Small Business Management MGMT5601 Workshop 4 Part B ... · Small Business Management MGMT5601...

© Mazzarol 2018 all rights reserved

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

©Mazzarol 2018 all rights reserved


• 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


In this workshop we aim to:


Action Learning Tasks and Small

Business Diagnostic


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.


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


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


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


Management System Applied

Source: Olivares (2007)


Building the Company alongside the

Business


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


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


Building an Awesome Organisation


• 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:


Building an Awesome Organisation


• 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:


Building the Company Culture


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.


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?


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:


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:


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


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:


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

http://www.sblegal.innovation.gov.au/


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


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.


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


Australian Tax Law


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


http://www.ato.gov.au/


Record keeping in taxation


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.




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



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.


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.


Consumer Laws


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




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.




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.


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


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.


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?


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


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.


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?


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.


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.


Licensing IP rights


Group Discussion

Working in teams

• Volume Forecast

• Management Report

• Master Schedule

• Performance Board


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.

End of Presentation

Small Business Management MGMT5601 Workshop 4 Part B ... · Small Business Management MGMT5601...

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