Business on a Handshake


Most of my childhood years were spent growing up in a small town in Southern Utah. I remember spending hours riding and jumping my bike in open fields, building home additions with family, and working on Grandma and Grandpa’s farm. I look back fondly on those years, but as I grew, that small town did as well. Many of the fields I played in are now covered in homes, and the population has more than doubled since the years of my youth. 

Growth has brought us many new services and resources, but the way of life for many individuals is changing. In the past, business was done on no more than a handshake, and that handshake was worth more to many than any piece of paper or legal documentation. Often, I still hear of “the good old boys” doing business in this way. 

Unfortunately, as growth continues, I hear more and more about problems related to these agreements. As an insurance agent, I feel that I have a unique vantage point when it comes to working with local businesses. Often clients turn to me with questions regarding risk transfer and potential losses. I also work closely with business owners as they experience losses and legal frustration. Working regularly in this capacity has taught me that, unfortunately, business on a handshake is no longer a good way of doing business.

Not only are insurance companies starting to require contracts and waivers to be in place and used, but in certain situations, coverage can even be declined if proper documentation is not utilized. Aside from this, there are many situations such as payment disputes that may not be covered under an insurance policy that could be covered under a good contract. 

New client agreements and service contracts are increasingly important as inflation rises and shortages increase due to pandemics, natural disasters, and labor shortages. Financial stress has left some individuals searching for alternative ways to get out of debt and not pay what was agreed to. Unfortunately, I have multiple clients fighting suits such as this. Subcontractor agreements are also increasingly important as vicarious liability draws contractors and other upstream parties into legal disputes resulting from the actions or work of a subcontractor. 

One of my clients stated that they were so grateful they had a signed service agreement and change orders in place prior to a legal battle. They had been meticulous in documenting and tracking this information which has allowed them much more leverage in court. But unfortunately, this client also stated that they had discovered that their contract was not as robust as they had initially thought. 

Which leads to my next and final point, it is important to have these contracts reviewed by a knowledgeable attorney and other consultants that specializes in your given industry. Based on changes in the insurance industry alone it is important to verify that required limits of insurance are adequate and that proper forms of additional risk transfer are being requested. These limits and requirements will also change depending on the size of a contract and/or area that work is performed in or where products are sold.

In conclusion, many of us look back fondly on the good old days, but, unfortunately, change is here. In today’s litigious world, successful business owners must be ready and willing to accept that, as Samuel Goldwyn put it, “A verbal (or handshake) contract isn’t worth the paper it’s written on.”

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