Have you ever put yourself in a position where you're thinking, should I do that? Should I not do that? It might not even be something that you've done legally wrong; it might just be a situation where you're having a separation or whatnot, but a lot of the time, you can find yourself in hot water if you have the right relationship set up.
We've got Katie Richards from Law on Earth, and she's going to be talking to us about why and when you should hire a business lawyer. What is the right time in business to do that? When should you set up these relationships? She'll shed some light and remove some fear from everything legal in business.
Does every small business need a lawyer?
Does every small business need a lawyer?
Katie: I think it depends on what phase of the business they're going through at the time. I would always suggest that before someone gets into business, have a chat with a lawyer first so they understand what legal needs they're going to have coming up over the life of the business.
You get a bit of a strategy in place because it's not just your business planning that's important. You have to understand what legal risks happen at the beginning, while you're running the company, and then also on exit so you can be ready for them and then you'll be less likely to need lawyers along the way if you already know what to watch out for.
A lot of the time, businesses start because you're really passionate about the work that you do. It could be that you're a labourer, an accountant, etc. A lot of the time, you start in the trenches doing that sort of work and you jump in because you're good at what you do. That can obviously cause some conflict if you're doing exactly the same thing as when you had an employer.
When should you hire a business lawyer?
Are you better off speaking to someone to make sure you're doing things right? Or is it just when you've started turning over some dollars? When should one really start looking towards consulting a business lawyer?
Solicitor Before Accountant
Katie: I think it's actually before that. It's right at the beginning when you actually have a chat with an accountant because you need to work out what kind of structure you should be setting up before you actually go and set the business up. That's important because the structure comes down to how much risk is going to be on you personally.
How can a business lawyer help you?
Katie: If you're set up as a sole trader, you could have issues such as something going terribly wrong in your business, especially if it's your first business. If you don't really understand how businesses operate, you could have your house on the line. You could lose your car, all of your assets, and all of your savings because you are personally liable as a sole trader, whereas generally, people will wait for a while before they set up a company down the track.
There also could be taxation issues if you do that. If you've got some potential contracts already set up, you're probably better off going down the company path from the start. You know that the revenue amount is likely to be a lot higher. The right time to talk to someone about that is actually before you start trading and then you've got a bit of a road map and you understand why.
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Katie: At Law on Earth, we've actually done a lot of free guides around this so that people can just go and have a look at them, get an understanding around what all the different options are in terms of the structures, think about what would actually suit their lifestyle not only now, but also in the future.
Think three, four, or five years ahead because if you set up as a sole trader now, you're going to be paying tax through the roof once you get over a certain financial amount. No one in their right mind is going to want to set up a business if it's not generating at least a decent amount of money that exceeds what you were doing as an employee, unless you're only doing it as a hobby or for some kind of lifestyle benefit, because there is a lot of pain that comes with setting up and running businesses.
You must have a good reason why you want to put yourself through that. Otherwise, sometimes it actually is easier just to remain an employee, doing what you love.
I couldn't agree more. Some employees think that their employers are bringing in double or triple of what they earn, and then they wonder about jumping out on their own without thinking about any of the nitty-gritty and the mechanics that go into the infrastructure that supports the business. You're right: you want to be able to earn a little bit more money or just be a side hustle or a lifestyle choice. That obviously changes the structure.
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If you're going to start a business, first, make sure that you're passionate about doing whatever you're going to be doing because you're going to be doing a lot of it. Second, make sure you're able to do that with enough time to be able to do all the other admin stuff that comes with it. Don't think you'll get to do 80-hour weeks that are going to be billable to clients. On top of that, probably talk to a solicitor before you talk to an accountant.
Katie: It really comes down to that risk piece. What we tend to find in the last couple of days through the platform at Law on Earth is people who are passionate about a social cause want to set up a business around it. They're trying to work out whether to set up a charity, a social enterprise, for-profit or not for profit. It all comes down to how far you're prepared to take that social cause.
There's a lot to think about. At that stage, you also have to think about not just the business, but what about the people around you? If you have a family, what are you prepared to put them through when you're setting up this business? Are you even going to bring them in down the track? If that's the case, then you're going to be employing people within the business. Again, it's probably better to do that for a company.
The conversation around trusts will come up as well. You might have some kids at home and your wife or husband may not be working. You might want to get money by the business to them in the most cost-effective way.
How much does a business attorney cost?
Katie: You'd have an initial chat with your accountant and your lawyer around those ideas. People are using just like a 20-minute advice session on our platform just to ask those kinds of questions. It's only going to cost them $150 to answer all of those questions before they even think through the next part of their strategy. It's not prohibitive.
That's pretty much nothing in the scheme of things. That is going to protect you because different opportunities or things can come up.
There are always bumps along the road of business, and you can have situations where you're being sued depending on the type of work that you're doing or having partnerships that go south. Even if you are set up as a sole trader, for instance, and you invest a little bit too much time in the business and the business is going really well.
This sounds terrible, but if you look at Melinda Gates, she is one of the best investors in the world. You need to be very careful. If a break-up does happen in your personal life, that can affect your business life and ongoing time. When you do engage, you spend $150, you get a little bit more visibility and insights and confidence in what you'd be doing with your business.
How often should you talk to a business lawyer?
What are normally the touchpoints with small business lawyers? Is it something that you engage with clients every three months, or is it something that you set up the relationship and then when the shit hits the fan, so to speak, you then start talking or what happens?
Katie: I think it depends on the person who's setting up the business and what their circumstances are. The way that I deal with clients is that I'll have that initial chat with them. I'll give them a list and priorities as to what they should do and how soon they should get them done and at what stage of the business they'll think about activating the next step.
That way, it gives them the tools that they need to actually go away and be in control of what they're doing. We have stuff in the learning centre that will help them do that. As they reach those little milestones in their business, they know what to do and what to watch out for. That just makes it a lot easier. It takes a lot of the anxiety away from the business.
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A lot of my clients will actually Zoom me once a month and just ask me and do another 20-minute session and say what they've done and ask me to have a look over. They can actually watch me read into contracts that they've prepared themselves, just keeping them out of any risk so that they don't have to lie awake at night because they know they've already covered their bombs and then they can take that next step a little bit more confidently.
There may be someone who's just really slow to get a bit of traction. If that's the case, they don't have to push themselves ahead, at any rate, to actually go and get more legal advice. It's only as they need it. But as they grow, you'll tend to find the need will pop up more often.
It really comes down to the stage of growth and how risk-averse that business owner is. There are some people that will do all these documents, go forth and conquer—and they will just call me when they're in trouble.
No matter how good of a business owner you are, things just pop up in business and you can't avoid it. If you can at least recognise when an issue is coming up, jump on it straight away and get some advice on what you should do next. You can probably go forward and just sell back and look after yourself potentially.
You just need to find out what the laws are around it and get a bit of a commercial understanding of what you can do and what repercussions there are for each of those different options—what are the repercussions now and what we're going to be the repercussions, say, two or three years time. If you do take this path, how is that going to impact the relationship you have with all the business owners? How will that affect me on a reputation level?
Be Proactive, Not Reactive
You brought up a couple of really good points. Do you find that business owners who are looking for business lawyers particularly in Brisbane are more proactive or reactive when it comes to these situations?
Katie: I think they have been quite reactive for a long time, and I believe they're starting to get a bit more proactive. Maybe that's just the ones that I deal with because we've made it a bit more accessible for them to get little snippets of advice and not cost them a billion dollars for that.
It's easier to be proactive. Like going to the doctor, you don't go, 'I'm not sure if I want to go to the doctor even though I'm sick because it is going to cost me a fortune.' You just go. That's what we've tried to recreate: an ability for people to just grab it as and when they need it so they can be proactive.
But I think a lot of people in the past have been really reactive. The problem is that by the time I actually engage someone to help them with it, the problem is 10 times bigger and you actually could have fixed it for one-tenth of the cost had they gone to you at the very beginning of it before they sort of got into too much of a deep hole.
The old adage is 'Save a nickel, spend a dime.' Once you've gone too far, you kind of have to do what you have to do and that can be a big problem for you.
There's a business that we were talking with a month and a half ago. He decided to set up his own business and he thought it is going to be great because he loves doing what he does. His boss was fine with him doing that. The clients that his boss had went to him because they enjoyed working with him more, and that caused big problems.
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His previous boss sued him, and then he engaged some legal advice. He had to change a whole bunch of stuff around to get everyone happy and ended up having to sell his business to his old boss to keep his boss happy.
You've already worked for a whole bunch of stuff and then you've got all this stuff that's taxing on your mind and soul. It's not going to help you very well mentally to be having to do that while already going through the mechanics of setting up a business.
Katie: That's actually one of the first things we chat about when we're having that initial strategy session. When talking about the structuring, the first thing I say to them is, 'What did you do before you came up with this business idea?' And then I add, 'Who did you work for? Show me your employment agreement.' Some would say, 'No, it's okay, we all parted on happy terms.'
Stealing their IP and setting up a business in competition with them, they're just not going to be happy. Some employers will pursue it, and some won't. Some will have this ridiculous restraint of trade clause in there, and it'll be for like five years. The court is not going to hold that up, but you have to get advice around it to find out whether it's a reasonable restraint or not and whether it's worth the punt.
Correct. He's still in business now but trading underneath a different entity on advice that he got from his lawyer. That would have been easy just to get it at the start, wouldn't it? I think it's a total cost of $150,000.
Katie: I know someone else that's had a very similar situation. They're doing really well now, but it was really crushing. You just don't want to be in that situation.
Not at all. It's not going to make you feel very good mentally. And that changes your whole game with how you're dealing with clients and giving you that confidence to build up your business.
How do you legally protect yourself from risks in business?
Do the legal requirements for business and milestones in business vary depending on the business vertical? For instance, hairdressers are dealing with scissors and if they have a slip, someone could get hurt. I'm running an IT business and if something goes wrong, their infrastructure could be down, costing them tens of thousands of dollars an hour or more depending on the business.
How do you protect yourself against things like that? Is that through agreements that you set up with your clients?
1. Set Up a Business Plan
Katie: I think what people really need to be doing at the very beginning is setting up a business plan. Most people put it in a drawer and they don't have a look at it again. That's not useful. You need to actually write some kind of document about all the things that could go wrong in this business and then write out your mitigation. If this happens, what would I do next and then next and then next so that you don't have to worry about those kinds of risks so much because you've thought about it.
2. Have a Business Continuity Plan
Katie: Your next step is to look at each of those risks and think about what you can insure and what you can minimise any risk for. How likely is it to happen? If it does happen, like the electricity goes out and you can't run your business, can we jump to another premises so we can keep trading? If not, do we need business continuity insurance in place? Pulling all those ideas together is what we call a business continuity plan.
Continuity is essentially continuing. What kind of plans do we need to put in place so no matter what comes up, we've actually got a Plan B that we can jump to straightaway. How do I train my staff to also know what the Plan B is at any point in time?
If you're on holiday in Hawaii and all of a sudden something goes wrong in the business, you need to know that someone can grab out the continuity plan and have a look at what you would have done if you were here.
Make sure your business is disaster-ready. Let's talk about guaranteed uptime and disaster recovery.
Otherwise, if you end up building a business where you're stuck in it and no one else can run it for you, you're going to end up basically buying yourself a job but that's quite a high risk. And you don't want to go through the pain of building a business and get to make this great revenue to have it all ripped away from you all of a sudden.
Continuity plans are very, very strong to my heart. In the IT space, things are moving into the cloud, and you have to be more and more creative to allow for people's infrastructure to stay up and running when it's not necessarily available in your hands.
There's a gun that's pointing at us. If something goes wrong with the client, we have to see how we can make sure to mitigate this risk if Office 365 goes down or if you have a problem with G-Suite applications. We've worked out things here but it's surprising to us and this is why I was asking before about the proactive versus reactive.
We talk to business owners and say let's do this but a lot of the time they want to wait until it happens. Then it happens and they're like, 'We need to be up and running now. We can't get the contract out.'
Katie: When you're dealing with big clients and if you can show them that if this happens this is what we do, but if that happens that's is what we do, it actually puts you way ahead in their eyes because they know that you have a much better ability to deliver on work, especially when it comes to tender processes.
We've actually gone down the path with Law on Earth to do ISO certification. Even though we don't necessarily need to do that, I want to make sure that no matter what happens, we can be reliable and consistent so that people can keep using us. That was a big ask to actually get someone to come in and actually do all that.
3. Have a Risk Mitigation Strategy
Katie: Risks are really important. If you don't watch the risks in your business, you won't have a business.
That can destroy lives and families. That's what it's all about: risk mitigation.
Does risk mitigation negate the need for more insurance?
You're saying about possibly needing to get different types of insurances. Does it complement or mitigate the risk?
Katie: I take it one step further with my businesses. I've got Virtual Legal, my law firm, and then Law on Earth, the software platform.
1. List Down at All of the Risks
Katie: What I've done is I looked at all the risks and wrote up a disaster recovery plan as well as a business continuity plan. And then I took that to the insurer and put them on notice on what I've asked them to insure for so there can't be any grey areas as to what risks they had to cover. It actually makes them accountable.
2. Reduce the Risk, Reduce the Insurance Premium
Katie: Second, I said, 'I've done all this risk mitigation. I want you to give me a discount on insurance because I've done half of your job for you.' That's actually helpful too because you can get your insurance premiums reduced because I know exactly what risks need to be covered.
When it comes to things like negotiating a contract with someone else, sometimes what people do is they contract out of provisions. If I say, 'We don't want this liability clause in there.' and the business owner is like, 'Oh, yeah, no worries.' because they want the big contract. The problem is if you actually contract out of something that the insurance company then can't use to help you fight that claim, then your insurance sometimes might payout. You must have a think about those kinds of things.
Insurance Can Be a Double-Edged Sword
Katie: Insurance can be a double-edged sword. If you cut corners, you could end up not getting insurance paid out. I think it's a really good way of knowing the risks, making sure that you've covered up on what you can and that your systems actually back up what you say they're doing. It makes your business more valuable.
When you're more repeatable with what you're doing, at least you know what your risks are. At Dorks Delivered, we call our agreements with clients business continuity agreements because we want their business to have uptime. We want IT and technology in their business to be like a utility.
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If we tell a client that this is what they need to have in place and they say they're not interested, we put in denial of service agreements. We have them sign off on something saying, 'We're aware that this risk is what we're taking on ourselves,' and they can't come back to us and say this doesn't work.
Should you use legal documents or templates available online?
There are different documents that you can find online, such as NDAs and employee agreements. Are they worth the digital paper that they're written on? Does your mileage vary if you're just going to get a boilerplate document off the Internet that hasn't been checked over by business lawyers in Brisbane?
Katie: It's funny you bring this up because this is my biggest pain point. This is literally the entire reason I set this platform up about three years ago. The problem with templates is that people don't know what's in them. When you actually sign a template or some kind of contract without understanding what's actually in it.
There is no standard contract. It just doesn't exist. You can actually contract out of protective rights you would have had under the law if you had no agreement in place at all. You can actually contract out of different types of rights that can actually be in that agreement.
What we did was we went through and drafted out all the precedents that you would need for business and then you get a guide that comes along with it and explains in really simple English what every single clause in that agreement actually means so you can understand what you're doing.
Make sure you understand what's in the agreement before you sign it. If you don't understand it, don't sign it because you could really do yourself some damage. That's why at Virtual Legal, we get a lot of the cleanup work from people just using templates they found on the Internet. Sometimes they use American documents, and sometimes they don't even change the names in the contract.
They haven't even read the contracts. Far out. I'm a stickler for reading things. When I got my first credit card in my teenage years, I read the 68-page document that came with it to make sure I understood. That's just a small document about how your information is shared.
You've got a fantastic service there to alleviate some of that pain and make sure people are using Australian documents. Most of the software that we use in business or the SaaS platforms come from overseas. We're using these ERP solutions or CRM solutions, and a big sales tactic that I've seen is that they'll say they'll give all the documents that we need for our client relations and everything else, but they're all from America, so they're practically useless unless you're an international business only dealing with America.
How does Law on Earth work?
We've covered a little bit of information about what Law on Earth does. With $150, what does that entail and how does that work for someone who's looking to get into business or someone who's looking to have a review of their documents if they've got something that's been made by someone else or maybe they need to dust off the documents that they haven't looked at for 10 years. How does the process work for Law on Earth?
Katie: It is really simple. It's a social enterprise that was set up for a social purpose. It's essentially established just to help people. Just go on the platform and set up a free account. Once you've got a free account, you'll get a full dashboard so you can go into the learning centre and have a look at all these different guides that actually teach you what you should look out for, what to do next.
Once you've found a guide that matches your legal situation, you can then work out whether you just go and get the documents in our system. You can just answer a simple question. The system actually does much of the legal work so it'll slot all the right clauses in and then give you that human God that we talked about and then you can read through that.
If that doesn't work for what you wanted practically in the business, go back, unlock the document and then answer the questions again. It will slot different clauses in there. You have complete control over it. You don't necessarily have to get a lawyer if you don't want to get a lawyer, but you have the ability to do that.
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We've restructured it recently so even if you get a 6-month subscription, it's unlimited documents so you can use as many documents as you want and the whole 6 months is only $197.
Once you drop down to that, you get your video calls with a lawyer for $97 for 20 minutes. It becomes ridiculously cheap to get a lawyer online.
Some people do more videos, others do fewer videos and go crazy on the documents and then go and do the business stuff, set up their wills and powers of attorney, and all that stuff. We've got a bunch of people doing their divorces at the moment.
Essentially, a lot of people will actually book their first calls in their sixth month and they'll extend it and then book in a couple of days later. Once they've gone and done their documents, we'll reverse the screen and help them re-drop bits and pieces of it for their situation. I might not hear from them for another five, six, seven weeks. Some people check in every week because it's just easy and affordable for them to do it bit by bit.
It is a fantastic service. You've only been around three years, right?
Katie: Yeah, we built it inside Virtual Legal, and we split it off about two years ago and then we actually launched it last July. We have 150 people signing up since August 2020.
The good thing is that as and when we find other needs or documents that people want, if it's not in there, they just click a button to email us, and we actually draft it and then upload it. You're not going to find any lawyers that'll do that without charging you $2,000 or $3,000.
That benefits everyone.
It helps people with whatever they're dealing with because if they need it, someone else is going to need it at some stage as well. We just have a team of guys here that just jump straight on it.
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There's pretty much no reason why every business in Australia shouldn't be jumping on Law on Earth and checking out the work that you do and how it can help their business. I know I'm going to be signing up for an account because it's going to give more visibility and assurance for the times that you might not expect things to go as well as you want them to or at least mitigate some of those risks.
Recommended Books: The Hard Thing About Hard Things and Measure What Matters
If there's a favourite book that influenced you in business and in being where you are now, what would that be?
Katie: There was actually one that I listened to recently. It's called The Hard Thing About Hard Things by Ben Horowitz.
I really resonated with that because he said that as a CEO, you have to get used to everything being your fault. I thought that sounds like a really negative thing to say, but it's true. You are responsible as the head of the company, whether you are the founder or just the CEO, but you're responsible for making sure that everything runs smoothly.
If something happened in marketing, you should have had some kind of process in marketing for feedback so you can make sure those things don't happen. If you are not watching what's happening in all the other divisions, even though you're not the one executing on it, it really is your fault.
I think it just puts it back into place. You have to get comfortable with being a bit uncomfortable as a business owner. You can say, 'My job is just to do this bit here' but if you are the person running that business, that's not correct. You are still responsible for the feet up. You just need to make sure reporting back to you is good if you've delegated work out.
That comes into play with what you're saying about strategies, making documentation processes, accountability systems, and things like that. I'm going to be checking that on my radar.
Katie: Yes, it's downloadable so you can listen to it while you're going for a run. Another is Measure What Matters by John Doerr, and that's all about objective, key results and understanding how to give reporting responsibilities out to your teams so that it can be feedbacked correctly.
I'm going to check out that one.
What is freedom to you?
The podcast is called Business Built Freedom. What would you say business freedom is to you?
Katie: For me, freedom is not necessarily having a lot of time on my hands. It's more about being able to actually do what I want to be able to do, even though it's still a lot of work for me to do.
Virtual Legal runs really well, so I can actually have my freedom but I've gone straight back into the grind with Law on Earth. I'm passionate about it, so I'm happy to spend my time doing that. As and when I find different elements that I can delegate to other people, I can then do that and then I can spend more time thinking. I think freedom really comes down to having just being engaged in what you love and finding ways to start stepping back from it to have thinking time again.
I think I couldn't have said it better myself. I find working in business isn't really working if you're enjoying it. That sounds so cliche. People go on holidays to read books, but if you don't think an editor would go on holiday to read books, I still think they would.
If you have enjoyed the podcast, jump across to iTunes. Leave us some love, give us some feedback. Katie will be jumping into our Facebook group to answer any possible questions that you might have. Stay healthy!
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