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Top 100 Tips for Businesses - #13 Handling Disputes

Have you fallen out with someone involved with your business?

If so, you’re probably finding things rather stressful right now.

You might be concerned about anything from money a customer owes you, to whether the workload within your business is shared out fairly.

There are a multitude of factors – both internal and external – that can lead to ruffled feathers when it comes to running a company.

The first thing we would say is ‘don’t panic’ – you’re not alone.

And the good news is, there are tried and tested things you can do to limit the damage.

In this blog, we’re going to take a look at the do’s and don’ts of handling business disputes effectively  and, more importantly, avoiding them in the first place.

Root causes – partnerships built on a handshake

Arguments can arise about all sorts of things, from what the business does next to how it is financed or marketed, how much money each partner should take from it, and who has the power to make certain decisions, right through to how hard each person is working. 

However, the most common cause of business-related fall-outs is some sort of misunderstanding about different parties’ roles.

Unfortunately, a lot of business partnerships get off the ground without any formal agreements to outline each person’s position and responsibility. The problem here is that they then get three or four years down the line, the business has grown, they might be under greater pressure and they find that it’s not clear enough what they should each be doing. Or they might decide they want to go in different directions and there is nothing written down to guide how they will make decisions about such things, or who will be entitled to what.

We find it’s usually in years four to six that issues start to surface. For the first three years, everyone is focused on getting the business established and pulling in the same direction. Then, when it really starts to take off, they have time to step back and reflect on who is doing what, how much and for what level of reward – as well as what the directors as individuals actually want from the business.

Root causes – room for misinterpretation

Another all-too-familiar scenario is contract disputes – that is, supplier disagreements where a discrepancy arises around the quality, volume, delivery timescale and specification of a product or service.

These could be over anything. Products are a bit more straightforward and it’s easier to demonstrate whether or not something you buy or sell does what it is supposed to do if a discrepancy arises.

However, service is more of a grey area because there are lots of different interpretations of what constitutes a ‘good service’. Quality, too, is open to interpretation as one person will have different standards to another.

Root causes – unforeseen events

Another stark example I’ve dealt with in the past was when a client’s business partner became an alcoholic and was no longer fit to actually manage the business.

There is a real risk to the business in cases like this. For example, the bank could freeze their account in order to protect against business assets being misused. This could (and probably would) cripple the business as well as exposing it to numerous liabilities.

Prevention better than the cure

All of the above are prime examples of how the very best way of avoiding business disputes, is to agree solid contracts at the outset which set the tone for your relationships and activities. What this then does, when issues do arise, is remove any confusion and act as the starting point for reaching a resolution.

Unfortunately, verbal agreements, no matter how much you trust a person or company on the face of it, just don’t cut it when it comes to the crunch and emotion creeps in. There is no substitute for words written down in black and white.

So, the first golden rule for dealing with disputes is to avoid them in the first place. Have agreements drawn up by a solicitor who will provide an overview of your business, along with a view of the possible eventualities, and make sure you have formal agreements in place to define roles, responsibilities and expectations of all the key players involved.

These contracts should also have one eye on the potential for litigation, and protect you in that eventuality. For example, if this or that was challenged legally, would this contract stand up in court? Not having one in place – or trying to do it yourself without the proper level of understanding – could leave you wide open.

When difficulties do arise

The best pieces of advice we can give are ‘act quickly as soon as issues start to surface’ and ‘don’t argue amongst yourselves’. If you think you can reach an agreement through discussion, then great, it’s worth a try. But if you reach a point where neither side is likely to back down, you need to seek legal advice as soon as possible. This is because failing to do so in a timely way could actually go against you if you do end up fighting your case in court. If you delay legal action, the court will question why you did so if the matter was of the upmost importance. This may impact the court’s view of the action.

5 common mistakes businesses make that cost them dearly

  • Not setting anything down in writing in the first instance
  • Not seeking advice early enough when things do go wrong
  • Underestimating how expensive and time consuming disputes can be
  • Not realising the psychological impact they can have on you and your family
  • Taking things personally and bearing grudges.

In my next blog, I’ll also be looking at the importance of keeping your cool, when it comes to business fall-outs, so watch out for that.

The good news is, help is at hand!

We are experts in dispute resolution, and can work with you as trusted legal advisers, to help you find the best root out of a situation. This could take a variety of forms, from mediating between you and the person you’re at odds with to try to reach a resolution, to pushing for some kind of compromise agreement, for example where one party agrees to buy the other out of the business. Or, we can litigate for you in court, if this is in your best interests and there really is no other way out.

If this blog raises questions for you, you can call us to arrange a free, no obligation initial chat, on (01482) 226655 or by email at info@jameslegal.co.uk.

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