The Dangers of Ignoring Legal Risk For Small Businesses

Commercial and Tech lawyer, Rebecca Kelly discusses what her 24 years of practicing commercial law have taught her and what motivated her to launch a legal tech business.

Often when businesses launch, there is lots of excitement and ideas, but not enough attention to detail, and this can cost a business hugely, particularly when the business wants to take its next step.

As well as this, failing to have proper contractual protections in place can lead to uncertainty around trading terms, a potential breach of insurance policies (which generally require companies to have written terms in place with customers and suppliers which manage their liability exposure) and leave you on the back foot if a dispute arises with a customer or supplier.

As businesses become more established and owners look to exit, a failure to have proper terms of trading can significantly impact the value of a business and I have seen this countless times. When a sale process is underway there will be an exercise called due diligence.

This is where potential buyers quiz the owner of the company they wish to buy to determine how robust their sales and supply lines are. If you have a significant customer, but there is no written contract in place, then there is no guarantee that customer will keep their business with your company post sale.

Any buyer will spot this, and may reduce the amount they are prepared to pay for the business to reflect the lack of certainty. Failure to have good written customer contracts in place will (and does) directly impact the value of a business in a negative manner.

What Fundamental Documents Would You Advise Clients to Have in Place From Day One?

The number one document for me is the terms of trading. You need to make sure it is super clear what the agreed rules are for working together, whether as a customer or as a supplier. Other key documents are those which demonstrate you comply with your statutory obligations, such as employment documents and data protection compliance documents.

If you are a company which utilises a lot of IP (such as a tech business) then you also need documents to protect your IP which again preserves and enhances the value of your business.

If a company is owned by more than one shareholder, it is a good idea to have a document in place setting out the duties, responsibilities and terms agreed in respect of shareholdings in the form of a shareholder’s agreement and/or articles of association.

These are important as they provide clear mechanisms for what should happen if a shareholder wants to leave the business, falls out with the other shareholders or is unable to be a shareholder any more. It’s much better to be proactive and protect your business from the outset, than be on the back foot and have to be reactive when things go wrong. It is also far more costly in terms of legal fees and management time to be reactive rather than proactive.

This really is why we launched shizl. It helps businesses to be proactive in a simple, easy, cost efficient manner, which protects your business, increases its value and allows you to grow.

Terms and conditions of trading alone can be thousands of pounds to produce (or tens of thousands, depending on what you sell and how you sell it), but with a credit based system like shizl, you’re paying a monthly fee to protect our business and potentially saving yourself enormous amounts of legal fees and inconvenience further down the line.

Shizl gives you the ability to have your contractual documents signed electronically, plus all these documents are saved in the platform, so you know exactly where to find them.

Why Does it Really Matter to Have These Documents in Place?

I’ve found companies looking to sell their business have had the value of their business slashed because they haven’t had the proper legal documents in place. I have encountered businesses who have used a third party to create IP which is critical to their business who find that they do not own such IP as there was nothing in writing transferring ownership of the IP when it was created.

This is hugely stressful and can present a massive barrier to any potential sale. It usually involves significant additional expense to try and resolve the situation.

I have worked with businesses who cannot locate signed contracts. I’ve seen parties have a dispute with a customer and find they have limited ability to recover monies due to them as there are no written contractual provisions in place.

And the reverse of that, I’ve worked with companies who have great contracts in place who have quickly and easily ’nipped in the bud’ payment and other disputes as they have robust written contracts in place to protect them. All these examples are hugely impactful to a business of any size and can be avoided with the right documents in place.

How is The Legal Profession Prohibitive For SME’s and Why is shizl So Fundamental to This Evolution of The Legal Market?

Good legal services are expensive. Lawyers can also seem inaccessible and intimidating (even though the vast majority of us are not!). I have had clients who try to find something on the internet they can use, without fully understanding what they are using and if it protects them. This can be a disaster.

Shizl provides documents which are written by highly experienced lawyers, for a variety of situations and scenarios. They are written in a manner which is easy to read and provides explanatory notes to assist the user’s understanding of the documents. It also enables a business to spread their legal costs using a subscription based model that can grow as the business does.

Each document can be customised to align with a user’s requirements and whilst the documents are not bespoke, they are an excellent starting point for a business, until the business grows to such a point when they can afford to engage a solicitor to draft bespoke terms for them.

We are not replacing lawyers; we are simply providing an option for those businesses who cannot afford to spend thousands on legal documents, but need to have good protection in order to grow.

Importantly, we also allow businesses to store all their signed documents in one place, making document and contract management much easier. Business owners have enough going on; we wanted to create an easy to use technology platform offering great and affordable legal documents to protect small businesses and give them one less thing to worry about. Legal protection for less than you’d spend on coffee in a month; not a bad deal really!

For more information visit the shizl website