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Small Business Management MGMT5601
Workshop 4 Part B: Legal
Issues, Governance and Risk
Professor Tim Mazzarol – UWA Business School
UWA Business School MBA Program [email protected] MGMTG5601
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• Understand the importance of corporate governance.
• Examine the role of advisory and management boards.
• Understand Internal Integration within your business
• Understand Management Intent.
• Develop appropriate control mechanisms in the business.
• Understand legal and risk management issues.
• Dealing with customer complaints.
• Developing time management strategies.
• Address Action Learning Task 6
Workshop Overview
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In this workshop we aim to:
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Action Learning Tasks and Small
Business Diagnostic
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ALT 6 – Professionalism
• Review your organisational chart.
• Review your firm’s volume forecast.
• Examine the effectiveness of your management reporting systems.
• Develop a “Responsibility Matrix”.
• Develop a Master Schedule.
• Establish a Performance Board.
The ability to understand how to align Internal Integration with
Management Intent to monitor you firm’s performance.
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How to set a future strategic direction for your business and for you:
• Setting a clear vision for the future.
• Communicating this vision to others.
• Allocating time to strategic planning.
• Setting strategy against KPI for everyone.
• Getting employee buy-in to the vision.
• Blueprinting the organisational structure
for future growth.
• Creating a front line management team
that can accept delegated authority.
• Establishing a personal exit strategy.
• Grooming a successor.
ALT 6/Management Intent
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How to obtain regular data on business trends and performance levels:
• Using performance and market KPI to
guide management decision making.
• Getting regular information on variations
between actual and planned performance
levels.
• Getting regular information on sales and
performance trends.
• Getting regular data on wastage rates.
• Benchmarking wastage rates against
known industry averages.
• Benchmarking employee absenteeism and
turnover against known industry averages.
ALT 6/Management Information
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How to build a competitive advantage and add real value to the business:
• Identify points of differentiation.
• Make sales and marketing teams aware of strategic competitor and market issues.
• Make sales team fully aware of the total product or service offering.
• Monitor changes in the market segments you are targeting and systematically track the customer’s buying cycle.
• Build sales forecasts from sound data.
• Monitor customer value assessments for products and services.
• Prepare a formal mission statement and business plan with long term horizon.
• Protect valuable IP.
• Partner to achieve growth.
ALT 6/Strategy and Innovation
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Management System Applied
Source: Olivares (2007)
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Building the Company alongside the
Business
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Building an Effective Management Team
Source: Dignee, Haslett & Smollen, 1997.
A well-balanced team has strengths in the seven key management functions:
Marketing and Sales
Operations R&D
Financial control
HRM Legal & Tax
General Management
& Admin
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Leading practices of fast growth firms
Source: Sexton & Seale, 1997.
Study of 906 Entrepreneurs of the Year:
• Top management team of 3-6 people
• Each with capacity to take over as CEO
• Only 3-4 levels of actual management
• With matrix of 3-6 top managers and 3-4
management levels
• Top management team had sound skills in:
– Financial, Marketing & Operations Management
• Management Board of 3+ Directors
– Equal balance of internal and external directors
– Family businesses had 80% non-family board
members
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Building an Awesome Organisation
Source: Sexton & Seale, 1997.
• Teamwork is of critical importance.
• Appoint a “team builder” to the management .
• Provide rewards and incentives for good work.
• Ensure senior managers are ‘hands on’ with staff.
• Set clear company vision and values.
• Recruit and select staff to fit with these values.
• Align employees personal goals with firm’s goals.
• Develop a culture that respects family & personal life of employees.
• Design the job to suit the right person.
• Emphasize team membership over technical skills or past experience.
Key findings from successful entrepreneurs:
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Building an Awesome Organisation
Source: Sexton & Seale, 1997.
• Hire people who are smarter, better and more efficient than you
• Ask questions first don’t try to jump in with the answers
• Constantly measure the downsides of all your decisions; will a bad decision break the business? If not, proceed
• Recognise the problems of being the ‘expert’ in the business; learn to delegate and transfer knowledge to the team
• Get a mentor, someone who can teach or coach you
• Change your management structure as you grow.
Key findings from successful entrepreneurs:
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Building the Company Culture
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Key considerations in growing firms
Source: Mazzarol (2006)
The Strategic
Triangle
Strategy
Structure Resources
• Firm’s strategic intent
• Owner’s strategic intent
• Product/Market Growth strategy
• Financial capital/cash flow
• Human capital
• Intellectual capital
• Physical capital
• Corporate Governance
• Organizational design
• Networks & Alliances
Principles:
• Each element must remain in balance as
the firm grows.
• Attempts to change one will be
constrained by the other two.
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Group Exercise
Professionalism Part 1:
• Review the firm’s organisation chart
• Is the current structure an ideal blueprint?
• How should it change to accommodate
growth?
• Develop the
• Is the current structure an ideal blueprint?
• How should it change to accommodate
growth?
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Getting Control
• Regular analysis of your business plan to ensure you have the necessary capacity to support changes in the external environment.
• Monitoring of variances, trends & deviations from plans in the utilisation of resources.
• Having contingency plans to ensure that key supplies will be adequate.
• Knowing what core skills are needed in the business to secure a competitive advantage.
• Having an effective stock control system.
Key issues to help you get in control of the business:
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Getting Control
• Having a clear vision for the future of the firm.
• Communicating this vision to your staff & key stakeholders.
• Having management resources allocated to business performance monitoring, planning & growth.
• Having KPI measure that are know throughout the firm.
• Having staff who share the vision.
• Having a blueprint for the firm’s structure focused on growth.
• Being able to delegate responsibility for extended periods of time.
• Having an exit strategy or success plan.
• Systematically grooming a successor or successors.
Key issues to help you get in control of the business:
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Managing Your Time
Time Management Issues:
• Rank Jobs:
– A – Top Priority
– B – not essential today but important
– C – trivial, sort it or forget it.
Beat the Time Bandits:
• Telephone
– Keep calls to 3 min
– Block out time for calls
• Visitors
– Keep door open-door closed policy
• Paperwork
– Action-Information-Reading
• Procrastination
– Use 5-minute rule
• Increase your control of time
Employee
relationships
time
Business
strategy &
planning
time
External
relationships
time
Paperwork &
administrative
compliance
time
Personal &
family time
The Hand of Time
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Legal issues for SME owners
• The legal structure of the business.
• Taxation.
• The Fair Trading Act.
• IP rights protection.
• Consumer law.
• Contract law.
• Franchising.
• Licensing.
Key issues to consider in operating the business:
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Business Legal Structures
Business
Type
Company A company or corporation is a separate legal entity or person. It can enter into
agreements in its own name. If a company breaches an agreement the liability for that
breach generally rests with the company itself, rather than with the directors of the
company. This is unless there is misconduct by the directors, or offences such as
breach of duty, misrepresentation or misleading or deceptive conduct. If a company
owes money and there is no dispute over the debt the creditor can serve a statutory
demand which must be dealt with immediately. If a company cannot pay its debts it
becomes insolvent and the directors may be liable for debts incurred while insolvent.
Partnership A relationship or association between two or more persons with a view to profit. They
may be individuals or companies, but are not incorporated. Rights are governed by a
partnership agreement and the Partnership Act. A partnership enters into an agreement
in the name of its partners. Each is usually jointly liable for any agreements.
Sole Trader Where an individual sets up an operates a business in their own name without any
partners or co-workers. They are usually personally and individually liable for any
agreements.
Trust A relationship or association between two or more persons whereby one party holds
property on trust for the other. The first party is vested with property and the holder of
the property is called the trustee. The other party (for whom the property is held) is
called the beneficiary. Trusts my be made expressly in writing or implied from the
circumstances. A company may trade as a trustee of a trust.
Source: www.sblegal.innovation.gov.au
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Factors in determining legal structure
• Ease and cost of formation
• Ability to bring in capital and other
owners
• Amount of personal control
• Compliance costs and
requirements
• Taxation
• Continuity of the enterprise
• Risk and liability exposure
• Image
Company49%
Trusts18%
Sole Traders &
Partnerships33%
Business Legal Structures in Australia
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Setting up a Partnership
Partnership agreement should set out:
– What will be the partners’ share
holdings?
– What are the partners’ assets?
– How are profits to be distributed?
– Arrangements for contributing
further capital when needed by the
partners.
– Partners’ liability and how liability is
to be apportioned between partners.
– Terminating arrangements and
share buy back.
– How disputes will be handled.
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Partnership Success Model
Partnership Success
Partnership Attributes
• Commitment
• Coordination
• Interdependence
• Trust
Communication Barrier
• Quality of communication
• Information sharing
• Participation
Conflict Resolution
• Joint problem sharing
• Persuasion
• Smoothing
• Domination
• Harsh words
• Arbitration
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Australian Tax Law
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Taxation compliance
• All registered businesses must
pay tax and have obligations for:
– ABN – Australian Business
Number
– Business Activity Statement (BAS)
• Paid throughout the year
• Covers
– PAYG withholding tax
– Goods & Services Tax (GST)
– Fringe Benefits Tax (FBT)
– Deferred company and
superannuation installments
– Wine Equalization Tax (WET)
– Luxury Car Tax
– GST exemptions
• Businesses with annual turnover
below $75,000
• Some not-for-profit organisations
Sources: www.sblegal.innovation.gov.au & www.ato.gov.au
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Record keeping in taxation
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IP rights protection
• Business Names
– Business names should be registered with relevant state authorities. Registration
protects right to use that name. ASIC maintains a national business names
register. Not all names can be used.
• Copyright
– Is the exclusive right to publish, print or copy work or material. Whoever creates
the work owns it unless there is an agreement to the contrary. Employees cede
their rights to the employer in most cases.
• Designs
– Designs can be formally registered but must be new and have a functional purpose
not otherwise registered by another person.
• Passing Off
– Where someone sells goods under a false or misleading name (e.g. fake brands)
• Patents
– A patent is a right to use and benefit from a new invention or process. Must be
formally registered and cannot be already claimed by others or previously
published or disclosed and must have some practical value or use.
• Trade Marks
– A distinctive sign associated with a business, can be a name, logo, sound or smell.
Can involve distinctive colours and should be formally registered.
• Trade Secrets
– Confidential business information including financial, customer and employee data,
product information and business strategies. Should be protected by agreements.
Source: www.sblegal.innovation.gov.au
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Fair Trading Act (Key Issues)
• Pricing– Resale price maintenance
• Suppliers cannot impose a minimum sale price on goods and services.
– Price Fixing• Businesses cannot collude to fix
prices (or control discounts, rebates and credits).
• Warranty of Goods & Services
– Goods must be:• fit for purpose and of merchantable
quality, they must match any description on labels or adverts.
• You must have the right to sell the goods.
– Services must be:• Supplied with due care and skill, and
any goods used in their delivery must be fit for purpose.
• Refunds– There is no obligation to refund,
exchange or credit a consumer where they have:
• Changed their mind about a product.
• Discovered the same goods at a cheaper price
• Had a defect drawn to their notice before they purchased the g
• Misleading or Deceptive Conduct
– A business cannot engage in conduct that is deliberately misleading or deceptive or is likely to mislead or deceive.
• Unconscionable Conduct– A business cannot behave in a
manner that is against ‘good conscience’
• Avoid pressure selling, complex agreements
Sources: www.sblegal.innovation.gov.au
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Dealing with Customer Complaints
Dealing with Customer Complaints:
• Record all complaints formally.
• Make it easy for customers to complain.
• Empower employees to handle complaints.
• See complaints as strategic opportunities.
• Develop a customer service policy.
• Make all staff aware that complaints are their responsibility.
• Reward complaining customers.
• Don't call them 'complainers’.
10 Steps to Dealing with Complaints:
1. Stay calm.
2. Avoid admitting any liability at this stage.
3. Let the customer get the story off their chest.
4. Get the facts.
5. Find out what the customer wants.
6. Identify the appropriate action to take.
7. Take the action to solve the problem.
8. Tell the customer what will be done and when.
9. Record the action to be taken.
10. Follow up.
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5 Myths of Customer Satisfaction
1. Complaint data accurately reflects the level of customer complaints
– It is a myth because most customers do not complain directly to your business.
2. Complaint data accurately reflects the level of customer satisfaction
– It is a myth because satisfied customers will rarely tell you and most dissatisfied customers tell other people not your business.
3. Repeat customers are satisfied customers
– Just because someone keeps coming back to your business may not be due to their satisfaction.
4. How a service is provided is as important as the service itself
– Service can be delivered with a smile and all the best intentions but if it essentially fails to meet the customer's expectations it will fail to satisfy.
5. Customer service policy and complaint handling are the responsibility of top management
– All employees of the business should see that it is their responsibility to ensure customers are satisfied and complaints effectively handled. Passing this responsibility on to management will not solve the problem.
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Consumer Laws
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Product safety, liability, privacy and
insurance issues
• Product Safety & Liability
– Some products have mandatory safety standards or require specific consumer warnings (e.g. tobacco, cosmetics). All suppliers are responsible for ensuring that the goods they supply comply.
• Issues to consider
– Defamation
– Negligence
– Nuisance
– Trespass
• Privacy – Small firms with turnover < $3 million are
exempt from Privacy Act in most cases.
• Insurance
– Public liability insurance
– Employment insurance
– Property & General
– Casualty & Life
– Workers’ Compensation
– Professional Indemnity Insurance
Source: www.sblegal.innovation.gov.au
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Contract conditions and results of
breach of contract
Contract Conditions• An offer is made. It can be oral or written but is not binding until voluntary
acceptance of offer is given.
• Voluntary acceptance of offer
• Consideration (something of value) is given by both parties
• Both parties are competent and/or have the right to negotiate for their firms
• Contract must be legal. Any illegal activities under a contract are not binding (e.g. gambling or drug dealing).
Results of Contract Breach• The party in violation of a contract may be required to live up to the agreement of pay
damages
• If one party fails to live up to its end of a contract, the second party may also agree to drop the matter and thus not live up to the agreement as well. This is called contract restitution.
Source: www.sblegal.innovation.gov.au
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Franchising
A franchise is a contract by which a parent company (the franchiser) gives an individual operator (the franchisee) the right to use a trade name or a business format to sell a particular product/service.
– The franchiser will usually provide the franchisee with their knowledge, operating and marketing techniques.
– In other words, a franchise is prepackaged business that you can operate under agreement with a franchiser.
In the case of services the franchisee is licensed to use a trading name and intellectual property associated with delivering the service.
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The importance of franchising in Australia
• In Australia in 2016 there were:
– 1,120 business franchisors in Australia
– 79,000 business format franchise units in operation
– 470,000 employees working directly within franchises
– $146 billion in sales turnover
– 90% of franchise systems were developed in Australia
– 35% were engaged in online sales with consumers
– 35% were engaged in international markets
• Major Industry segmentation:
– Retail trade = 25.2%
– Other services (i.e. personal, pets, car repairs, IT support etc.) = 26.5%
– Financial and insurance services = 9.6%
– Admin support services (i.e. travel agencies, cleaning, gardening etc.) = 7.3%
Source: Frazer, et al. 2016
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Types of franchising systems
Product and Trademark FranchisingWhere the franchisee is granted the right to sell a particular product
or brand e.g. Coca-Cola.
Franchiser is mainly concerned with product quality and integrity of
brand not daily business management.
Business Format FranchisesBroader in scope.
The franchiser not only provides the product, service and trademark,
but also the entire business format consisting of a marketing plan and
support, operating methods and manuals, training, and ongoing
control
Examples are McDonalds, KFC and Pizza Hut.
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Issues to consider when selecting a
franchise
• The territory assigned to you
– location suitability, protection from encroachment
• Success of other franchisees
– seek comment from those already in the system
• Terms of the franchise contract
– Is it fair and flexible?
• Level of on-going support, training
– What do you get for your fees and outlay?
• Quality of management systems
– Do they offer a good formula for success?
• Termination of the contract
– Can you get out without loss?
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Franchise start-up costs
• Cost of average US franchise
– US$143,260
• Cost of average AUS franchise
– AUD$100,000
• Outlays:
– Initial franchise fee
– Equipment
– Stock
– Premises
– Legal & accounting expenses
– Stamp duty
– Working capital
– Royalties (on-going)
• Fees and Costs:
– Up-front fees range from $1,500 to $1.23 million
– Fixed monthly fees range from $50 upwards
– Variable fees range from 2% of turnover to 15% of turnover
Sources: Franchise Council of Australia & Frazer et al. 2016
Retail Non-Retail
Initial Fees $31,500 $28,000
Inventories $10,000
Fit-out costs $150,000 $4,000
Training costs $5,000 $1,000
Legal & accounting fees $3,000 $2,000
Initial Working Capital $2,000 $10,000
Total Costs $287,500 $59,750
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Franchising Code of Conduct
• Established 1998, amended 1 July 2010
• Applies to all franchises & similar structures
• Both franchisers & franchisees covered
• Applies under the Trade Practices Act (1974)
• Enforced by the ACCC
• Franchising Policy Council
• Establishes a Mediation Adviser
• Key Changes as of July 2010 require franchisors to:
– Disclose to Franchisees what will happen at the end of a
franchise agreement (e.g. right to renew).
– Give six months advance notice prior to end of agreement.
– Disclose that a franchise can fail, plus a dispute resolution
process and ensure that they don’t breach any common laws.
– Disclose circumstances in which unilateral variations to the
agreement might take place, if additional significant capital
outlays will be required by franchisee and if such investment will
affect renewal.
– If the agreement might change at time of sale plus allocation of
costs and if confidentiality clauses apply.
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Advantages and Disadvantages of
Franchising
• Offers a ‘system’ of management
and helps reduce risk
• Other benefits:
– Training & Guidance
– Branding
– Track Record
– Financial Support
Advantages Disadvantages• Franchising fees
– 2-15% of gross
• Franchiser control
– Franchisee is hybrid
– half owner-manager and half
employee
• Unfulfilled promises
– does it deliver?
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Licensing
Source: QPSX (2005)
What does a licence do?
• License prevents others from
exploiting your inventions.
• It can involve patents, copyright,
trade marks and trade secrets.
• Typical license offers an exclusive
or non-exclusive right to use and
sell the IP in a given territory or
“field of use”.
• Key objectives:– Licensor: leverage the invention, generate
income.
– Government & non-profits: disseminate
knowledge.
– Early stage biotech: fund future R&D, proof
of concept.
– Licensee: access to technology.
– Large firms: diversify technology pipeline.
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Considerations for Licensing
Source: QPSX (2005)
Key issues:• There are no “standard royalties”
• Negotiation is the key with
attention given to:– The technology – scope, strengths and
weaknesses, can it be “designed around”?
– The Competition – what other options exist
and how much threat?
– Mutual Benefits – what do the two parties
want from the deal?
• Royalties are allocations of future
profits.
• Royalties are NOT:– Payment for inherent value of Licensor’s IP.
– Means of recovering IP owner’s sunk costs.
– A “standard” percentage of net sales.
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Licensing IP rights
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Group Discussion
Working in teams
• Volume Forecast
• Management Report
• Master Schedule
• Performance Board
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ALT 6 – Professionalism
Task Requirements:
• Organisation chart
• Volume Forecast
• Management Report
• Responsibility Matrix
• Master Schedule
• Performance Board
Key Documents
• ALT 6 Professionalism.
• ALT 6 Professionalism Action List
• ALT 6 Professionalism Ex 1.
• ALT 6 Professionalism Ex 2.
• ALT 6 Professionalism PR Primer.
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End of Presentation