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SMEs playing risky games with DIY legal

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In the SME realm, everything comes down to risk. This holds true for legal matters, but doing it yourself often costs you in the long run.

 

 

The Big Smoke recently surveyed SME owners to understand what risks they are willing to take. The answers revealed that our small business sector is playing risky games with DIY legal – and it’s leaving some SMEs exposed.

It’s said that an entrepreneur is one who can identify a commercial opportunity and drive that opportunity into a sustainable business, while understanding and navigating the risks. In Australia’s startup culture, there’s a thriving community of entrepreneurs who are accepting risks and short-cutting obstacles every day to see their ideas come to life – with mixed success. The path is never linear, and many times barriers they never saw coming confront them, threatening to derail their vision.

There are of course, as Richard Branson famously quoted, different types of risk. According to Branson, taking risk is par for the course, but taking meaningful risk is the defining factor. “We take a lot of calculated risk, but we make sure that no one risk is going to topple everything. Protecting the downside is critical.” For Aussie SMEs concerned about cashflow, legal barriers and global competition, are the risks being taken truly calculated?

 

What Aussie SMEs are saying                                                                                   

In The Big Smoke’s recent survey of 85 SMEs, to understand what risks business owners are willing to take, we asked if they conducted due diligence when setting up their company, or hiring their first employee. Surprisingly, 42% of CEOs surveyed admitted they did not go through proper due diligence with a lawyer during this time.

Commercial law specialist Stanislav Roth, Source Legal CEO and Founder, was not entirely surprised by these results, saying “This is something we see all the time, often when a business needs to redress something that would have been very avoidable, had they taken a small amount of time to get it right at the outset.”

When asked about the main reason CEOs chose not to seek professional legal help, more than three-quarters of survey respondents said it was due to the cost of a lawyer. The irony of this approach is that unfortunately some companies find themselves in dire need of legal help when something goes wrong – which ends up being a far more costly exercise than the initial price tag of legal help. Worst case scenario of course is the demise of the entity completely because of DIY legal errors.

 

How businesses risk their future, by taking short cuts

At the less catastrophic end of the scale, businesses often find themselves in costly scenarios due to having a non-compliant or unclear agreement between founders or around Intellectual Property. The most famous story of this is Winklevoss vs Zuckerberg, which saw a 2004 lawsuit result in a $160 million payout to the Winklevoss twins. While dramatised in the film The Social Network, this is not an uncommon story, with Roth noting that “often business partners enter into arrangements in a very optimistic spirit and tend to overlook the issues of how Intellectual Property rights will be co-owned, commercialised and divided should the business relationship come to an end.”

Stanislav Roth has seen promising companies brought to their knees over easily-avoidable errors, such as poor contracts with employees, non-compliance when issuing shares, NDAs and even not having a good Terms of Use agreement for their website. Recognising that legal bills can get out of control quickly for a business, Roth’s firm Source Legal only uses a unique agreed-price retainer model for their clients. The reality is that cashflow is an issue for companies, as much as navigating the unexpected. Having a set retainer for unlimited legal services becomes a novel but very welcome solution for businesses of all sizes. At any moment on any day a legal problem can be solved or advice given, providing startups and CEOs alike with the ability to mitigate risks and maximise opportunities, while ensuring budget-certainty. The model has been working successfully for Source Legal clients, with Roth noting “our clients often remark that our unlimited legal support for an agreed-price sounds too good to be true. Then they experience the quality and responsiveness of our service, and they really believe they’ve struck gold. Our extremely affordable fixed-price package for startups really hits the sweet spot for cash-poor but ambitious new businesses.”

Our findings also discovered that businesses surveyed were 76% more likely to face greater costs in the long run, simply because they initially avoided professional legal advice. In an age where Googling a contract template or complex legal question is easy, too often the missing details are the very cause of a disastrous commercial problem.

With Australia proving to the world that we have startup and SME communities disrupting industries, some risks are just not worth taking. By partnering with Source Legal, businesses can make smarter decisions that increase their chances of taking their idea to the next level.

 


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