You decide to work with another business owner. Maybe they’re a vendor. You’re going to buy products or services from them. It seems like a lucrative deal for both of you. You hash it out at lunch one day, at an impromptu business meeting.
The company you run is a small, local business. You only have a few employees. The same is true for the other business owner. The two of you went to high school together and you have known each other for years. You’re doing well, but this isn’t two Fortune 500 business owners sitting down together.
As such, the other owner just wants to do a handshake deal. It’s a verbal agreement. They don’t want to draft a contract or get anything in writing. They assure you that they’ll hold up their end of the deal if you hold up yours.
You worry, though, that things could get complicated. What if you make a monthly payment and then they don’t deliver on time? What if you lose sales? What if your reputation takes a hit? What if you lose money? Sure, you hope that everything goes well, but there are a lot of questions. To a degree, you now depend on this other company. If they let you down, is a handshake deal enough?
Backing it up
It may not be. While some business owners love handshake deals, the problem is that there could be a dispute that’s difficult to solve. No one else came to the meeting. Maybe the other owner agreed to sell you the products or services for $10,000 per month. When they bill you, they ask for $15,000. They tell you that’s what they remember. Now what?
Or, maybe they agree to deliver every month, on the first. They miss a month or have a late shipment. They tell you that they didn’t think they had to do it every month or that they didn’t know there was a specific date. You don’t have a contract that you can point to in order to prove who is right.
The key may be to back it up in some way so that it is in writing, even if it’s not a contract. One tactic is to send a thank-you email after the fact, outlining the key points that you discussed in the email. Another tactic is to have that business meeting with a few other people so that the two of you aren’t the only ones who know what you agreed to.
Of course, the best way to protect yourself is to refuse to do a handshake deal and ask for an official contract. Make sure you know what options you have to put your company first — and what to do when a deal falls through.