Your Legal Risk Audit — Part 1
What Kind of Business Owner Are You?
Here's a common situation a lot of folks in corporate contracting run into: the client says yes to your service and they start onboarding you as a vendor. All is going well. You've got new business and cash flow is on the horizon.
But then someone from your client's team sends you a 20 page vendor contract that makes your eyes glaze over. It requires you to carry a $2M insurance policy, comply with data policies that require an IT team, indemnify them in a lot of different situations that may not even apply to you, and the payment terms are 90 days.
But you're just writing a series of articles for their marketing team.
A lot of folks will sign these contracts and move on. Others will try to fight for better terms, but not really know what terms they should be fighting for so the negotiation feels more like a hope and a prayer than anything else. And others, will simply absorb the additional costs like a new insurance policy or extra data security measures and call it a cost of doing business.
In this three-part series, I'm going to show you how knowing your business's legal risks can help you trim the fat off of corporate contracts that include a bunch of terms that don't apply to you, create clearer scopes of work, and protect your most valuable assets.
If you haven't read my other articles on What Legal Risk is and Why it Matters or The 4 Ways to Manage Legal Risk, I invite you to go back and read those before diving in her.
If you're ready to start building your business's risk profile, then let's get started.
This article will cover the following:
Why it's important to understand what kind of business you are
The 4 questions to understand what kind of business you are
How your business type shapes your legal needs
How your legal needs inform your client discovery process.
Let's jump in.
Why Your Business Type Matters for Corporate Contracting
To start, let's talk about why understanding what kind of business you are matters for corporate contracting. Most of the contracts you'll encounter are what is called a master service agreement (MSA) or a standard agreement your client uses with all of its service providers. These agreements are usually written with other large businesses in mind -- ones that have legal teams, an IT department, compliance teams, and substantial insurance policies. The purpose of using an MSA is to streamline processes and maximize efficiency.
But unfortunately, most MSAs aren't written for businesses like yours -- a solopreneur or a small team who is mostly operating out of a home office and whose IT team is Google Workspace.
This creates a pretty big mismatch. The things in most MSAs work for larger companies, but are usually over the top for a solopreneur or small team.
The goal of my work is to show you how to approach contract negotiations in these situations so you can achieve the following:
Charge appropriately for the service you're providing
Navigate your way through the vendor onboarding process efficiently
Negotiate the terms of these contracts to ensure your business isn't facing unnecessary exposure.
Because right now, you're probably either walking away from good clients because their contracts feel too risky or you're accepting all of their terms without question and absorbing costs you could be shifting back to your client.
Instead, I want you to be in a position to level the playing field. The first step to doing that is to understand what kind of business you own and how that impacts your contract negotiations.
The Four Key Questions to Determine Your Business Type
Alright, now that we've covered why this stuff matters. Let's get into the actual meat of it all.
Question 1: Are You a Wall Street or a Main Street business?
I alluded to this distinction when I talked about why knowing your business type matters. Lots of MSAs are written by and for Wall Street businesses, but a lot of freelancers and consultants are Main Street Businesses. So what exactly is the difference?
Wall Street businesses are usually large, publicly traded companies or companies with a goal of becoming publicly traded or being acquired by a publicly traded company. These companies have a lot assets. If they're new, they usually require substantial funding (millions or sometimes billions of dollars). That's why they tend to need longer and more complicated contracts because these companies face a ton of potential risks, many of which, they manage, at least in part, through their contracts.
Main Street businesses are usually smaller businesses that are privately held. There can be a big range as to what constitutes a Main Street business, but generally, these businesses don't require as much or any investment to get off the ground. They are sometimes acquired or sold, but they are also just as likely to be passed on to other family members or wound down when the business owner retires. These businesses can have smaller teams or be operated by a single person. Most solopreneurs, freelancers, and consultants in corporate contracting are Main Street businesses.
The Questions You Need to Ask
If you're reading this, you're probably a Main Street business so go ahead and mark that down on your risk profile. Now let's talk about how this information informs your sales and client onboarding process.
In addition to knowing what kind of business you are, you also want to know what kind of business your client is. Are they a Wall Street business or a Main Street business?
A Wall Street business is more likely to have an in-house legal department that has specific standards and processes for negotiating their contracts. Their contracts can be quite onerous, but in my experience working with my clients, these business's often tend to be the easiest to negotiate with. You can structure your communication to signal to their legal team that your business doesn't pose the threat the contract term was written to protect against more easily.
On the other hand, if your client is a Main Street business, their contracts might be equally onerous, but oftentimes your client doesn't know why their contract says what it says. These types of clients are often communications or marketing agencies that either have a lawyer they can, but rarely do, reach out to for support, or they simply don't have a lawyer at all.
In my experience, these clients can be harder to deal with because they don't have a robust legal team and they're also not clear on what their contracts mean or what their own legal risks are so they tend to be guessing at their legal as well. That means for this type of client, you have take on the role of educating your client about what their contract means and why you need to change it to get the terms and pay that you want.
Now let's get into question 2.
Question 2: Solo or Team-Focused?
The second question about your business type is focused on who all is on your team. Lots of folks I work with are solopreneurs, which is great. Others work with small teams, which is equally great, but come with some different considerations from a risk perspective. Let's look at each situation.
Solopreneur considerations
If you work by yourself, things are often simpler because you only have to worry about you -- making sure your work is good, making sure you can pay yourself, etc. If your business gets sued, the only person it impacts is you (and your family, obviously, but you don't have to worry about employees). That means when you think about managing your business risks and what you're willing to risk in your respective client contracts you only have to think about yourself.
Team considerations
When you work with a team, even just one additional employee or even a contractor who regularly contributes to your work, you have to consider those folks and the financial impact that your business decisions have on them. This brings up things like proper employment classification, business insurance (so that if you get sued, the cost of defense and any judgments are paid by your insurance policy and not your business assets, which allows you to still pay your people), among other things.
In contracts, it might influence how you approach terms like indemnity and any warranties and representations, especially if your team will be doing work on that contract. You might want to negotiate for terms that are narrower in scope if you're not in a position to meticulously review the work of your team. Whereas if you work solo, you may be willing to risk broader scopes for these terms because you have total and complete control over your work, which means the risk of something being wrong might be lower and the potential impact only effects you.
Question 3: What is Your Business's Revenue Potential and What Are Your Revenue Goals?
Okay so that's two questions, but understanding your revenue potential and revenue goals can help you think strategically about how you price your services.
When I work with folks in corporate contracting, I usually find that people are *undercharging* for their services. Either because they didn't include costs that appropriately belong to their client in the price quote or because their rates, while standard, are simply too low.
Taking the time to understand what the revenue potential is for a business like yours and what your revenue goals are helps address both of these problems.
It shows you what you could be making compared to others in your industry and it forces you to be honest about what you want to be making. From there, you can look at your current rates and calculate how many clients or how many hours of work you would have to do per week or per month to achieve your revenue goals.
Does that amount of work feel feasible? Does it seem like too much work for too little pay? And lastly, what support (that you may have to pay for) do you need to achieve these revenue goals?
Once you have a better understanding of how much work you have to do, what support you need and how much it will cost you, you can assess whether your current pricing model aligns with your revenue goals.
If it doesn't, you need to raise your prices. So far, I haven't worked with a single person who doesn't need to raise their prices.
In addition to raising your prices, understanding your revenue goals can also give you insight into how to manage your cash flow by structuring the payment terms in your contracts to make it more likely than not that you're going to get paid, and on time. And depending on the size of the contract price, you might be willing to accept longer payment terms on higher paying contracts that bring you closer to your goals.
Question 4: What's Your Vision for Your Business?
A big part of knowing what type of business you run is knowing what kind of business you want to build. How big do you want your business to get? Do you plan to continue offering the same services or do you envision adding new revenue streams or working with new clients or a new audience in the near future?
These questions help you identify what you actions you need to take from a risk management perspective, both in your business generally and in your contracts, to protect future revenue streams and marketing to potential new audiences.
Sometimes this can feel a bit far fetched, but if you know you plan to expand into a new market or serve a new audience, then you want to make sure you're preserving your rights to do so in things like the intellectual property clauses in your corporate contracts. For example, if you and your corporate clients have overlapping audiences, then your work for them has to be delivered as an IP license, not a work-for-hire, to ensure you still have ownership rights in the IP you create and plan to sell in some sort of product or service.
How Your Business Type Shapes Your Legal Needs
Now that we've walked through these questions, let's look at how your business type impacts your business's legal needs and risk management strategy. If we go back to our hypothetical where you're a freelance writer writing a series of articles for a marketing team of a large corporation, then your legal needs/considerations based on your business type might look something like this:
How Your Business Type Influences Your Sales Process
Based on the above business type assessment, here are the some key questions this person might want to add to their sales process:
About the Project Scope:
What specific content deliverables are needed?
How will the deliverables by used (this helps you discern the value of your work and price correctly)?
About Vendor Requirements:
What insurance requirements, if any, do you have for your vendors?
What are the payment terms/how long does it take to pay an invoice?
What does the vendor onboarding process entail?
Do you reimburse for expenses, and if so, what kind?
These questions help you understand the true cost of working with your corporate client and shift what would otherwise be costs you absorb back to your client. That includes things like premium insurance policies, charging extra for the admin work you have to do to get onboarded, charging a premium for longer payment terms, and structuring your pay so you get paid over time, which helps stabilize your business's cash flow.
Assessing your business type prepares you to ask your client the right questions ahead of time to price your contracts correctly and shows you which contract terms you need to be prepared to negotiate to ensure payment and protect your business's assets and future revenue.
Ready to Get Strategic About Your Corporate Contracts?
Knowing your business type is just the first piece of your legal risk audit. The next step is understanding what you own now and what you're unwilling to lose - because that determines how much risk you can afford to accept in those corporate contracts.
If you're ready to continue your legal risk audit, join me over in Part 2 of Your Legal Risk Audit.