Important questions for SMEs in this age of austerity
SMEs are widely expected to be the stimulant lifeforce that sparks the economic recovery of ‘UK plc’, so it is important that they are in good business-health to survive the current age of austerity that is affecting the businessworld in general. We asked the sponsors and co-compilers of our SME 100* – Haines Watts, Clifton Ingram, and Santander – to give their professional advice on the business-health questions that SMEs should be asking themselves
* View the full SME 100 listing at:
www.businessmag.co.uk The legal questions from lawyers Clifton Ingram
Advised by partner John Barker, senior associate Caroline Lindon- Morris, and associates Alison Gair and Barry Niven.
1 Do our terms and conditions adequately protect our SME business?
Business transactions involve the participants in binding obligations, and poorly worded terms and conditions can lead to commercial disputes, if not legal action. So, are your T&Cs fit for purpose? If you do not have your own customised standard terms then the default position is set out in the Sale of Goods Act 1979, which may not protect your business interests as fully as you would like. Faced with an increasingly litigious ‘compensation-culture’ society, companies aim to customise their T&Cs to limit or exclude certain liabilities; specify warranty conditions, security for payment for goods and timeframes.
Caroline Lindon-Morris, senior associate
2 Do we have in place a proper legal framework to ensure good corporate governance and basis from which to grow our business?
Many SMEs think corporate governance is only relevant to large corporates. Not true. Good corporate governance for SMEs is about establishing internal processes and attitudes that protect the value of the business, make the business more attractive to external investors, lenders or potential purchasers and ensure the long-term success of the business. Well-drafted articles of association and a shareholders’ agreement are essential to ensuring that directors and shareholders adhere to such processes.
Barry Niven, associate
3 Should we offer our key employees share option incentives to motivate and maximise their performance for the growth and success of the company?
Share option schemes can be useful ways for SMEs to provide incentives to valuable staff to reward and retain them. The option allows employees to gain a stake in the company, by buying shares at a fixed price in the future, which may be profitable if the company grows in value. With a properly worded agreement it is possible to avoid paying income tax or NIC liabilities when the option is exercised. Some schemes have tax benefits, and if the criteria are met the grant of a share option need not cost the employer anything.
Caroline Lindon-Morris, senior associate
4 How do we plan to fund the ongoing operation and anticipated growth of the business?
Finding funding from a bank, VC, a business angel or even family and friends can be difficult for SMEs, but don’t rush into a financial arrangement without understanding its practical and legal implications. Banks will want
secured repayment, VCs may want a seat on the Board, angels may want equity or an early exit, working partners and friends may fall out with you. Taking advice from an experienced lawyer will save you time, money and personal anguish.
John Barker, partner
5 Have we got effective contracts of employment and service agreements in place?
Staff may be a company’s greatest asset, but they can cause great problems too if they are not subject to an effectively drafted employment contract. For example, if staff leave they may take valuable confidential information, intellectual property and clients with them unless this is prevented by the contract. A well- drafted contract can also reduce the risk of costly employment tribunal claims. Today, HR procedures need professional management.
Alison Gair, associate
John Barker
www.businessmag.co.uk
Caroline Lindon-Morris
Alison Gair
Barry Niven THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2012
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