#162 The $85K Reason To NOT Be A Business Ostrich
In business, unforeseen challenges can arise at any moment and in my years working in dispute resolution, most of what I saw in the courtroom could have been avoided. With never ending to-do lists, getting legal documents in order is a task that often gets buried under a pile of other demands. Unfortunately, this neglect leaves businesses completely exposed without a leg to stand on.
Today, I’m sharing a real-life case study of one of my clients as a cautionary tale about the importance of proactive risk management. Unfortunately, this client discovered the costly consequences of overlooking her essential legal documents but with the right knowledge, you can avoid situations like hers, which are all too common.
In my client’s many years of experience as a sole trader in the interior design industry, she had never been involved in a legal dispute. She had a great reputation, was a fabulous operator and had put together a one-page service agreement herself, which seems to be common practice in the design industry.
Unfortunately, when one of her commercial clients became disgruntled, she discovered all too well how costly it can be not to have properly tailored client service agreements. She was threatened by legal action, seeking damages well in excess of $85,000, and the harsh reality of her unpreparedness came crashing down.
As the situation unravelled further, it became clear that the repercussions of neglected details and misaligned expectations were far-reaching. My client found herself exposed to a financial burden of $85,000 due to incomplete project tasks and non-returnable designer furniture. Had she come to me earlier, I would have advised her on exactly how to protect her business, and this scenario would have had a completely different outcome.
Unfortunately, this client had to learn the hard way, but I hope her $85K wake-up call serves as a poignant reminder to you that ignorance is not bliss when it comes to protecting your business. By proactively addressing risks, fortifying agreements, and seeking informed counsel, you can be fully equipped to navigate any challenges that arise, knowing that your business and your assets are protected.
When it comes to your legal documents, don’t bury your head in the sand. You may not have encountered a legal dispute yet, but if and when you do, you won’t ever regret taking the time to make sure that your legal documents are in order.
Full Transcript:
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[00:00:00] Tracey: Welcome back everyone to another episode of the Rise Up in Business podcast. As always, thank you so much for joining me for another episode. I'm going to share a real life client story with you today. Obviously, I'm not going to share details, but the reason I'm going to share it is because. It's too common the theme of delaying, getting your legal documents done of putting off taking care of your contracts or not thinking about how to reduce your risk in business is something that I talk about a lot.
[00:00:53] A lot on the podcast and I talk about it in a number of different ways and I come at it from different angles and I share with you your legal obligations and why you want to be protected and all the things. So if you're a long time listener, this theme will not be new to you. If you're new to the podcast, then This is something that you will hear me talk about a lot going forward because it's so important.
[00:01:20] And the reason I'm going to share a real life client example with you is because it adds another lens through which we look at the concept of prevention being better than cure in business. And I can share with you a real case study of why putting things off Doesn't serve you in business.
[00:01:40] And the title of today's episode, the 85, 000 reason why not to be an ostrich in business is because this particular case study that I'm sharing cost this business owner 85, 000 because things weren't done properly. And it was avoidable. If you've been following along for a while, you know, my story. And if you haven't, let me just share it with you really quickly.
[00:02:07] I've been in the law for more than 20 years and for the first 12 years of my career, I spent working for clients who were involved in court cases and dispute resolution. So it was all disputes. It was all business owners, and it was just about all over money. The kicker from that time in practice is that most of what I saw could have been avoided.
[00:02:31] That's really significant. Most of what I saw in all of those years could have been avoided if business owners had known what they needed to know and if they had done things differently. Fast forward to now in my business and through this podcast my mission here is to share with business owners what they need to know to empower themselves to protect themselves properly.
[00:02:54] Set themselves up for success so they don't become like one of the clients I acted for earlier in my career. And this particular case study that I'm sharing today is a classic example of that. So let's dive in and let me share this with you. You will know, if it's not you, you'll know someone who takes the view that, Oh, I'll put it off.
[00:03:15] It won't happen to me. I'll get to it later. So if we're talking legal contracts and legal documents, I'll put it off. It's not a priority right now. The to-do list is never ending. There's so much on my plate. I'm juggling all the things I've been right so far. Nothing's happened so far. it'll be pretty right.
[00:03:34] I'll just wait and deal with it later. So no judgment, no criticism. I hear it all the time. It is what it is. And I absolutely get it. And I hear you because those to do lists are long. They are never ending and the juggle is real. Let's be honest, as a business owner wearing all the hats, the juggle is real and I get it.
[00:03:56] Too often, though, I have clients reach out to me who say things like, Tracey, I've just used a template that I've either put together myself, or I purchased it, or I'm a part of an industry group, and they give you a template, so that's all I'm using, but hey, I heard you on such and such as podcast, or I watched a presentation you gave.
[00:04:17] Can you have a look at my documents for me, please? And do I need to have new ones done? And yes, I'm always happy to look at those things and give you my really honest view. And 9. 5 times out of 10, my view is we need to start again. It's going to be far more cost effective just to start again for you.
[00:04:36] Then to try to work with what you've got to bring it to where it needs to be to protect you with that comes risk. And this is where sometimes my blood runs cold for a moment because I realise just how exposed these business owners have been, and that it has been sheer luck that nothing's gone wrong to bring their whole business unstuck because we're not talking small sums of money. So this particular case study that I'm going to share with you is an $85, 000 exercise. This is not an isolated event either. This particular case study, interior design business, sole trader, very well respected lady, Sydney based, fabulous operator.
[00:05:23] She has a good reputation and she's been in business for a very long time. I won't give any more details than that. I don't need to in order to illustrate this case study. Been in business for a very long time, experienced lady, very good at what she does, great reputation, but doesn't have any properly tailored contracts in place.
[00:05:42] Has a one-pager that has put together herself based on her experience over years of operating in the interior design industry. She's not alone. So many people do this, and hey, we're all in this together. It's no criticism, no judgment, but the takeaway from that is when we know better, we do better. So please allow this episode to be your opportunity to say to yourself, if this is resonating now, I know better, I'm going to do better.
[00:06:06] So it doesn't happen to me. Anyway, she reaches out to me because somebody referred her to me. One of my other beautiful interior design clients has referred her to me because she has an issue with a client, a large, commercial client, and it's in relation to who was doing what things have gone wrong.
[00:06:26] And they're not happy with items that have been procured for a particular project. They're not happy with where things are at, at this particular job, because my client doesn't have proper terms in place. She's now my client. She wasn't obviously when she reached out, but because this lady didn't have proper terms in place, there was a real lack of clarity around.
[00:06:49] Who was responsible for what on this project? What the returns policy was on particular larger items of furniture, that were procured for the client. The relationship was great until it wasn't. And my client, this lady has never had an issue like this pop up in the past in all of her years in business.
[00:07:13] And So she thought she'd be right and she's busy and she didn't appreciate the significance of properly tailored interior design agreements or client service terms and conditions for her business. She didn't know that they could be adaptable and that they could be created to seamlessly integrate into her existing CRM to issue with her proposals or a scope of work document as she calls it to send out to her clients.
[00:07:41] She didn't know because this had never happened to her before. So she had no reason to know. We don't know what we don't know, right? So she reaches out to me because the client had become disgruntled and had threatened to sue her. And the amount that they'd threatened to sue her was far greater than 85, 000.
[00:07:58] It was well in excess of a hundred thousand and they had particularized it. And she came to me and in true Tracey fashion, because this is how I roll, I give full and frank advice. I don't give you the advice you want to hear to make you feel better. I give you the advice that will serve you. I give you accurate advice.
[00:08:16] I give you the right advice, which is always pragmatic. and fast forward a little, and we've gotten to the point where we realized because of the way the relationship had transpired, certain emails that had been sent and the way things had unfolded. My client was in the gun for 85, 000.
[00:08:40] It's a hard truth. She was exposed for 85, 000 because it related to things that hadn't been done on the project and designer furniture that had been procured. And there's a no return policy on it. And there was real confusion or misaligned expectations around that. My client was left in a situation where she was exposed to the tune of 85, 000.
[00:09:03] And if it had have gone to court, it would have been a hell of a lot more than that. We were able to reduce it and negotiate and resolve it to the tune of her liability being capped at that $85,000 mark. I won't go into insurance at the moment. I won't talk about any of that, but her exposure was the $85,000 and there was nothing more I could do about it because I had reduced it to that But the worst part. Of this, you think that's bad, but the worst part was this lady is a sole trader in her business and carries a lot of risk. Yes, she has insurance, but I'm not going to go into that for now as to the extent that the insurer may or may not have come to the party on that. But because she's a sole trader, her home is exposed here, her personal assets, and she has some assets and they're exposed because she's a sole trader, because she didn't have a risk mitigation strategy in place.
[00:09:57] You've heard me talk on here multiple times about your risk mitigation strategy, and I've done some episodes recently on what is risk and how to reduce your risk in business. If you haven't listened to those episodes, please do take a moment to please jump over and listen to those because it's so important.
[00:10:12] Part of a business owner's risk mitigation strategy is having solid, properly tailored legal documents in place. They're a really important pillar to the risk mitigation strategy. And in this case, my client didn't have any, so we didn't have a leg to stand on in relation to certain allegations that were being put.
[00:10:34] And because she didn't have legal documents, she hadn't complied with certain elements of contract law to protect her. You see where this is going. So the reason I'm sharing this is because this is not the only interior designer who has reached out to me in similar situations, but for less money, sometimes not much less, but for less money in terms of exposure, because legal documents weren't in place.
[00:11:01] And I don't know what it is with the interior design industry, but it doesn't seem to be uncommon for designers not to have properly tailored contracts or client service agreements in place to protect them and to set themselves up for success with their client and to avoid those misaligned expectations.
[00:11:18] But in my experience, as a former litigation lawyer and dispute resolution lawyer, most disputes arise. As a result of poor communication or a lack of communication or misaligned expectations. And of course, we can reduce all of that, if not eliminate it entirely, when we have proper legal documents in place.
[00:11:40] So this lady who came to me had been, a business ostrich on her own version. She was very happy to admit that to me, Tracey, I've had my head in the sand because I'm so busy. It hasn't happened to me. So I haven't wanted to think about it. So she was a business ostrich and being a business ostrich exposed her to $85,000 worth of liability.
[00:12:05] So the takeaway here is don't be a business ostrich, please. Because situations like the one I've just shared can be avoided. And like I said, it's not the only time that designers have reached out to me in similar situations where they've had a lack of documentation, misaligned expectations, a lack of clarity around certain issues, and their client has become disgruntled and they're seeking.
[00:12:30] A payment of money, either by way of a refund reimbursement or damages. Sadly, it's not uncommon, but to that, I say it can be avoided. It can be avoided by making sure you have your properly tailored, beautifully on brand and aligned legal documents in place in your business. You protect your business. You protect your assets.
[00:12:54] You reduce your risk. You set yourself up for success with your clients by managing their expectations and by avoiding situations where there are misaligned expectations. So you don't ever need to reach out to a lawyer like me to say, Hey, Tracey, can you help me please? I've got a really disgruntled client.
[00:13:11] And now they're asking me to compensate them this much that can be avoided. So please, if this resonates with you, if you have been thinking for a while about reaching out to have a conversation around your legal documents, please let this be your little nudge to reach out to have that conversation.
[00:13:32] If you're not quite ready yet to have the conversation and you want to do a little bit more exploring or learning on your own, please jump over to the website and have a look at my masterclass guide, the guide to legal documents for your business to understand what you need and why. And you can work through that yourself.
[00:13:50] And I give you such gold in these masterclasses. To help you understand what you need and why you need it. So if you want that little bit of extra understanding before you reach out to have the conversation, you are most welcome to go and check that out. Otherwise, if you're ready to have the conversation, please jump over to the website and book a time for a free chat.
[00:14:11] It costs you nothing, but 20 minutes of your time to have a chat about what you've got in place, what you need in place. Is it enough? Is it working? If you want me to have a quick look, I'm happy to do that. To share with you my view on whether or not it's adequate. And if it's not what we need to do to bring it up to scratch.
[00:14:29] So this is the first step. If you don't have your legals properly tailored, then this is your first step to working towards that confidence and peace of mind that I talk about so often, and to set you up for success. So you don't continue your journey as a business ostrich. And so you don't end up in a situation like the one I've shared with you today.
[00:14:48] Which sadly could have been avoided. hope you found this episode valuable. I hope you found it helpful. I love sharing these with you and I love receiving your feedback. So thank you to each and every one of you who reaches out to share feedback with me on the podcast. I really do appreciate the time that you take to do that.
[00:15:04] Thanks for listening. I'll catch you next week.
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