How to

“Hey Joe”….How to… get your point across in negotiation.

Posted on by thelegalknow

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Ok, so I didn’t want to give away this secret BUT this blog is about helping you in the legal world, so I can’t keep this from you! I’m about to tell you the secret of the best lawyers for how to really get your point across at the negotiation table. Now, when I tell you, some of you may laugh and say “but of course!” or “durr, that’s so obvious” but it is amazing how many lawyers just don’t do this and so never really get their client’s points across. You can take this tip and apply it to your day to day negotiation.

The best lawyers start formally but as soon as things heat up, they recognise that it’s time to drop the barriers and get right up and close to the people on the other side of the table. How do they do this? It’s really simple and I feel guilty that I’ve built this up so much but hey, I want you to read this! The best lawyers say “Hey Joe”,  “Hey Sarah”, “Hey Mick”… they switch to a first name basis. Lawyers are renowned for being stuffy and posher than the Queen of England, but the really good ones know that sealing the deal is about getting through to the opposition on a personal level, and the quickest way to do this is to use their name. Not from the outset – we start off with “Our client  is concerned about” or “Our position is that” – but as soon as we see that flicker of mutual understanding we transition to “look Phil, between you and I, they [not client] just want to get this done and they think that [name of company that you are negotiating with] is the best to do it”.

I remember some time ago, it was the run up to Christmas and work was crazy. I was representing a client in a claim against a very stubborn defendant. They didn’t want to agree a Court extension which meant that we would all be working over the Christmas holidays. My client was furious with how unreasonable they were being. Tired of sending letters by email to and fro, I simply picked up the phone and called the Defendant’s lawyer. The conversation went as follows:

Me: Oh hi Barry this is Emma here, how are you doing?

Barry: Fine thanks, crazily busy as I’m sure you are too.

Me: Yup, crazily busy, which leads me to the matter of this Court extension on X case.

Barry: Oh yes, my client’s position is very clear on that.

Me: Well Barry, off the record, Joe Bloggs LTD, doesn’t want the extension to secretly build an even stronger claim, they just want a break this Christmas! They literally want to go offline for at least a week. If we don’t agree this extension, we’ll all be working unnecessarily at one of the best times of the year.  I don’t know about you but I’d quite like to catch up on Suits.

Barry: [laughter]. Yes, I know what you mean, well I’ll see what I can do and get back to you.

Me: That’s great, thanks Barry and good luck with the last minute shopping.

Barry: How did you know? [laughter]

End of call

We ended up agreeing the Court extension and it was a sweet Christmas break! There is power in just getting a little personal and a little real! Try it!

Ps. I have not used real names in this post.

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HOW to…sell your business.

Posted on by thelegalknow

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This is a follow up to my post “The bigger picture – selling your business”. In that post I gave you tips on how to polish your business into an attractive product to be purchased by a rich buyer. In this post I’m going to briefly explain HOW you can sell your business. There are two main ways. Either an asset sale or a share sale. There are pros and cons to each but ultimately your lawyer should be able to advise you on the best method, having considered the nature of your business.

In a share sale, the buyer will purchase everything to do with a company including all assets and liabilities, known and unknown. In an asset sale, the buyer will purchase the assets which make up the business of a company. In the former, pretty much everything stays the same save that the company has a new owner, in the latter, the company will still exist but it will usually be an empty shell harbouring only those assets and liabilities that the buyer did not want to buy.

Below, are some key considerations that will be influential in determining HOW you should sell your business.

  1. Liability

In a share sale, due to the fact that the buyer purchases the shareholding in the target company, it inherits all of the assets and liabilities in the target company. This means that the seller gets to walk away from any problems with the company and the buyer as the new owner, takes them on. If a buyer wants to purchase the shares in a company but it is riddled with liabilities such as ongoing litigation, tax investigations etc, it will negotiate a discount in the price of the shares that it is purchasing to reflect the risk of these liabilities or it will negotiate indemnities from the seller. A seller indemnity is basically a promise from the seller to the buyer that if things go wrong with said liability, the seller will pay to the buyer a sum of money as compensation.

In an asset sale, the buyer can effectively cherry pick which assets it will purchase and which liabilities it will assume. For example, the buyer can refuse to assume tax liabilities but it may take on certain ongoing disputes which are inherent in taking on, for example, service contracts.

  1. Employees

Usually, in an asset sale, employees do not need to be taken on by the buyer, though commonly the seller will require the buyer to offer new contracts to all or most employees on terms that are substantially similar or identical to their existing contracts (including a recognition of prior service) so that the seller avoids wrongful dismissal claims from the employees.

In a share sale, the target company’s employees remain employed by the company because nothing really changes. It’s just a sale and purchase of shares!

  1. Reduced Complexity

As you’ve probably cottoned on, share sales are much simpler than asset sales. The only documentation you need is in respect of the shares that are being purchasing. In an asset sale, each asset will effectively require its own contract. For example, there will be separate transfer documentation for equipment, vehicles, intellectual property, licenses, permits and real property.

An asset sale may also trigger the need to obtain third party consents to the transfer of the assets due to change of control provisions in contracts. For example a permit contract may say that the seller “must obtain written consent before it can transfer/assign the right to the permit”. In selling the permit as part of the assets, the seller must ask permission before it can go ahead. For obvious reasons, third party consents can be a pain to obtain; it just takes one unreasonable so and so to hold things up! It is always best to, if you can, give third parties a heads up and assure them of any changes in advance. This will make negotiation a lot easier.

So, the important thing to understand about a share sale vs an asset sale is that one method involves taking EVERYTHING whilst the other allows you to CHERRY PICK what you want. The form of sale that is best for your company really depends on the nature of your business and what it is that you want to sell. There is a heading that I have not covered but which is the most important consideration of all and that is TAX. TAX can determine how much you receive on a sale of your business and it differs in a share sale or an asset sale. This is where experts must be enlisted. I once worked on a deal where, three days before completion the whole structure changed because of TAX. I couldn’t believe it…so many sleepless nights!

As with all my posts, I cannot emphasise enough how important it is to get your lawyers involved but even more so when you are selling your business – after all you want to get the best price right?

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The bigger picture – selling your business.

Posted on by thelegalknow

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Ok, so it’s great that you’ve got your own business and that you’re doing so well. BUT, the question is do you want to be doing this forever? I don’t think so. If your business isn’t getting passed on to another generation then you’re probably looking to, one day, sell it and make a hefty profit! This post is a heads up about the things you need to be doing NOW, in order to build a product (yes, your business is your product) that sells quickly and at the best price possible. Here are my top tips!

Keep it clean – Your business must not have skeletons in its closet. I’ve said this before. Either you eradicate those skeletons or you confess to them, preferably the former. If you have unpaid bills, taxes or ongoing litigation, your business will not sell or it may sell BUT at a DISCOUNTED price. This is because instead of purchasing a nice shiny product, the buyer is purchasing a whole lot of risk. Risk is financial uncertainty and in business we despise financial uncertainty. We are constantly mitigating against it. So, clean up your business and keep it clean. Carry out your due diligence REGULARLY. Do not neglect complaints from clients or scary regulatory letters. The buyer of your business will carry out its own due diligence and it will be thorough. Would you buy a car without a test drive or seeing under the bonnet? Nope, I didn’t think so.

Show them the money – If you want to sell your business you have to be super transparent with your numbers. Start planning now to make sure that your business has a financial record to attract a good buyer. Maintain a healthy working capital, renegotiate supply contracts and make sure that you are getting the best deals for your business. Also, get on top of your debt. Pay off as many of your loans as possible. Think about what is actually costing your business money. If your business requires a lot of machinery, are you using all of that machinery? Can you sell some of it? Don’t forget your forecasts – get them ready and back them up with evidence.

Create and implement a business manual – It is amazing how many of my clients do not have systems and procedures for the simplest of things to do with the day to day operation of their business. If you sell products worldwide, you should not be selling those products on ad hoc procedures. You should have a clear process that the buyer of your business can step into tomorrow and operate. You should have systems in place for every aspect of your business. You should have formalised documents. Get your lawyer to draft standard form employee contracts, terms and conditions, disclaimers, policies etc. Also, is the structure and ownership of the company clear? Make the ownership as clear and as transparent as possible.

Show them your A team – Behind every great business is a strong and passionate management team. Your management team is a big part of your business’ valuation. It is therefore crucial that you consider if your business can retain good employees – this may require considered incentives. The buyer of your business will want all your key people to be a part of the sale. It will also want the assurance that your business is not a DIY job; show off your professional support. Your lawyer, your accountant, your consultant all make an impression. Those relationships matter because they instil confidence in the buyer that everything to do with your business has been done properly. Also seek advice from your A team. What do they think? Get your lawyer to review your business structure and advise you as to whether you need to change it in order for it to be an attractive purchase. Your lawyer will take you through the whole process and organise all of the legal paperwork to ensure that there are no unnecessary complications before and after the sale. You really need everyone on board advising. I have worked on an international acquisition where the whole deal was restructured because of tax. It was cheaper to do it another way! Three days before closing we had to change everything!

You may be far off from selling your business at this point in time, but if you want a big pay out someday, you should start doing all of the above now!

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How to… speed sign low value contracts.

Posted on by thelegalknow

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Right, this goes against my lawyer instincts because in my opinion you should always read everything you sign, in as much detail as possible. However, if you genuinely do not have the time and it is a considerably low risk document (so not worth a million pounds/dollars), then here are three things to do before you sign which will alert you of any potential risks and give you some protection going forwards.

  1. Exclusion and limitation clauses – Look for these types of clauses or ask outright if there is such a clause in what you are signing (get them to refer you to it so you can check their honesty). This will list or summarise everything that the contract/document does not include and what the other party is not liable for. The best example of a document riddled with such clauses, is an insurance policy. When you sign an insurance policy, it is important that it covers what you want and one of the quickest ways to confirm this, is to take a quick look at what is excluded. For example Billy asks Janet for an insurance policy for his car. Janet gives him an insurance policy for his car. Billy is in a hurry for a meeting and trusts that he has been given a policy to insure his car, HOWEVER he flicks to the exclusion clause and sees that the policy does not cover RED cars. Billy’s car is maroon, so, arguably red. Billy takes this up with Janet. Janet amends the policy for Billy so that the operative clause clearly states that Billy’s maroon (and therefore not red) car is covered. Always check what a contract expressly excludes.  If it excludes accidental damage and you need it to cover all damage then obviously you are not signing. Another example would be a limitation of liability clause, often found in services contracts. Say for example you hire a professional polisher to polish your silver worth £3,000 but the contract of hire states that liability for any damage arising out of the contract at the fault of the professional polisher, is limited to £500 only. Obviously, you are not going to sign. Who’s going to pay for the remaining £2,500 worth of damage? Always check how liability of the other party is limited. If you sign a contract with a rubbish liability clause, that’s your fault.
  2. Payment provisions – Always check that the numbers are what you agreed. An extra zero here, a missing discount there is BAD for business. If you have agreed a specific discount just take that second to double check that it is expressly in the contract. DO NOT worry if the other party finds it offensive that you are checking, they will respect you for it. Even if my best friend gave me a contract to sign, I would check it right before their very eyes! Also, what happens if you pay late or you have a dispute with a charge? What does the contract say about that? Checking this clause or asking directly about this clause (then getting them to refer you to it specifically) will ensure that the most important thing of all, money, is properly accounted for!
  3. Termination – Imagine your face when you try to switch suppliers and you find that you have signed an indefinite contract! That’s a worst case, silly scenario but hopefully it highlights how important it is to know how to get out of a contract before you sign it (I’ve said this before). Business is unpredictable and you may need to get out of a contract really fast – knowing the termination provisions at the outset can help you to consider all possible scenarios in which you may want to terminate the contract early and therefore judge whether the contract in question is one you want to sign or amend.

I have to also add the obvious cautions, check who you are contracting with. If you are doing business with Joe Blogs Plc make sure it says Joe Bloggs Plc and not Joe Bloggs Ltd. Also, don’t forget the dates, it will take no time at all to make sure the document is dated correctly. Again, these are just TIPS for those of you ALREADY signing standard contracts without checking ANYTHING. If you are one of these people, at least check the above three things or else suffer the consequences. Once you sign a commercial contract, there is very little anyone can do for you if it turns out to be a bad deal. The Courts have no sympathy for business to business contracts because both parties are considered sophisticated.

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HOW TO… be an entrepreneur in your day job.

Posted on by thelegalknow

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Some of us are not quite at the point of saying goodbye to the salary and entering the world of risk and unpredictability. However, guess what? You don’t have to kick the day job in order to start honing the skills of an entrepreneur. Whilst you are planning your future business, you can start to test your entrepreneurial ability now, at your desk, under the nose of your boss.

  1. Respond to a request with a suggestion – If you are planning on leaving your day job, it is often because there is something about it, maybe how it is run or what it actually does, that you do not like. SO since you’re planning your exit, why not challenge some of those things that drive you nuts. When asked to negotiate that sale or purchase on the usual terms, suggest a different tactic. If you are asked to, yet again, make that same salad for the Monday customers, suggest changing the ingredients a bit, for example adding a bit of chilli? If you are asked to do the rota for whatever, suggest a change that makes that rota better. Start to challenge the norm. That’s what you do as an entrepreneur right? You see what others do not and you push the boundaries.
  2. Be yourself – This one is difficult in an office environment or a store where you are reminded daily that it is better to conform than to be yourself. But hey, you’re about to go it alone so you may as well shine and encourage others to shine too. I have a few clients who are unapologetically themselves. They ask you the most direct questions or they decline to come to an event you’re hosting because they, in their words “can’t be bothered with that sort of thing”; I respect these clients. Try to be the person you want to be and see how people respond. Do those under you work harder for you? Do those above you listen more? You can then get a feel for how you will be perceived by others when you are running your own business.
  3. Get to know everyone – When you eventually go it alone, you’ll need to be a people person. You will need to let everyone know who you are, where you are and what you’re up to. You will need to market yourself. So why not start now? Start marketing who you are. If you’re in a big organisation, go and talk to other teams; pop up to the third floor and say hello to the person you email in accounts every Monday. Basically, start honing your networking skills.
  4. Say yes – If you are asked to do something new, do not shy away. If it is out of your comfort zone, step up and take the challenge. Sink or swim that’s what you’ll be doing as your own boss with no one to delegate to. You’ll be doing new things daily, from attending events to speaking at events, from negotiating contracts to drafting strategies. Just do it and get used to a) the initial fear and b) the adrenaline once you realise that, whether you’re doing it well or not so well, you are trying and you are learning.
  5. Ask for help – When you set up on your own it is all about resources. You will be calling in favours and hiring professionals at a competitive price. SO whilst you are still in a day job, get used to asking for help from the people who know how to do what you can’t. If you don’t really know how to use your computer, ask IT for help. If you’ve never been part of a pitch and want to learn, ask a colleague who has done one before. Get used to asking for help, NOW.

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HOW TO…reduce your legal bill!

Posted on by thelegalknow

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A legally smart business woman asked me to write a post about how to reduce her legal bill. As a City lawyer, here are my best tips on how to get the most out of your lawyer for less!

  1. Give legally smart instructions – Of course I would start with this one! The smarter your instructions the sooner your lawyer can get to work; they don’t have to waste billable time trying to figure out what you want. For example compare “Hey Cara please can you draft us a contract to buy apples from Fruit Ltd on a weekly basis” to “Hey Cara please can you draft us a contract to buy apples from Fruit Ltd on a weekly basis for X amount per box. In each box there will be X apples. We want the contract to last for a year with a right of renewal and we want it to be governed by English law and the English courts have jurisdiction. We also need a clause that states we have a right to terminate if the apples are Y. Delivery should be on Y of each week….” The former encourages a huge bill, the latter demands an efficient bill.
  2. Ask a junior lawyer to do it – Unless you are giving a complex instruction there is no reason why a junior lawyer should not be doing the bulk of the work. A senior lawyer only needs to give it a once over to make sure there are no glaring mistakes. When you give a standard instruction request for a junior lawyer to do the work in the first instance, if the law firm insists that a more senior lawyer is needed ask WHY and make them JUSTIFY the senior lawyer’s input BEFORE any work is carried out. You may just find that they back down.
  3. Request to see the narratives – Lawyers bill by an hourly rate. As part of that billing structure we are required to write narratives. If your lawyer has spent 7 hours reviewing a contract, ask to see the narratives. They should be detailed enough for you to say “fair enough” BUT if the narratives do not convince you, challenge the bill! This will either a) get you a discount on that very same bill or b) get you a fairer bill next time because that lawyer, terrified, will work as efficiently as possible for you. Most lawyers get annoyed when a client asks to see the narratives BUT its YOUR money and when you’re a growing business every penny counts!
  4. Agree a fixed fee structure – If you prefer predictability, agree a fixed fee arrangement! This means that, unless something unexpected pops up in the process, you know exactly how much you are paying each time. For example, if you have a standard sale contract that your lawyer reviews every time you engage with a new customer, agree a fixed fee for this repeat review i.e £50 per contract. You can also agree a fixed fee for a one off instruction. For example, if you need a lawyer to attend a negotiation with you, ask them to do it for X amount and not by an hourly rate. Hint to the lawyer that if they agree to this, you will send other work their way and watch your proposal be snapped up! Lawyers care more about a longterm business relationship in which they receive frequent work than being able to bill full rates on a single occasion.

Now go read “5 ways to spot a bad lawyer” and “3 ways to get the most out of your lawyer” to learn how to get even more out of your lawyer!

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HOW TO…negotiate.

Posted on by thelegalknow

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In business, negotiation is a very important skill. You negotiate practically every day! From getting better wholesale deals to giving a pay rise. We are surrounded by negotiation. Negotiation leads to improvement and progress so it is important that you know HOW to negotiate effectively! Here are some tips from my experience as a city lawyer!

  1. Do your homework – You know that saying fail to prepare, prepare to fail, that basically sums up negotiation. You cannot just turn up and blurt out what you want. You need to know a) who you are going up against and b) what they want. This is the only way that you can determine a best case (your dream outcome)/worst case (your bottom line) position for yourself. Study your opposition’s motivations, obstacles and goals. Research them and ASK questions in the negotiation, ask and listen and think about how you can manipulate that information to get what you want. FOR EXAMPLE, Bob is negotiating better wholesale prices from his fish supplier for his restaurant. Dave, the supplier, cares about getting rid of his entire catch of the day on the same day. Bob knows this having done his homework and so agrees a 30% discount on prices if Bob buys the remainder of the catch of the day at the end of the day.
  2. Don’t be afraid to ask for what you want – If you don’t ask you don’t get, simple. That’s not to say that your requests should be outrageous. They should be considered requests based on doing your homework above. Start by listing what you want from the negotiation and why. For example, following on from our example above, Bob may have listed that he wants cheaper prices for the fish that he buys so that he can offer cheaper prices to customers and attract more business. Dave may have listed the fact that he no longer wants to have to chuck away leftover stock at the end of each day. When an opportunity arises to discuss anything on your list of wants, leap in and talk about it. The trick is to always go in with your best position; start with your hopes and dreams then work down to your bottom line (but this is still better than where you are).
  3. Persuade them – So following on from the above, you have your list of wants but how can you get the other side to buy in to them. You present them as a solution or a benefit. Think of everything you want out of the negotiation and how it can actually help the other side. Having done your homework, you should always try to present your wants in the best possible light, not as things that the other side is giving away but as things that HELP them. HOWEVER this will not always be possible. Some things you want are just things you want BUT you can attach them to other potential benefits for the other side. For example, Bob might decide that he doesn’t need all types of fish in Dave’s catch of the day. He may only need Cod and Plaice so that’s what he bargains for. Dave is annoyed because ideally he wants a guaranteed buyer for all of the remainder of the catch of the day. Dave is losing out with this proposition. He may have a catch of the day that is all Cod or that is Cod, Haddock and Mackerel, he still faces wasting produce and losing money. Bob addresses this concern by saying “hey, you’re still getting a guaranteed buyer for Cod and Plaice which you catch REGULARLY.“
  4. Don’t be in a hurry – The reality is that some negotiations take longer than others. Some issues are more complex. Some concerns affect more than the parties negotiating. If you face such a negotiation, you won’t get anywhere rushing the process. You have to go in at a realistic pace. Rome wasn’t built in a day and a sensitive negotiation can’t be agreed in a day. If you push too hard you could chase the other side away leaving you at square one. It is ok and a smart move to suggest “some time to think about it“. This shows the other side that you really want THEM to consider YOUR WANTS because you are serious or that YOU really want to consider THEIR WANTS because you are serious. You  can suggest a night, a couple of days or even a week to “think about it“. The amount of time will depend on the issues being negotiated.
  5. Keep your cool – DO NOT under any circumstances rise to negativity from the other side. Keep your cool! It will intimidate them. If you’re met with a stone wall or ridiculous counter arguments, take a minute and think about what the other side is saying. Then make them defend themselves. Ask them WHY they take a position. What’s their rationale? In most cases they can’t do this and hey presto, you’ve shifted the balance of power in making them realise that they can’t defend their ridiculous idea. In exposing the fact that they cannot actually defend their position, you then have the opportunity to launch into what you want, eloquently explaining your rationale and persuading the other side as to why they should agree.
  6. Stay flexible – Do not LIMIT yourself to a single strategy. You should have done your homework so well that you give yourself different ways to get to a solution. If you are met with heavy resistance to one option, build in the next and work on that. If the other party makes a demand, ask them to explain the reasoning behind that demand then brainstorm. Think – how can I get there another way?

Ultimately the worst negotiators are those who never move from their best case or shout down the other side instead of listening. Just remember that negotiation should lead to progress, negotiation is successful when a compromise is reached. HOWEVER there will be circumstances where it just won’t work, the parties interests are just not aligned. This is when you 7. WALK AWAY. Never ever force it. Good negotiators know when to cut their losses and walk away. In my opinion such negotiators have still won as they have been able to definitively rule out a business relationship thus freeing them to focus on another.

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HOW TO … chase debts!

Posted on by thelegalknow

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The most important thing when you own your own business is ensuring that you get PAID. Late payments and outstanding debts disrupt cash flow which can literally kill a business. This post is all about a) preventing late payment and b) chasing up late payment. The goal should always be to never have clients owing you BUT if they do, as they occasionally will, it’s all about getting that debt settled as amicably as possible.

Prevention

Ideally you do not want to be chasing up a late payment therefore prevention is better than cure. You can protect your cash flow by making it extremely difficult for a client to make a late payment. You basically need to be honest and upfront at the outset, so that there can be no doubt as to what you are expecting to be paid and by when.  Take note of the following tips:

  1. Make sure that your clients know and understand your payment terms. Display your terms clearly in every invoice and explain how (“payment can be made by BACS transfer/SWIFT/Paypal etc”) and when (“payment is due by X date”) payment should be made. The idea is to make it as EASY as possible for your clients to pay you. You should also include information as to any late payment penalties i.e. “if your payment is more than one day late we will charge interest at a daily rate of X%”. If I know you are going to charge me interest at a daily rate of X%, I’m most likely to pay you on time. The invoice should be a one stop shop of how and when to pay, and the consequences for late payment. This is the basic starting point to getting paid and preventing client debt. If your invoices do not do this, REVISE them.
  2. Double check the details.  Your invoice details should be perfect, quoting all the information the customer needs to identify it. Include your reference code and THEIR reference code. Give a good description of the work/product that the invoice relates to. You do not want a late payment to be YOUR fault so just make sure that all the details are correct.
  3. Send your invoices out promptly. If you want your clients to pay you on time, you better invoice them on time. If you invoice me a day or week late, I’ll take that to mean that I can pay you a day or week late and then some!
  4. Do some credit checks. You should credit check all new significant clients as part of your due diligence (due what? read this), but proceed with caution. A client may be new and have no credit history, or they might have done really well in the past five years but are now on the verge of going bust. Carry out your general due diligence and use your judgment – is it likely that this company/person can afford my services/product?
  5. Make them pay a deposit. The deposit method of payment is great for damage limitation with late paying clients. If you are going to ask for deposits, make the booking of your product or services conditional upon receipt of the deposit payment up front. No deposit, no deal. After a certain point in time make that deposit non-refundable too.  The deposit provisions should be stated in the actual contractual agreement between the parties as the deposit happens at the start BEFORE the invoice which is issued after the provision of the services or product.

Chasing for payment

No business is perfect. Even your best clients can let invoices become overdue. Chasing and securing payment of an overdue invoice is a fine art in the world of business as you never want to offend a client. However, your company is entitled to the money, so don’t shy away from collecting what is due to you. Even charities hound their loyal supporters for donations!  At this point, it is all about having a uniform procedure based on a series of gradually more urgent reminders, followed by putting the matter in the hands of a debt-collector or solicitor if all else fails (absolute last resort). Here are some tips:

  1. Know when your invoices are overdue and act immediately. In some industries it is easier and more acceptable to just pick up the phone and ask “hey where’s my money?”. However if you are dealing with a new client or are operating within a more formal industry, you should write a letter of reminder stating (politely but firmly) that your invoice is now overdue and please make immediate payment. You should send this letter by email or fax followed by a hard copy in the post. This way you get the reminder to the forgetful client asap whilst providing them with a hard copy for their records. I would recommend a  letter of reminder regardless of industry norms because I’m a cautious lawyer and I believe in leaving paper trails in instances like this. In order for your reminder to have an impact, it needs to be prompt so keep a calendar of all invoice due dates and keep an eye on them. Send your reminder the day after late payment or your company’s grace period. Allow seven days for a reply.
  2. If there is no reply within seven days, send the invoice again. Send it by recorded delivery to ensure it has been received and keep your receipt as evidence that you sent it.
  3. If you still do not receive a response, make a phone call to find out what the problem is. Your client may have accounting issues or queries that it needs help with. Find out the reason for the non-payment and help them out. Negotiate if you have to and try to extract a promise of payment.  ALSO use this phone call to find out if the customer has a regular weekly or monthly pay run and find out the day on which this is done. Keep calling until you receive payment, especially two or three days before the pay run. This is where chasing payment becomes a fine art. You need to tread a fine line between harassing the client too much and keeping the pressure up. It’s best to keep up a persistent chase! “Hey Bob How are you? Pay me please”, “Hey Sheila, I’m great thanks. Spoke to Bob the other day…pay me please”.
  4. If the pay run date passes and you still do not receive payment, consider turning up in person to collect it. Of course this is not desirable and it is not even possible in some instances. This is the last resort before the ABSOLUTE last resort.
  5. If you have tried all of the above steps and you have still not received payment, you need to consult your lawyer. There is nothing like a letter from a lawyer to scare the crap out of a client. The letter should threaten to take legal action to recover the debt or to start bankruptcy or winding-up proceedings (depending on how much you are owed, in the UK, you can end a company if they haven’t paid you – read this). The letter could also threaten to use a debt collection agency. Keep a copy of all correspondence and accept that if you are at this stage, you have lost that client forever. Not so bad as a client is only worth it if they value you and they show that they value you when they PAY you.

The legal/debt collector route is your absolute last resort, but don’t be afraid to use it. However if you get to this stage, ask your solicitor’s advice and evaluate how far you should sensibly go to collect the debt before cutting your losses.

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HOW TO…write like a lawyer.

Posted on by thelegalknow

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Before you read any further I must explain that there are two schools of legal writer. The first is the school of “I want everyone and anyone to understand what I am writing so that there can be no doubt as to what has been agreed/disagreed and that YOU the CLIENT understand what you have paid for”. The second is the school of “I want to confuse you to make myself look smarter and you the CLIENT feel dumber so that you pay me whatever I ask because you have NO IDEA what’s going on”. If you have a lawyer in the second school of legal writer…get rid of them.

In the UK, the legal profession has snubbed long words and sentences. We’re even striving to move away from the ye olde latin phrases. These days if a judge reads a Defence or a letter that is not in plain English, the lawyer responsible for the drafting is in big trouble. The trick is to strike a balance between simple and clear language but without sacrificing gravitas (which lawyers love). There are a number of tricks that lawyers use to do this.

  1. Short, simple sentences. You can always deduct words! Challenge yourself by continuously asking, can I say this in a simpler way? Get rid of all superfluous introductions too. For example, “It is noted that” (get straight to it), “We should be grateful if you would” (just say please), “As aforementioned” (what??). Ok so SOMETIMES you can’t help but use an introduction such as “Further to your request” but at least this is helpful as it gives a context for why you are writing. If the words do not add value to what you are writing, get rid of them. Here’s an example. Compare “It is noted that you have persistently refused to pay” with “You have persistently failed to pay”. Which one is stronger and clearer?
  2. Define your terms. If you are referring to a really long word over and over again, just define it! For example, Apple Bubblegum Flavour Limited can be defined as “ABFL” like this “Our subsidiary company, Apple Bubblegum Flavour Limited (“ABFL”) is a profitable business”. From then on, instead of writing the full title of Apple Bubblegum Flavour Limited you can just write “ABFL”. Let’s look at another example. Tropical Adventures Limited can be defined like this, “Tropical Adventures Limited (“Tropical Adventures”) is a company specialising in coordinating adventurous holidays”. You can define a term in pretty much any way you want EXCEPT that you must actually USE the defined term in your writing and you MUST be CONSISTENT in your use of the defined term. For example, the defined term Tropical Adventures must be referred to as Tropical Adventures throughout the document and cannot suddenly be referred to as “TA”. In my opinion, defined terms can only be used by the very able of writers as whilst they are helpful, they can also be disruptive if you have too many or if you define them in a weird way. Define your terms in a way that helps the writing FLOW and not read like CODE.
  3. NEVER use emotive language. For your credibility’s sake avoid it! Stay away from language that you should only read in Harry Potter (surprised, annoyed, amazed etc). Also don’t make easy overstatements such as “clearly”, “obviously”, and “extremely”. Words like these lack detail and add nothing. For example compare “You received our bill on 7 October 2015” with “You clearly received our bill on 7 October 2015”. What did you notice? The use of the word “clearly” makes the writer appear weak and childish. I mean either something is clear or it is not! Don’t agree? Read this “We find your lack of response extremely rude”  and now this “We find your lack of response rude.” Which version sounds more sure of itself? The LATTER!
  4. Number your paragraphs. The best thing about numbered paragraphs is that you can cross reference! Say for example you are writing a really long complaint to a supplier. You have a strong introduction which sets out in four paragraphs the details of your grievance. You get to the end of your letter after setting out the solution you want. At this point you need to really bring it home to the reader just WHY you are justified in wanting that solution. Are you going to set out your grievance again? NO! You can simply state as follows “As set out in paragraph 3 above, your company has failed to carry out its obligations under the contract. As a result of this breach, we invite you to compensate our company in the sum of £500”. BOOM! You can even number your paragraphs in emails. Imagine this, you’ve drafted a detailed email to a potential investor/client setting out the terms upon which you are willing to negotiate. You should WANT to HELP the investor/client to consider each of your points properly. If you number the paragraphs, the potential investor/client can simply reply with “Dear Jack, I agree with paragraphs 1-7 and paragraph 9 but I’m afraid I cannot commit to paragraphs 8 and 10.” Again, BOOM! Just like that you have narrowed down the negotiation to the key issues (paragraphs 8 and 10) by one considerate email.
  5. Headings. Headings are great as they focus the reader’s attention on key issues that you want to get across and they also prepare the reader for the particular topic or sub topic. Let’s look again at my example at point 4 above (see what I did there…I cross referenced). You are writing a grievance letter to a supplier. How can you focus their attention? You can use headings as follows: Your breach, Loss caused, Solution and Next Steps. Or if you are writing a negotiation paper for a meeting you might use the following headings: Services, Duration of Services and Remuneration.
  6. Font and font size. Please do not write in Times New Roman (just too stuffy and is the automatic format of those who have not really thought about their business identity, unless of course your business identity is stuffy…) or Comic Sans (this font is for children). Pick a font like Arial, Tahoma or Calibri. These fonts are clear and encourage the reader to read what you have written. I personally prefer font size ten. Not too big and not too small. Also create a “house style” for your company. House style will be the formatting that your company uses in all of its correspondence and documentation. This helps with branding and it also protects your business as it grows. If you have a house style, all the employees are writing in the same format and structure.

So there you have it, my tips on how to write like a lawyer, but what I really should have called this post is how to write like a GOOD lawyer. Some lawyers love the serious long words and old school phrases but in my opinion such writing excludes the client, and it’s all about working collaboratively with the client!

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HOW TO… pay yourself!

Posted on by thelegalknow

smiling sloth

When you are the owner of your own business, it is all about ensuring that you are paying yourself in the most tax efficient way. There are a few options and you should go through them with your ACCOUNTANT (yes you should have one of these). It will also depend on your legal set up (sole traders and partnerships, read no further but limited companies this is for you). Set out below is a basic guide of how you can pay yourself effectively in your limited company in the UK.

A The Elements

  1. Employee

As a director of a limited liability company, you are an employee for tax purposes. You will be paid a SALARY. This means that, as with all employees, you need to register with HMRC to use PAYE to pay your salary – full details can be found on the HMRC website HERE.

Your company (remember that it is a separate legal identity even if it is literally YOU) will need to deduct income tax and National Insurance Contributions (“NICs”), from your salary and pay these deductions to HMRC, on a monthly (or possibly quarterly if the amounts are low enough) basis.  The aim is to keep these outgoings as low as possible in order to fall within a low tax bracket, effectively reducing the amount of income tax and NICs that you pay.

  1. Dividend

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock or other property.

A company’s net profits can be allocated to shareholders via a dividend, or kept within the company as retained earnings. Dividends attract corporation tax payable by the company and may also raise a personal tax liability in the way of income tax. The corporation tax liability is calculated and paid to HMRC at the end of the company’s financial year and takes into account the overall profit of the company and any dividends that have been made over the period. In this respect it is difficult to estimate the amount of corporation tax payable when the dividend is issued so BEWARE that you must ensure that the company has the available profit to make the net dividend payment AND the additional tax liability. If a company pays a dividend that cannot be supported by its profits then it is technically insolvent (AAAAARGH!).

The good news is that currently only higher or additional rate taxpayers pay tax on dividends (with a 10% reduction which represents a 10% tax credit).

  1. Corporation Tax

Corporation Tax is a corporate tax levied in the United Kingdom on the profits made by companies and on the profits of any foreign company with a UK branch or office.

Taxable profits for Corporation Tax include the money your company or association makes from:

  • doing business (‘trading profits’)
  • investments
  • selling assets for more than they cost (‘chargeable gains’)

If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.

If your company isn’t based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.

B The Solution

The popular solution is to pay yourself using a mixture of salary and dividends. Dividends are National Insurance exempt so you do NOT pay NICs on them. They thus represent an attractive method for taking funds out of a business.

Sounds pretty simple HOWEVER the ever changing beast that is tax is never simple. The level of salary you draw is dictated by other factors too, such as pension requirements, if you draw too low a salary you may not be able to make the level of pension contributions you would like even if your overall pay is pretty high. Also, you can only take dividends out of your post-Corporation Tax profits, i.e. from the money that you have actually earned, whereas a salary can be paid out of future earnings (e.g. by borrowing money from your bank) – if you pay yourself too small a salary, relying on a monthly dividend to cover your living expenses, then a lean month could leave you short of cash. Therefore as previously mentioned, you need an ACCOUNTANT.

C How do I issue a Dividend?
Here are the basic procedures for issuing a dividend.

  • Ensure that there are sufficient profits in the company to allow for the dividend. Print a balance sheet and profit and loss account for the period to remove any doubt.
  • Call a meeting of the directors to minute the decision and details of the dividend.
  • Generate a tax voucher for each shareholder. A tax voucher is a simple statement showing the company and shareholder details along with the individual’s shareholding net dividend amount and tax credit.
  • Issue the dividend payments along with the tax vouchers and file the board minutes and accounts at the registered office.

You can guess what I’m going to say though, you should (if you really want to be good) at the VERY LEAST, do this with a lawyer for the FIRST time. Then once you’ve got the hang of it, you’re good to go!

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