#214 - The client call that made my blood run cold
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Prevention is better than cure - you’ve heard me say it again and again. And today I’m sharing a real client story of a business owner who faced a disaster that could have been completely avoided if she had the right systems and procedures in place.
My client did almost everything right - but when her business started growing and life got more hectic, things started falling through the cracks. All it took was one mistake and she suffered a five-figure blow without a legal leg to stand on. I will never forget the phone call I received because it absolutely made my blood run cold.
The Foundation: Three Pillars of Protection
Every small business needs three critical pillars of risk protection: proper business structure, comprehensive insurance, and robust legal documents.
Business Structure determines your personal exposure. Companies provide a protective shield (unless you breach regulations), while sole traders face direct personal liability for business debts and claims.
Insurance isn't a nice to have - it's an essential safety net. Don't buy online without professional guidance. A good broker ensures your coverage matches your actual risks, not just what seems cheapest.
Legal Documents are your strongest defence when they have been properly crafted and consistently applied in your business. But here's the crucial part: having them isn't enough if you don't use them correctly.
When Good Documents Meet Poor Processes
This brings me to my client's story. She was a successful service provider, dedicated single mother and had invested in proper legal documents. Her client service agreement was solid - I'd drafted it myself.
But she was drowning in administrative tasks. As a solo operator and natural people-pleaser, she was trying to handle everything herself. The overwhelm led to critical mistakes: forgetting to attach essential documents to her client proposals, skipping steps in her client onboarding process, missing key details that her agreement was designed to protect.
Her insurance policy renewal notice had been sitting in her in tray, unpaid.
One significant error spiralled out of control, resulting in a claim that forced her to remortgage her family home to settle the debt. She had worked so hard as a single mother to create stability for her son. It was absolutely devastating.
The Missing Piece: Systems and Processes
The thing is, having great legal documents means nothing if you don't have the systems to implement them consistently.
The best contract in the world can't protect you if it's sitting in a folder while you're operating on handshake agreements because you're too busy to follow your own processes.
My client's legal framework was solid, but her operational systems had gaps that proved catastrophic. When you're overwhelmed, that's exactly when you need bulletproof processes most - because that's when mistakes happen.
The Real Cost of Going Solo
This wasn't about legal knowledge or document quality. It was about trying to do everything herself when the business had outgrown a one-person operation. The cost of not outsourcing administrative tasks or implementing proper systems was exponentially higher than the investment would have been.
Your Action Plan
Look at your business honestly. You might have great legal documents, proper structure, and adequate insurance, but ask yourself:
Are you consistently following your own processes?
Do you have systems that work even when you're overwhelmed?
Are there tasks you should be outsourcing to reduce human error?
Don't let the fear of spending money on systems or support staff blind you to the much larger cost of getting it wrong. The investment in proper processes and support is always smaller than the cost of a major mistake.
The Bottom Line
Risk mitigation isn't just about having the right documents - it's about creating systems that ensure those documents actually protect you when it matters most.
If you're feeling overwhelmed by your business operations, that's not a sign to push harder. It's a sign to build better systems and get the help you need before it’s too late.
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[00:00:20] Tracey: Hi everyone. Welcome back to another episode of the podcast. I talk a lot on this podcast about prevention being better than cure, and I explain the legal documents you need in your business. And I share with you my love for drafting contracts and the work that I do to support small business owners. I talk a lot about that for a reason, and often I share the context and that is.
[00:00:46] My earlier part of my career, which was in litigation where I was a litigation lawyer acting for businesses who were either suing or being sued or involved in some sort of dispute. So that's really where the insight came from for me to work in this space that I do now in this preventative space where I have a desire to help businesses set themselves up to avoid being one of those clients that I acted for all those years ago in court.
[00:01:14] That's why I do what I do. I have a desire to enrich lives. I've taken my experience and everything that I saw in all of those years, and I've put it into a framework that I use now when working with business owners. To help set them up for success, to help them avoid the pitfalls that I've seen so often over the years business owners end up in that could have been avoided.
[00:01:40] So if you're a long time listener, you will have heard me weave references to this and stories like this throughout the podcast over the years, and it really is, at the very core of why I do what I do. 'cause of what I've seen, because of my background. Fast forward to now, prevention's better than Cure.
[00:01:56] Let's set business owners up for success. And I have [00:02:00] shared some stories along the way on the podcast and over on social media, around real life client examples. so that business owners who listen along or follow along on social media can understand some context and some real life stories that they can perhaps resonate with or relate to just in terms of risk and what really can go wrong.
[00:02:19] I'm gonna take that further in today's episode and I'm going to share one particular client story where. It caused my blood to run cold. And that's because everything that I talk about in my business around setting yourself up for success and prevention's better than cure, everything that can go wrong did go wrong for this business owner.
[00:02:42] And every single one of those things could have been avoided. It was really significant in terms of detrimental outcomes for the client. And I'm going to share that. but the cornerstone of this example and this discussion that I'm gonna have with you is around risk mitigation.
[00:02:58] And I know that doesn't sound like a sexy term, so that's why I'm unpacking risk mitigation. Right now in the context of this one particular real life client story that made my blood run cold. So when I say risk mitigation, I'm talking to small business owners who want to protect themselves from risk, who don't have a strong or even healthy appetite for risk, and they wanna do everything they can to minimize their risk.
[00:03:26] When I talk to clients, I talk about their risk mitigation strategy. So what is it? There's three pillars to a risk mitigation strategy for a small business. The first is the business structure, the second is insurance, and the third is legal documents. They are three pillars.
[00:03:42] All three of them play a really important role. Helping a business reduce its risk. Firstly, business structure. I won't spend too much time on this. I've done episodes on business structure on the podcast in the past, but when I talk about business structure, the most common structures that I work with and that I see are sole [00:04:00] traders or companies.
[00:04:01] Now, when you are working with a company. With the exception of doing something terribly wrong that breaches your obligations under the corporation's legislation. Let's not go there for now, but a director for a company does have obligations under the Corporations Act. Let's say the director hasn't breached those.
[00:04:18] Then the company structure gives some protection to the business owners because of that structure. So the company owns the business, the company carries the risk. The sole trader, on the other hand, it all sits with the individual. So it all sits with that individual who owns the business, who operates the business.
[00:04:35] All the risk sits with the individual. So you can already see pillar number one of the risk mitigation strategy is business structure. And if risk mitigation and protection is really important, given the industry or your appetite for risk, we need to have the conversation and you need to talk to your accountant about the best structure.
[00:04:53] And often when we're focusing on risk, it's the company structure rather than the sole trader. So that's all I'll say about structure here. So now you know that the first pillar is business structure. The second is insurance. I've talked to clients over the years, and I've shared on here my view that insurance for a business is a must have.
[00:05:12] Not a nice to have. It's a must have. And every business is different, which means the risk is different. The legal obligations are different, so the insurance needs are different. My best advice hand on heart is when you are considering your options for insurance in your business.
[00:05:27] Speak to a broker. Don't buy your insurance online because if you buy online, chances are you won't fully appreciate the inclusions and exclusions, and that won't come to the fore until you need to make a claim on that policy. And by then, it's too late if it's not the right policy for you or if there's an exclusion that you weren't aware of.
[00:05:48] So insurance is the second pillar for risk mitigation. Every business needs insurance. Every business has different insurance needs. That's the second one. Then we get into the really juicy one, [00:06:00] which is my favorite. No secret there. The legal documents. The legal documents for a business, again, not a nice to have an absolute must have.
[00:06:10] Legal documents when properly drafted and tailored for your business can be one of the most powerful tools your business has. Truly, I can't emphasize that enough, and it's something that not enough business owners are aware of, in my view. Hence part of my mission is to share far and wide that if your business documents, if your legals, your client agreements, your service agreements, your T's and C's, your website agreements, whatever it is you're doing in your business, if they are tailored properly for your business, not only.
[00:06:43] Will they help reduce your risk? They will also be one of the most powerful tools you have in your business. So all three of these work hand in hand with your business structure. Understand it. If you're a sole trader, no worries. So long as you know, you might decide in conjunction with your lawyer and your accountant, given the industry, given your assets, given the risk that you take in your business on the day to day, that the sole trade is perfect for you.
[00:07:07] Great. It's an informed decision. You might decide, actually that's not the case, and you really are better suited to a company structure. Fantastic. You can put those wheels in motion. Second insurance. Always have it. Understand what you need. Speak to a broker, make sure you have it. But having it's one thing, keeping your finger on the pulse is another.
[00:07:27] So make sure that you are fully aware of when your policies expire. And you have processes and systems in your business to make sure that it is renewed and that it's always adequate coverage. You might be thinking, Tracy, of course, that's a no brainer, but you'll see when I share the client example with you shortly, why it is that I'm placing so much emphasis on the importance of your processes and systems internally around your current insurance policies.
[00:07:55] You can kind of guess where I'm gonna go there. I'll bet. But the third is the legal documents, [00:08:00] making sure that you've got the right legal documents for your business. Fantastic. A really stellar step to take as a business owner, stepping into confidence, empowerment, having real peace of mind that everything is exactly how it should be.
[00:08:13] But having them is one thing. Knowing how to use them is another. Implementation is so important. It is just as important as having them, because if you've got your legal documents, but you don't know how to use them, or you are not sequencing them correctly, which means you are not issuing them to clients in the right order, you'll find yourself potentially in a situation where they're not worth the paper they're written on because you can't enforce them.
[00:08:38] You can't rely on them when you need to, and I'm going to talk to you about that as well. So processes and systems are coming up again. Internally in your business, your admin insurance, but your processes and systems around onboarding clients, issuing your legal documents, whether it's proposals or quotes, TS and Cs, service agreement, coaching agreement, design agreement, whatever it might be.
[00:09:01] Or whether you're selling services on your website and you've got the click wraps set up so that people need to tick the box to agree to your Ts and Cs before they hit pay. Now all of those steps are crucial to get right so that if you get to a point where you need to rely on your agreements or your Ts and C's that you can.
[00:09:18] Really, really important as part of the work that I do when I work with business owners, and I've shared on here in the past, I'm a very collaborative lawyer, so I take a very collaborative approach with my clients so that we work together to develop documents that will work for their business. And what that means is I need to understand what the business does.
[00:09:36] I need to understand pain points, processes, internal processes, all the things to draft the documents, but we also need to spend time on implementation. This is so the business owner knows how to use the documents, and I can create documents to integrate seamlessly into processes and systems that a business already has.
[00:09:56] We don't need to reinvent the wheel, but the point is we need to [00:10:00] collaborate on that implementation, so the documents are going to work easily, seamlessly every time for every client that's onboarded, so nothing falls through the cracks. So that in a nutshell is my way of trying to share with you in really simple terms why the not so sexy term risk mitigation strategy is really so, so important for a business owner.
[00:10:24] I get that it's not exciting. I get that it's not juicy and it's not salacious and all of that. I get it, but my gosh, there's nothing sexier than knowing that if something goes sideways or something unexpected happens, that you are protected, that you don't have to worry about exposure and risk because the risk that can be avoided, you are setting yourself up for success to make sure that it is in fact avoided.
[00:10:47] Now I am gonna share with you this scenario where this was a situation where it caused my blood to run cold. When I received a call from a client of mine. This was a little while ago, about two years ago, but it stuck in my mind forever. I don't think I'll ever forget this. It will be etched there forever.
[00:11:07] This was a client of mine who was a very successful service-based business. Success on her terms. She was a single mom living in Victoria, all going well. Built a business on her own two feet, loved what she did, had some great clients and she just was a people pleaser. And a giver. And because of that, she was in a service-based business in an industry where she had a passion such that she could serve beautiful clients in a space that she was so passionate about, which brought her so much joy while supporting her lifestyle.
[00:11:38] And her son, I worked with her a long time ago to develop. Her client service agreement and we talked about implementation, we absolutely set it all up for her. So it was all done, but she reached a point in business where she was so busy. And overwhelmed with the admin in her business.
[00:11:55] She didn't outsource, she didn't get help. It was very much a scarcity mindset. We're all [00:12:00] familiar with that. Something we all experienced at one time or another, scarcity mindset, didn't wanna outsource to bring anybody in to help because of the finances. So she was doing everything herself. But what that meant is managing her life outside of work.
[00:12:14] Was really demanding, as we all know, and managing the business was really demanding, particularly as it was growing, as she was getting more and more clients. That meant that the onboarding processes with her clients were becoming more frequent. And what that meant was there were lots of late nights, there were things happening late at night and mistakes were being made.
[00:12:34] And she had one particular job where she made a really big, significant error. And it wasn't intentional. It was an oversight, but it was such a significant oversight because she was so busy and so pressed for time because she was also a people pleaser. And so every single time the phone rang, she wanted to answer it, and every single time the client wanted to change their mind about something she wanted to accommodate.
[00:12:59] She was running around like a headless chook, trying to keep everybody happy. But what that meant was her internal processes and systems fell apart. Her insurance policy, she had the renewal, it was in her tray, physically and sat there.
[00:13:14] Insurance expired. She received reminders. They all sat there. Insurance expired. There was no insurance, none. Then some of her clients weren't onboarded properly, which means she was sending out proposals, but forgetting to send along with them the client service agreement that we developed together. So what that meant was because she forgot to attach them, the client didn't ever read them nor accept them, which means they didn't apply.
[00:13:42] So when she reached out to me, she was in a real jam because a significant mistake had happened. She had done everything she could to try to resolve it. The client, her client, had lost trust in her. The other contractors on this particular project had lost trust in her. [00:14:00] Not only was that devastating for her personally because she was so passionate about what she did, and she was a people pleaser.
[00:14:05] What it meant was that the whole situation started unraveling really quickly, and when she was describing it to me, this is the point where my blood ran cold because I could see 10 steps ahead and I knew exactly where we were going to end up. We did our best. We tried to negotiate, we did negotiate.
[00:14:21] There was a sum to be paid. The short version is there was a sum to be paid, and we negotiated it down. Significantly, but it was still a high five figure sum. And what that meant was she needed to. Obtain those funds. She didn't have those sitting around in her bank account, in her office account. She needed to acquire those funds and she had to do so by remortgaging her home.
[00:14:44] This is the home that she was so proud to have supporting her and her son. That's what she needed to do. The stress and the pressure for her and the anxiety, the emotional distress was just as severe and impactful on her as the fact that she had to remortgage the home to pay the sum. And she's a beautiful person and this is why.
[00:15:03] I found myself in a situation where I was feeling physically sick because whilst I could help negotiate it down and we could go into damage control, the fact is the risk mitigation strategy wasn't supporting her because her internal processes and policies had let her down.
[00:15:17] She was a sole trader, so business structure, she didn't have protection under the company. No insurance. It had expired long ago. And three legal documents, she had them, but she wasn't using them properly at this point in time because of the workload, the intensity, the admin load, her life, all the things, it all was unraveling.
[00:15:40] This is a situation where all of that could have been avoided. All of it. But stepping back, looking at the processes and systems, that's what started to let her down. The not outsourcing, the not having clear SOPs, statements of procedures set up for herself to follow every single time, the late nights when mistakes happen, [00:16:00] the people pleasing and she was trying so hard.
[00:16:02] All of the things. Now I talk a lot in my business and I talk a lot to my clients about my love language and my love language in life is processes and systems. It's being organized. So in my home, I run my home like I'm the CEO of my home. Honestly, we've got schedules everywhere. They're updated. There's a process when birthday party invites come in.
[00:16:22] There's a process when the announcements and the notes come in from school and the permission slips. I've got processes for everything, and it's not rigid, it's just supportive. It works and nothing falls through the cracks. So when my son turns up for basketball trials and says, oh, my friend wasn't able to do it because he forgot his sports gear.
[00:16:38] That doesn't happen to us because it's in the system, it's on the schedule. We've got a schedule. We've got a process in the morning to get out the door. It is really cool, calm, and collected in my house. The mornings are so joyful because it is calm, because I've got all the processes and systems.
[00:16:54] Honestly, I love this stuff. It is my love language, and when it comes to business, the same thing applies. This is why I spend so much time with clients talking to them about implementation when it comes to their legal documents, because that is my love language. That is processes and systems. That is where we get the peace of mind and security, that nothing is going to fall through the cracks because we set our processes and systems up to support us every time.
[00:17:20] And you can see now holistically why I talk to clients about risk mitigation because the business structure, the insurance and the legal documents are all so important and the processes and systems internally that are set up to support that risk mitigation strategy. So important. It can be the difference between a profitable year and a massive loss.
One project is all it takes for so many small business owners to be the difference between a profit or a loss, and sometimes, as in the case that I've just shared, a really significant high five figure loss. I'm sure as you've been listening to this, your blood [00:18:00] rang cold at some point as well because we've got such a beautiful, pure person with such a beautiful heart and pure passion, wanting to do all the things for her lovely clients.
[00:18:09] And then this happened. And it unraveled so quickly that it would make your head spin just how quickly that happened. So friends, please take a moment to think about your risk mitigation strategy, your business structure, your insurance, and your legal documents. Then take a moment to think about your processes and systems.
[00:18:26] Are they rock solid? Do you need help? If you need help, please reach out to whoever you work with. If you don't work with somebody, please reach out to me and let's have a conversation. If structure's important to you, start talking to the accountant. If you are listening to this and thinking, gosh, I really feel like that could be me, I need to outsource and get some help so that I don't end up in a situation like that.
[00:18:48] Please let this be your little nudge to do just that. And if you know of another business owner that you think would benefit from listening to this, I would be so grateful if you would share the episode. That's how we get the podcast into the ears of even more business owners to enrich even more lives with knowledge and information.
[00:19:04] As always, thank you for joining me. I’ll catch you next time.
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