As a business owner, you should be spending as much time as possible on growth and profit. Unfortunately, legal issues happen to all companies at some point or another – whether we like it or not. Here are 5 common legal mistakes businesses make, and the consequences of failing to prepare for them.
Legal issues will happen eventually.
Legal issues will happen to your business eventually, whether you like it or not. If they haven’t happened yet, consider yourself lucky – but for most businesses, it’s simply because they aren’t big enough yet. The longer you’re in business, the more likely you are to encounter some form of problem – be it payments from clients, your own debts to creditors, staff issues, contractual issues with suppliers, regulatory compliance or consumer complaints.
Each of these problems can be avoided, or at least greatly minimised, by some pre-planning – and engaging commercial attorneys in your circle of advisors early.
The question is, what will you do? Will you wait for the problems to happen, and fix them then – when damage has already been done and it is more expensive to fix? Or will you be proactive in preventing the issues, at a tenth of the price? We’d like you to go with the latter. Sure, it means less revenue for our Litigation Department (“the Fixers”), but our Commercial Department (“the Preventers”) will be smiling, knowing our clients are protected and happy.
Here are the 5 biggest legal mistakes business owners make that cause financial loss – and what you can do about them. Each of these represent part of the wall you put up around your company to defend it from financial loss. All of these are true stories from cases we’ve already taken on for clients.
1. DEBT: Clients not paying accounts
An accumulating debt book is only the tip of the iceberg - the deeper problem is usually lack of policy and credit management structures. You need to fix the symptom, and also prevent the cause.
How to prevent it:
Get advice on credit policy. Cost: R1,500
Rock-solid client contract. Cost: R5,000
NCA Credit application document. Cost: R1,500
Take action against debtors early. Cost: R5,000
What happens if you don't:
Extensive litigation. Cost: R5,000 – R100,000 + per case
2. CONTRACTS: Poor supplier performance (and contract disputes in general)
Written contracts ensure better performance and productivity, period.
How to prevent it:
Review and negotiate all contracts – don’t just accept them as “standard”.
Cost: R500 – R5,000 per contract
Never accept poor service. Ensure regular contract management – keep suppliers performing.
Cost: R150 – R500 per incident
What happens if you don't:
Poor quality services to your business – loss of operating time / income – lost opportunities.
Cost: unquantifiable
Frustration
[Eventually, when you’ve had enough] Litigation and disputes against suppliers.
Cost: R50,000 – R100,000+ per case; loss of income
3. LABOUR: Poor staff performance / Labour issues
More staff, more problems. Need we say more?
How to prevent it:
Implement not only updated employment agreement, but also comprehensive policies and systems.
Cost: ~R10,000
Clear KPIs in all contracts.
Cost: costs you a few hours of deep thought.
Consistent performance management of staff the second they step out of line.
Cost: R150 – R5,000 per incident
Terminating staff in compliance with the law.
Cost: free
What happens if you don't:
CCMA litigation
Wasting 1-2 days of your own time at CCMA per incident
Cost: Legal costs R15,000+ per CCMA hearing
CCMA awards against your company up to 24 months salary + reinstatement. Cost: (R240,000 – R1m +)
Loss of productivity to your business.
Cost: unquantifiable
Being unable to get rid of a bad apple impacting your other staff and business operation
Cost: unquantifiable
Liquidation of your business if it cannot pay CCMA awards
Potential personal liability
4. INTELLECTUAL PROPERTY: Trademark infringement
Every business has intellectual property rights associated with their name, logo, brand and other aspects. You need to protect yours, and avoid infringing on the rights of other businesses.
How to prevent it:
First, check if your business name can be trademarked freely.
Cost: R5,000
Trademark your name and logo.
Cost: R5,000 each
Cost of litigation against an infringer if your trademark is registered: Low
What happens if you don't:
Fail to check if your business name can be registered – trade for a few years until eventually the owner of the trademark discovers you, and sends you a Cease and Desist.
You will have to engage in costly litigation (Cost: R100,000 +) and/or
Be forced to change your trading name (Cost: unquantifiable loss to your business and brand).
* YES there is common law protection but it is much weaker and requires much more litigation, more evidence, more preparation, and therefore more legal costs.
5. COMPLIANCE: Statutory compliance
Every business is subject to both general and industry-specific regulatory requirements. Is your business compliant?
How to prevent it:
Consult with us and determine what statutory requirements apply to businesses generally, and which apply to your specific industry. Cost: ~R10,000
What happens if you don't:
Failing to comply with statutory requirements can result in:
Personal liability;
Fines of up to R10 million (yes!);
Forfeiture of assets;
Imprisonment;
Loss of licence to practise in the industry;
Reputational damage;
Loss of shareholder value
Some examples of statutory requirements applicable to all businesses:
Companies Act
Tax obligations
POPIA
BEE regulations
Beneficial Ownership
Anti-money laundering regulations
Exchange Control Regulations
Industry Regulations (e.g. Property, Construction)
Please note: price estimates are valid as at March 2024. Subject to change.
Costs of prevention seem to high? Consider our Business Protect offering, which gives you all of the above services from only R900 / month. Find out more here.
What’s our incentive for telling you this?
First, it’s more important to us to have happy clients, and there’s more than enough structuring work for The Preventers to help you do here. And second…. there are still far too many business owners who don’t heed this advice, and it keeps The Fixers swamped with work anyway. You’re free to choose:
Put up walls to protect your business
Amount of work in raising wall: x
Cost of wall: x
Loss in the event of legal issues: minimal
or
Forego the wall, send out an army to fend off the attack, and fix the damage later
Amount of work required: 10x
Cost of work: 10x
Loss in the event of legal issues: high
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