Basic Rules for Protecting a Business

Basic Rules for

Protecting a Business

Don’t know where to start?
Here are some basic guidelines to follow when looking to protect your small business.

01

Always Protect the Costs-to-Stay-Open-for-Business first

The costs to stay open for business are the 'fixed overhead costs' and are often contractual in nature. Make sure you have 12 months of fixed-cost funding on hand, just in case, so you can have a business to come back to after you recover from an unexpected sickness or accident, or so you can have an active business to sell as an ongoing concern if you have not yet recovered after 12 months. Insuring the Fixed Overhead Costs reduces the risk to a small business.

02

Always Protect the Key Revenue Maker

The biggest risk to a small business is usually its overreliance on its Owner. Whether the Business Owner, a Specialist Expert or a Key Person, most businesses derive the bulk of their revenue from a few key individuals.

Insuring the Key Person to the business protects a business from the financial dips that can occur if there's an unexpected loss of an owner, manager, partner, or skilled employee through sickness, injury or even death.

03

Always Protect the Business Debts

Businesses use debt to start-up or to grow. Whether these funds are supplied by the owner (Directors Loan Account) an external funder (using 1st mortgage security over property assets) or investors (usually a combination of mortgages and Director Personal Guarantees), nothing stops a business like an unexpected and immediate call-up of debts, well before they're expected to be repaid. Nothing stresses a business and its suppliers as having difficulty meeting its loan and debt obligations. Insuring the Business Debts & Liabilities from sickness, accident, or even death of the Owner, Business Partner or Key Person reduces the risk to a small business.

04

Always Protect the Business Ownership

Owning a business in Partnership with another means all the Partners need to protect their portion (equity investment) in the business to make sure the future control of the business stays with them. A forced change in ownership, due to one or more of the partners unexpectedly suffering a motor vehicle accident, ill health, or even death and then selling their shares, could destabilise the business ownership and risk its future. Protecting business ownership with a Partnership Agreement, Company Powers of Attorney and Insuring the Business Ownership, help reduce the risk to a small business.

05

Find a Risk Adviser specialising in working with Small Business Owners and their Families

Protecting yourself and your family from the risk of running a business is key to business and family harmony (and peace of mind). This is because small businesses and the families that support them have different risks, liabilities, and time constraints than average employee-based families. The team at Sapience Financial specialise in working with small business owners and their families, Sole Traders, Partnerships and Multi-owner business, and their Companies to help them protect themselves from their business.

intern overhearing business confidential information

Non-Disclosure Agreements - the small business essential

Of the many key lessons to be learned early in business, undoubtedly one of the most important is about properly managing business information and privacy as a critical business function. If you can't manage that process, your time in business is short. It starts with an appreciation that there is a hierarchy of business information.

Some business information is private, some is confidential knowing the difference between the two is key to a competitive business.

Business information by its nature is ‘porous’ and easily disseminated by those who may not recognise its value. In many business conversations, while privacy is implied, you have no direct control over your information, unless it's documented.

There's a problem when privacy is only implied

What is a Non-Disclosure Agreement (NDA)?

A Non-Disclosure Agreement, (aka NDA or Confidentiality Agreement), is a legal document signed by both parties to a conversation agreeing to keep specific information confidential and not be used outside that conversation.

  • Confidentiality agreements can run indefinitely, covering the parties' disclosures of confidential information at any time, or can terminate on a certain date or event.
  • A Mutual Non-Disclosure Agreement (MNDA) simply means all parties to the agreements are subject to identical non-disclosure obligations with identical access and use restrictions on the information disclosed by the other party. All the Non-Disclosure Agreements provided by the Sapience legal team are drafted as mutual non-disclosure agreements (MNDA's)

A Note about Privacy and if it relates to small business

The next key lesson to be learned early in the business is that privacy is not the same as confidentiality and that many small businesses are not governed by the Australian Privacy Act, so alternative arrangements need to be created to address small business privacy needs.

Insight: Most Small Businesses are not covered by the Privacy Act 1988 , but some are. A small business is one with an annual turnover of $3 million or less. The annual turnover for the purposes of the Privacy Act includes all income from all sources. It does not include assets held, capital gains or proceeds of capital sales. To see if your small business needs to comply with the Privacy Act see OAIC Privacy Checklist for Small Business

Small Business Bigger Thinking

It's time for all small businesses to rethink their approach to better protecting their confidential information and to become comfortable talking about minimum standards of privacy and confidentiality and Non-Disclosure Agreements.

Ask yourself how many external suppliers come into contact with specific information about your business, its strategy, its process, its financials, and its future plans. If that information was made public would it be both detrimental and commercially adverse?

Put it another way:

  • would you lose a competitive advantage?
  • would your business become less valuable and less ‘salable’?
  • would you become vulnerable to harsher financial negotiation with a supplier if they knew your full financial position?

Recognise the value you bring and document the value of its protection

Non-Disclosure Agreements are a respectful way to approach a new relationship - make the offer rather than wait for the request.

Why do I need a Non-Disclosure Agreement?

NDAs are useful when entering into any of the following relationships:

  • Intellectual property that is a result of creativity like manuscripts, inventions, or new trade procedures that one might copyright, patent, or trademark
  • Customer information and data like names, contact information, or purchase histories
  • Accounting or business contact information (eg. suppliers' names and information)
  • Business strategies or goals
  • Business strategy and development plans and profit margins and projections
  • Marketing practices, service procedures, and product information
  • Technical "know-how" and production methods
  • Confidential Information is also generated as a result of privileged consultations with professionals such as financial advisors, lawyers, advisors, and doctors and may also be subject to additional data protection laws.

Subcontractor risk and the emergence of Outsourced Small Business Teams

Today's modern small business can consist of a team of distributed team members around the country (or the globe) and this affects privacy confidentiality and commercial expectations.

It's time to change the way small businesses manage their disclosure obligations.

A common example is the Accounting profession.

  • Accountants who use external or subcontracted bookkeepers need to have confidentiality agreements in place as business financial documents are vulnerable structural business information. If the subcontractor is not covered by an employment agreement that specifically addresses the issues of privacy and confidentially, the accountant may be at risk.

Non-Disclosure Agreements and the tail of the One Thousand Dollar Suit.

One of the questionable business metaphors you may encounter involves the story of the legendary $1,000 suit.

So the story goes, while you might not recognise what a $1,000 suit looks like, the customers you want to attract would instantly recognise what a $1,000 suit looks like – so you must buy one – as they would then quickly identify you as an individual of both desirable character and business expertise (and expensive fashion sense).

While I've always thought this story was akin to the declaration, ‘the emperor is not wearing clothes', the idea does have merit when it comes to using a high-quality Non-Disclosure Agreement.

People who understand the value behind the use of an NDA do appreciate the higher grade of business acumen that you're bringing to the conversation


How we can help

Non-Disclosure Agreements are an important part of protecting yourself and your business (and sometimes even your family). Non-Disclosure Agreements are a respectful way to approach a new relationship - make the offer rather than wait for the request.

  • We can supply these legal documents.

Contact us for a confidential chat about your needs.


Related: Key Legal Documents for Business Owners


Related: Featured Business Articles

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