Crucial Documents for the Small Business
What are the essential documents a small business should really have in place to minimise risk and trade on a sound footing? Here we look at the bare minimum suggestions in no particular order.
The roles and responsibilities of each and every worker should really be reflected in a written contract. This protects both the business by defining and scoping liability and the individual by detailing rights. Oral agreements will not favour the employer! Different workers will require different contracts. Think of the range of workers you might have as the range is likely to be quite wide – from senior employees such as Directors, to more junior positions, or perhaps you also have consultants/contractors? There are different agreement types to suit each category. I know of so many companies that do not bother having these agreements. I have also performed a lot of work for companies unravelling shareholder disputes simply because these agreements were not in place. These agreements could easily be considered to be the most important legal document for any sized business. They help the smooth running of your business in that they should outline the relationship between shareholders and establish the respective rights and obligations. The agreement also details each shareholder’s holding of shares, profit sharing and the company’s decision-making procedures.
A well written agreement can impose sensible restrictions on shareholders for the benefit of the business and confirm the procedure for selling or transferring shares in the future.
When you set out in business with others, its all rosy and comfortable but it may not always stay that way! The absence of such an agreement can result in stalemate disputes which might paralyse the business.
When partners initially go into business, they agree on almost everything. Ambitions and emotions are high! Sometimes trust is so high that they never bother to get a written partnership agreement. Lots can go wrong though. The purpose of a partnership agreement is to protect the owner’s investment in the partnership, govern how the company will be managed, clearly define the rights and obligations of the partners, and determine the rules of engagement should a disagreement arise among the parties. A well-written partnership agreement will reduce the risk of misunderstandings and disputes between the owners. When you start negotiating with a new supplier or customer and need to share confidential information, it is highly sensible (if not vital) to get a non-disclosure document in place. It is a straightforward document signed by each party to a negotiation which creates open trust and protects the information that you may want to share but which you consider to be confidential. These are so especially important if you have developed something new or market leading or if the party you are speaking to also serves your competitors. These agreements can be reciprocal or one way and can be used in a variety of circumstances e.g. talking to potential investors or partners. If you fail to have a non-disclosure agreement in place, you obviously risk losing confidential information such as ideas or material around brand issues. The last thing any business needs is for good new ideas to be leaked to your competitors.
This important document can confirm matters such as product and service specifications, price, payment, delivery, cancellations and returns. It can also determine liability and risk and will set out reasons and events worthy to terminate any relationship.
If you own a website, you really should have a set of terms and conditions for it. Visitors to your website will be bound by them and will be using your website subject to them. The terms will dictate how the website is to be used and can reduce your liability for any misuse of the site by others and protect your intellectual property and data contained in the site. It doesn’t matter whether you're starting up a new business or reviewing an existing one. Business Plans are most useful and key to success. Having a business plan:
- Assists with priorities - It gives your business direction, helps define your intentions and objectives, describes methods and strategies to reach your target and should identify any potential obstacles.
- Provides business control - The whole process around planning identifies the different areas and factors that may affect the success of your business. Never be afraid to step back and look at what's working and what you can improve on.
- Essential if you need finance - If you're seeking finance for your business, you'll need to show banks and investors why they should invest in your business. A written plan is the best way to achieve this.
- Always be honest and realistic with yourself! Look for obstacles – is it the market, competitors, production, relationships, staff?
We consider the above selection to be a valid starting base for most businesses. Clearly – depending on the scale of your business and your appetite for governance and risk, there are a great more available to choose from as you see fit.
5th June 2020
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