1. What you will learn
This lesson helps you define what you want from your contract work and diagnose how ready your business is. You will score six areas that decide whether your agreements protect you, compare your view with your accountant's or a colleague's, and choose two priorities for your first month, none of which involves giving legal advice.
2. The idea explained
Contract problems in small businesses are usually not exotic. They are familiar: a customer who does not pay on time, a job whose scope grew without a price change, a supplier whose delivery slipped with no consequence, a partner whose role was never written down, a renewal that happened automatically. The first step is to say what outcome you want in a stated period, for example, no job starts without a written scope and price, or at least eighty per cent of my revenue is covered by a signed document by the end of the year. A clear outcome tells you which lessons to emphasise.
The diagnostic looks at six areas. Visibility: do you know what agreements you are bound by and when key dates fall? Scope clarity: do your agreements say exactly what will be delivered, by when and how acceptance works? Payment protection: are your payment terms clear, consistently used and backed by advances or milestones where sensible? Risk allocation: do you understand who bears the loss if something goes wrong, and have you asked a professional about it? Process: do you have a routine for who may sign, how changes are recorded and where documents live? Professional support: do you have a lawyer and an accountant who know your business and whom you consult before signing significant agreements?
Score each area from one to five and write a piece of evidence. Ask your accountant, a senior colleague or a review partner to score you independently. Differences of two points or more are worth discussing, since the person who chases payments or handles disputes often sees weaknesses the owner has learned to ignore.
The scores are a working map, not a verdict. Most small businesses score lowest on risk allocation and professional support, because those need outside help, and highest on visibility of their biggest customer arrangements. Choose two priorities that unlock others. Visibility and scope clarity are often good candidates, since they cost little and reduce many kinds of dispute at once.
Keep in mind that the diagnostic does not assess whether any contract is legally sound. Only a lawyer can do that.
Apply it
3. How to apply it in your own business
Write your outcome in one sentence with a number and a date. Draw a table with the six areas in rows and columns for your score, your colleague's score, the evidence and the first action. Fill the evidence column with facts, such as the number of agreements in your inventory or the share of jobs started with a written scope.
Ask your colleague to score independently and honestly. Compare, and for each gap of two points or more ask for an example. Mark the two lowest average areas and the two biggest gaps. Choose two priorities, preferring cheap changes that help many situations, and avoid choosing an area that depends on outside help you have not yet booked.
For each priority, write a specific action for the next four weeks and the number that will show it worked. For visibility, complete the inventory and calendar and count the agreements with known dates. For scope clarity, write a one-page scope template and count the jobs started with it.
Set a re-score date four weeks ahead. Share the table with your review partner and ask which score they find least convincing. Store it in your folder. Treat an improvement of even one point, supported by evidence, as progress, and book the professional support items early, since lawyers' diaries fill up.
Worked example
4. Worked example
Tarun runs a small interior design and turnkey execution business. His outcome: every project starts with a signed scope, price and payment schedule, and I know every agreement's key dates, within three months. He scores himself: visibility 2, scope clarity 2, payment protection 3, risk allocation 1, process 2, professional support 2. The total is 2 plus 2 plus 3 plus 1 plus 2 plus 2, which is 12 out of 30, or 40 per cent.
His accountant, Reena, who sees his invoices and follow-ups, scores him: visibility 2, scope clarity 1, payment protection 2, risk allocation 1, process 1, professional support 3, a total of 10. The largest gap is scope clarity, where she gives 1 and he gives 2, and payment protection, where she gives 2 and he gives 3.
Her examples: in the last year, four projects had disputes about extra work that were settled by discounts, and eight invoices were paid more than a month late. Tarun had thought of these as normal.
His priorities are scope clarity and visibility. For scope, he will write a one-page scope and change template and use it on every new project, measuring the share of new projects started with it, aiming for 100 per cent. For visibility, he will complete the inventory and calendar, aiming to have every agreement listed with dates within four weeks.
He also books an appointment with a lawyer for the professional support gap, and writes the cost and the scope in an email first. After four weeks he has used the template on 3 of 3 new projects and listed 22 agreements. He re-scores scope clarity at 3 and visibility at 4, raising his total to 16 out of 30, or about 53 per cent. Reena scores him 14. He notes that risk allocation has not moved and depends on the lawyer's review.
5. Common mistakes and how to fix them
The first mistake is beginning with no outcome. Write what you want, with a number and a date.
The second mistake is scoring yourself alone. Ask the person who chases payments or handles disputes to score you as well.
The third mistake is starting with areas that need outside help you have not booked. Choose cheap changes first and book the lawyer early.
The fourth mistake is treating the scores as a legal assessment. They measure practice, not legal soundness.
Key takeaways
6. Board summary
State the outcome with a number and a date. Score six areas: visibility, scope, payment, risk, process, professional support. Ask a colleague to score you and study the gaps. Pick two cheap, high-effect priorities and book professional help early. The diagnostic measures practice, not legal soundness.
Check your understanding
7. Practice and self-check
- Name the six areas. Answer: visibility, scope clarity, payment protection, risk allocation, process and professional support.
- Scores 3, 2, 4, 1, 3, 2. Total and percentage? Answer: 15 out of 30, 50 per cent.
- Why ask someone else to score you? Answer: people who chase payments and handle disputes see weaknesses the owner has learned to ignore.
- Tarun moved from 12 to 16. Gain in percentage points? Answer: about 13.3 percentage points.
- Why book the lawyer early? Answer: lawyers' diaries fill up and risk allocation depends on their review.
- What did Reena's examples show? Answer: four extra-work disputes and eight invoices paid more than a month late.
- What does a gap of two points prompt? Answer: asking for an example.
- Does a high score mean your contracts are legally sound? Answer: no; only a lawyer can assess that.
- Why are visibility and scope good first priorities? Answer: they are cheap and reduce many kinds of dispute.
- When should you re-score? Answer: after about four weeks.