A lot of people who are new to being self-employed often neglect a very important element to conducting business professionally: The contract.
I won't deny that contracts can be intimidating but anyone who conducts themselves honestly and knows how to read, has nothing to fear from a contract. That document exists to protect the interests of both parties involved and the only people who "get screwed" by a contract are the ones who don't bother to read it.
I've met lots of independent business owners who insist on doing things based on "a handshake" or "gentlemen's agreement." They have very noble and romantic ideas about trusting people as men or women "of their word." And thus, they shun entering into contracts and accuse anyone of doing so as being suspicious or untrustworthy. I've experienced this first hand.
It's important to know that a contract isn't about not having trust in the people you work with. It's about placing one's trust in what is most reliable when entering into any agreement: a clearly written document that doesn't change from the moment it's printed versus fallible human memories that—more often than not—can shuffle around details, randomly delete clauses that were clearly stated and interpret as gospel-truth ideas and possibilities that were only implied and not even fully discussed.
I had an experience with a client a number of years ago that taught me in no uncertain terms the importance of getting in writing the terms of any exchange of services.
I was hired to build a web site and did everything I could to maintain contact with the client to ensure that they were following the progress of the build. However, they were more concerned with just "getting it done" than they were about approving the work as it was progressing.
When the site was completed, the client decided that they didn't like it and they wanted it rebuilt from the ground up. I had already been paid for the site that was built and it was pretty clear that the client had no intention of paying more since they weren't satisfied with the work that was done. I tried to point out to them that I did everything I could to get their approval of the site while it was being constructed specifically so I could avoid having to do the work twice but that didn't matter to them and there was really nothing that I could do because I had nothing in writing that described the details of the agreement. The only thing we could both agree on was that I agreed to build them a web site for a specific sum of money. In the end, they got what they paid for, a web site that they didn't like and I refused to rebuild it because I only agreed to build one site in the first place. The client was very upset by this—and so was I. The last thing any business person wants to do is piss off a client. People are more likely to share a bad business experience than a good one*.
In order to prevent this mistake from ever happening again, I composed a contract that addressed every mistake that I made with that particular "gentlemen's agreement" including: 1) Putting the agreement in writing. 2) Making it clear to the client that if they offer no input on the project then they're stuck with what they get when it's finished. 3) If they want the project redone, then they have to sign a new contract.
I have entered into a few "handshake" agreements since then but I always made sure to follow up such agreements with a "Letter of Understanding" that puts into writing the terms of the agreement as I understand them. This gives the other party something to reference and even negotiate against as the project progresses or is ultimately dissolved.
In the end, having a contract ensures that each party has an indisputable source that they can turn to whenever questions arise about who's responsible for what in the business/client relationship. And as long as people take the time to read their contracts, consult with an advisor and/or legal counsel, there will be absolutely no surprises when conflicts arise later on—and they almost always do.
*A couple of years later, I was able to just give that particular client a full refund on their project. They were family members of a very close friend and colleague and it was important to me that there would be no contention between us over the mistakes we made in our arrangement. In the end, I felt that it was worth it.