Three contracts every self-employed person needs – by Cliff Ennico (14 Feb 09)

Book cover

THREE CONTRACTS EVERY SELF-EMPLOYED PERSON NEEDS

By Cliff Ennico

“I was recently laid off from a job in corporate America.  Until something comes up in my field, I’ve decided to make some extra money by doing bookkeeping services for some local businesses.  Do you have any thoughts on what my contracts with customers should look like?”

First of all, congratulations on realizing that you NEED to have a written contract with each of your customers.  Too many people in your situation would try doing business on a handshake basis, and, as the famous investment banker J.P. Morgan once said, “a verbal contract isn’t worth anything more than the paper it’s written on.”

I don’t think, though, that hiring a fancy lawyer to have a “perfect” contract drafted is a good idea.  First of all, it will cost hundreds of dollars.  Second, it will be written in complex “legalese” that will scare off your small business clients.

Instead, I would suggest you try to draft the contract yourself, in your own words, then hand it to a local lawyer with a request that she spend “not more than one or two hours” making it look like a real contract.  Then, when she hands it back to you, review it and change anything you think will make the contract  more “user friendly”.  Finally, ask the lawyer to give the contract one “last pass” just to make sure you didn’t give away the store.

So what should be in your client contract?  Here are the basics.

(1)        A description of the services you will render for the client, along with a list of services you will NOT render.  This can be in a “schedule” which you attach to your standard contract – that way you can change it each time you take on a new client without having to go back to your lawyer.

(2)        A statement that all QuickBooks files and other client data belong to you until such time as you have received payment in full for services.

(3)        A description of the fees you will charge for services rendered, when invoices will be rendered, and (most importantly) when payment is due.

(4)        A statement that sales taxes and other taxes will be added to your fees (some state and local governments impose sales taxes on bookkeeping services – check with your tax advisor to find out the law in your state).

(5)        A statement that interest at 18% per annum “or the lowest rate allowed by law” will be charged on overdue invoices, along with a statement allowing you to discontinue services and retain client files if ANY invoice is not paid on time.

(6)        Your agreement to keep all client information strictly confidential at all times.

(7)        A statement that you are acting as an “independent contractor”, not an employee of the client.

(8)        A statement requiring the client to submit data that is “true, accurate and complete in all material respects” and indemnifying you for any mistakes you may make because you relied on bad data from the client – we lawyers call this the “garbage in, garbage out” clause.

(9)        A statement limiting your liability for errors and omissions to the total amount of fees the client has paid you “or $100, whichever is greater”.

(10)      If the client is located in another state, a statement that any lawsuits or claims under the agreement must be brought in the city and state where your office is located, not where the client’s offices are located.

Since you are planning to return to the corporate world at some point in time, you probably should also add a clause allowing you to terminate the contract at any time upon X day’s prior written notice to the client.  This clause should also clearly state (1) that if you terminate the contract the client is liable only for fees incurred up to the termination date, and (2) that your only responsibility is to “use your reasonable best efforts” to find another bookkeeper for the client.

Once you have a solid contract for your clients, there are two other agreements you should draft (or have someone draft for you):

O         A short (no more than two pages) agreement for a temporary employee or student intern – this agreement should state clearly that employment is “at will” and may be terminated by you at any time, with or without a reason; and

O         A subcontractor agreement between you and another bookkeeper or professional you bring on board in order to satisfy a particular client’s needs – this agreement needs to state clearly (1) that the subcontractor is required to pay any Social Security, FUTA and Medicare taxes due on the amounts you pay her, and (2) that you are not required to pay the subcontractor for her services until you yourself have received payment from the client. 

The Bookkeeper’s Referral Network (www.bkpr-network.com) offers sample contracts and other resources for people interesting in the bookkeeping profession.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and former host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2009 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

 

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