Why getting a contract checked by a lawyer can save you thousands!

Today I wanted to share a quick thing with you about checking your contracts.

We’ve got a client selling an aspect of their business. They’re selling it for $230,000. So what they’re selling is not their company, they’re selling the assets of the company. Now, they came to us and said, “Is this something I should get checked by a lawyer?”

Well, it’s worth $230,000 to you. Do you want to keep that money? Do you want to protect it? Do you want to make sure the transaction goes through and you get the money? It’s going to cost them around $1,500 to get us to review the contract, check that it’s all right, suggest changes, highlight risks and protect their interests.

Do you reckon that’s worth $230,000? 

 betteDo you have terms of service that help you manage client work?

One of the topics that came up at an Angel Investor and Entrepreneur breakfast was terms of service.

One of the people I was speaking to is in the website and marketing design and development space, and the challenge that they’ve got is clients who don’t give them material they’ve asked for, like images or written content.

The problem is they have no service contract that says “if you don’t give us material in 7 days, then we can continue as if there’s no changes or we can go on and get the work done“.

The challenge for the designer is that they have a workflow they’re trying to work with and a work stream and they have staff allocated to certain projects and if you can’t move forward in a project, it messes up the whole business. You end up with staff who have nothing to do and other staff who are overwhelmed because clients simply don’t respond with the required information.

One of the things you can use terms of service for is to manage the relationship with your clients and to get them to give you information that you need from them in order for you to complete the work you need to get the job done.

You might like to do business with a handshake, but written contracts aren’t a bad thing. The reason you put them in writing is to better manage expectations and manage relationships. 

Rules Against Unfair Contract Terms Apply to B2B Transactions

As you can see, I’m on the road today visiting some clients and business meetings, and that is a plane I can hear in the background.

One thing I wanted to talk to you about today is we’ve got a client who has been involved in a business-to-business relationship. The relationship started early in 2017, so after the changes to Australian Consumer Law in November 2016, and some of the provisions in the contract that our client has entered into are unfair contract terms.

Under Australian Consumer Law, unfair contract terms are terms that, for example, will give one party the right to do something but not the other party. So for example, only one party being able to end the agreement.

In this particular instance, our client was signed up to do a certain thing for a certain period of time. The other party didn’t deliver, so they cancelled and they exited. But the person they signed up with is still trying to charge them money. It’s just not going to be enforceable under the changes to Australian Consumer Law, unfair business terms because it matches all the indicators that would enable the court to determine the provision void and unenforceable. As a business owner, you should be aware that unfair contract terms now apply in business-to-business transactions involving small business. 

What is the purpose of corporate governance? 

What exactly is governance and why is it important?

Well, it’s not that complicated. It’s just the rules around doing business.

If you’re a registered company, there are certain reporting obligations that you have in order to protect the shareholders, the investors in your business. Good governance also helps to add value to your business so that when you’re looking at getting more investors on board or actually selling your business in the future, you can demonstrate why it’s worth what you say it’s worth.

An example here might be if you’ve got a startup and someone’s developed a piece of software. Now, that piece of software might have some value, and the person who created it might be entitled to receive some money from the business at some point in time once it’s making revenue.

Actually documenting the rights of the company and the developer shareholder are very important because if you’ve got an investor who wants to come into the company, or you’ve got someone who wants to buy the business, they need to know that the business owns that software and on what terms it owns it, because it can make a big difference to the valuation of the business. That is one of the first points of information around governance – ensuring that all the key players in the business understand the rules for the business.

There’s a lot of questions around what level of detail you need to have, but that’s a separate conversation. Typically, a company will have at least a constitution or replaceable rules, and a shareholder agreement governing the relationship between the shareholders.