Six Common Mistakes Small Business Owners Make

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1. They have the wrong business structure

There are four basic business structures: sole trader, partnership, company and trust.  There are benefits and disadvantages to each structure including different tax consequences and personal liability.

Most small businesses start as sole traders.  It is an easy and inexpensive way to start a business.  However as the business grows it is important to reassess the structure, as a sole trader structure exposes the business owner and his or her personal assets to business debts and creditors.

A company or trust structure may be more appropriate as the business grows where the business owners personal assets can be isolated, limiting his or her personal liability.

2. They don’t properly prepare for employment issues

A lot of small businesses grow rapidly and workers are employed without the time to plan and properly prepare for their employment.  This can cause issues, particularly where:

  • there is no contract in place or a generic contract is being used for every employee;
  • proper workplace procedures have not been implemented;
  • the business regularly engages subcontractors;
  • the business owner does not understand or fully understand how the employment contract and Modern Awards work.

These issues can lead to disputes between contractors, employees and the business which can become costly and time consuming.  Business owners should ensure:

  • proper employment contracts are in place for each employee;
  • workplace policies and procedures are appropriate and being implemented;
  • they have full understanding of their employees wage structures.

3. They don’t have terms and conditions

Small and medium businesses need terms and conditions with their customers and clients to reduce the possibility of disputes arising.  The terms and conditions for your business should include all the important information your customers and clients need to know about transacting with you including:

  • the products and services you sell and how they will be delivered;
  • how and when you get paid;
  • what happens if you don’t get paid on time;
  • who owns any intellectual property and its protection;
  • what happens if a dispute arises;
  • what are your, and your customer or client’s rights and obligations under the Australian Consumer law;
  • limiting your liability where possible;

Your business terms and conditions should be specific to your business and processes.  Terms and conditions copied from someone else’s website or bought as a template document often leads to disputes with customers as your business practices are often different to those in the terms and conditions or the provisions simply do not apply.

4. Business owners don’t understand the consequences of giving personal guarantees

Many small business owners routinely sign personal guarantees on application for credit documents with suppliers often without knowing it and without fully appreciating the impact of guaranteeing the company’s debts or personally guaranteeing other contractual obligations of the company.

Some personal guarantees grant the creditor a charge over your property such as your home.  Your supplier may be able to lodge a caveat or in some circumstances make an application to Court to obtain possession of the property.

Personal assets can be protected by considering the risk when signing supplier documents.

5. They don’t protect their intellectual property

Small business owners spend a lot of time, effort and money developing their business idea, brand and name for their business only to leave it all unprotected.  This can happen by:

  • talking about their business idea without appropriate agreements in place;
  • not protecting their business name and logo;
  • allowing employees to access confidential and sensitive information without control mechanisms 

Any one of these can cause significant reputational damage to a small business and can be a costly legal exercise to rectify.

Business IP can be protected by ensuring:-

  • robust confidentiality and non-disclosure agreements are used with third parties and employees; and
  • trademarks are registered to protect valuable brands.

6. They don’t think they will have disputes with their business partners or want to exit the business

When a business is started the owners never want to think about how they may eventually exit the business or what happens if the relationship with their business partners break down.  It happens all too often that after a while either a dispute arises between the partners or one of them wants out.

An agreement should always be in place that regulates the relationship between the parties.  This will include:

  • Clauses that regulate decision making;
  • The rights and obligations of a partner/shareholder/unitholder when exiting the business both voluntarily or involuntarily;
  • A mechanism to value the exiting partner’s share in the business;
  • How each partner will contribute to the working capital of the business;
  • Under what circumstances each partner can transfer their interest in the business;
  • Dispute resolution procedures;
  • Restrictions on competition.

This agreement should not be a template document but should be drafted specifically for your business after specific consideration is given to the issues.

How Foursquare Legal can help

We help small to medium businesses create robust structures and agreements to protect their business and personal assets in order for them to grow.

We offer an in-depth assessment into your business and provide you with a strategy to better protect your business and personal assets.

In our legal business assessment we:

  • meet with you to review your business and identify risk;
  • provide a report on the top 5 legal risks in your business;
  • develop a plan which creates robust structures and agreements to protect your business and personal assets;

During our meeting we discuss:

  • business structure;
  • employment relationships;
  • terms and conditions;
  • relationships with suppliers;
  • intellectual property;
  • relationships with business partners;
  • any other legal issues that arise from your specific business.

 

For a short time only for $550.00 including GST.

Book your Legal Business Assessment here

Book your free consultation with Sally