Brawling with other businesses is something that very few entrepreneurs think of when starting up. But the issue of disputes is becoming an increasingly pressing problem for start-ups, many of which can’t afford costly legal battles.
Last week, the Government unveiled its strategy to combat small business disputes, inviting discussion on four potential solutions – a telephone hotline, a new tribunal, a dispute resolution service and a small business “advocate”, who would fight the corner of entrepreneurialism within government.
The plans were immediately praised by Peter Strong, executive director of the Council of Small Business of Australia, who said: “We’ve been asking for this for a long time. If you have a blue with your landlord, it’s so hard. Small businesses are so time poor and focused just on saving their own businesses, which is what larger companies take advantage of.”
But how big a problem are disputes among small businesses and will these proposals help in anyway?
Big v small?
A SME-specialist lawyer, who didn’t want to be named, says that the issue is a little more complex than simply a case of large landlords and clients turning the screws on helpless start-ups.
“The most common disputes are over poor workmanship, or not getting paid for a job, poor communication and disputes between business owners over who is pulling their weight,” he says. “It can be anything. It could be down to the fact you haven’t documented whether there’s a fixed fee for a service or an hourly rate.”
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“It’s the same as having a neighbour. You can fall out over a number of things. Some of that is the faulty of large businesses, but small businesses are just as likely to screw each other over.”
The lawyer adds that legal action is expensive and often pointless for small businesses. Other reasons for not acting are fears over damaging a relationship with a key partner.
“You get to the end of the process and you don’t like your lawyer because of the time and money it’s cost you,” he says. “In Australia, the cost of legal representation means that only the very rich and the very poor can afford a prolonged dispute. It comes down to who has the deepest pockets, rather than who is right.”
“Possession is nine tenths of the law and once another business has got your money, it’s hard to get it back from them.”
“I had one client who got a shonky deal from a telco reseller. The contract rolled out but the telco hadn’t closed the old contract and the business ended up paying $22,000 more than they should’ve.”
“The telco agreed to refund $9,000 of that, we went to court and got an order to pay it and as soon as the judgement was passed, the telco representative said to my client ‘good luck getting that from us.’”
The falling our facts
Government research from June last year suggests that around 20% of small businesses had a dispute in the previous five years, although COSBOA insists this figure is under-reported.
According to the Government stats, 4.6% of businesses have had to take legal action to resolve disputes, with just 1.8% utilising mediation as a way to come to an agreement.
While you are more likely to tussle with another business further down the track – businesses with more than $1 million revenue are more than three times as likely to have a legal dispute than those with less than $100,000 – it’s clear that start-ups are disproportionality hit by disagreements.
For example, the figures show that businesses under five years old are far less likely than older businesses to use mediation or legal action to resolve wrangles. It appears that many start-ups are unwilling or unable to take grievances any further than a few stern words over the telephone.