Forget the Handshake – Contracts are Critical

I have always believed that a business relationship between a client and a service provider should be a partnership. The terms and conditions of the business relationship should be clearly defined. For that reason alone, contracts in the coffee service, vending and micro market business are critical.

As an operator, both in “street vending” (music and games) and in office refreshment, we insisted on contracts. Over nearly four decades in business, our contracts helped us retain millions of dollars in business.

A Legal View

Jonathan W. Evans, a Los Angeles, CA-based attorney, www.stocklaw.com, has developed contracts and worked with operators on contract related matters for over 30 years. “Your contracts are insurance,” said Evans. “It lays down the rules and protects the investment you have made.” Considering the cost of doing business today, Evans asks a simple question. “How can anyone do business without a contract?

Valid Reasoning?

Despite the obvious benefits of contracts, I still talk to vendors who have plenty of reasons why contracts are unnecessary.

• “I operate on a handshake deal.” In the complex world of business today, handshake deals just don’t cut it anymore. This isn’t the 1950’s and even then, plenty of handshake deals went bad. When was the last time you leased a car or office space on a handshake? Those suppliers insist on a written agreement and you should too.
• “I don’t want to burn bridges.” I get it. Especially in a small town, where you will be seeing the client at a chamber of commerce luncheon every month, contract enforcement can be uncomfortable. In any major market, you will burn very few bridges when asserting your contract rights. In 37 years of contract enforcement, we burned exactly four client bridges that I can recall. Someone who was still associated with the client held a grudge and we were not awarded the business years later, for that reason. Sometimes, people take contract enforcement personally.
• “I don’t want the hassle of contract enforcement.” It is easier to pick up your equipment and just walk away, because contract enforcement takes effort. Nothing in business is easy, especially account retention. We live in a climate full of competitive forces – Amazon, warehouse stores, office suppliers and lowballing competitors – all seeking to take over your accounts. You need to protect your accounts.
• “If I enforce the contract, I’ll lose the business when the term is up.” Newsflash: You may lose the business either way, but would you rather lose it now or two years from now?” In fact, the way people change jobs these days, there is a 50/50 chance that the problematic decision maker will be at a new location in two years.

Occasionally, there are good reasons to walk away and move on. Example: You have a client that you simply cannot satisfy, no matter how hard you try. You are spending so much time dealing with their issues, it is becoming a distraction and making it difficult to stay focused on serving your other clients.

Reasons to Insist on a Contract

• Contracts establish mutual commitment. This is a fundamental reason. Going back to that partnership concept, if you and your client have determined the scope of your relationship in writing, there should be no mystery down the line about unfulfilled expectations – the primary reason that spells trouble between operators and their clients.
• Contracts define the scope of products and services. How often does a client decide to change the items in a product list, even after your pricing structure was based on having an extensive list of allied products as part of a coffee service deal? Has a client ever decided to eliminate the beverage vendor and give you the snacks only, even though you were brought in to provide both?
• Contracts establish agreed upon pricing. Clients can be forgetful. Contracts allow you establish a pricing structure and stick to it – until wholesale prices go up. A well written contract will have a provision for that inevitable situation.
• Contracts eliminate constant re-bidding. You have negotiated a deal. Everyone is thrilled with the products and service until a competitor comes in and tries to entice the client to leave you by offering lower pricing. It is not your obligation to have the lowest price. It is your obligation to provide the pricing structure that was agreed on.
• Contracts protect you from national deals. On a golf course in Florida, a national contract is agreed to by a vending management company and your client. You find out about it when your local contact tells you that as much as your service was appreciated for the last six months (since you installed), the company needs to switch. “It is out of my hands,” says the office manager. When you present the buyout amount that is specified in your contract, one of three things will happen. You will either keep the account, get paid off in full or negotiate a settlement. Your clients have funds set aside for this type of transition.

Two years later, when the glow of the national deal has dimmed, you may get the account back. You might even offer to pay back the buyout over 36 months of renewed operation.

• Contracts protect you when a business is sold. Mergers and acquisitions are more common then ever before. You should not be punished just because they sold the company and closed the office you were serving or decided that their national vendor should service the account.
• Contracts will keep the competition away. Earn a reputation as an operator who has contacts and enforces them. Competing sales reps will be less inclined to waste their efforts pursuing your accounts and will instead, concentrate on other opportunities, such as accounts that were agreed to with a handshake.
• Contracts give you the opportunity to remedy a problem. There is nothing worse for an operator than learning that a client is unhappy, has been that way for a long time and has decided to go with a new vendor. An effective non-performance clause in a contract, allowing you an opportunity to remedy an issue of non-performance, gives you every opportunity to reverse the situation.
• Contracts enhance the value of your business. If you ever plan to sell your business, which do you think will command a higher price? Will a buyer be more excited about a seller who has great personal relationships with their clients, but no contracts? Or will the buyer prefer a seller that has contracts in 90 percent of their locations?

In the coffee service, vending and micro market business, like just about every other industry, new locations require a significant investment in both time and money. You have a right to protect your investment. If you haven’t already made contracts a routine part of your business, now is the time to start.

Next column: Essential elements of an office refreshment contract.

Bob Tullio

I welcome your feedback - Cell 818 261-1758 - [email protected]

Visit the website - www.tullioB2B.com

Over the last 37 years, Bob has sold video games, cigarette machines, cranes and juke boxes to bars and amusement centers, full line vending to public locations and office environments, pay telephones to retailers, coffee service to thousands of office locations and of course, micro-markets. He has a very successful track record as key strategist, sales trainer and media manager under the title, "Director of Business Development" for World Wide Vending and Gourmet Coffee Service.