Planning and the Aged Care Subsidy
It’s estimated that on average people under the age of 50 will spend the last 3 years of their lives in residential aged care with the present aged population spending between 1.5 years to 2 years. But who should fund this?
Not everyone will spend time in a rest home, but if they do the cost is high with a current estimated average of up to $80,000 being spent per occupant.
In New Zealand, the obligation to pay for rest home care has been means tested so that the taxpayer only covers the cost if the person needing care is judged to be poor enough to get Work and Income's Residential Care Subsidy.
The maximum subsidy for ordinary aged care is just over $1000 a week showing what a person can expect to pay as a base level if they don’t get the subsidy.
It’s been a feature of Estate planning for some years now to use family trusts, and gift away assets to descendants, to try to keep wealth in the family, and achieve relief through the Residential Care Subsidy if Rest Home Care is required.
But with growing public funding concerns surrounding an increasing life expectancy and a growing, aging population, the means test is becoming harder to meet and however carefully your estate plan is carved, it is getting more difficult to beat the system.
Work and Income is on the lookout for people who have "deprived" themselves of assets and income, and are quick to deny subsidies to people who've done it.
The way Work and Income approaches the means test is complex, so it’s important to get legal advice before trying to protect assets and in any event as early as possible before the need arises to approach Work and Income with an application.
WHAT IF YOU ACT EARLY?
Acting early to protect assets would be my number 1 recommendation. If you're looking to rearrange your assets because you are likely to go into care in the next few years, it could be too late.
The longer that a trust has been in existence, and the longer the period between the financial gifting and the time you apply for rest home subsidy, the more likely that Work and Income won't take the gifting into account when calculating your wealth.
As far as Work and Income is concerned, its mandatory to include gifts made in the five years before someone applies for subsidy when they calculate the asset means assessment so, paying for a granny flat to be added to your children’s home during the five years, for example, needs to be carefully documented as such an arrangement would come under very close scrutiny.
During the 5 year period, people can give up to $6500 away each year, and it will not be included in the asset means testing. Outside the 5 year gifting period, people can gift away up to $27,000 in any one year.
But even "allowable" gifting can still result in failing the means test.
The effect of shifting property into trusts is to "deprive” yourself of assets. If those assets are income earning assets then Work and Income may form the view that you have deprived yourself of income that would have been available to help pay for care.
In effect, while there is "allowable" gifting of assets, there is no allowable gifting of the income that can be earned from those assets.
When it comes to income, people entering aged care are allowed to keep only a weekly personal allowance from their income, plus an annual clothing allowance. The rest of their income goes to help pay the rest home bill, and reduces the subsidy Work and Income will pay.
There are rules about what income is counted in the test, but it equates to roughly everything for a single person, and half of the income of a couple where one is not going into care.
ASSETS OWNED SEPARATELY
Couples may argue that assets are not co-owned, but Work and Income is unlikely to accept that argument.
Even if the partner regards his or her assets as their own separate property, they are still included in the means assessment.
Even so called 'pre-nup agreements' can be ignored. If subject to a Property (Relationships) Act 1976 agreement, then separate property assets will still be taken into account unless the couple have separated (bona fide).
WHO PAYS IF NO SUBSIDY IS GIVEN
If the subsidy application is declined, family or family trusts will have to pay. This use of funds may be inconsistent with the terms of the family trust, thus opening a whole new can of worms.
THINGS TO WATCH OUT FOR IN ASSET PLANNING
While every single case is reviewed on its own merits, arrangements Work and Income are unlikely to accept, include where people:
There may be no way around making a contribution to yours or your family’s residential care but if you want to know if there is in your circumstances get legal and accounting advice as soon as possible.
There are many circumstances where you need to get your story down in writing for legal purposes. These can include making statements to police, governments and authorities or preparing for court. Broadly speaking, statements for legal purposes are called “statements of evidence”. Some times these are made by way of Declaration and some times by way of Affidavit. The formal requirements for Statements of Evidence can be different depending on the purpose. These guidelines give a broad overview of how a Statement of Evidence can be written.
Depending on the purpose of your statement there will be specific evidence you must include in your statement. You can get help in working out what that specific evidence is by checking information available on line for example, at www.communitylaw.org.nz or www.cab.org.nz or by having an initial consultation with a lawyer.
The Golden Rule
Give yourself enough time and put the effort into getting it right.
Statements of evidence, even for lawyers, take many drafts. You need to spend time in making them as clear as possible because the clearer and more concise your statement is, the more persuasive it will be.
Computer drafts are the best way to go because it is easier to make changes. If you do not have a computer, you should try and get a friend or family member to help you. Also, many community service centres allow you to book or use computers.
Courts have their own special form for Statements of Evidence but essentially the format is generally the same and is quite logical. Numbering your paragraphs can make a Statement of Evidence easier to refer to when talking about it. By numbering paragraphs you can say, “at Paragraph 21, I talk about the second incident”, for example.
This sets out who you are, where you live and what you do. It should also set out your relationship to other parties that you refer to in your evidence and needs to state your qualifications if you think that is relevant.
I, Joseph Bloggs, of (street address) Town, New Zealand, employment title, make oath/affirm and say as follows:
This sets out the facts and evidence you rely on. Try to set out your Statement of Evidence in chronological (date order from first event to last event) form.
1. I am the applicant/respondent in these proceedings. (ie why are you involved in the proceedings)
2. On x I was telephoned by, the applicant/respondent to these proceedings, asking me to provide a quote for services.
3. On y I provided a quote for my services.
4. On z the applicant/respondent contacted me and ask me to do the work in my quote.
It makes sense to set your Statement of Evidence under sub-headings. Keep those facts in chronological order under each sub-heading.
What should a statement of evidence contain?
A statement of evidence should set out direct observations of matters or statements you believe to be true.
“K approached me waving a fist in my face and K was very red in the face and shouting. There was nobody else around. I felt afraid."
This is acceptable because it records direct observations. It could be used to persuade the Decision Maker that the person’s actions were “threatening” – notice the word ‘threatening’ is NOT used because that is an opinion (see below)!
What Shouldn’t A Statement of Evidence Contain?
Statements of Evidence should not contain opinions.
“K approached me in a threatening way”.
This is an opinion. The meaning of the word “threatening“ is not clear and may mean different things to different people.
Statements of Evidence should not draw conclusions based on observation.
"these actions showed that he wasn’t ever going to pay for the work done”
Statements of Evidence should not summarize in a general way things that have happened.
“Z was always evading me.”
This summarizes actions rather than describes direct observations.
A better way to say the above would be:
“On x I approached y for payment. He said, “I will pay you next week”. And repeat for each incident.
Statements of Evidence should not contain hearsay. Hearsay is what another person told you, you did not see it yourself.
“Peter said to me “I saw Paul leaving the building site yesterday with a stack of gear in his truck”.
The reason Hearsay is not usually acceptable is because the person who made the statement is not present to be tested as to the truth of that statement.
In the example above, the statement of what Peter said is not evidence of Paul leaving the site with gear in his truck, it is just evidence of Peter saying it. If Peter saw something important that can help your position, you should ask Peter if he will sign his pwn statement.
There are exceptions to hearsay. A lawyer can assist you with your statement if you feel you need to include hearsay and do not know if you can.
The value of Independent and Documentary Evidence
Most Statements of Evidence will have attachments. Attachments may include documents such as extracts of emails, text messages, letters, invoices, quotes, proof of receipts and expenditure, telephone accounts that show the numbers called. Basically anything that helps to prove what you are saying is true. Documents are often called “best evidence” because if shown to be genuine, they are very persuasive.
If you want friends/colleagues to write Statements of Evidence, you will probably have to draft something for them too, so don’t forget that when you are planning your time to write Statements of Evidence.
If you would like to have your evidence and statement reviewed by a lawyer don’t hesitate to contact us. We are happy to provide assistance by either reviewing your documents online/by email or by sitting down with you one on one to talk you through it.
Negotiating and Documenting Agreement - Part 3
This "How To" Series Guide helps to explain the steps involved in reaching settlement. You are reading Part 3 of 3 parts. If you would like to read Part 1 click here or Part 2 click here.
Step 2 - Negotiating
Parties negotiate directly or through their lawyers. This can be done at meetings or through email or letters. Where the relationship pool is not significant, I recommend people try to negotiate between themselves first to save legal fees.
Parties may also wish to have mediation, which means a mediator will facilitate the meeting.
If parties choose to mediate, it may be a good idea to each seek legal advice first and get a letter of advice, which summarises the facts of their case, the strengths and weaknesses of their claims, the options available, and the likely outcomes.
If parties choose to negotiate through their lawyers, this is usually done by way of a round table meeting.
Round table meetings can be an effective way to resolve relationship property matters where the parties are willing to engage in discussion in person through their lawyers.
Some key tips for negotiating on Property distributions
Step 3 – Agreement
Where a resolution is reached through negotiation, the final agreement must be signed and certified by the parties’ lawyers. The Agreement will usually contain standard clauses such as the following (examples only):
Step 4 – Settlement (After Agreement)
There will still be legal and financial steps to take to give effect to a Separation Agreement. When you sit down with your lawyer to receive advice on your proposed terms of settlement, it's a really good idea to ask them to help you prepare a list of what will need to be done.
How to work out who gets what when a relationship breaks down (Part 2).
This "How To" Series Guide helps to explain the steps involved in reaching settlement. You are reading Part 2 of 3 parts. If you would like to read Part 1 click here
What sort of documents should be disclosed?
Examples of standard documents to provide or request include:
How much information can you ask for in the disclosure step?
The main principle is that items for which disclosure is requested must be relevant, tailored and focused to the parties’ relationship property, keeping in mind that the law requires that disputes must be resolved as inexpensively, simply and quickly as possible.
Court cases show that reasonableness and proportionality are key considerations for any request for disclosure. Therefore, a party may not need to hand over requested document if the documents are not reasonably relevant to the case or it is overly onerous to provide (e.g. very expensive and time consuming to put together in light of its relevance). Parties need to seek material in an expeditious way and where such conduct becomes oppressive it may lead to a Court concluding “enough is enough”.
What if there are delays in disclosure?
On average the process of settlement can take between three to six months. If there are delays with providing or obtaining disclosure, it can take a year or more.
Step 1 can often cause delays in the settlement of relationship property especially when parties are not forthcoming with information. We can help clients avoid delays by proactively managing requests for information.
This may mean applying to the Family Court where one party has concealed information and misled the other party in relation to the true extent of relationship property.
To learn more about the next two steps, please see Step 1 here and Step 3 here
How to work out who gets what when a relationship breaks down
The Property (Relationships) Act 1976 provides for how property of married couples, civil union partners and de facto couples is divided when a relationship ends (including by breakdown or death).
When a relationship breaks down, relationship property disputes can be settled in two ways - either by agreement between the parties or through the Family Court.
Settling relationship property matters by agreement means the Family Court is not involved and parties come to an agreement themselves with or without the assistance from lawyers. Settling by agreement is far more effective in terms of time and money than the Court process. For these reasons I just about always encourage my clients to use this method if they can.
This is part 1 in a 3 part series to help explain the steps involved in reaching settlement and give you some tips to move forward.
4 STEPS TO SETTLEMENT
There are four key steps involved in settlement:
Step 1 – Disclosure / Information gathering
This step allows both parties to establish the total relationship property pool and create a list of assets and liabilities.
When you think about it, it makes sense that meaningful negotiation can't start unless both parties know what they are dealing with and have a full understanding of the details of what is in their relationship pool. This includes knowing what property is considered relationship property and what the value of the relationship property is. It can sometimes be hard to get the ball rolling on Step 1 and people tend to want to skip it thinking that it will just cause trouble.
From a legal perspective, without full disclosure, there is a real risk that whatever the parties agree to in negotiations will be challenged and set aside by the Court in the future. This could occur for example if it is later discovered that one party had hidden financial information (non-disclosure). Non-disclosure can lead to further legal costs and delays for both parties.
How to start the ‘disclosure’ process?
It is often best to confirm the start of this process in writing with one party requesting from the other party financial information or other details in respect of relationship property. You can do this using a lawyer, with the help of a lawyer checking your letter or on your own.
What “relationship property” covers
Relationship property covers things of financial value that were gained during the relationship. It can include:
These issues are explored in Part 2 of this series, so if you would like to know more, subscribe by clicking on the RSS Feed on the right.
Have you ever walked out in a daze after meeting with a lawyer? Was it English they were speaking? What was it they actually said about your problem? Was the only thing you understood, “Don’t worry, we will take care of it for you”, and then with confused relief you left your legal problem in their hands.
A few weeks later you get the bill but you still don’t really understand what work has been done AND why are you paying for photocopying and meetings and phone calls?
Well, the law is pretty complicated. There’s no doubt about that. It’s not always easy to navigate, and often only an experienced lawyer will know the best strategy to help you reach your goal. And, yes, paperwork is generated, even in my paperless office there is photocopying to be done. Meetings, research, reviewing documents and phonecalls are also vital tools of our trade.
And, yes, the traditional model is we do take care of you and you pay us to do that - we can try to keep our fees down but the analogy might be, you are flying first class, with all the tinsel and trimmings and not a care in the world (but for the bill).
But can’t there be a different way? What about those who prefer to, or simply have to, fly economy so to speak.
In my article of 7 December 2018 I talked about preventative law. This article is about an approach to law that is equally exciting. Around the world, it's called “Unbundled Law”, also known as limited scope or discrete task representation. Unbundled Law is where the lawyer and the client make an agreement to limit the scope of the lawyer's involvement in a legal matter down to specific tasks.
The New Zealand Law Society* explains the potential benefits to clients in using Unbundled Law as:
It simply stuns me the number of people who do not know what their legal documents say or do - and in some cases don’t even have a copy!
As for court cases, if you don’t know what your legal case is about how can you possibly make decisions about what to do next in it when you are asked by your lawyer for “instructions”?
An important point to make is you don't have to compromise quality with Unbundled Law, because ALL lawyers have professional obligations to their clients that are closely monitored and nowadays it's easy to do some homework and find out about your lawyer's experience and skills - just as you would with any other potential service provider.
There’s no doubt some people will always prefer the traditional legal model and thank goodness there are some great law firms in the region providing those services but more and more people are taking on assisted “DIY Law”.
At Comer Legal, we have developed a fixed fee framework so that clients can get the assistance they require as they require it. When work is completed, the client takes home all their own original documents for safekeeping or lodging – thus keeping control over their own legal matter. Electronic copies are kept by us and also provided by email to the client if requested. If we decide that a client might not be the right fit for Unbundled Law, quality referrals are made to traditional lawyers.
The key to the success of professional services is YOU the client.
More and more your choices matter when it comes to how services are delivered and that’s why Unbundled Law has a very important role to play right now and in the future in helping people access justice.
*Unbundled Guidelines - New Zealand Law Society 9 August 2017
In my November 2018 blog article, one of the 6 key Legal Tips I listed was to “Put it in Writing”. This article tells you why having great Terms and Conditions documented is so important.
When starting up a business, the last thing you want to think about is the worst case scenario but if you don’t put terms and conditions into writing you put yourself at risk of uncertainty and misunderstandings. You need to cover yourself.
Your Business Transparency
Having terms and conditions protects your business but other parties such as customers also need to know where they stand in dealing with you. Terms and conditions have a vital role to play when it comes to two parties (customer/supplier, partners) understanding their duties, rights, roles and responsibilities.
Terms and conditions can save a lot of money by addressing all issues at the outset. This in turn avoids disputes later on about what might or might not have been agreed. Apart from the cost, disputes damage business relationships and your valuable reputation.
What To Include In Terms And Conditions
Well-drafted terms should act like a manual for doing business and provide absolute clarity on what should happen in a given situation. They should set out what the agreed terms are between parties and what happens if things go wrong or one party wants to leave or is unable to continue.
The exact items your terms and conditions should include depend on your individual business but you should consider including:
Many businesses include their terms and conditions on the back of their invoice, but arguably by then, it’s too late. Payment Terms can certainly be re-stated on an invoice but Terms and Conditions should be provided at the outset of a business relationship. This can be done in a fairly brief, easy to adapt, format. It’s also a good idea to display your general terms and conditions on your website.
What Happens If Terms And Conditions Are Not Clear?
Failing to specify terms can have a serious impact on your cashflow and your business relationships. You may end up in a situation where the customer thinks they will pay at the end of service delivery and you think you are being paid at the beginning or in stages, so you could end up having to pay for materials and staff before you have received the money from the customer. Another common example is a misunderstanding can occur as to what is being supplied and when.
Also, if you do not specify your payment terms very clearly, customers may be confused as to when payment is due or you have will have no right to charge interest for late payment.
One Size Does Not Fit All
It’s important to make sure your terms are specifically written for your business – you can’t assume another business will have the same needs as yours.
Consult a lawyer and avoid the temptation to copy someone else’s terms as their business is different and they may not have consulted a lawyer themselves. Consider it an investment. If well drawn in the beginning, terms and conditions should need very little modification as time goes by.
4 Tips For Working Out What You Need To Include In Your Terms And Conditions
When in doubt, seek help. Ask for advice from your mentor, fellow business owners, your accountant and your lawyer.
What if basic Terms and Conditions are not enough?
Most businesses will be able to get by with short form standard contracts (Terms and Conditions) for the supply of goods and services. However, in some cases it may be preferable to have a more detailed and traditional contract in place. A lawyer will be able to advise you what would be the best approach for your business.
These Questions and Answers reveal 10 Very Good Reasons you should have a Will.
1. Who decides what happens to your assets?
If you die without a valid Will, your estate is divided up according to the law and you will have no say in how it is distributed. A Will is a legally binding document, especially if it is written correctly, and it lets you say how you want your estate to be dealt with upon your death. Having a valid Will helps to minimize family fights about your estate, because it clearly spells out “Who What and When” for your Estate.
2. Who will raise your children?
By making a Will you have a say in who will take care of your children. Without a Will, the Court may take it upon itself to choose among family members or a government appointed guardian and there may be no regard to your views about those family members.
3. Who will control your Estate?
With a Will, you get to decide who will control (administer) your Estate. You can choose the person or institution you think will be most likely to responsibly follow your instructions without applying their own preferences. Because Executors play the biggest role in the administration of your Estate, you’ll want to be sure to appoint someone who is honest, trustworthy, and organized. This may not always be a family member!)
4. How long will it take to administer your Estate?
A professionally prepared and valid Will greatly assists the cost-efficient administration of your Estate and the early distribution of your assets to the beneficiaries named in your Will. Most estates will need to go through a process of being proven by the Court (Probate). Having a Will speeds up this process. When you die without a valid Will, the Court makes the decision who will administer your Estate and how to divide your Estate without any input from you. This can cause expensive delays.
5. What if you want to exclude someone from receiving a benefit from your Estate?
Most people don’t realise that they can exclude beneficiaries or give unequal amounts to beneficiaries. It might be as simple as a loan or gift being taken into account. It’s really important to have a professionally prepared Will if that is your intention. Also, if you want to protect what you give a beneficiary, that provision needs to be in a Will, or in alternative documents you can prepare when you are doing your Will. It’s a complicated area and it certainly pays to get this right.
6. What if you want to make donations to charities?
There is only one binding way to make a bequest to a charity upon your death and that is by having that bequest written into a Will. Again, gifting to charities in your Will can be complicated and you should talk this through with a professional.
7. How can you avoid legal challenges to your Will?
For a start, if you don’t have a Will you have no protection against challenges against your Estate. Preparing a valid Will with professional advice increases the protection your beneficiaries have. Wills can be challenged but most valid well written Wills are not – it’s as simple as that.
8. What do you do if your circumstances change?
Well, circumstances do change. Life changes such as births deaths, marriage, and divorce all create situations where having a Will and changing that Will are essential. Wills should be reviewed regularly – depending on what is happening in your life – as regularly as every year to every three years. Don’t invest in preparing a Will and then leave it in the back of a cupboard.
9. What will your defacto partner be entitled if you die?
If you die without a Will your defacto partner may not be automatically entitled to any of your Estate. He or she may stand to lose all of the assets and treasured mementos you want them to have.
10. Does having a Will mean your intended beneficiaries are provided for?
Not necessarily. It depends very much on how your assets are structured and owned. If you prepare your Will with the advice of a solicitor you will be able to review all of your estate planning needs including appropriate arrangements for your incapacity, and a review of your business succession, as well as any trusts. life insurance and superannuation.
Over my years as a lawyer, I have spent quite a number of those years helping clients as a litigator. But I found that there were many parts of the litigation business which seemed to be unhelpful and dissatisfying to clients (and me!!)
These dissatisfaction points included:
But fortunately those times have changed, and over the past years I have shaped my practice more and more towards "Preventative Law".
I think of Preventative Law as a kinder, gentler law practice, where my role as a lawyer is more as an educator, coach and resource to my clients. I often talk to people about Preventative Law but I am not always sure that people understand what it is that I mean by it. Hopefully, this article will assist.
Preventative Law in Action
When a client calls me and asks for a Will to be prepared, the chances are high that a Will is exactly what they want. However, after looking into it more, my client might say: “I am going in for an operation next week and I want to make sure my family is looked after in case something happens to me.”
Knowing the reasons behind my client’s request allows me to address more fully the “root” concern that prompts that request. It opens up the possibility of a discussion on the practicalities of other tools that my client may consider and we can then implement those tools together to more completely and effectively resolve the concern. Some of these tools may be legal solutions, such as making a gift, preparing an enduring power of attorney, establishing a trust, or developing a business succession plan. Also, non-legal solutions may require implementation by other professionals such as an accountant or personal organiser.
The practical applications of “Preventative Law” range from regular legal health checks for an individual client to detailed, systematic legal compliance programs being implemented on a business or corporate scale.
What does Preventative Law really mean?
Stated simply, Preventative Law is about acting “proactively” by taking appropriate steps to prevent a problem from occurring. This is opposed to acting “reactively” in dealing with a client’s problem once it has occurred.
To be truly effective, lawyers should try to understand their client’s “real problem”, not just their legal problem so that can proactively work with their client to achieve great results.
The evidence shows that Preventative Law contributes to the life and business success of clients. A client is likely to be saved stress, harm and cost. Preventative Law can also ensure that a client is not misguided about issues that may have a substantial impact on them in the future.
Why wouldn’t a client act proactively or welcome a lawyer’s advice to do so?
Many clients do not:
The preventative lawyer is like a “designer”. The designer role is the dimension of legal practice that is often overlooked because of the “reactive” pressures of legal practice.
The designer works proactively with clients to identify potential legal trouble spots and designs tools to prevent those risks from occurring. In comparison, the “problem solver” deals with problems as they erupt, notwithstanding the best preventative efforts. Failing that, or where justice concerns otherwise seem to warrant it, the “fighter” initiates a court based resolution for the problem. All three dimensions in a lawyer are important. To be only one dimensional would be to put at risk obtaining the best solution for a client.
Where to Start?
Preventative Law starts with an attitude towards the practice of law. Time and effort is made to go beyond a client’s current “problem”. As lawyers we should aim to build strong bonds with our clients. It’s important for a client to feel that they can talk confidentially to their lawyer about anything that may directly or even indirectly relate to their legal affairs. Without this bond, a client will be more reluctant to tell the lawyer everything. Sometimes, a client will innocently fail to pass on information because they don’t see its relevance. In order to overcome this obstacle, communication is essential.
If a rapport of this nature can be established, it is likely that lawyers will be much better equipped to prevent legal problems occurring. By understanding the client’s individual needs, their business, industry and goals, we are better placed to determine what the future issues are, as well as the underlying cause of existing issues.
The Tools of Preventative Law
A lawyer applying the skills of Preventative Law will focus on:
If you have thoughts you would like to share about preventative law, I would love to hear them! It’s a very important discussion to have.
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.
Note from the Author
I get plenty of time to think about legal matters while I am on the road.
This blog shares those thoughts and also answers some of the many questions people ask me. Hopefully there is something of interest to you. If there is a subject you would like covered then let me know!
Subscribe for more information and feel free to share your views.