| Written by Mark Borkowski |
 A mistake so many electronics companies make is thinking they don’t need contracts with clients, subcontractors and employees.
They don’t want to be seen as untrusting.
In a perfect world that would work. In a perfect world a handshake would seal a deal. All parties would understand the expectations and never vary, never take advantage.
Guess what? The way you create that perfect world is to have standard contracts in place that everyone signs and commits to. Contracts prevent the possibility of harm.
It isn’t that you assume everyone is out to hurt you. It’s that the most successful businesses have systems in place to safeguard against any possibility of harm. It prevents the heated conversation down the road.
Everyday I watch companies fail to initiate a contract with their clients only to find out there is a significant difference in the understanding of the scope of work. Your relationship with your client is of the utmost importance. You want to be sure there is a clear understanding of what you are going to do for them, what the cost is, and how you expect to receive payment. This clarity eliminates any misunderstandings.
Example:
An electronics sales person meets with a prospective client to determine their needs. He takes lots of notes, goes away, and creates a proposal. He goes back to the prospect to deliver the proposal. The proposal gives an overview of client needs, as well as an overview of the proposed products and service.
This might include a number of extra services requested. At the end of the proposal is the total cost. The prospect reads it and agrees to proceed.
“Consensus ad idem” – Agree to key details before we get started.
However, the electronics sales representative doesn’t then have the new client sign a contract. A contract that would have stated the payment cycle, as well as the delivery schedule. And the proposal was an overview – not a detailed discussion of what the company would provide and do.
When the services and products are provided, the Electronics company invoices the client. However, the client is unhappy and states that he didn’t get what he thought he was going to get. Slow delivery or whatever excuse. Because they didn’t hammer out the details and sign a contract that included those details, the sales representative left himself open to the client’s assumptions — conclusions that did not track with what the sales representative believed the client wanted.
Consider your own business. Do you have contracts for your clients? Do you spell out the scope of work along with the payment schedule?
If you have employees or subcontractors who work very closely with your clients, you may even want to have a clause preventing clients from taking your employee or subcontractor away from you.
Example:
An IT firm specializes in providing on-call IT specialists to small and medium size companies. They match the specialist with the client so the relationship builds over time. The client likes it because they have the same person dealing with their system. The IT firm has a contract that details the work to be performed, the payments and the payment cycle. Unfortunately, there is nothing that protects them from a client taking their employees.
One day the IT specialist turns in his resignation and goes to work directly for the client. The IT firm has now lost not only a skilled staff member, but a client as well.
This same scenario applies to using subcontractors. And make no mistake. Having excellent people is a double-edged sword. Because they do such a great job for your clients they are attractive to those same clients.
Your responsibility to you, your company, and your staff is to have a contract clause that prevents the client from taking your people.
When it comes to your clients, clarity is key. The best relationships grow out of clearly defined expectations. And I submit that having contracts is the truly kind thing to do. It shows professionalism, foresight, attention to detail. It prevents misunderstandings that can be damaging to the client relationship.
Always remember that your actions today will determine your future with that client, and referral possibilities down the road.
Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile specialize in the sale of mid market companies. Mark can be contacted at www.mercantilemergersacquisitions.com
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