.
After several years, and the loss of a million dollars, Harriet became the sole owner of Wine and Design with no Shark as an investor.
However, the experience taught her about the importance of written contracts when working with a business partner.
“A contract is a must,” she says. “If you don’t have one, you’ll A) fail in the business, B) lose friendships or C) it’s going to be awful.”
Another key component of written contracts is written documentation.
In business, there are some people who believe in handshake agreements, verbal contracts negotiations.
“Follow verbal agreements up in writing,” Harriet advises. “Everything you have in writing is documented.”
This documentation can be crucial through the process of the growth in your business.
It can also be helpful when working with anything in the business.
Harriet had to fire a marketing firm several years ago.
“It was hard, but they weren’t doing what they were supposed to do,” Harriet says.
A written contract makes the hard NOs in your business easier to accomplish.
“Make sure there is an ‘out clause’,” Harriet advises. “Give [your contractors] a retainer, and make sure you’re getting detailed reports. Let them show you conversions – if there aren’t any, they aren’t doing their job.”
These written contracts make the hard NOs easier. Harriet likes to give everyone a chance, and doesn’t like saying NO – but the contract facilitates her ability to make the best decisions for her business.
Harriet experienced stress, frustration, and financial loss when her business partner said NO to taking on Kevin O’Leary as an equity partner for Wine and Design.
Through that, she learned that written business contracts and follow up had to be a priority for any business with a partner.
So I have to ask you, do you have a business partner? Are you working under a handshake agreement? Verbal or oral agreement? or do you have a written business contract in place? Tell me in the comments!