I moderate an online business forum in the U.K. A growing number of people are starting their own business here. On one level this is inspiring. But sometimes I think there should be a mandatory exam to pass before starting a business. Some people do not understand the difference between being a consumer and being a business owner. The world, and the law, treats both very differently.
For example, the U.K. has very strict consumer protection laws. The vast majority of these laws, however, do not apply when someone is buying as a business — versus buying consumer products and services. Business owners are assumed to know what they are doing. There is no learning period or protection against unfair contracts or sympathy from judges if a transaction ends up in court.
In my experience at the business forum, new business owners lose common sense when things go wrong. Questions like “can I get my money back from this no return deposit contract?” are posted at least once a week. The answer is almost always the same: Read the contract. If it’s not in the contract, then no, you cannot get your money back.
It is all too easy to say, “Read the small print.” When you are buying as a business this is just the start. Not only read all the small print, but make sure you understand it. If in doubt, ask what it means. And do not ask the salesman or promoter or the seller. Ask your lawyer.
There are many mistakes that new business owners frequently make. One of the most common involves credit card machines and card processing. These contacts tend to bind the owner for years, with no out clauses. Providers argue that the contracts are necessary due to the cost of the machine and the software. But tell that to a business owner who closes after one year and still has four years to pay. (Contributor Phil Hinke has addressed, many times, unfair credit-card-processing contracts and negotiating with providers.)
The next most frequent complaint involves rented property. Unfortunately, many new business owners believe they have the same rights in a commercial let as in a residential one. Nothing could be further from the truth. Most commercial tenants have no rights except what is written in the lease. Indeed many unwary businesses have signed leases that place undue burdens on them and leave the landlord with no obligations. These burdens tend to be hidden in technical jargon and may not immediately be obvious.
I remember once reading a thread on the forum about a mom-and-pop store opening and subletting a unit from a national retailer. In the lease, they agreed to pay sufficient rent to cover whatever the national retailer had to pay the landlord. After a couple of years, the landlord decided that the national retailer had had missed a rent review item — such as an increase in the rent — and doubled the monthly amount and backdated it two years. The national retailer, with nothing to lose, accepted this and passed the bill down to the mom-and-pop owners. It was all perfectly legal, and all totally unfair. The mom-and-pop store went bust. If they had retained a commercial solicitor (who could have explained the small print and highlighted the potential unlimited liability they were taking on), the outcome could have been different.
Then there are new business owners who are convinced that something that is not right or fair should not be allowed. They think that common sense rules. Unfortunately they are wrong.
Certainly all this new enterprise helps the U.K. economy. But in moderating the business forum, I see life-changing mistakes by new entrepreneurs. It would helpful if new entrepreneurs had to first take a real-world training course and then pass an exam. At least 50 percent of new businesses fail in their first year. About 75 percent don’t make it to five years. How much lower would these percentages be if the owners had first passed an exam?