Attracting investment

Small businesses, donations and working with charities.

In our experience, a lot of small business owners are very aware of social responsibilities and many have started businesses based upon a principle or an ethos.

It would seem that small businesses are the perfect target for a charity or ethical organisation that requires donations. It appears logical, that a principled small business owner would be very keen to have a transparent and open link with a charity, especially a charity that reflects their values and is compatible with their approach to business. As a small business making smaller more frequent donations works for us as opposed to large one off donations.

So with that in mind; here are two suggestions or challenges, that if overcome, would help us integrate a charity into my business.

The first issue is highlighting the destination of the donation and the positive impact it may have?
There is a certain cynicism with regards to how much of the donation goes to the cause itself, perhaps the charity can tackle that issue by providing a statement or a certificate with every donation, outlining where the money is going and what percentage will impact the grassroots, or make a difference?

The second issue is access to a branded dedicated link (continuously live) to make it easy for our clients and us to make a donation. For example, some of our services like ‘updating a contract’, may require minor tweaks and we may avoid charging our clients for the work, however attaching a value to the work is useful and may be an opportunity to integrate a charitable donation option into our service. Its means we complete minor work for a fixed value which results in a donation instead of a direct payment or not charging any fee.

The charities we’ve spoken with are not structured to provide a simple payment mechanism for us to use. You would think with all the technology out there that making a charitable donation that’s transparent, open and ethically acceptable would be a simple task.

Hope you find our thoughts on this subject of interest.

No Warranty No Clarity

This blog is part 2 of a series of 5 that is preoccupied with small business using contracts to avoid contractual disputes. Court is an expensive pursuit and building self-remedy or clauses into your contract, that are enforceable and offer solutions to problems that may arise is practically useful to small businesses. A considered contract can help you save money, time and effort.

Warranty in simple terms means performance. So outlining how the product or service will perform seems obvious but in many cases, the details provided are scant at best. In many cases, the contract generally fails to outline the key aspects of performance and in turn creates ambiguity. It’s this grey area that can lead to further issues, as during times of dispute, areas of uncertainty become points of discussion or argument.

This gets even more troublesome when there’s a returns policy or a maintenance/service agreement to support post installation or delivery. Stating what is covered by the contract with regards to the basic product’s functionality is one thing but when something breaks or fails to work, what then? Remember these products or service are manufactured and delivered by humans, so things happen, the important thing is outlining what happens next?

Going to the trouble of employing the right contract drafter to ask the right questions and create a contract that is designed to help both parties work together long-term, is worthwhile. Contracts are avoided by those who see no need for outlining the negatives…..but knowing what might happen in the event of….is arguably good customer service and is considerate to both you and your customers time and energy.

The next blog will focus on intellectual property…..

Shareholders’ agreements: protection from loss or unnecessary expense?

28th  Oct 2013

Setting up a new business can be a costly endeavour. Between the new website, marketing and the expense of looking for new customers, many businesses do not consider risk management as a priority from the outset. The introduction of a contract such as a shareholders’ agreement is often put on the back burner and the function and profitability of the business become the main priority. The forming of such agreements can be seen as time consuming and costly but actually this business expense can save the company money in the long run and can creates a foundation and ultimately an incentive for all shareholders and directors to work together.

A shareholders’ agreement is put in place not only to resolve shareholder issues, but to resolve them quickly and quietly, keeping the business’ reputation and income intact. It can govern the actions of each shareholder and consequently the directors of a company, as the people who form small businesses tend to occupy both roles. It is a valuable mechanism in situations of shareholder disagreements or removals. It may prevent an ex-director providing the same services while attempting to poach the previous company’s customers. This would essentially save the company from spending both time and money on unnecessary court proceedings. A further attractive characteristic of a shareholders’ agreement is that it is not in the public domain. Therefore, any boardroom disagreement can be kept quiet to preserve the company’s reputation.

An article from the Independent newspaper, explains the benefit of using a shareholders’ agreement and how the alternative involving court action is much more expensive than putting a shareholders’ agreement in place, “In any event court action is usually expensive and time consuming and may damage the company’s reputation and the goodwill of the business. It is therefore important that there is a contractual procedure in place to resolve any deadlock as quickly and as privately as possible.”

It makes sense putting a shareholders’ agreement in place from the beginning to cater for changes in the shareholders’ interest and business direction. Consequently, the implementation of such a contract would be much trickier after the shareholder changes focus.  Resolutions to such situations are more time consuming and generally uncomfortable as the negotiations take place under a cloud of changing priority and frustration.

The article continues, “the directors and shareholders’ personal plans and expectations may diverge over time, making it harder to agree the terms of the shareholders’ agreement later on in the lifecycle of the company.”  So, putting a shareholders’ agreement in place may also result in a business being more profitable. The agreement can also regulate the everyday functions of the business, allowing decisions to be made quickly and fairly, taking account of the views of each shareholder. It can also regulate the responsibilities and remuneration of each shareholder, which could potentially prevent many misunderstandings and disagreements.

David Reilly, Director at Create Ts and Cs commented, “We believe a shareholder agreement is not only a mechanism for solving problems within a limited company and promoting the sustainability of the company but it’s also a way of managing governance in the business; reflecting the particular culture of the business.  Managing the consent issues and the shared responsibilities of each shareholder/director (in most small businesses the directors and shareholders are the same person); this way responsibility is allocated and incentive built into the agreement to ensure that each director/shareholder (small business model) is part of something that is theirs’ to grow as a team.  This is best done through a tailored agreement, which is a shareholder agreement that is first discussed with the shareholders/directors and the key issues agreed beforehand and then reflected in a tailored contract.”

Yes, it is a relatively costly instrument and is not always utilised. However, this does not take away from the fact that these agreements are an essential tool for your business. It should be common practice for these agreements are formed at the start of the venture alongside forming a company.

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Valuation of company shares; common reasons.

 29th April 2013

The activity of company share valuation is  part of the natural lifecycle of a business.  At certain times of change the facility to change company directors may be paramount to the survival of the business.  In such situations the business requires both contract advice and financial expertise.  Here is an example of two common situations

Removal of a Company Director

It’s a tense time within the business when there is deadlock in the boardroom or a fall-out between company directors, sometimes resulting in the removal of a company director .  These are usually highly emotional situations.  If a correct shareholder agreement is in place, then a mechanism is there to cater for solving director dispute.  Without this commercial agreement the director dispute or deadlock relies on the interpretation of the law or an informal approach leading to dispute which can leave a trail of problems and further cost down the line.

When a director decides to part company; the next step requires valuation of the company shares; when it comes to valuing the shares, Philip Simpson of 525 Accountancy comments, “Valuing shares is a fundamental part of assisting the smooth departure of a director; if handled incorrectly conflict can arise leading to substantial legal fees and it may be some time before the business returns to its current state”.

David Reilly director at Create Ts and Cs comments” it’s best to have a commercial agreement in place to deal with the natural ups and downs of business.   Things can go wrong and change naturally occurs in companies, so it’s best to put a contract in place at the beginning, when the sun is shining; having a facility to deal with future issues is simply best business practice”.

Due Diligence – selling a business or appoining a new Director

So the business has reached a certain point where it’s time to sell or attract investment.  Although each event is very different, they are both stressful and exciting times for managing director. According to a recent Financial Times article on March 7, 2013, commenting on the advantages of having a board in place, “the board is as good a way of having checks and balances in a business. It’s not a panacea in all cases, but is there a better way of attracting investment?  The providers of capital will want to keep a check on what management’s doing. So there needs to be some sort of mechanism to provide reassurance that capital is being put to good use”. A board can provide assurance to investors, however the board requires a contract to ensure a structure is in place to deal with future issues and support sustainability.

David Reilly comments, “it’s always an interesting time for the company directors, as a potential new company director or investor assesses the value of the business and conducts due diligence, a tailored commercial agreement puts a framework in place and gives the board options when circumstances change.  The most important issue is the business is sustainable”.

Philip Simpson adds, “An independent valuation of the finances is critical, to getting all parties to agree a figure as quickly as possible so the existing directors can move forward with the business. So, why not pay a reasonable sum and have the peace of mind that there will be no problems in the future and all the relevant diligence has been completed”.

In conclusion having both the financially and contractual expertise in place will support the various natural transitions a company will go through.  The right contract will provide options for change and support those changes.  Having the expertise will guide the business through the various challenges and will help the business to be sustainable.

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Self-drafted and ‘off the shelf’ contracts versus bespoke contracts – what’s the difference?

 

Self-drafted or general off the shelf contracts are not adequate for those businesses who want to manage their liability, a case from www.lexology.com (legal website that explores business issues and law) shows how self-drafted or off the shelf contracts just don’t manage the risk within a business and can lead to businesses issuing contracts that are simply unenforceable.

The High court found that an exclusion clause contained within the standard terms and conditions of an IT supplier was unenforceable leading to an award of damages of £110k in favour of the Client. The case (Kingsway hall hotel limited V red sky IT limit [2010] EWHC 965 (TCC). Legal firm RPC (www.rpc.co.uk) commented on this case saying, “from this case it was clear that there existed a clear disconnect between red sky’s standard terms and conditions and the manner in which red sky sought to sell their software.  Suppliers should ensure that their standard terms accurately reflect the sales and contract process. Any gap between the process envisaged in the standard terms and the actual process may result in clauses being unenforceable.  Standard terms and contract processes should be reviewed regularly with legal advisers to ensure enforceability and maximise their benefit”.

Click here to view or Bespoke contract versus self-drafted or off the shelf contract chart outlining the pro’s and cons.

 

The correct contracts attracts investment; get the due diligence right.

 

 

Making your business an attractive proposition for an investor or potential buyer can be a time consuming task.  Apart from the usual business day to day of ensuring you are making sales and keeping your clients happy while increasing profitability; there is the added preparation of documentation to allow the key business info to be viewed from the outside and understood by a potential suitor.  The process of viewing and interrogating this documentation is generally classed as ‘due diligence’.

According to sellingbusiness.ca, “despite all the uncertainty regarding the due diligence process; some principles that if applied can assist the process and increase the chances of reaching a satisfactory sale.  For example it’s advisable that the sellers prepare a large portion of the documentation needed for due diligence before putting the business up for sale, especially financial and accounting information and legal documentation”.  This principle is applied to either investing-in or buying a company”.

Colin Munro, Director at Mi City, www.mi.uk.com comments on the need to impress an investor, “Small businesses need to protect their intangible assets in order to build value and if investment is to be attracted at any future date then clear legal definitions will be a requirement of the investor.  It is much better to agree terms with a supplier prior to commissioning any work, clarifying any areas of ambiguity. This will help to prevent future disagreements and potentially costly negotiations”.  

So, having the right contracts is important as it shows investors or buyers you can protect your asset and build value within the business.  David Reilly, Director at Create Ts and Cs, “in my experience investors or potential buyers will feel a certain reassurance that you have gone to the trouble of putting in place the correct contracts with suppliers and customers to assist in managing risk and help contract in a manner that assists the process of getting paid on time, protecting your IP and generally providing a professional framework to protect both parties while doing business.  Also a contract can demonstrate residual value where contract duration is signed up to; for example, a signed contract ensures a certain amount of revenue and value for the contract period.  i.e. a 12 contract should yield 12 months revenue, which of course is attractive to a potential investor or buyer”.

It’s not unreasonable for a potential investor or buyer to be interested in a company that has invested in its own business processes and formally manages their client relationships. 

Bill Christie, FCIBS is a Chartered Banker and Managing Director at CER, www.cerbusinessfinance.co.uk, who assists businesses identify the appropriate funding for their company commented “I cannot stress strongly enough the essential requirement for a business, no matter how small; start-up or indeed established to have an “approved” set of Ts & Cs; specifically designed for your business.  Yes, you can obtain Ts & Cs from the Internet but they may well not be designed to provide the right protection that you and your business require.  When discussing a funding/business proposal with a prospective client, I consider that Ts & Cs are just as important as Business Insurance”.

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Create Ts and Cs provide a bespoke set of Terms and Conditions for your business at a fixed price, this unique approach to individualising commercial Terms and Conditions allow Start up and SME sized businesses the opportunity to protect themselves, manage risk and guard against future unnecessary disputes at an affordable price. Download: terms & conditions | privacy policy