How to improve business resilience

A checklist to help keep business ticking along in challenging times

Business owners always face challenges.  In recent times these have increased to include supply chain disruptions, labour shortages and an anticipated recession. The impact of unprecedented weather events has just added to the ever-increasing turmoil.  

Businesses can help safeguard their interests and minimise impacts by prioritising key areas and practices.  

Communication is key

Dealing with conflicts

Disputes arise quickly and often unexpectedly. The most effective way to manage relationships with shareholders, employees, or customers is making sure you communicate in a timely, accurate, and honest way. To avoid future issues, those interactions need to be in writing and accurately record what is being discussed and agreed. 

Cashflow is king

It always has been, and always will be. But not everyone actively manages their debtors which can lead to a ‘cash hole’ arising very quickly. It is critical to maintain an open and communicative relationship with your funders during the good times and in times of anticipated economic uncertainty. 

Check commercial contracts (Your terms and theirs)

Contractual disputes often increase in times of uncertainty because circumstances can prevent either party from performing their respective obligations.

While the specific terms will vary depending on the contract, the type of relationship and the industry, there are some practical matters to consider in general:

• Payment terms should be clear and unambiguous.  If someone does not pay, or doesn’t pay in full on time, what rights do you have? 
• Is there security given?  If so, by who and how practically effective is that security? It is worth remembering that part of risk management includes considering security over a customer’s assets as well as goods being sold to customers on credit.
• Does the contract have a mechanism for fluctuations in price? Are there any limitations or exclusions of liability?  Do claims have to be brought within any time frames?  These types of clauses have a huge effect on any outcome, so they need to be reviewed carefully. 
• Have the terms of trade been agreed? Business terms of trade often get pushed to one side (or drafted too simply) in favour of getting operations started quickly or getting customers through the door.

Review shareholders’ agreement

Shareholder or director disputes are another source of friction and are the last thing a business needs during a difficult economic time.

It is essential to ensure that a shareholders’ agreement is fit for purpose and flexible enough to pre-empt any issues that may arise.

Key matters to consider include:

• Shareholder exit – how are these managed?
• Decision making – in economically challenging times a business needs to be agile, and decisions made without delay. It may be beneficial to limit the powers of minority shareholders to influence or delay key decisions. 
• Dividends – have a clear policy on how dividends are decided and how often they will be paid.
• Dispute Resolution – It is easier to agree in good times how disputes will be resolved.
• Shareholder Funding – what are the obligations on shareholders (if any) to provide funding to the company and/or guarantees in respect of the company’s obligations? When and how will advances be repaid?

In turbulent times, it is important to understand how exposed the directors and shareholders are under any guarantees (e.g. under leases).  

Employment and employee considerations

You should also review employment agreements to ensure that all employees have clear, current written terms of employment.  

During volatile times, consider using casual employees or contractors to provide flexibility for short periods of time.

Any decision to restructure a company or make changes to employee terms must only be undertaken after following proper processes and must be correctly documented.

Check insurance policies

Ensure that your insurance policies are appropriate for your business and its risks, that you understand the limits of your cover and that the policies are appropriately reflected in your commercial contracts.

Use the full company name

It is essential that everything that is written, sent, issued, and signed on behalf of the company that represents or creates a legal obligation, contains the full company name with “Limited” at the end.

Otherwise, the person issuing or signing documents or communications on behalf of the company could be exposed to potential personal liability claims.

Haigh Lyon has vast experience negotiating commercial contracts, shareholder and employment agreements, and providing expert advice on all aspects of business activity. Contact Anthony Kuran on 09 306 0611 or @email