This segment of industry often can’t afford an in-house lawyer. Yet the needs of a small business are not that different from those of a larger corporation.

Regardless of scale, your business still confronts contract, employment, shareholder, capital raising, trade practices, lease, litigation, company secretarial and corporate governance issues.

In fact, these issues can impact harder on a small business as all the matters land on the ‘chief’s’ desk due to a lack of  ’indians’.

It can lead to a very harried boss or a stressed executive team.

We can’t solve your problems, but we can help you work through them, sorting the important legal issues from the less crucial.

We can also help you make your deals more ‘bullet proof’. After months of hard work negotiating and building a deal, it would be tragic not to capture the full commercial advantage simply because the terms of the deal were not tightly framed and correctly documented. 

Our ‘Virtual General Counsel’ services have been developed to meet the demand for legal advice that is also backed by commercial experience. Your business can now benefit from the corporate experience of a senior in-house lawyer on an engagement that is as flexible as your needs.

Having  a Virtual General Counsel may be the winning edge your company needs.

The urge to discount should be continually resisted.

Don’t destroy your business in the mistaken belief that higher turnover equals more profits. That slash and burn approach to pricing has led many businesses to a sad ending.

Before you ever lower a price, get out your calculator and do the sums. You may be stunned to find out how much extra work will be required to make the same profit.

A simplistic example may help illustrate the point.

1. Assume I do ten $10,000 jobs where I make a 30% margin and it results in $30,000 net profit from all ten jobs.

2. If the practice of giving a 10% discount on each job became entrenched (or my discounts over the next ten jobs averaged $1,000), the result would be:

* a net profit of $20,000 for the next ten jobs; or
* doing 15 jobs to again have a net profit of $30,000.

What a stark truth! If I regularly give a 10% discount, I have to do 50% more work to make the same amount of money.

Of course, this is all based on a margin of 30%. Discounts pose an even greater threat if you are trading on slimmer margins.

Not only will you have to work harder to maintain profits, but your costs may significantly increase due to the extra work. Not only will staff and equipment costs rise, but numerous less obvious costs may also have an impact. Take the time to work through those hidden costs to see just how much the extra work is really costing and examine just how thin your margins really are.

No company can sustain extended periods of discounting. Well established companies may give the appearance of heavily discounting, but don’t be fooled by their marketing. If the discounts are genuine they can only offer them because of large buying power, switch selling or they have the rare good fortune to be selling high margin products.

You can be sure that any successful trader long ago learned how to make money and is not in the business of giving it away through uncontrolled discounts.

If a discount is to be offered, use it for a special purpose like clearing old stock. Or, if you are a service provider, link the discount to the job’s margin and not the overall fee revenue. Just imagine how magnified a “little” discount can be if it applies to the whole revenue.

In summary, uncontrolled discounts are commercial poison. Don’t routinely discount unless you ready to enjoy early retirement.

The documents discussed below are the basic tools required to build any deal. They are used to capture and detail the core commercial terms – the heart of the deal.

They are also used to establish the parameters of any confidentiality undertakings, to set down the proposed deal’s terms and to clarify any undertakings given in relation to performing or refraining from doing certain tasks.

Sometimes documents with the same effect or purpose are given different names due to individual habit. Don’t let the jargon throw you and always remember that the contents are far more relevant than the title.

Deed of Non-Disclosure or a Deed of Confidentiality

Discussions are usually protected by a Deed of Non-Disclosure or a Deed of Confidentiality – same animal, different names.

Such a document identifies and protects confidential information (ideas, concepts and proposals) from disclosure – except when disclosure is required by law or by stock exchange rules.

Deal Memo or Term Sheet

Headline terms are often recorded in a Deal Memo or Term Sheet. The idea is to record the basic commercial terms and let the lawyers subsequently fill in the more intricate detail in the final Agreement.

This can be a useful process as there is a human element to any transaction and it’s important to strengthen the perception you’re moving the deal along. Working through the issues when compiling a Term Sheet may also help you evaluate the merits of the deal while there is still time to withdraw if the deal doesn’t stack up.

Memorandum of Understanding or Heads of Agreement

A Memorandum of Understanding or Heads of Agreement is a more developed Term Sheet with some legal clauses added to ensure each party is ‘locked into’ the deal while more detailed terms are negotiated. This type of document may also be used to establish a due diligence process or set up a working party who will work through the finer details.

Letter of Intent

A Letter of Intent is essentially the same document that may have an added emphasis on one party undertaking to do a certain task or to enter into the transaction before a certain date. Legally, nothing particularly turns on the title, but the mention of ‘intention’ may yield some benefit – again, the human element.

Also, nothing turns on the terminology of whether the document is called a contract or an agreement. If it is called a Deed though, there is a legal difference in how the document should be executed.

The final document should, of course, contain all the precise details. For example: not only how much will be paid, but by what date each month, whether there will be an annual CPI increase or whether interest will apply to late payments. In short, the myriad details crucial to full protection of your rights.

Get a lawyer involved as soon as possible if you don’t intend to fly solo in negotiating and documenting the entire deal. It’s very difficult to change a hastily agreed Term Sheet without damaging the trust and goodwill that must be cultivated to ensure a deal eventuates. So, get advice before the foundations are laid.

Describing the anatomy of legal documents is an inherently difficult task that is fraught with complexity and exceptions. What is true for some documents may be incorrect or inapplicable for others. The law that applies in various jurisdictions will also be a factor influencing diversity.

My comments are general observations. They must be tempered with common sense and applied with care.

Document names and terminology often vary simply due to personal preference.

Just as human anatomy is dependent on gender and age, legal anatomy is dependent on the nature and value of the transaction and, of course, on the level of potential liability.

Knowing the law is useful, but knowing how to wisely use it should be our goal. This primer should be backed up by advice from a clear, concise and commercially-astute lawyer.

Anyway enough of my caveat emptor (“buyer beware”) rant. I hope the following skeletal overviews amount to a basic User’s Manual that makes the law a more useful tool in your hand:

• Deed of Confidentiality
• Heads of Agreement
• Shareholders Agreement
• Deed of Release
• Boilerplate
• Interpretation Boilerplate