A business owner sets their price based on what they think the job entails. A quote is done based on the cost of the materials needed, the time it will take and any other costs. This quote should be documented and the customers’ agreement in place before the job starts.

The Tragedy
Joseph was a flooring installer and fairly new to the business. He did moisture readings for the laminate flooring he was getting ready to install and the numbers were not good. The subfloor had a lot more humidity than the flooring he was supposed to put down. When he explained to the contractor that the installation would have to wait until the humidity dropped, he was told that was not possible.

Now it is decision time for Joseph. If he lays the floor, it will not perform well and eventually the contractor or homeowner will be complaining to him. If he does not lay the floor, his customer will not be pleased, and Joseph will likely not get paid. In my opinion what Joseph should do is write on the quote or the invoice, “Due to the humidity at the time of installation there is no warranty on this flooring” and have the contractor sign it. This is the documentation which will keep Joseph from losing money on the job when he has to make repairs which are not his fault.

However, what usually happens is the flooring installer bows to pressure and installs the floor. Then six months later the homeowner calls to complain that the floor is cupping. And Joseph says that he told the general contractor not to install the floor that day. And you can be sure that no one remembers this conversation. Now Joseph has a problem because he will get a bad reputation if he does not repair the floor and he will lose money if he does repair the floor. Joseph is wishing he had proof that there was no warranty on this floor.

Customer Expectations
There is no better way to be sure you and your customer are on the same page when it comes to the work to be done, than sitting down and drawing up a list of what the customer wants and what you have agreed to provide. A few minutes spent at the beginning of the relationships to sort this out will save much time and money down the road. Once you have the list then both of you sign it.
In my accounting practice we have an engagement letter which must be signed before the tax return will be given to the client. This is much less formal than a contract or a quote but it does explain what we do and what the client has to do. It is two pages long and has saved us much grief over the years.

Your Expectations
If you want your customers to pay you before the job starts, or to make progress payments as you go then you need to get it in writing. Do you expect certain things to be done before the job starts? What about time lines? When will you get the work done, when will the client provide whatever you need from them? How long is the warranty? Will you charge interest if payment is not made on time?

The Agreement
The agreement can be an official contract prepared by lawyers. The agreement can be quote signed by the customer and by you. You can prepare an engagement letter.

What you should not do, is to have an agreement which is entirely verbal, without written documentation. In this situation there is no way for anyone to figure out what was said.
I am sure you have heard there are two sides to every story, but I would say that there are three sides to every story. Your version, the other persons version and then there is the truth. People only tend to remember what they heard.

Here is another example. A number of my clients have heard me tell them they can deduct their vehicle expenses, what they have not heard, is that they can deduct their vehicle expenses if they keep a mileage log. I am pretty sure that I told them, they are pretty sure they never heard me say that.

Avoid these conversations by putting your agreement in writing.

Policy
You should establish in your business a policy about what should be documented. This would include employee agreements, customer agreements and supplier agreements. There should also be a policy that the agreement is reviewed with the client before they sign the agreement, so they actually understand what is included in the agreement and what is not.


Conclusion
Documentation is a one of the keys to business success. Much trouble is avoided by “getting it in writing,” so there is less chance of misinterpretation.

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