How you know when a deal is done

October 24, 2013 by Joshua
in Blog, Entrepreneurship

I have an easy way to tell when I’ve completed a deal with someone:

A deal is done when the contract is signed.

Or as I think of it:

An unsigned contract is not a signed contract.

I’ve found it valuable to distinguish between them. I’ve learned not to spend money due on an unsigned contract.

Many people consider a deal done with people have agreed on terms. People often say things like, “We have approval, all we have to do is sign it,” as if that means you can start acting on the deal. Sometimes they’ll more clearly state the contract isn’t signed by saying something like, “We have approval. It’s as good as signed. All we have to do is send it to legal,” since in many places sending something to a legal department only means you’re starting a new round of negotiations.

Don’t get me wrong. I like working on a handshake. I co-built a company based on handshakes that succeeded for years and never had problems and I still have as great a friendship with the other co-founder as I did before — actually, even better for our experience together. But that deal was based on knowing each other almost twenty years before starting. Most business deals don’t have that kind of history to fall back on and even then you take big risks.

More often you need contracts. And only a signed contract is a signed contract.

With some business partners you need more security than just a signed contract, for example if the costs to fix problems outweigh the benefits, if they’re overseas where you have no legal recourse, and so on.

In those cases, I fall back on a more secure definition of when a deal is done:

A deal is done when their check clears.

An uncleared check or promise of payment is not money in your account. Only when you have money in your account do you know they’ve paid you.

If you’re buying then the deal is done when you have their product in hand or they finished their service.

I don’t like when I have to remind myself of such basic definitions, but too many times I’ve seen people spend money for a deal they thought was done, that the counterpart told them over and over was as sure as done, that fell through.

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