Answers|Dictionary

Do I need a customer contract and business insurance?

ContractsInsurance

Yes, both, before your first paid job. A written customer contract decides what you are doing, what you will be paid, when, and who owns the result. Business insurance pays when something goes wrong anyway. Forming an LLC protects your personal assets from the company's debts, but it does not protect you from your own mistakes, and it does not pay a claim. Insurance does.

What the contract should say

• The scope: what is included, and what costs extra.
• The price, the payment schedule, a deposit and a late fee.
• Who owns the work, and when ownership passes.
• A cap on your liability, often the fees paid under the contract.
• How either side can end the engagement, and what is owed if they do.

Most disputes in a service business are about scope and payment, not law. A contract that answers those two questions plainly prevents most of them.

The insurance most service businesses carry

• General liability: injury or property damage, such as a client tripping over your equipment.
• Professional liability, also called errors and omissions: a claim that your work or advice caused a client a loss.
• Cyber liability, if you hold client data or take payments online.
• Workers' compensation, once you have employees. Most states require it.

Larger clients often require you to carry insurance and send a certificate before they sign. Having a policy in place can be the difference between winning a contract and losing it.

What to do

• Put every client on a written contract before work starts.
• Include scope, payment terms, ownership and a liability cap.
• Get quotes for general and professional liability insurance.
• Keep a certificate of insurance ready for clients who ask.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.