In running or starting up a fashion business, your business depends on all kinds of relationships: With customers or clients; with employees; with vendors of goods and services; with lenders and landlords, just to name a few. Each party to a business relationship brings to it a set of expectations with respect to what he or she will give and get. A contract is a useful tool for describing and defining the expectations of each party to a business relationship.
A contract is a written agreement between two parties that details the terms of a transaction. In a business, it generally states the work that will be performed, along with important information like due dates and costs. A written contract plays a vital role in any business transaction. Apart from making the agreement between concerned parties legally binding, contracts can also serve as future references, part of the business’ policies, as well serve as proof in the event of misunderstandings, complaints or disputes needing litigation proceedings.
Contracts comprises of an offer, an acceptance of the offer, and a consideration which means remuneration with conditions for the work performed. These legal agreements aim to ensure that the parties understand the details of the business agreements they are making. They become serious about their actions and goals, and work out the precise details of their venture, including their obligations, payments, warranties, services, earnings, and penalties.
Contracts are very vital for your fashion business for the following reasons:
- They minimize risk.
- They protect both you and the client.
- They stipulate how and when you get paid, what needs to trigger that payment, and what recourses you have if the client fails to adhere to the agreement.
- They specify exactly what rights are being purchased and what rights you’re retaining.
- They’re binding and legally enforceable.
- Contracts provide a written document that outlines the full understanding of the business relationship and scope of the work so that no one can claim any misunderstandings later down the road.
A contract articulates remedies in the event that one or the other party fails to perform as expected/required. By clearly defining the terms and conditions of a business relationship and the consequences of a failure to perform in accordance with those terms and conditions, a contract provides a measure of certainty, and can quantify the upside and downside inherent in a business relationship.
Disputes and disagreements can arise in all business ventures. A business contract should have a special section devoted to the treatment of disputes, providing for their resolution where possible, perhaps through mediation or arbitration. If a contract stipulates detailed mediation and arbitration procedures, the parties may be able to avoid the expensive litigation costs that a serious disagreement may cause.
Never feel awkward about insisting a client works with a contract. It’s a mark of professionalism and it is necessary. It might be appealing to seal a deal with a handshake. After all, formalities might just slow things down and, as a small business owner, you’ve got countless other things to do with your time. However, when you make a contract, proper documentation will give you and your business solid legal protection should the need arise.
To learn more about contracts and the types of contracts that will apply to your fashion business, make sure you subscribe and look forward to my next post.
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