selling a business

1 in 4 websites break the law.

16th Sept 2013

The BBC website reported that Trading Standards in Scotland (SCOTSS) states that one in four websites are not offering consumers the correct options when trading online, ultimately breaching their consumer rights.  Amongst these infringements include 43% of websites fail to inform consumers of their right to cancel and more than 50% of sites, fail to provide a full refund when required.

SCOTSS chairman Colin Baxter said: “We are concerned about the high levels of non-compliance. It’s a legal requirement to protect online buyers, to ensure fairness and a level playing field for reputable retailers, and to ensure the smooth working of the internet marketplace. “However, with the continuing expansion of e-commerce in the UK, new entrants are joining the market every day, many of them small micro-businesses with little experience of consumer law.”

So, businesses that enter the online marketplace with no knowledge of consumer rights, will only attract unwanted attention from institutions like the standards agency.  This could result in a fine for the online business and bad press for online retailing which is a key part of our economic recovery.

With the public more savvy about their rights as a consumer, it’s up to the online business to ensure their website and online offering is reputable.  This includes being aware of the responsibilities as an online trader and ensuring the correct procedures are in place before trading online.

David Reilly from Create Ts and Cs, director who draft and provide bespoke terms and conditions to online businesses commented “it’s a good idea to keep trading standards off your back; such organisations have the power to fine and tarnish the reputation of the business, leading to a loss of online sales.  It’s a risk for a business not to follow the law and not to communicate the correct legal rights to their online customers.   So why take that chance? A company that is serious about customer service and building a sustainable online business will take the right steps to ensure their customers are protected”.

Online inspection of Websites

SCOTSS will in the future conduct random online inspections of websites, this will include SCOTSS officers carrying out “test purchases” to check how a consumer would be treated when they purchase from the site.  This test will also include cancelling the service within the statutory seven-day period to test whether the website operators are following through on distancing trading obligations, as per the law.

There is a trust that exists between the general public and the online trading community, when an online purchase is made, online transactions lack the traditional personable retail face to face contact that can reassure a potential customer and establish the credibility of the company.  In the virtual world, all that’s visible is the website, social media communications and the correct terms and conditions outlining the customer’s rights meaning this formal communication is not only a legal requirement but demonstrates the correct customer service approach to protecting your potential customers.

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.

 

Please sign here ….however please don’t ask me what’s in the contract.

 

It’s not uncommon for a client to sign a contract where the content is not understood, the origin of the information unknown or is drafted by an unqualified hand?  There are a variety of reasons for this; one of the key reasons is that legal services appear to be an expensive luxury rather than a must-have for your business.  Generally, this type of contract is unenforceable and this can cause a problem for both parties when a dispute arises.

The danger of contracting with an unenforceable contract is expressed in an article posted on Lexology, “Am I being unreasonable”? by legal firm Nabarro LLP, the article comments on the importance of a contract containing clauses that are reasonable and in-line with the Unfair Contract Terms Act 1977 (UCTA), “it is always been in a contracting party’s interests to consider the reasonableness of the contract clauses; take advice on whether the court would be likely to uphold the clause should it be subject to challenge”.   So knowing what’s enforceable and what’s reasonable defines the credibility of the contract.

Its key to remember that this is not just a legal issue but is a business issue, a think tank aimed at creatives/designers called Creative Latitude believe that the contents of the contract is a key client communication, “If we have to take a deep breath and are physically uncomfortable when we present the contract, that uneasiness is bound to be communicated to our client. The last thing you want to do is cause your client to see the worried look on your face and wonder, what the heck is in this contract”?

David Reilly, director at Create Ts and Cs commented, “Our client acquire bespoke contracts ratified by a solicitor so they know that the contract is enforceable (deemed reasonably).  It’s critical that their potential customer knows they have gone to the trouble to invest in a contract that is enforceable and protects both parties”.

Considering the investment of time and money to contact clients, coffees and lunches, sales systems and marketing campaigns, it makes sense to continue the good work and invest in a professionally written, assessable contract relevant to your business ensuring its ‘reasonable’ and ‘enforceable’ throughout. 

 

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