We’ve all been there. You’re sitting in a coffee shop with a potential partner, a talented freelancer, or a long-time friend who wants to collaborate on a new project. The energy is high, the ideas are flowing, and you’re both nodding in total agreement.

“So, we’re good? Fifty-fifty split, launch by October, and you’ll handle the marketing?” you ask.

“Absolutely,” they reply with a firm handshake. “I’ll get started tomorrow.”

You walk away feeling energized. You trust them. They trust you. Why bother with a cold, formal contract that might make things feel “stiff” or “corporate”? You’ve known each other for years, or perhaps their reputation is spotless. A man’s word is his bond, right?

Fast forward six months. The project is late. The “fifty-fifty split” now looks different because one person put in more hours, and the “marketing” tasks have ballooned into something much larger than originally discussed. When you sit down to talk about it, you realize you both remember that coffee shop conversation very differently.

This is the Handshake Trap. And in the world of business, it is one of the most dangerous positions you can put yourself in.

What is a Verbal Agreement, Really?

In simple terms, a verbal agreement (often called an oral contract) is a deal made through spoken words rather than a signed document. While many people believe these aren’t legally “real,” the truth is that in many places, they can be legally binding.

However, there is a massive difference between a contract being valid and a contract being enforceable. If you can’t prove what was said, when it was said, and what both parties intended, the agreement might as well not exist.

The 5 Major Risks of Doing Business on a Handshake

When you rely on a conversation instead of a document, you aren’t just being “easy-going” you are taking a calculated gamble with your business’s future. Here is why verbal agreements are so risky:

1. The “Selective Memory” Syndrome

Human memory is notoriously unreliable. We don’t remember events like a video camera; we remember them based on our emotions and current needs. Six months after a deal is made, your partner might genuinely believe you agreed to pay for the software licenses, while you clearly remember them saying they’d cover it. Neither of you is necessarily lying—you just both remember the version that makes the most sense to you today.

2. “Scope Creep” and Hidden Expectations

In a verbal deal, boundaries are usually blurry. You might agree to “build a website,” but what does that mean? Does it include SEO? Does it include 24/7 maintenance? Does it include copywriting? Without a written list of deliverables, the work often expands (this is called “scope creep”) until one party feels taken advantage of and the other feels the job isn’t being finished.

3. The Problem of “He Said, She Said”

If a dispute reaches a point where you need legal help, a verbal agreement becomes a nightmare. Without a written document, a judge or mediator has to decide who is more “believable.” This turns a professional business disagreement into a personality contest. It is expensive, time-consuming, and emotionally draining to prove a conversation that happened behind closed doors.

4. Changing Circumstances

Business moves fast. People get sick, companies get bought, or a global pandemic hits. A verbal agreement usually only covers the “happy path”—what happens when things go right. It almost never covers what happens when things go wrong. If your partner suddenly leaves the business, a written contract tells you what happens next. A verbal agreement leaves you standing in the rain with no umbrella.

5. Lack of Professionalism and Value

When you don’t put things in writing, you subconsciously signal that the deal isn’t that serious. This can lead to missed deadlines and lower quality work. Conversely, having a written agreement shows that you value the other person’s time and expertise enough to define it clearly.

Why We Avoid Contracts (And Why We Shouldn’t)

Most business owners avoid contracts because they don’t want to seem “difficult” or “distrustful.” We worry that asking for a signature implies we think the other person might cheat us.

In reality, a contract is the highest form of respect. It says: “I value this relationship so much that I want to make sure there are no misunderstandings that could ruin it later.” A written agreement isn’t a weapon to use in court; it’s a map that keeps both parties on the same path.

A Practical Guide: How to Move Away from Handshake Deals

Transitioning to written agreements doesn’t require a 50-page document full of “wherefores” and “heretofores.” You can protect your business using very simple, clear language. Here is how to do it:

Step 1: The “Email Summary” Rule

If you have a great meeting or phone call where decisions are made, never let the day end without sending a summary email.

• What to say: “Hey [Name], great talking today! Just to make sure we’re on the same page, I’ve noted that we agreed on X, the price is Y, and we’re aiming for a Z deadline. Let me know if I missed anything!”
• Why it works: It creates a “paper trail.” If they reply “Looks good!”, you now have written evidence of the agreement.

Step 2: Use the “Three Ws”

Every agreement, no matter how small, should clearly state:

• Who: Who is doing the work and who is paying?
• What: Exactly what is being delivered? (Be specific!)
• When: What are the deadlines and when is payment due?

Step 3: Define the Exit

Always include a sentence about how to end the deal. “Either party can end this project with 14 days’ notice” can save you months of headaches if the relationship soured.

Step 4: Use Simple Templates

You don’t need to write a contract from scratch every time. Create or find a simple one-page “Letter of Agreement” or “Statement of Work” template that you can fill out in five minutes.

Protect Your Peace of Mind

Business is hard enough without the added stress of “he said, she said” disputes. While a handshake feels good in the moment, a written agreement feels much better three months down the line when everyone knows exactly what they’re supposed to be doing.

Protecting your business isn’t about being cynical; it’s about being prepared. By putting your agreements in writing, you aren’t just protecting your money—you’re protecting your relationships, your reputation, and your mental health.

Need help turning your “handshake deals” into solid, professional agreements? At Counsel Enle, we specialize in making the legal side of business simple, accessible, and human. We help you build the frameworks that allow your business to grow without the fear of hidden risks.

Don’t wait for a misunderstanding to happen. Visit counsel.enle.org today to learn more about how we can help you secure your business’s future.