If you are starting or operating a small business by following the tips in this article you will have a solid legal framework for your business success.
In the beginning
I am assuming you’ve already done your homework and worked out there is a need for the product or services you are going to provide and that you have the skills to do the job. If you haven’t then bookmark this article and undertake Due Diligence before you commit. “What the....” you say?
“Due diligence” is a fancy legal term for undertaking a detailed assessment of the risks and benefits of setting up your business. It is particularly important if you are looking at buying an existing business, renting premises, or taking on a franchise, because in those cases you will want to look very closely at what you will be getting and who from.
A thorough analysis of pros and cons is always recommended. See a lawyer, see an accountant, take advice wherever you can get it, but ultimately it is your business so you need to know and understand the risks in it.
Don’t commit to anything until you have seriously examined and understand contracts, leases, local authority and government requirements/restrictions, financial records (if you are buying into a business or franchise), product security, upcoming zoning issues.
There is a heap of public information available to help with your research. If you need to see private commercial information from the seller or franchiser there’s a good chance you will need to sign a confidentiality agreement. READ IT before you do. Feel free to message me for more hints on this.
Well, that issue dealt with, back to my tips on operating a successful small business:
No. 1 Get Your Business Structure Right
Starting at the very beginning, you need to make sure you set up the right type of business structure. You have three main choices: sole trader, partnership or company. Each choice has pros and cons. What will work best for you, may not work best for someone else.
A big con for sole trading is, if you personally own assets then operating a business as a sole trader may involve risk of personal financial loss if the business is not successful.
If you intend to operate a business with one or more other people you really, really (can I say 'really' a couple of more times??) need to document your partnership agreement. The Partnership Act does provide protection for partnerships but its a one size fits all approach and we know how that can look! Besides, documenting your agreement helps you to discuss some of the key issues about going into a business together.
Setting up a company can protect individual assets (so long as you are not signing bank guarantees) and can ensure there is a way to work cooperatively with others. If you do choose to set up a company, then there are many other considerations and I strongly recommend you don’t just grab standard documents. Sure, I get that they are much cheaper, but I can tell you from years of commercial litigation experience that its the standard “simple” and “cheap” documents that get people into trouble - (don’t let me get started on home made documents!! What a nightmare!!)
So, decide on business structure as early as possible (and don't forget to talk to your accountant about tax implications!)
No. 2 Comply with the law
Oh I know this sounds obvious, but during the Due Diligence phase you should have identified key licence and permit obligations for your business and one of the first things you need to do as a business is make sure that you hold the correct licences and permits. As soon as you have done that, record the expiry dates in your calendar if applicable - you do not want to find yourself in a position where you realise your food preparation licence is due for immediate renewal and you are booked out solid for the week and have to squeeze in time to attend to it.
No. 3 Put it in writing
Contracts in writing are an absolute must! Whatever terms and conditions you agree to with your customers and suppliers, you need to make sure that these are in writing. It doesn’t mean you have to spend hours in contract negotiations with a suite of lawyers on each team to work through a basic supply agreement, but there needs to be something in writing, it's as plain as that.
A lot of businesses selling or leasing products and services have standard terms and conditions which are attached to their quote. These terms and conditions don’t have to be the size of a book, but there are some basics that need to be included to protect YOU and to give your customer or supplier certainty. So, if you want a ‘for instance’ read on...
How about, what happens if you offer a product by a certain date but you have to get it in from a third party supplier? Or, what happens if you install materials for a builder in a new property and the builder goes into administration? What if you offer a specific service working cooperatively with other service providers - how is your liability dealt with when the ‘you know what’ hits the fan? Its contracts, terms and conditions which will give you a leg to stand on and you need advisers who have been in the trenches to give you the worst case scenario when preparing those documents. Invest in good paperwork. Believe me you will reap rewards in the long run, or at the very least protect yourself from a lot of pain, as a result.
No. 4 Protect your Intellectual Property (IP)
Whats your IP? It’s that logo you spent weeks designing, the catchphrase, the jingle, the recipe/ formula only you use, the marketing strategy unique to your business, the e-book you wrote. Intellectual property is the intangible thing that comes from your creativity, and you absolutely want to protect that, because it forms the very basis for what makes your business unique. There’s no real shortcut. Trying to do this on your own will cost more than time in the end. You will need specialised IP assistance (spoiler alert: Not me!! But I can refer you to someone I trust).
No. 5 Make sure you get paid by having clear and risk minimising payment collection procedures
Small business is more often than not operating at the whim of big business. Payment terms are stipulated by primary contractors, and you just need to go with the flow. But fortunately some of that is changing. One thing you can do is ensure that where you do have control of payment terms you exercise that control.
Insisting on a significant deposit or payment first is very unlikely to be possible in most cases. Payment on delivery of goods and services is obviously the most effective alternative way to ensure payment is received. You should set up everything you can to try to achieve this. Portable EFTPOS, for example, means you have immediate cash flow even though it costs to obtain it.
But COD can be a luxury. If you have to provide goods and services on payment terms, make sure these terms are stipulated in your terms and conditions and on your quote and restated simply on your invoice.
Follow through with debt management when you say you are going to. Make it personal. Don’t leave it to your office assistant to chase up debts. Learn how to chase up debts without upsetting people. (As an aside however, from my experience, the ones who get upset about you chasing up a debt, are in financial trouble, simply don’t treat your payment as a priority or have some problems with the goods or services you supplied. Either way, you need to know.)
The longer a debt is outstanding the more likely it will not be paid. A firm and swift debt collection process is critical to keeping the cash flowing.
No. 6 Apply Employment Laws correctly
If your small business involves employees make sure you get your ducks in a row with employment law. Make sure your employees or contractors have contracts. Have a manual which outlines human resource policies (clear guidelines take time at the beginning but save thousands of dollars along the way). Give your employees what they are entitled to, when they are entitled to it. Make sure that you have poor staff performance issues dealt with promptly and lawfully following the manual you prepare.
Every business adviser will tell you that, if you have employees, they are the backbone of the business so take care of your back!! The costs of recruitment and/or dealing with employee matters including down time are major.
AND ONE GOLDEN RULE
One of the common threads in all of the tips I have given is an overarching rule. Avoid disputes and litigation as reasonably as you can. Sometimes, disputes are unavoidable. Downtime, costs of lawyers and compromised claims cause serious bleeds in your business. By taking preventative steps you can minimise your exposure to these and those preventative steps include the tips above.
I am interested in a dialogue about the subject of business law tips. I look forward to hearing your views.
My legal waiver statement: Seriously, if you are relying on the above tips or anything you find on the internet as legal advice you have big problems already. News and Views is definitely about sharing information and ideas. The only legal advice you can rely on is advice given to you personally after your individual circumstances have been taken into account.
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