Avoiding legal nightmares: the FinOps approach to writing contracts

Last year I experienced one of the scariest moments of my career.

I was sitting on a train, heading out of London for a weekend away, sipping on a gin in a tin and watching the countryside go by. Perfect.

Perhaps this would be a good moment for me to check my emails?

And there it was, BAM.

“Notice of impending legal action.”

I’ve never been involved in a legal dispute before so I was totally unprepared for the letter that awaited me. It was so personal, so aggressive and so vindictive. It was actually really hard to process. I’d never met these people before so why did they hate me so much?

My head span as I pictured myself sitting in a courtroom, being ordered to pay out millions of pounds I didn’t have.

This was going to be a long train ride!

So how did we get here? And more importantly, how did we get out of this mess?

Let’s find out.

A nasty surprise

As it turned out the letter came from a company that our team had worked with some time ago. They were badly affected by covid and didn’t get the funding they needed. Ultimately the business was wound down and the founders left.

Fast forward to my train letter. New owners had taken over and were on a mission to extract everything they could from the company. That included, apparently, clawing back everything they’d ever paid for their in-house finance team!

Wake-up call

What followed was a massive headache, but thankfully nothing as bad as my courtroom nightmares on the train.

We hired some solicitors who talked us through the case and provided some much-needed reassurance. Fortunately, once a misunderstanding on terms had been cleared up, things calmed down very quickly.

Our solicitors also, perhaps tipped off to Quantico’s penchant for challenging the status quo, warned me never to write on LinkedIn about the case. That’s why this article features a purely fictional scenario and any resemblances to real events are entirely coincidental ??

Although the immediate fire was out, we knew we’d had a close shave. The experience taught us that our standard contract was, quite frankly, not good enough. It was exactly the wake-up call we needed.

How we got here

I’m a little embarrassed to admit it, but Quantico started out looking like a pretty standard-issue accounting firm. So of course the contract we used for our first few partners reflected that. Standard terms for a standard service.

We knew it wasn’t perfect but, like many start-ups, we didn’t see that as a problem. If we kept our current size and model, it would be fine. If we became as successful as we hoped, we would be able to afford big-shot lawyers to write us something much better!

Over the following months and years, our business evolved really quickly. It turns out that when you’re growing really fast, rewriting a contract never seems to make it to the top of the to-do list! Instead, you’re focused on problems like doubling your team size or upgrading your systems to cope with the extra volume.

If you’re reading this thinking that sounds a lot like you, maybe this is your sign to get things sorted! We’d be happy to help.

Getting it sorted

Luckily we had the luxury of a wake-up call to prioritise the contract issue ?? Now it was time to get moving.

Initially, we spoke to lawyers about improving our contracts - it seemed like the normal thing to do. The problem was that they either cost an insane amount (outside the reach of start-ups) or they gave you boilerplate. For many start-ups, the latter just isn’t going to work. We’re challenging norms and creating new business models. A template is never going to reflect that.

We needed a contract as unique as we are. It was time to put our FinOps principles into action. We had to ‘fix our own bike’.

Legal jargon

So, what does a FinOps legal process look like?

First, we tackled the content of the contract itself. We identified 3 big problems:

1. It was written in such ambiguous legal jargon nobody could decipher it
2. It didn’t adequately set out the unique aspects of our business model
3. It didn’t create an equal partnership - it was all about protecting one side from the other

We got out a whiteboard and drew a line down the middle. At the top of one column, we wrote ‘what we commit to our partners’ and on the other ‘what they commit to us’.?These columns now form the meat of the new terms and conditions. No jargon, no ultra-fine print. In our book, that’s what a true partnership looks like.

Everything is Ops

The next problem we tackled was operational. (Yep, even contracts are really just operations! LegalOps anyone?).

The issue with normal contracts is that they get signed at the start of an engagement and then filed away in a folder somewhere in Docusign, never to be opened again. This was a problem for us because our average partnership lasts for 16 months. Over that time frame, a start-up finance function can change A LOT.

You can have the best contract in the world but it’s not going to work if it isn’t up to date and you don’t refer back to it. We needed something that would remain live and adjust to any changes.

But how do you create a contract that changes over time, whilst also committing to treating every partner the same? Oh and also making everything as transparent and fair as you possibly can?

A living contract

We came up with a 2 part structure...

First, our main terms and conditions will remain public on the website. These apply to everyone and can be accessed at any time. There are no secret backroom deals to get favourable terms and no digging around in folders to find them. Everybody knows where they are.

Second, we adopted a ‘statement of work’ for every partner. This gets re-signed regularly and contains everything that changes over time. It details things like how many days per week we’re currently spending with a partner and how that time will be managed. Nobody ever has to inherit an agreement that they don’t understand.

Automation nation

All that was left was the fun bit - automation.?Our Ops team designed a system using Hubspot, Zapier and Coda that automatically sends a Statement of Work when a scope change is requested and passes it on to our billing system when it's approved.

The takeaway

So will our new system prevent me from ever getting a scary email again?

Unfortunately, I can’t make that guarantee, but I’m sure it will help!

The important thing for me is that we now have a system that’s properly thought through and reflects our values: it’s simple, transparent and runs really smoothly.

If you’ve got an operational problem that’s holding your growth back, we'd love to help. Book a conversation with the Quantico team.

As I learnt the hard way, it’s way better to solve them before they get out of hand.

This article was originally published at www.quanticofinancial.com/blog