Handshake Deals That Cost Business Owners the Most
Most small business owners don’t set out to run their businesses without contracts. More often, agreements start informally because the relationship feels solid and the work feels straightforward. A quick conversation, a few emails, maybe a text message confirming price or timing — and the business moves forward.
The problem is that handshake deals rarely fail immediately. They work just long enough for expectations to drift, stakes to rise, and misunderstandings to become expensive.
As a business attorney, I see the same types of informal agreements create legal and financial headaches again and again. Not because anyone intended to cause harm, but because the agreement was never clearly defined in the first place.
The “We’re Friends” Partnership
One of the most common handshake deals starts with a friendship. Two people trust each other, share an idea, and decide to build something together. Ownership percentages, decision-making authority, and exit plans are often discussed casually or not at all.
Problems tend to arise when the business grows or when life changes. One partner may contribute more time, money, or expertise than the other. Someone may want to step back, bring in a third party, or sell their interest. Without a written agreement, there is no clear process for handling those transitions, and what once felt collaborative can quickly become contentious.
A basic partnership or operating agreement can define roles, ownership, and exit options before emotions enter the picture.
The Long-Time Vendor Relationship
Many businesses rely on vendors they have worked with for years. Over time, the scope of work expands organically. Small requests turn into regular expectations. Pricing stays the same even as responsibilities increase.
When a dispute arises — missed deadlines, quality issues, or billing disagreements — both sides often rely on “how we’ve always done it” to justify their position. Unfortunately, past practice is not always enforceable without written terms. A clear service agreement protects both parties by setting boundaries and reducing assumptions.
The Repeat Client Who Expects More
Repeat clients are valuable, and long-term relationships often come with a level of comfort. That comfort can blur the line between what is included and what requires additional compensation.
Scope creep is one of the most common issues small businesses face. Clients may expect revisions, add-ons, or ongoing support that was never clearly defined. Without a contract that outlines scope, fees, and change procedures, business owners are left negotiating after the work is already done.
A clear agreement allows you to point to the terms rather than having to justify your boundaries.
The Independent Contractor Confusion
Another costly handshake deal occurs when businesses classify workers as independent contractors without proper documentation. Verbal understandings about pay, hours, and responsibilities are common, but they do not provide protection if a dispute or audit arises.
Misclassification issues can lead to tax problems, wage claims, and penalties. Written independent contractor agreements help clarify expectations and demonstrate intent, though they must be paired with correct classification practices to be effective.
Why These Deals Cost More Than Expected
Handshake deals rarely fail because someone is dishonest. They fail because they rely on memory, assumptions, and goodwill rather than clarity. When disagreements arise, business owners often find themselves spending time, energy, and money trying to reconstruct what was meant instead of relying on what was agreed to.
By the time legal help is involved, resolving the issue is often far more expensive than putting a simple agreement in place at the beginning.
What This Means for Your Business
If your business relies on informal agreements, that does not mean you have done something wrong. It usually means your business has grown faster than your documentation.
Contracts are not about expecting conflict. They are about preparing for reality. Clear agreements protect your time, your income, and your professional relationships by setting expectations before problems arise.
The Bottom Line
Handshake deals may feel efficient, but they often become expensive when circumstances change. Written agreements give businesses a shared understanding of how work is done, how problems are handled, and what happens when things don’t go as planned.
If your business has evolved beyond casual agreements, it may be time to update your contracts so they reflect how you actually operate today. Schedule a free consult today. If you are relying on informal agreements or outdated contracts, a contract review can help identify gaps and clarify expectations before they turn into disputes.