Tag Archives: contracts

Renting premises and negotiating the lease

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You have found the perfect place to rent for your business, and it’s time to sign a commercial lease.  This guide looks at what you need to know about renting premises and negotiating the lease.

A commercial lease is a legal agreement between the owner of a commercial property and someone who wants exclusive use of it for a set period. It normally applies to a retail store, office, industrial unit, warehouse or factory.
A retail lease is a commercial lease used for retail shop businesses. Unlike explicit commercial leases, retail leases attract additional protection under State-based legislation. Generally, a lease will be governed by the relevant State Act if the retail premises is in a shopping centre.

WHY should I not just sign straight away when renting premises?

Your business must abide by the terms of this lease, which could ultimately determine your success or failure. Indeed, the lease terms are just as important as finding the right property. Please read our guide on finding the right property.

WHAT questions should you ask before signing the lease?

  • What is the permitted use of the premises? Check if any zoning restrictions may prohibit your business activity.
  • What is the lease cost per month?
  • What additional outgoing costs may be payable? You should request a breakdown of likely outgoings in addition to rent. These might include maintenance, cleaning, and repairs on your departure.
  • Are there any incentives?  Fit-out subsidies, rent-free or ret reduction periods.
  • When does the lease end, and is there an option to renew?
  • How much is the security bond? This is normally negotiable.
  • Do I have to provide a Personal Guarantee?  In an extreme case, you could be asked to put your house as collateral to ensure rent is paid (you do not have to agree)
  • What is the lease duration, and what are the renewal options? Your business’s goodwill can easily become associated with a location, so an option to extend protects that. Conversely, if things don’t work out, you may want a short lease as a new business. So, a one-year lease with an option for a further two years might be the answer.
  • When are rent reviews, and how often? This is the time you get to negotiate, as it will affect your cost increases in the future.
  • Do you have to pay promotional or marketing funds? If you have a retail lease, be aware of your obligations to contribute to marketing funds for the shopping centre.
  • What are the refurbishment requirements? A shopping centre may require you to refurbish every x years.
  • Who will pay to create the lease?
  • Does the agreement allow the lease to be terminated early?
  • Can the premises be assigned or sub-let?
  • Does the landlord have a mortgage on the premises, and has the lending authority approved the lease?

HOW do I take out a commercial lease?

Negotiation is possible with a commercial lease. The ability to negotiate depends on how long the property has been vacant, how eager the landlord is to find a tenant, and how many other potential parties are trying to secure the property.

Ensure the landlord owns the property they are attempting to lease and confirm which part is being leased. This last step is important if there are multiple tenants.

Before you sign, ensure you have all the necessary information and have done all the necessary searches. As we have seen, this legal document can be complicated, and you should get good financial and legal advice.

The savings they help negotiate from incentive terms, including fit-out, rent, signage, marketing and advertising fees, and profit-sharing arrangements, might pay for experienced legal advisor fees.

The most common disputes arising from leases revolve around renewal options, mechanisms for rental price increases, repairs, maintenance, and removal at the end of a lease.

HINTS

Ensure you have a clause in the lease agreement giving you the right to quiet enjoyment of the premises during set hours  (for example, what if a noisy neighbour moves in)

Have the premises independently inspected before signing a lease. You and the owner should accept a condition report, including photographs. This report is useful if a dispute arises when the lease ends about the condition of the premises or equipment and whether this has been caused by fair wear and tear.

You should seriously consider the risks associated with redevelopment and relocation. If you cannot negotiate adequate compensation, consider whether the potential risks for your business make it worth entering into the lease.

Document everything to avoid issues at the end.

Your lease likely requires you to have valid public liability and plate glass insurance, so ensure your insurance is kept up to date.

SUMMARY – negotiate the lease for renting premises

A lease’s fine print is as important as finding the right property.  Get the right financial and legal advice to help you interpret and negotiate the lease. Document everything to help avoid issues when renting premises.

Buying a Franchise guide

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 Have you always wanted to start your own business but never had the confidence or the knowledge to do so? Is this a career change, and is it right for you? Buying a franchise may give you confidence and support in selling a proven offering. This guide will examine the pros and cons of buying a franchise and help you identify the right franchise opportunity.

A franchise is a business opportunity that allows the franchisee (possibly you) to start a business by legally using someone else’s (the Franchisor’s) brand, expertise, ideas, and processes.
Australia has three times as many franchised outlets per capita as the USA. Well-known franchises include McDonald’s, Subway and Jim’s Mowing.

Also, see our essential guides on starting and buying a business.

WHY consider buying a Franchise?

Franchises are offered in almost every industry in Australia. As an investor, you buy into an existing brand which, if you tried to set yourself up, could take years to get into the same position.

Depending on which franchise you are interested in joining, there is no guarantee that you will be accepted as a franchisee. It can be quite competitive, especially when it comes to location and also due to franchisors selecting the franchisee they believe will make the business a success.

It would help if you considered the following:
Advantages
  • Association with an established brand, reputation, product or service
  • Assistance with lease negotiations, site development, and shop fit-out
  • Assistance with buying equipment
  • Initial management training and ongoing support
  • Advertising and marketing support
  • Access to established standard procedures, operating manuals and stock control systems
  • Access to financial systems
Disadvantages
  • Less autonomy when making business decisions (franchisees generally must operate according to a standard operating manual)
  • You can only operate in a restricted territory
  • Paying ongoing fees to the Franchisor
  • Having to use specified suppliers
  • Less control if you sell your franchise; you will be required to follow certain procedures, including having your buyer approved by the Franchisor
  • Restraint of trade provisions (limiting the actions you can take) when the franchise ends
  • At the end of the agreed period, the Franchisor is not required to renew the franchise, in which case the business and its goodwill go back to the Franchisor

WHAT do I need to know about franchising?

There are three types of franchises:
  1. Business – You have the right to use the Franchisor’s intellectual property in your industry. An example is Boost Juice.
  2. Product – You sell the Franchisor’s product or service from a wholesale or retail outlet with exclusive rights within a specific area, for example, Jim’s Mowing or a Mazda dealership.
  3. Processing or manufacturing – You manufacture the product, and the Franchisor provides an essential ingredient or know-how, such as Coca-Cola.

The Franchising Code of Conduct regulates franchising in Australia. The Code is mandatory and governs the conduct of franchising participants towards one another. It covers:

  • Disclosure requirements – the Franchisor must be provided
    • When interested in acquiring a franchise
      • Information statement – 2-page document covering risks and rewards.
    • If you decide to proceed
      • Disclosure document – costs, supply restrictions, and contract details of existing and former franchisees.
      • Franchise agreement – legally binding document between you and Franchisor.
  • Good faith obligations – how you act to one another
  • Dispute resolution mechanism – if a dispute remains after three weeks, either party can refer the matter to mediation
  • Cooling-off period for potential franchisees – you cannot sign for 14 days after receiving documents, and you can terminate the agreement up to 7 days after signing
  • Procedures for ending a franchise agreement – set out the terms for termination, renewal, end of term and transfer of the franchise

Some franchise systems require their franchisees to buy certain products from them or their specified supplier, known as supply restrictions. You might have no choice about where to buy some products.

The entry price of a franchise may seem like a good deal, but there may be further costs that you have to pay to establish and run your franchise. It’s important to understand the total costs you might have to pay.

HOW do I evaluate before buying a franchise?

If you buy into a franchise, investing in advice from a lawyer, accountant, or business advisor with franchise experience will help you make a better decision. You should, however, consider the following when evaluating a franchise:

  • Consider the effect on your family and lifestyle
  • Question if the business interests you and if you are comfortable with investing
  • Research the business. This may include getting expert advice.
  • Age, size, uniqueness and reputation (including management team) of the franchise
  • Understand all costs and fees beyond the initial outlay
  • Understand franchisor directives around logos, uniforms, and future capital investments like a compulsory store refresh
  • Be aware of what marketing support is provided and what your contribution will be towards that
  • Ask to see demonstrations of processes or technology
  • Understand how area territories work and if they are exclusive; thus, you will understand the competition from your franchise. Location is important.
  • Understand what training is available
  • Is the Franchisor a member of the Franchise Council of Australia, as this imposes certain ethical standards
  • Ensure what you receive in writing matches what you have been told verbally
  • Speak with existing and past franchisees to see if the opportunity has lived up to expectations
    • What’s the work like?
    • Any unexpected costs?
    • How is the supply of products or services?
    • What problems have you encountered?
    • How supportive is the Franchisor?
    • How was the training?
    • Was it a good investment?
  • Ask about compliance checks performed by a franchisor
  • Consider what your exit strategy looks like

HINTS

Don’t assume the franchises will be a success.

Don’t assume you will not have to work hard in the business.

Understand your reputation is affected by the Franchisor, for example, 7Eleven underpaying employees.

Guides from the ACCC to help franchisees and prospective franchisees understand some of their rights and responsibilities under the Franchising Code of Conduct. https://www.accc.gov.au/publications/franchising-what-you-need-to-know

Franchise start-up checklist https://www.accc.gov.au/system/files/The%20franchisee%20manual__Mar%202019.pdf

Free pre-entry franchise education program https://www.franchise-ed.org.au/online-courses/pre-entry-franchise-education/

The Franchise Council of Australia has some further resources on this subject. https://www.franchise.org.au/

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can assist in resolving franchising disputes. https://www.asbfeo.gov.au/franchising-disputes

SUMMARY – buying a brand, expertise, and processes

Buying a franchise can be a great way of starting your own small business. It comes with the security of an established brand, expertise, ideas, and processes. However, you will have less autonomy. The mandatory industry franchise code of conduct helps to protect all parties and provides a mechanism to resolve disputes. Before buying a franchise, do your homework carefully and consider using the services of an expert in franchising. 

Bad debt – How to avoid it!

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You gave your customer 30 days to pay, but now 60 days have passed without payment. Maybe there is a dispute. Are your cash reserves running dry because the invoices are not being paid? This guide will look at the importance of worrying about getting paid on time and how you can chase up and avoid bad debt.

Bad debt occurs when the payment of an invoice is estimated to be uncollectible. Bad debt is a contingency that must be accounted for by small businesses that extend credit terms to customers when they issue an invoice, as there is always a risk that payment will not be received.

WHY should I worry about unpaid invoices?

It does not matter if it is your best friend that has not paid you or it is a large corporation. If you cannot collect payment promptly, it will affect your cash flow and profitability, and your business will suffer. This situation is further compounded if you have already paid your costs associated with the invoice, such as materials of wages. Essentially you are lending money to your customer, and if you do not have the cash flow yourself, you may be paying interest on a bank overdraft/loan until this invoice is paid, further eating into your profits.

WHAT can I do to prevent bad debt?

When deciding to offer credit to customers, any action you can take upfront to reduce the chance of bad debt is a much simpler process than collecting money from someone who does not want to or cannot pay you.

To prevent bad debts and protect your business ideally you should:
  • Only send out goods or provide services after customers pay their bill
  • Provide simple and clear payment options
  • Invoice customers quickly and properly
  • Give discounts for paying on time or early
  • If you intend to provide credit you should research the customer:
    • Do a credit check (try Equifax, Onedeck or creditorwatch) and ask the customer for references
    • Create a business contract with clear terms and conditions using the help of legal advice
    • Set up effective payment terms
Have a process to manage payments and debt recovery, a good accounting package will help with this:
  • Check contract terms to see when payments are due
  • Ensure you have the right contact details
  • Contact the customer in writing to request payment
  • Keep records of all customer correspondence
  • Set up regular payment reminders (some accounting packages will have an automated system for this)
  • Telephone the customer
  • Send a formal letter of demand

Most important is to create sensible limits on the credit you offer to your customers that they will be able to repay easily.

To prevent bad debts, a factoring company will buy your outstanding invoices from you for a reduced cost and then chase up the debt themselves. It is a fast way to get cash but at a high price as they take on the bad debt risk. (It is unlikely they will not just buy the bad ones)

HOW to deal with bad debt?

The first step is to understand the cause of the debt:
  • How long has it been outstanding?
  • How much is owed?
  • What is the invoice for?
  • Is the invoice disputed?
  •  Is the debtor still trading?
  • How long have you been doing business together?
  • Does the debtor have a history of late payment, is this different to normal?
  • What credit agreement do you have with them and did they sign a Director’s Guarantee?

The sooner you take action to recover your overdue debt, the more likely you will recover your money.

If a customer has not paid you after various attempts, you must decide if the debt owed is worth the additional effort to collect it. For example, $100 is possibly not worth it, but $10,000 is. You must consider your time and cost to recover as well as the likelihood of the debtor paying.

The following avenues can help recover debt:
  • Debt collection agencies – will attempt to collect the debt on your behalf for a percentage of the debt owed.
  • Legal action – a lawyer can issue a lawyers’ letter of demand or start court proceedings.  An online letter service is relatively cheap but going to court is not, however, the recovery costs can be added to the debt.  Court proceedings will enforce an outcome and affect a debtor’s credit rating.
  • Small claims tribunal – provides mediation and a legally binding solution without having to involve lawyers and courts. Is good for resolving disputes. https://www.accc.gov.au/contact-us/other-helpful-agencies/small-claims-tribunals
  • Court – courts will decide on disputes where the amount owed is too high for a small claims tribunal. Consider using a lawyer if your case goes to courts as procedures are more formal and complicated.
  • Community legal centres – can assist with letter writing and filling out court forms https://clcs.org.au/
  • Small Business Commissioner or Ombudsman – advice on how to recover debts and subsidised or low-cost dispute resolution https://www.asbfeo.gov.au/disputesupport

As a small business, you can also take out Trade Credit Insurance which allows a business to insure themselves against bad debts.

As a business owner, you should consider some sort of provision (put money aside) for bad debts, and this is essentially self-insurance. From an accounting perspective, unpaid bad debt can be an allowable deduction as long as it was included as assessable income in the present or even a previous income year and that it is written off as “uncollectable” in the same year that a deduction is claimed.

HINTS

Unfortunately, some scammers ask your clients to pay your recent invoice into a new bank account, being the scammers’ account. Ensure your clients understand that you would not change your payment details, and in the unlikely event you did that, there would be a very clear and robust process in writing and over the phone.

If the business you are dealing with is in administration, liquidation or deregistered, they may not have the ability to pay you. Check whether a company is in liquidation or deregistered on ASIC Registers. https://asic.gov.au/online-services/search-asics-registers/

Let your customer know you plan to take legal action or use a debt collector. This may have an effect without the cost.

SUMMARY – fast action to recover debts

If you decide to offer credit to your customers, you can find yourself in a situation where a customer is refusing or cannot pay your invoice. This is known as bad debt. It is best to have a plan to avoid bad debt, but if it occurs, fast action brings the best results. Your best chance of recovery after your efforts have failed is via a small claims tribunal, using a debt collector or the services of a lawyer.

Australian Competition and Consumer Law

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Trust me, this widget is 10 times better than ?, environmentally friendly, and will last forever.  Reality is you cannot say this unless you can substantiate every statement. This guide will look at Australian competition and consumer law that you need to understand.

This guide is a summary of what you should consider as a small business.  It cannot be used as a definitive guide and it is strongly recommended that you further research this subject on the government websites Australian Consumer Law (ACL) and Australian Competition and Consumer Commission (ACCC). This summary does not cover every aspect.

The ACL offers consumer protections in the areas of: (1) Unfair contract terms, covering standard form consumer contracts. (2) Consumer rights when buying goods and services. (3) Product safety. (4) Unsolicited consumer agreements covering door-to-door sales and telephone sales. (5) Lay-by agreements.

The ACCC Competition and Consumer Act 2010 (the Act) is a national law that regulates fair trading in Australia and governs how all businesses in Australia must deal with their customers, competitors and suppliers. The Act promotes fair trading between competitors while also ensuring that consumers are treated fairly.

WHY should I care what the ACL and ACCC laws are?

There is significant government legislation associated with this subject and lack of knowledge is not an acceptable defence.  Significant fines apply for breaking the rules to ensure unfair activity does not occur.

WHAT Australian Competition and Consumer Law do I need to understand?

Australia Consumer Law (ACL)
  • Unfair contract terms – This protects a business or consumer when they agree to a standard contract which is subsequently deemed as unfair. For example, terms change, you agree to a price but the price is changed without notice.
  • Consumer Guarantees – applies to a consumer or business that purchases a product for less than $40,000. The guarantee is that a good or service will meet certain minimum standards. For example, a consumer buys a washing machine for $2000 with a 1-year warranty.  After 2 years the product fails.  Under ACL the consumer can claim that this product should have lasted more than 2 years and as such should be repaired or replaced.
  • Consumer product safety – As a business owner who sells a product you must be aware of mandatory standards or voluntary rules that exist around the safety of your product.  You will also have obligations around bans or recalls. For example, you cannot sell children’s toys that have small detachable parts that could be swallowed.
  • Sales practices – The ACL prohibits businesses from using unconscionable conduct when selling, unsolicited supply of goods, unsolicited consumer agreements, harassment  and coercion, or refusing to provide proof of a transaction when dealing with their customers. For example, you cannot try to trick someone into buying your service nor threaten them or refuse to give them a receipt if they ask for one.
  • Avoiding unfair business practices – The ACL prohibits businesses from engaging in unconscionable conduct including misleading or deceptive conduct and representations. For example, you cannot do an advertisement with disclaimers that are too small to read. Nor can those disclaimers change the main meaning of that advertisement, for instance, when the ad implies the item costs $50 but a condition in fine print means the real cost is $75
Australian Consumer & Competition Commission (ACCC)
  • Treating customers fairly
    • Offering warranties. A product or service must do what it says. For example, if it has a speed of 10 it must reach a speed of 10.  If you provide a warranty against defects you must comply with that warranty. A warranty against defects is provided in addition to consumer guarantees under ACL and does not limit or replace them.
    • Unfair business practices. It is illegal to engage in referral selling, pyramid selling, unfair contract terms, and accepting payment without intent to supply
    • Rules for gift cards. Cards must be redeemable for 3 years after the date of purchase and clearly show the expiry date.
    • Debt collection. It is illegal to mislead, hassle, or use physical force on someone who owes you money.
    • Selling parallel imports or grey marketing is when you directly import a product outside of a formal manufacturer distribution network. If you do you must
      •  be aware of, and comply with, product safety and labelling requirements
      • provide accurate information to consumers about the products you sell
      • ensure that you do not mislead consumers about their refund, return and warranty rights, and
      • understand your general obligations under the ACL.
  • Advertising & promoting your business
    • False or misleading statements.  It is illegal for a business to make statements that are incorrect or likely to create a false impression. This includes advertisements or statements in any media (print, radio, television, social media, and online) or on product packaging, and any statement made by a person representing your business.
    • Managing online reviews. You will be breaching the law if you do not remove fake reviews. You must disclose commercial arrangements. It is also considered misleading if you remove or edit negative reviews.
    • Door-to-door & telemarketing sales. If selling door to door you may not approach if a do not knock sticker is present and you must leave if asked. Telemarketing must fall under the Do Not Call Register Act and specified hours.  These types of sales are bound by a 10 business day cooling-off period allowing customers to cancel for any reason.
    • Country of origin claims – It is illegal to misrepresent country of origin.  Some food products must display country of origin. Businesses wishing to display Australian-made can find more details here. https://www.australianmade.com.au/
  • Pricing & surcharging
    • Setting prices is at your discretion but cannot be done in collaboration with a competing business. You may not set a minimum price which a product or service can be sold by your retailers. Selling below cost is illegal if it is found it was done so to damage a competitor.
    • Displaying prices must be clear and accurate and display the total price.
    • Payment surcharges for EFTPOS should not be excessive.
  • Anti-competitive behavior
    Business practices that limit or prevent competition are illegal.  
    • Anti-competitive conduct. Prohibits contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market. 
    • Cartels. Agreements made with competitors to fix pricing, share tender information, or agree to restrict production is illegal. For example, two competing businesses agree to sell their product for the same price.
    • Collective bargaining & boycotts. It is illegal to agree with a competitor to negotiate with a single supplier on terms as it is to agree to boycott a supplier.
    • Exclusive dealing.  It is illegal to force another business to comply with your conditions under the threat you will withhold supply or pricing.  This could include ceasing supply if they deal with a competitor or if they keep discounting your product.
    • Imposing minimum resale prices. Suppliers may suggest a retail price that a reseller charges but cannot stop resellers charging or advertising below that price.
    • Refusal to supply products or services. Suppliers have the right to choose who they do business with however it is breaking the law if that refusal is based on one of the above anti-competitive points.

HOW can I learn more about Australian competition and consumer law?

You must understand the rules and follow the rules. Additional details can be found:

ACL – See our Small Business Answers guide here

ACCC

For more details on how these laws are admistrated see Fair trading – The Competition and Consumer Act of 2010 is a national law administered by ACCC nationally and state and territory regulators https://www.business.gov.au/products-and-services/fair-trading/fair-trading-laws

SUMMARY – protect you and your customers

Australian competition and consumer law is designed to protect both consumers and businesses from practices that misrepresent, disadvantage, deceive, or reduce competition.  The government has large departments to police the associated laws and you should ensure you and your staff are familiar with those laws that will affect your business.

The following guide published by the ACCC explains Australian competition and consumer law in more detail. https://www.accc.gov.au/publications/small-business-the-competition-and-consumer-act

Australian Consumer Law

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Australian Consumer Law (ACL) is an Australian national law that applies to all Australian jurisdictions and industry sectors. As a small business owner, you have obligations.

A more general guide on your legal obligations can be found in our guide on Australian competition and consumer law. This guide aims to look specifically at the ACL’s implications to ensure you understand your obligations and comply.

The Australian Consumer Law (ACL) includes:a national unfair contract terms law covering standard form consumer and small business contracts; a national law guaranteeing consumer rights when buying goods and services; a national product safety law and enforcement system; a national law for unsolicited consumer agreements covering door-to-door sales and telephone sales; simple national rules for lay-by agreements; and penalties, enforcement powers and consumer redress options.

WHY should I care about my legal obligations?

The ACL covers general standards of business conduct, prohibits unfair trading practices, regulates specific types of business-to-consumer transactions, provides basic consumer guarantees for goods and services, and regulates the safety of consumer products and product-related services.

There is significant government legislation associated with this subject, and lack of knowledge is not an acceptable defence. Significant fines apply for breaking the rules to ensure unfair activity does not occur.

WHAT ACL laws do I need to understand?

Australia Consumer Law (ACL)
  • Unfair contract terms – This protects a business or consumer when they agree to a standard contract that is subsequently deemed unfair. For example, terms change, you agree to a price, but the price is changed without notice.
  • Consumer Guarantees – applies to a consumer or business that purchases a product for less than $40,000. The guarantee is that a good or service will meet certain minimum standards. For example, a consumer buys a washing machine for $2000 with a 1-year warranty. After 2 years, the product fails. Under ACL, the consumer can claim that this product should have lasted more than 2 years and should be repaired or replaced.
  • Consumer product safety – As a business owner who sells a product, you must be aware of mandatory standards or voluntary rules around your product’s safety. You will also have obligations around bans or recalls. For example, you cannot sell children’s toys with small detachable parts that could be swallowed.
  • Sales practices – The ACL prohibits businesses from using unconscionable conduct when selling, the unsolicited supply of goods, unsolicited consumer agreements, harassment and coercion, or refusing to provide proof of a transaction when dealing with their customers. For example, you cannot try to trick someone into buying your service nor threaten them or refuse to give them a receipt if they ask for one.
  • Avoiding unfair business practices – The ACL prohibits businesses from engaging in unconscionable conduct, including misleading or deceptive conduct and representations. For example, you cannot do an advertisement with disclaimers that are too small to read. Nor can those disclaimers change the main meaning of that advertisement, for instance, when the ad implies the item costs $50 but a condition in fine print means the real cost is $75.

HOW do I comply with Australian Consumer Law

Unfair contract terms

A contract can include two parties signing a document, agreeing over the phone, clicking an “I agree” button on a web page, or acting according to a contract after indicating acceptance of the contact.

As a small business, you are responsible for upholding contracts and ensuring that the contract is not unfair. Very simply, you cannot change the terms after an agreement is made just because it suits you. A contract could be classed as unfair if you have not balanced the terms between you and the customer. This could be everything is in your favour, or you are abusing your customer’s interests, or the contract could cause detriment to your customer.

Consumer Guarantees

Suppose you sell a product or provide a service for personal, domestic or household purposes. In that case, you are obligated to ensure that product is fit for the purpose it was bought. The important implications of the law is that a warranty end date does not end your obligations. You cannot replace consumers rights, for example, a ‘No refunds’ sign is unlawful, and you cannot have a customer sign a document waiving their rights, nor can you have them sign or agree they will not claim consequential losses from you.

Goods sold to a customer must be of acceptable quality. You must guarantee this to the point that it is considered reasonable that the good should last. Say you bought a TV with a 2-year warranty and after 3 years, it stops working. The TV should have lasted longer than 3 years so a customer could claim repair or replacement under ACL. This period is not set in stone and would be reviewed by the court based on each circumstance. Note a consumer loses those rights if the product failure was caused by commercial use or malicious damage. As a product seller, it may be cheaper for you to repair or replace an item rather than being taken to court by the ACCC.

If a consumer orders a product based on a sample or model, you are obligated to deliver goods that match that sample and specifications.

You have an obligation to provide repairs and spare parts for a reasonable time after a good is sold. Alternatively, you are obligated to provide a replacement.

Suppose the product or service does not meet the consumer guarantee. In that case, they have the right to demand resolution from the supplier (retailer). Note, although the manufacturer is also obligated, it is the selling party’s responsibility to resolve. Thus, you cannot simply expect the manufacturer to handle this for you if you sold it.

From a services perspective, there must be a level of skill or technical knowledge when providing a service and all necessary care must be taken to avoid loss or damage when providing that service. The services must be fit for purpose and delivered within a reasonable time. If you fail to provide this, the consumer can cancel the service and get a refund for work not already done or keep the contract and get compensated for resolution.

Consumer product safety

Under the ACL, Australian ministers can regulate unsafe consumer goods and product-related services by:

  • issuing safety warning notices
  • banning products, either on an interim or permanent basis
  • imposing mandatory safety standards; and
  • issuing compulsory recall notices

These rules relate to personal, domestic or household use or consumption. More information on product safety can be found here.

Your obligations are to sell something that is safe and not banned. This may include how it is made, what it contains, how it is designed, tests it needs to pass and whether warnings or instructions need to accompany the goods. If you do not comply, you may be required to recall your goods at your cost if a consumer suffers loss or damage. As a result, a court can award compensation to cover the losses.

Sales practices

Your business cannot issue an invoice or request payment for good and services that have not been requested. For example, you can not send an advertising invoice to a customer who has not requested advertising, nor can you send someone a book unprompted then demand payment. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

If you decide to engage in unsolicited consumer agreements, including door to door selling, cold calling on the telephone, or approaching people in the shopping centre, you must observe certain conditions. These include limited hours for contact with consumers, disclosure requirements when making an agreement, criterion for the sales agreement, including that it must be in writing, supplying goods above $100 value, and on requesting payment during the cooling-off period. The customer has a 10-day cooling-off period to change their mind and cancel the contract. If you do not meet your obligations as part of the contract, the customer has right to cancel in a 3- or 6-month period. Unsolicited consumer agreements can lead to maximum civil and criminal penalties of $50,000 for a body corporate and $10,000 for an individual.

Pyramid selling is illegal in Australia. A Pyramid scheme is where people make money from recruiting participants who pay a fee, and all those in the chain above receive a share of that payment.

If you are selling, you must sell a good at the lowest displayed price or withdraw the product from sale until rectified. Mistakes made in advertising can be fixed by publishing a retraction with similar circulation. You may also not quote a price that is a component or only part of its cost. For example, if a lounge is priced at $500, but the customer is also charged a $20 fee to pick the lounge up at the store they have just purchased from.

You cannot convince a consumer to buy goods or services by promising benefits dependent on other events. For example you can’t offer a customer a discount on the condition that they help you find other customers. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

You cannot use physical force, coerce or unduly harass someone for the supply of or payment for goods or services, this includes verbal intimidation. The maximum civil and criminal penalties for harassment and coercion are $1.1 million for a body corporate and $220,000 for an individual.

If you sell goods or services to the value of $75 or more, you must prove that transaction. This could take the form of a GST invoice, cash register receipt, credit card statement, handwritten receipt or receipt number for a telephone transaction. The customer has the right to ask you for an itemised bill, including how the price was calculated, including hours and materials if relevant. The maximum civil penalties for failing to provide consumers with proof of a transaction or not providing it within the required time are $15,000 for a body corporate and $3,000 for an individual.

Avoiding unfair business practices

You must not make statements that are misleading or deceptive as part of your sales or marketing activities or are likely to mislead or deceive. Failing to disclose information also falls into this. A disclaimer cannot be used to counter any of this conduct. If you do mislead or are deceptive, the court may order you to make remedies.

You cannot make false or misleading representations about goods or services when supplying, offering to provide, or promoting those goods or services. For example, this vitamin will extend your life by 20 years. Making false or misleading representations is an offence. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

You must not engage in unconscionable conduct within societies norm and expectations. For example, you cannot explain the conditions of a contract and get an agreement in English to someone who does not speak English or might have a disability. The maximum civil penalties are $220,000 for an individual and $1.1 million for a body corporate.

If you decide to make a country of origin claim about your product as either words or an image, it must not be false or misleading. Made in Australia must be made in Australia. The definition of made in Australia is the goods must be substantially transformed in Australia, and 50 per cent or more of the total cost of producing or manufacturing the goods must be in Australia.

HINTS

For more details available directly from the Australian Government, see this page for resources and guides.

SUMMARY – Australian Consumer Law

This document is a Summary of Australian Consumer Law to help you understand the implications. It should be used as informational only. You should read the guides made available by the Australian Government to fully understand its impact. ACL must be adhered to and being in business, you could find yourself in court and subsequent penalties if you do not do the right thing.

Grants for Small Business

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Unfortunately, there is no magic pool of money to help start-ups or existing small businesses. However, some grants for small business are available with a lot of hard work and most likely a long waiting period. This guide will look at what you need to know about Grants and how you might go about getting one.

A grant is an amount of money given especially by the government to a person or organisation for a special purpose.

WHY might I apply for a grant?

A grant:
  • can take your business to the next level which could benefit not only you but society as a whole.
  • may encourage research or development of a solution that without the grant would unlikely have been funded.
  • might come in the form of training rather than money to build your business skills and knowledge.
  • may keep your business afloat during times of hardship.

WHAT do I need to understand about grants for small business?

A grant is normally associated with a specific goal.  That goal may be as varied as helping find a cure for cancer, supporting a minority group such as Torres Strait Islanders or developing groundbreaking technology.

Examples of grants include CSIRO Kick-Start, Biomedical Translation Fund, Research & development Tax Incentive, and Export Market Development Grant.

It is unlikely you will get a grant to open a café!

Obtaining a grant is a competitive process and many other businesses are also likely to apply.

If you are successful in obtaining a grant it is likely there will also be some sort of assessment panel which will review your progress and decide how the grant will be administered. Thus, your funds must be spent as you outlined in your application.

If you accept a grant, you will need to sign a contract and submit a range of reports.  It is also likely that you must acknowledge the grant agency in any advertising or PR activity you undertake on the project.

Any business-related expense in applying for a grant can be claimed as a tax deduction.

HOW do I apply for grants?

The method in which you submit your grant application will depend on the instructions provided on the grant and in documentation by the granting agency. You must consider carefully the prescribed submission process.

If you wish to discuss aspects of a particular Grant, you will need to contact the granting agency using the contact details as provided by the agency.

When applying for a grant you should:

  1. ensure you meet the eligibility criteria

  2. know exactly what you’re applying for and why

  3. know what the funds will be used for and how they’ll be used

  4. complete the grant application. This process will vary in time and detail depending on what you’re applying for

HINTS

The following site allows you to search for available grants based on your location, industry, and the type of assistance you are looking for. https://www.business.gov.au/grants-and-programs

Grant opportunities can also be found at www.grants.gov.au and they provide a help desk on 1300 484 145

 State Specific Grants:

SW https://www.service.nsw.gov.au/find-grants-and-financial-help
VIC https://www.business.vic.gov.au/support-for-your-business/grants-and-assistance
QLD https://www.grants.services.qld.gov.au/#/
SA https://www.sa.gov.au/topics/care-and-support/concessions-and-grants/grants
WA https://https://www.wa.gov.au/service/business-support/industry-assistance-schemes
NT https://nt.gov.au/industry/start-run-and-grow-a-business/grow-your-business/business-grants-and-funding
ACT https://www.grants.act.gov.au/
TAS https://www.stategrowth.tas.gov.au/grants_and_funding_opportunities

SUMMARY – What grants are available for small business? 

Applying for a grant could enable your business to grow or achieve what might not have been possible.  However, note they are hard to get and take time to complete so consider the effort versus the likely success.  Ensure you follow grant instructions both when applying and if successful after receiving one. Key is to understand what grants are available at both a local and national perspective for your industry and need.

Contractor – using or being one

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Your small business may not be ready to take on an additional employee so a contractor may be a better solution or perhaps you would like to start your own business as a contractor.  This guide will look at both sides and help you understand the implications of using or being a contractor.

A contractor or sub-contractor, freelancer or consultant is a person that provides goods or services under a written contract or a verbal agreement. Unlike employees, contractors do not work regularly for an employer but work as required. Contractors are usually paid on a freelance basis and often work for themselves using their own tools and processes.

WHY should you use or consider becoming a contractor?

By Using a contractor, you can:
  • Increase or decrease workers based on business needs
  • Get fast access to skilled workers for different tasks
  • End contacts quickly with no reason
  • Normally no payments for Superannuation, holiday or sick pay and payroll taxes
  • Save on liability insurance, as contractors must have their own
By Becoming a contractor, you can:
  • Be your own boss
  • Earn more money if your skills are in demand
  • Work the hours that suit you including part-time
  • Test out a company before committing to a full-time job

WHAT do you need to understand about contractors?

Contractors have workplace rights and protections but have different responsibilities relating to insurance, taxation, and superannuation. In Australia, the Independent Contractors Act 2006 in conjunction with the Fair Work Act 2009 protect the rights and entitlements of independent contractors.

Under the Fair Work Act 2009, independent contractors are protected from:
  • adverse action – for example, a business cannot terminate a contract with an independent contractor because they make a complaint to a regulator about their workplace rights
  • coercion – for example, a business cannot threaten to take action against an independent contractor to coerce them not to exercise their workplace rights
  • abuses of freedom of association – independent contractors are free to join, or not join, a trade union or employer group
The Independent Contractors Act 2006 allows independent contractors to ask a court to review a contract because it is ‘unfair’ or ‘harsh’. The court may consider:
  • the terms of the contract when it was made
  • the relative bargaining strengths of the contract parties and, if applicable, anyone acting on their behalf
  • whether there was any undue influence or pressure, or any unfair tactics used against, a party to the contract
  • whether the contract provides remuneration that is less than that of an employee doing similar work
  • any other matters the court thinks is relevant
The court may order:
  • the terms of the contract to be changed (for example, they may be added or removed)
  • the whole contract or part of the contract be ‘set aside’ (that is, have no effect)

All workers in Australia are entitled to a safe and healthy workplace. This means that employers — including self-employed contractors — must comply with the relevant state or territory’s workplace health and safety laws.

Sham contracting is illegal and is when an employer attempts to disguise an employment relationship as a contractor relationship. This is usually done to avoid responsibility for employee entitlements.

HOW do you hire a contractor or become a contractor?

In Hiring a contractor, you should be careful in checking their credentials to ensure they have the right experience, attitude and skills.  You will need to carefully plan how they will integrate into your workflow and ensure you pay them promptly or they may not continue to turn up.  A contractor may not be an employee but you need to treat them as part of the team to get the best result.  Make sure you engage a contractor in a legally binding way in writing and consider what other documents may be required like a Non-Disclosure Agreement. Ensure you keep accurate records of their hours and or completion of set tasks.

In Becoming a contractor, you essentially start your own business. See our guide on starting a business. This process will include writing a business plan which will help you be realistic about things like future income. You will need to keep track of your business so read our guide on Record Keeping as well as considering setting up a separate bank account.
Insurance is important as you most likely will not be covered by your employer so consider taking out liability, income protection and asset (protect your tools) insurance.

If as a contractor you are paid wholly or principally for your labour your employer must pay for your superannuation, if not you should consider making voluntary personal contributions. Be sure to review our guides on Business structure and GST as you may need a separate tax file number and your services will be subject to GST if your business turnover is above $75,000.   If you do not have an Australian Business Number (ABN) your hirer may legally withhold tax at the top rates.

HINTS

Unsure if someone is an employee or contractor? See the Fair Work Table here https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/independent-contractors-and-employees

If your business engages contractors, it’s a good idea to have a Contractor Agreement in place with each contractor you engage. This sets clear expectations about the scope and standard of services to be provided, fees and payment, confidentiality, IP ownership and termination processes. A lawyer can draft a contractor agreement for your business.

Keep track of your contractors’ hours and how much they’re costing you. Use your accounting software to produce reports so you can see whether you are getting value for money. Over time you will discover the right mix of employees and contractors that works for your small business.

SUMMARY – skilled supply of labour and materials

Contractors work for themselves and offer other businesses and individuals a skilled supplier of labour and possibly materials.  Both the contractor and the hirer have flexibility around hours and hirers do not have to provide for holiday and sick pay or payroll taxes. Contractors have workplace rights and protections but have different responsibilities relating to insurance, taxation, and superannuation.

NDA – Non Disclosure Agreements

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Shh can you keep a secret?  Most people cannot.  What if the success of your business depends on a 3rd party and you need them to keep quiet about what is discussed? This is when you need to have either a lot of trust or you have them sign a non-disclosure agreement. This guide will discuss what a NDA is and how to create one.

A Non Disclosure Agreement or NDA is a contract through which the parties agree to not disclose information covered by the agreement. An NDA creates a confidential relationship between the parties, typically to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects non-public business information. Also known as a Confidentiality Contract, Confidentiality Agreement, or Gag Order.

WHY do I need a Non-Disclosure Agreement NDA?

Some of the typical needs for an NDA include:
  • Entering into a business relationship – If you have created a product or service and are looking to sell it to another business, you may need an NDA while you are negotiating the deal.
  • Getting feedback – After developing a product or service, you may wish to run beta testing (trial) and gather feedback from your network or those in your industry.
  • Bring on a new employee – It’s a good idea to have employees sign a document that they will not share company confidential information such as plans, business models, financial or products.
  • Pitching to investors – If your business is looking for investment, you will likely reveal confidential business information when pitching your company. Always insist as they could steal your idea.
  • Asking a competitor to help you on a project and stop them from stealing your designs and ideas and pitching independently.

WHAT would I use an NDA for?

An NDA will cover:
  • A description of the confidential information;
  • Confidential rights and obligations of the parties;
  • Protection of sensitive information;
  • Return of confidential information at the end of the agreement;
  • Obligations regarding the proper use of the information; and
  • Circumstances where disclosure is permitted.

An NDA normally protects ideas, products, app functionality, designs, source code, plans, business models, records, recipes, and any other commercially sensitive documentation.

HOW do I get an NDA created?

An NDA is a legal document but is only as good as the contents. You can get an NDA as
  1. A free template
  2. A purchased template
  3. Written by a lawyer as fit for purpose

Prices increase as you go down the list as does its ability to possibly be successful if you go to court.

HINTS

Once you have an NDA template chance are you will be able to use it again for similar circumstances.

You should consider:
  • How long you want it to last
  • Is it mutual or one way (both parties or only one)
  • Having a specific definition (broad will result in ambiguity)
  • Will a court consider it reasonable
  • Implications if someone will not sign
  • What other steps you need to take to protect your secrets, for example, lock them in a safe
  • Locations it applies to, including overseas
  • All details are correct

SUMMARY – Protect Confidential Information

An NDA will help you protect the information you want to share with 3rd parties.  Templates to create one can be easily obtained but the use of a lawyer will increase your protection.

PLEASE NOTE:  All information provided on this website is general in nature and may not be appropriate to your individual circumstances.  It does not replace advice available from experts such as lawyers, accountants, business advisors, brokers, etc. We further recommend when using these experts you ensure they have the appropriate licenses and endorsements.

Shareholder & Partnership agreement

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You are probably reading this guide because you are at the beginning of your business venture however it could be because a partnership or shareholding has gone wrong.  This guide is all about helping you get that first shareholder & partnership agreement right so down the track there is a clear predetermined plan of how things should happen.

A Shareholder & Partnership Agreement is a legally binding contract between the shareholders or partners of a business. A Shareholder & Partnership Agreement covers the funding, structure, management and direction of the business. It outlines the responsibilities and obligations of the business owners.

WHY should all partners be in agreement?

In the excitement of starting a new venture, it is very easy to put this important task aside. A shareholder agreement is to protect the multiple owners’ investment in the business, to establish a fair relationship between the owners and govern how the company is run.

It is best to put a shareholder and partnership agreement in place when the business is first established.  At this early stage owners should be like-minded and if this is not the case questions should be asked why you are going into business together.

WHAT is in a shareholder & partnership agreement?

The agreement should contain important, specific, and practical rules relating to the business and the relationship between the owners. 

The agreement should (but not have to) include:
  • define who are the shareholders, in what percentage ownership over what term
  • define how important decisions are to be made
  • describe how the business is going to be run
  • indicate if any intellectual property is not owned by the business
  • set out the owners’ rights and obligations including time spent on business
  • agreement on accounting processes and reporting
  • decide how profits will be divided and income paid
  • regulate the sale of shares in the business including full sale and withdrawal or addition of an owner
  • define dispute resolution procedures – if 2 owners have equal decision making decide how will you break the stalemate
  • outline any additional powers of minority shareholder/s so not always overruled on key decisions
  • define what constitutes a breach of the agreement and what action should then take place – possibilities include termination or mediation
  • include restrictions to stop shareholders from starting a new business in competition
  • identify how an owner may exit the business
  • have terms around specific circumstances like:
    • Hiring and firing of employees
    • Who can authorise payments
    • Taking on debt
    • Approving expenses

If a disagreement does occur in the life of the business and there is a clear shareholder agreement it gives a clear roadmap to move forward.

A partnership or shareholders agreement can be drawn up by a lawyer and you will find several providers offer a template-based solution that can be adapted to your specific needs via the internet for minimal cost.

HOW do you deal with conflict?

Conflict will inevitably arise with shareholders at some point in the running of a business. It does not matter how well you know your fellow owners, irrespective if they are a family, friend, or business partner it is best to have a shareholders agreement in place that you can refer to when conflict arises in your business relationship.

A lot of successful small businesses have been known to have shareholders with stormy relationships. A business relationship, whether good or bad, can have a huge impact on whether a company is going to be successful or not.

Decisions should be made through discussion, compromise and ultimately deciding what is best for the business. More progress can be made on working out how to resolve conflict rather than how to win a conflict.

Being a minority shareholder and having a shareholders’ agreement that includes the requirement for all shareholders to be unanimous ensures that you have a say in the important decisions that impact the company.  This could be decisions on:

  • Adding or removing owners
  • appointment or removal of staff
  • taking on new debt
  • changing business operations

However, if all decisions must be unanimous this could cause problems and ultimately prevent your company from carrying out its business.

In a scenario when two owners each own 50% each of the business it is important to have a dispute resolution provision included. Without an agreed procedure to resolve disputes no decisions can be made leaving the company unable to operate.

You can terminate a shareholder agreement in one of 3 ways:
  1. By mutual agreement – the original shareholder agreement should have had a provision on this
  2. Termination by a breach – unless there are clauses for mediation of a breach in the agreement can lead to termination
  3. One owner withdraws – the shareholder agreement should have a provision that maps out this scenario

To force an unhappy shareholder to stay in a business may cause more problems than having a new shareholder who is interested in the business being successful. Shareholders’ agreements will often include rules around share sales and transfers – who shares can be transferred to, on what terms and at what price.

HINTS

Decisions can be specified to be based on equity holdings or unanimous by all owners.

Discussing the worst possible scenarios at the beginning of your business journey and having a roadmap to resolve them will save a lot of headache down the track.  The more comprehensive the better.

Owners need to enter into an agreement voluntarily.

Any new shareholder must be bound by the terms of the original shareholder/partner agreement.

SUMMARY – shareholder & partnership agreement for profit

A shareholder or partner agreement is a legal document that creates a set of rules for the owners to follow when a business is first established. It helps deal with certain scenarios that may occur in the future to reduce the chance of conflict.  Those rules deal with equity, decisions, obligations and the ultimate end of the agreement.  A well legally written agreement can be produced inexpensively from templates or through a lawyer.

Contracts – written legally binding document

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In our everyday lives, we are always making contracts, whether it be for a new mobile phone plan, to have electricity connected, or arranging for a plumber to fix a broken pipe.  In this guide, we will look at what a small business needs to know about contracts and how to write or agree to one that is legally binding.

A contract is an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration. Contracts are at the heart of most business dealings. The agreement may be enforced in court.

WHY should I have a written contract?

A conversation and a handshake is indeed a contract.  If a tradesperson writes a price on the back of a business card and you agree to go ahead with the work then that is a contract.  This is all fine until something goes wrong and a dispute arises.  A handshake cannot be enforced by a court.

A written contract, on the other hand, provides certainty to both parties and should set out what has been agreed. Typical items set out in a contract would include payment, timeframes and materials.

WHAT do I need to know about contracts?

A court will not enforce a non-written contract as they will be unable to prove the existence of a contract or its terms.

Depending on the type of contract being created or agreed to it may be a good idea to have a professional such as a lawyer or business advisor review or write it.

A written contract should always be used when:
  • The contract price is significant enough to affect your business if you don’t get paid.
  • Quality requirements, specifications or specific materials that have to be used.
  • Doubt that the hirer may not be able to pay you.
  • Insurance required for the type of work you are doing.
  • Key terms are used, such as a critical date for the completion of the work before payment.
  • Information must be kept confidential. See our guide on NDA’s
  • Legal obligation requires to have a written contract.

Beyond written and verbal contracts other contact types include:

Standard Form Contracts – is a pre-prepared contract that has most sections already filled out and there is minimal or no negotiation between the parties.  Includes employment contract or insurance agreement.

Period Contracts– is used for business engagements where work is performed from time to time. Popular in building industry for contractors.

HOW do I create a legally binding contract?

For a written contract to be legally binding it must contain four essential elements:
  • an offer
  • an acceptance
  • an intention to create a legal relationship
  • a consideration (usually money).
However, it may still be considered invalid if it:
  • entices someone to commit a crime, or is illegal
  • is entered into by someone that lacks capacity, such as a minor or bankrupt
  • was agreed through misleading or deceptive conduct, duress, unconscionable conduct or undue influence.

A written contract will include conditions that if not met are grounds to terminate the contract and seek compensation or damages.

When negotiating the contract terms make sure the conditions of the contract are clearly defined and agreed to by all parties.

Contracts may follow a structure that can include, but are not limited to, the following conditions:
  • details of the parties, including ABN’s, ACN’s and any sub-contracting arrangements
  • description of the goods and/or services that your business will receive or provide, including key deliverables
  • payment details and dates, including whether interest will be applied to late payments
  • duration or period
  • definitions of key terms
  • ownership of intellectual property rights.
  • treatment of confidential information
  • key dates and milestones
  • required insurance and indemnity provisions
  • exclusivity agreements and restraint of trade
  • damages or penalty provisions
  • renegotiation or renewal options
  • complaints and dispute resolution process
  • termination conditions
  • special conditions

HINTS

Even if a contract is a low value, if it is in writing it removes risk.

You should read every word, cross out blank spaces, negotiate if appropriate and keep a copy of the contract. When negotiating be clear and remain professional.

If you are having some design work done like a logo created, the copyright remains with the designer unless the contract specifies the copyright passes to you.

Small businesses are protected from unfair terms in a standard form contract where it is for the supply of goods or services, the sale or grant of an interest in land, at least one of the businesses employs fewer than 20 people, and the price of the contract is no more than $300,000 or $1 million if the contract is for more than 12 months. https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms

More details on how to prepare a contract can be found here https://www.business.gov.au/products-and-services/contracts-and-tenders/how-to-prepare-a-contract

SUMMARY – contracts must be accepted

A written contract is a legally binding document that can be used in a court of law.  It must contain an offer, an acceptance, an intention to create a legal relationship, and a consideration (usually money).  The contract will include various conditions that should clearly define the agreement between the parties so there is no confusion on what will occur. If these agreed conditions are not met it is ground for termination and possibly damages.