As lawyers, we’ve noticed there are three mistakes that new business owner’s often make when creating a business – forgetting to plan for scaling, failing to have the right documents drafted and settling for vague contracts and/or terms of trade. These mistakes are easy to avoid and can save you plenty of headaches down the track.
Let’s begin with Scaling
When people first start up a business, they often go out as a sole operator. They have an ABN and they believe that they don’t need to think about scaling, because it’s just them. That is a huge mistake, because if you’re doing cracker of a job with your business, and you get a sudden influx of work, you’re going to out-scale yourself as a sole trader very, very quickly. We’ve seen this happen so many times. If you haven’t planned for growth, you won’t be able to service your existing contracts and take on new ones to keep growing your business.
Without the correct legal setups behind you, and a plan to source and retain new employees, your business will implode and bust. Ensuring that you have the correct legal setup for your business growth will set you up for success, so think at least five years ahead. Consider what you want your future business to look like, and work backwards to make it happen.
Get your documents right
Whether you’re a sole trader, a partnership, a trust or a PTY LTD company, you need to make sure that the company has the right documentation for your personal needs. The biggest mistake we see is individuals using their accountant to draft their company documents. Most of these documents are generic, and do not fact in things like retirement, new partners/ shareholders, or unfortunate events such as the death of a business owner.
It is important to have your documents drafted correctly from the start, so they will suit your business and your personal needs. You’re always going to need documentation, because at some point you’re going to retire, or perhaps, sell the business or pass it on to another family member. You may even want to simply shut your business down. Your business documents will determine how you can do that, or if you haven’t had them correctly drafted, how you can’t do that. So, read all documents carefully before you sign, and remember your accountant is not a lawyer. They are setting your business up solely for financial purposes, whereas lawyers will consider the legal purposes attached to the document. It is important to make sure you are properly protected when the time comes.
Understanding contracts and terms of trade
When we talk about contracts and terms of trade, we are talking about the contracts (verbal or written) you enter into, the quotes you issue, the invoices you send and the receipts you receive. Drafting contracts with vague conditions and issuing invoices that are unclear runs the risk of customer and/or other business disputes. The larger the dispute, the more risk there is that it could end up in court. That is the last thing you want! We don’t need to tell you how time consuming and expensive litigation can be, so it is advisable to ensure all terms and conditions related to your contracts and payments are clear and legally binding.
Are you thinking of starting a new business soon? Jump onto the Forge Legal website – we have plenty of free resources to help you out. If you’re ready to start planning your business future and drafting those documents, don’t hesitate to call our office.
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