Ensuring your business operates on a sound legal footing is crucial to ongoing success – and avoiding potentially ruinous pitfalls. Michael Shroot discusses the main problem areas.
Lack of focus on credit control can, and does, ruin businesses. You should set an upper credit limit for every customer and do not be cajoled into allowing more. If a customer wants extra stock, make sure they agree to pay the balance in cash.
Credit terms should be signed by customers to demonstrate their agreement. Professionally drafted documentation should set out the maximum credit period and you should also have a standard sales contracts stipulating, for example, that you own the goods until they are paid for, even after you have delivered them.
The sale and purchase of goods and services are subject to specific terms of trading, yet all too often businesses do not have the necessary documentation to protect themselves. You need to know exactly what a customer has ordered, what you are committed to providing, when, and for how much.
If a dispute arises over quality, project completion dates, or whether goods have been delivered, businesses should be able to consult their contractual documentation to enforce their rights. One size never fits all and downloading standardised contractual terms from websites can sometimes be more damaging than having none at all.
Commercial property leases
In the excitement of moving into new premises, firms frequently fail to properly consider the legal implications of their leases – and even whether planning law allows them to trade from the premises.
So it is vital to legally safeguard against commercial landlords who sometimes insert clauses that leave tenant businesses exposed to major expenses. Landlords may want to know which clauses to include to ensure their interests are properly protected. In many cases these only become apparent after a business has moved in and is stung for charges, or is moving out and faces a hefty repairing liability.
Inadequately detailed employment contracts are a common – and costly – mistake among employers. An effective contract and handbook sets out how the employer/employee relationship works. If there is a dispute, both parties can refer to the terms of the contract and handbook to establish how the issue should be addressed, helping to reduce dissatisfaction and improve productivity.
A clear employment contract also minimises any potential claims the employer may face. Moreover, a lot of employers ignore employee problems, hoping they will go away, or deal with them inappropriately. Both approaches can cause situations to deteriorate and result in claims that can potentially cripple a business.
When businesses are set up the mood is understandably buoyant and no one wants to bother with written agreements setting out what happens if relationships turn sour. A few years down the line, circumstances may well have changed.
Shareholder agreements govern the relationship between business owners, setting out what happens if board members want to sell their shares, if a shareholder dies, or a shareholder leaves and sets up in competition. Shareholder agreements are a vital way of ensuring the balance sheet of a successful business is not damaged by shareholder disputes that can come out of the blue.
For further advice on how to avoid legal problems faced by businesses, call Michael Shroot on 0161 761 4611 or email him at Michael.Shroot@whnsolicitors.co.uk