11 Aug TOP FIVE MISTAKES OF NEW ENTREPRENEURS (FOURTH IN A SERIES)
MISTAKE NUMBER FOUR: WE DID IT ON A HANDSHAKE. Putting an agreement in writing sounds a lot like the professor assigning homework and many entrepreneurs would rather go to the dentist than spend the afternoon working on a long document. I interviewed a potential client who wasn’t even fully certain of who had invested in his company (I refused to even wade into that time bomb). I think there is a misconception that this is ok because many times an agreement on a handshake does work. As long as the agreement is simple and all parties do their part, it never has to be enforced by a court. Recently the New Yorker profiled New York Mets owner Fred Wilpon and reported that his decades long agreement with his business partner is by handshake only, even though their tax return now exceeds 2,000 pages. Of course, he’s also in trouble for doing business with Bernie Madoff … A lot of entrepreneurs ask me then more generally, when should something be in writing? The short answer is almost always. The legal answer is that certain verbal agreements will be enforced by a court, but certain agreements are invalid unless there is a note or memorandum that is in writing signed by the person to be charged. If your matter is governed by California law, a full listing of the contracts that need to be in writing to be enforced is set forth in Cal Civ Code § 1624. The answer you’ll remember is this one. At the risk of being offensive, doing business without written contracts is a lot like having unprotected sex. You might get away with it every so often, but if you’re out there every weekend with a different, random man or woman from the bar, you will get an STD. Likewise, if your contracts are not well documented, you might be fine a couple of times, but it’s a numbers game. Eventually you will be in litigation and you very well may lose. The Lesson. An ounce of prevention is worth a pound of cure.