No Good Deed Goes Unpunished

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“No Good Deed Goes Unpunished” is a witty little quote that rings true all too often in the world where we currently find ourselves.  Whether you have expressed these words in a moment of humor or anger there is often a lesson hidden within that which was the catalyst for that statement.  The key is to analyze those situations that led to such a statement and attempt to apply new protocol to prevent yourself from uttering this statement again in the future.

Now, before we get too far into this I want to make it perfectly clear that I am not suggesting that professional courtesy, generosity and compassion should be discarded as undesirable business traits.  That would be an easy solution to avoiding being burned on business deals that slide off the tracks.  However, we spend far too many hours of our lives at the office to maintain such a cynical and adversarial posture towards all new endeavors.  The key is to find a balance between being Mr. Nice Guy and getting paid for the work that you do.  After all, it is probably that magnanimous personality that has built your current book of business and this is the personality that you want to foster to keep your business growing.

Good Business Ventures vs. "Favors"

Now that the disclaimer is out of the way let me begin to talk about the inspiration for this article.  One of my clients has a heart of gold and this client gets very excited at opportunities to bring on new clients and projects.  This excitement is only heightened by the chance to help out a new and dynamic entrepreneur who is preparing to travel down the treacherous path of chasing his digital dream.  This client adds greater fervor to his excitement when he gets to help out a friend that approaches him with a project.  As with most new entrepreneurs the cash flow demands are intense.  However, they recognize that the success of all new companies (due to the digital world and expectations of the generation of  iCustomers) is that their company will have no traction without a distinctive web and social media presence, coupled with apps and hardware.  These giant eyes are often wrangled back into reality when the price for such projects are discussed.  Their eyes are quickly brought back into line with their mouths, or so the case should be.

This brings me to the dent I have in the middle of my desk.  This dent comes from the discussions I have with my client about new projects accepted as a favor or old favor projects which have skidded from the tracks.  Remember, these new clients, which have pitched a sob story of present availability to capital versus future explosive growth if they could just get their project launched, typically have far less to lose from a sour business transaction than you do.  Often times when I meet with this client to discuss projects of this nature I remind him that we would win any litigation that may erupt from these “favor clients,” but there is a lot of other factors that must be weighed carefully, other than an ultimate victory.

Hard Advice from a Corporate Lawyer

Your time is best spent working on billable projects for your clients.  We struggle to cram in as much work as we can while still maintaining some modicum of a personal life.  Well, if you are loose in the establishment of your professional relationships with “favor clients” you may find yourself loosing either billable time or personal time as you work with your attorney to formulate your response to their frivolous lawsuit or in drafting your own to collect your outstanding fees.

At this point you are probably tiring a bit with my lecturing about why helping friends or doing favors for entrepreneurs should not have a place in your business.  Well, I only preach on those areas because those are often the areas where the good deed comes right back around and eventually lands on your attorney's desk (right next to his head dent).  But there is good news.  These situations can be minimized if not avoided.

The first thing to remember is that if you have to make a “deal” for a client you should understand that their ability to pay 30 or 45 days from now is probably not going to improve.  Most new business owners will tell you that they were shocked at how quickly the money went out the door on things such as office furniture, insurance and other miscellaneous items.  With these pressures on cash flow they probably aren't going to be in a much stronger financial place when your first invoice comes across their desk.  So, the first point I try to remind my client of is that it is okay to pass on projects.  If someone does not have the money to pay you today then what level of confidence do you have that they will have the necessary capital in a month or more?

Is the Capital There?

The question you may ask is how do I know whether this client has the necessary capital for a project of this sort?  Well, this leads me to my second suggestion to my client.  I suggest that my client, for those suspicious clients, adopt a strategy that has been embraced by most other professional services industries – the working retainer.  This is a common practice at our firm for most clients to ensure that both the client and our firm recognize our respective commitments.  A working retainer is rather simple.  The client will deposit a sum certain (based upon the scope and complexity of the project) into an escrow account for your company.  From that escrow account you draw your monthly invoices (after submission and approval by the client).  When the balance of the escrow account reaches a certain determined level it is time for the client to re-fund the retainer so the project can continue.  This practice not only ensures that you will be getting paid but it also requires a showing of good faith on the part of the new client to the project.

Implementing a Working Retainer

This then leads to the best practice for implementing a working retainer.  Well, this leads to the most important part of this article and that is your employment agreement with the client.  All too often, as a corporate lawyer, I am faced with a vague contract (or no contract at all) and a disagreement as to the terms of the employment.  This often means long meetings with the client to bring me up to speed on all that has happened and extensive reviews of emails in an effort to try and piece together some semblance of a “contract”.  A lot of this time and effort could be avoided by dedicating some time on the front end to developing an effective and protective contract for your business.  The employment contract is the document that allows you (and your client if they want to be involved) to set out the expectations and terms of the arrangement.  This certainty may seem scary at first but it should be considered a tool for your company as opposed to a weapon for your client.  Drafting a contract that is favorable to your company at the outset will provide you with greater certainty moving forward and with certainty comes efficiency.

It is time to shift the paradigm and implement new policies that will allow your good deeds to be rewarded more frequently than punished.  The above changes can help you get down the path to a more satisfied client list and a stronger bottom line for your company.