The cost of a lawyer pails into insignificance if a risk is averted.
I never sign anything without asking our lawyers; I ask, I get advice (in writing), and then I know even if I am asking about something similar every time.
Before signing anything, especially for credit with a large supplier in your industry, ask yourself what risks exist at the end of it.
Take a personal guarantee.
Also known as a director’s guarantee, it provides lenders and credit providers a written promise by the director to accept liability for a business’s debt if things go pear-shaped in the industry.
It meant an owner’s home, car and money in their account could be used to settle an outstanding debt if the business defaults.
The irony is that I will always tell a client not to sign a personal guarantee with any supplier but also to get a personal guarantee from anyone you give materials or services.
Also, be cautious of liquidated damages in any contracts you sign and how they can claim if they believe the job isn’t complete or not to whatever standard the measurement is – this happens a lot when a small business is completing work for a dinosaur.
Your Business Angels help many businesses through tough times and issues with the taxman.
In the event of a default on a loan, or if the business goes into external administration, if the guarantee holder (the creditor) doesn’t receive sufficient funds, they can often pursue the director for the debt owned by the corporate entity.
And after dealing with an insolvency firm, that’s a whole new level of negotiation – thank God most people in large companies get that they will be paid out over time and look for a deal rather than be robust, but its often smaller and desperate companies that “go legal” quickly.
In a recent case where a builder in NSW liquidated their company and sold their house to deal with secured creditors, companies like Bunning were easier to work with than small suppliers, who “went legal” spending what we determined as half of what they were owed rather than wait for a sale of a house.
At Your Business Angels, we want to discuss what you have signed and may have already signed.
Then we can also discuss your concerns and look at how you have structured your assets, especially your family home.
And yes, we will probably engage a lawyer, if necessary, but the benefits include a plan “if” something goes wrong and peace of mind – and knowing – knowing is so important.
