accelawrate

This blog is the result of years of patient, painstaking, often exhilarating and sometimes tumultuous learning in the legal and media industries - in what the uncharitable may call the wilderness of the modern corporate jungle. The content has been refined from sometimes 'crude' experience gained from negotiating and documenting deals for the broadcast coverage of major sports and international events as well deals for the production of top-rating TV shows. Hopefully, my views will be of some use and that you'll find them blended with ‘been there - done that’ commercial reality. I'd … [Read More...]

Rules for Getting Paid

Rule 1: Identify Your Client

It sounds simple, but the complexity can be hidden under the surface of a business name or blurred by our failure to correctly identify the entity that is to pay. Often, this is due to the haste of agreeing to a job that’s “just for a couple of days”.

Time for some basic legal theory: Businesses are generally structured as sole traders, partnerships or companies. The type of structure makes a big difference to who has to pay.

A sole trader may operate under their own name or under a business name (registered with the Department of Fair Trading in the respective state). Sally Smith, as an individual, is liable for her debts. Don’t be puzzled if she operates under a business name such as ‘Amazing Skills’. The contract is still between you and Sally. Any agreement or invoice should make it clear that Sally Smith is required to pay you. Refer to her as “Sally Smith trading as Amazing Skills”.

The same approach works if Sally is in a partnership with Sam. Contract with Sally Smith and Sam Chung “a partnership trading as Amazing Skills”. The beauty of dealing with a partnership is that they are both bound to pay any debt the partnership owes. So, if one partner can’t or is unwilling to pay, then the full debt can be recovered from the other partner.

There are two main company types. The common-garden-variety will have a name like Amazing Skills Pty Limited. If simply named Amazing Skills Limited, it is a public company and is probably listed on the ASX. Corporations can also hold business names or operate through a subsidiary. Clarify which entity in the corporate structure is engaging you and verify that the person giving the undertaking to pay is authorised to bind the company. Usually senior executives have this power. If a substantial amount of money is involved, it’d be prudent to get a director (or better still two directors) to put pen to paper.

Rule 2: Record the Deal

That reference to paper highlights a crucial point – make sure you get the deal set down in writing! Memories fade (not always wilfully) and a written record can clear things up. It also provides excellent evidence of the debt if things turn sour.

Rule 3: Use the Correct Address

Cite the other party’s registered office address on your agreement and any invoice. Send all correspondence there. This removes any question about whether proper notice of the debt was given.

Rule 4: Take Action

If things turn ugly, there are cost-effective ways to boost the heat. A solicitor’s letter often gets the desired result. Or you could make use of a Small Claims Tribunal or local Magistrates Court. Sadly, the structures vary in each State as do the monetary limits (around $5,000 -$10,000). If it’s enough money to buy a new car, the correct jurisdiction will probably be a District Court. More serious cash means your matter is destined for the Supreme Court – and all that involves.

The above rules aren’t fail-safe, but they are sound defensive measures. Adherence will help ensure you are fairly rewarded.

In case of emergency: the following link will be a good place to start digging to determine your State’s specific process: www.accc.gov.au/content/index.phtml/itemId/260090

Dangers of Discounting

If you are thinking of joining Groupon or a similar discount program be wary.

The sales pitch sounds good, the lure of new customers is understandable, but you must get the maths right. Many businesses have ended up on the rocks because they didn’t understand all the costs that went into the sale of each product and they discounted to the point they sold their product at unsurvivable margin level or even at a loss.

The urge to discount should be continually resisted. Don’t destroy your business in the mistaken belief that higher turnover equals more profits. A slash and burn approach to pricing could led your business 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.

An Example

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.