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Should you trust a verbal contract as a small business owner?

You have good reason to be proud of your small business. Unlike many of today’s big box-style companies, you provide the level of personal interaction and unmatched quality that Georgia customers appreciate. You might also run parts of your business the old-fashioned way – with friendliness, cooperation and mutual trust.

However, are there some elements of old-fashioned business that you might not be able to trust anymore? Let us say that your grandfather ran his shop by accepting trades for some items and services, and handshakes in lieu of written contracts. The intimate size of your business and the friendships you have developed with your associates might tempt you to conduct business the same way. However, as you understand, there is never a guarantee that all parties will always be satisfied.

Verbal versus written contracts

In a hypothetical situation, say you run a sandwich shop that specializes in locally-sourced artisan breads and fresh ingredients. You have had a longstanding verbal agreement with a neighborhood baker to provide you with fresh bread each morning, in exchange for a set payment and a few of your sandwiches each week. However, one day the baker comes in and states that his terms have changed. He wants to charge more for his bread and no longer wants free sandwiches. You disagree, stating that you both agreed to the original terms for as long as you both do business together.

As you can imagine, you might have difficulty proving such an agreement was made if the baker decides to take you to court. Courts may uphold verbal contracts, but it can be difficult to prove them to a judge.

Statute of Frauds

There is another element to contracts called the Statute of Frauds. To have a legally binding agreement, you would need a written contract for transactions over $500, a job that you expect to take longer than a year, a transaction involving real estate or an agreement to repay another person’s debt.

It may be in your best interest to include a written contract for each business agreement. These contracts do not need to be overly complicated, and they can protect your small business while remaining friendly and casual.

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