Top 5 mistakes business owners make

As commercial lawyers we see the same mistakes made by business owners time and time again, and most (if not all) of them are easily avoidable if they had been proactive about their business legals. We wanted to share with you some of these common mistakes and let you know how you can address them now, before they become costly mistakes.

1. They do not protect their intellectual property…

The only way to stop someone else using your business name or logo is through registering a trademark.

If you are doing great work for your clients and people are recommending you – you do not want other people looking for you online and ending up connecting with (or worse still engaging) a competitor that is using your name or something deceptively similar. And yes, this happens all the time!

Also, on the converse, you do not want to be inadvertently associated with a bad business. Imagine if you got a bad Google review for poor services but this was not even you. This could happen if a copycat starts using your name. These bad reviews are hard to remove and can damage your goodwill.

So, what can you do to help prevent this? Easy, register a trademark.

Registering your business name as a trademark gives you the widest form of protection, it stops anyone using your business name (in your designated classes of good and services).

The good news is that registering a trademark is relatively inexpensive and easy to do. A commercial lawyer with trademark experience can complete the registration on your behalf.

2. They do not have a contract in place with their clients…

You cannot simply leave it to chance and trust that everyone you do business with will pay you. You need to have the law on your side and for that you need a contract with your client.

The amount of business owners we talk to who are owed considerable sums of money and who do not have terms of trade/terms and conditions is scary.

The easiest way to make sure you get paid is to have business terms and conditions attached to your client quotes. This then forms your contract with your clients.

If you already have terms and conditions, then have a good read of them and make sure that they contain robust clauses around late payment and enforceable limits of liability.

You should have a client agreement, and this is usually your quote and your terms and conditions attached.

Your contract with your client should include as a minimum the following clauses:

• Agreement regarding price;
• Payment terms;
• Your refunds or cancellation policy;
• Your ability to charge interest on late payment;
• Your ability to charge debt recovery costs;
• Termination provisions;
• Your suspension rights (e.g. for late payment);
• No liability for delay; and
• Disclaimers and limits of liability.

If you are worried about your terms and conditions (or lack of them!) and want to know more, grab our free guide on how to get paid.

3. They trust people who work for them too much…

Sometimes you need extra help in your business but are not certain enough about the amount of work you can give someone to take on an employee. When this happens, you tend out to reach out to people you know to help you out.

This is all well until something goes wrong and you have no written agreement in place, and we see the costly aftermath of this a lot.

If you are a business owner who engages subcontractors, you need a well drafted subcontractors agreement in place because everything is fine… until it’s not.

You do need to be careful that your contractors are not considered employees and there are ways of working this out to be sure.

Here are some of the things you should have in a well drafted contractors agreement/subcontract:

1. The subcontractor’s responsibilities;
2. Workplace Health and Safety obligations;
3. Restraints of trade (to make sure they do not steal your clients or employees); and
4. Dispute resolution procedures.

If this is of concern to you, there is more detail in this article on subcontractor agreements.

4. They trust people in business with them too much…

Sometimes you rush into starting a business with friend or family member and do not think about what will happen if things go wrong.

There is a simple fix, a legal agreement. If you have a company this is called a shareholders agreement and if you are partnership (more rare) a partnership agreement.

All too often we see company directors/shareholders embroiled in costly disputes in circumstances when a shareholders agreement could have prevented unnecessary legal costs and disruptions. In fact, I will go out on a limb here and say that most successful businesses I deal with all have well drafted shareholders agreements in place.

A well drafted shareholders agreement should cover all the rules of holding shares in the business, including: 

• Appointment of directors and voting rights;
• Clauses dealing with rules on transfer of shares;
• Shareholders rights and obligations;
• Dispute resolution clauses;
• Restrictions on competition; and
• Confidentiality.

Click here for more information on shareholders agreements and their importance.

5. They have completely the wrong structure...

When first setting up a business, it is common to use a sole trader structure, as it is relatively easy and cheap to get your started. However, as your business grows, it is crucial that your business structure evolves with it.

One of the biggest benefits gained from structuring your business as a proprietary  limited company is that you can protect your personal property (by keeping it separate from the business). As a sole trader you are personally liable for all business debts. You can incur debt and you can be sued, which means your personal assets are very much at risk. Changing to a company structure turns your business into a separate legal entity, meaning the company can sue and be sued. This limits your personal liability.

Helen Kay is the Managing Director at Rise Legal