As a small business owner, you may find yourself networking and meeting other business owners in your local area. If two of you hit it off and think you can work well together, you might come up with ways for your companies to complement each other. By working together, both of you could be profitable.
In this type of situation, it may be tempting to rely on a handshake deal or a verbal contract. The other person may seem trustworthy and dependable. You might even hesitate to ask for a written contract because you don’t want to imply that you don’t trust them. You may worry that asking for one could offend them and undermine the deal you’re both excited about.
Disputes are more likely
However, a handshake deal might not be enough. One potential problem is that it increases the likelihood of disputes in the future. The two of you may agree on terms today, but what if there’s a misunderstanding about what’s expected? Without anything in writing, differing beliefs about the agreement could lead to serious conflicts.
There’s very little proof
If a dispute does arise, another risk of a handshake deal is that it’s difficult to prove the agreement existed in the first place. For example, you might claim the other business owner agreed to pay you a certain sum for parts and materials for their business, while they claim they agreed to a much lower amount. If all you have is a verbal contract, without paperwork or witnesses, how can you enforce the agreement? How do you prove who is telling the truth?
This doesn’t mean you shouldn’t work with other business owners, but it highlights the importance of taking the proper legal steps to create a well-defined contract when you do.