Risk averse – want to escape to a desert island?
Like most things in life, sounds like a plan, however upon reflection, even a desert island has risks. Apart from exposure, hypothermia, malnutrition, insects, birds, sharks, not to mention mental issues like depression, it should be a breeze!
I was talking to an old friend of mine who is a farmer, and he was telling me about a conversation with one of his friends who is a high-pressure banker in town. The friend speculated that it must be very peaceful, relaxing, and stress-free to be a farmer. The farmer picked up a piece of grass and munched it quietly between his teeth, and then responded, “well, apart from the fire, floods, famine, drought, disease, and the bloody government and banks, yes it’s been quite a breeze”. The reality is, there are risks in life and in business, and neither can be avoided.
However, perhaps one of our most important roles as lawyers is to help you identify, manage, and thereby minimise those risks. For example, in life, marriage is of course a risk, with the divorce rate exceeding 40 per cent. Sickness is a risk. Financial stability is a risk. And death is a certain risk that we cannot avoid. In business, you only have to look at statistics for the failure of small businesses after three years. A very high proportion of small businesses or SMEs are no longer in existence after three years and generally the main reason is that they simply run out of cash, or have a lack of cash flow. They also say that people don’t plan to fail, they fail to plan, and I think that is another area I will address briefly.
Returning to risks in life, I guess, unpalatable as it may be, binding financial agreements or sorting out the financial situation in the event of a marriage failure in advance of your marriage while not particularly romantic is extremely practical. Similarly, understanding your needs upon an untimely death or simply a death from natural causes at the end of a long and fruitful life needs a Will and a degree of estate planning. As a plug for us, we are fortunate to have the services of Tracy Collins, an accredited Wills and Estates Specialist. Of course, if you’re not going to die then you don’t need a Will – but the reality is you will.
Not so many years ago, estates were often quite small. However, with extraordinary rises in property prices, estates exceeding one million dollars are becoming very much the norm. In addition, the situation is becoming even more complicated with blended families, and so while it is still possible to buy a “will kit” they frequently have an immediate benefit of costing a lot less than a lawyer, but in the long term they cost a great deal more when it’s apparent that the testator’s (will maker’s) wishes are not actually reflected in the words chosen.
In business, the risks are probably generally less emotional but have greater financial consequences. As many of the risks are clearly identifiable, it’s important that steps be taken to address those risks. For example, many small businesses need to provide guarantees. They also have matrimonial home held in joint names. It’s important to separate your assets from your trading. Asset holding is not a risk. Trading does come with risks.
Accordingly, it’s sensible to quarantine your home, perhaps in your wife’s name, and leave her off all guarantees. There are also a variety of structures available to you, such as companies and trusts, joint ventures, etc. The worst thing you can ever do is go into a partnership where you are jointly and separately liable for the debts of the other party. This is not the place to go into great detail but suffice to say it is much cheaper to pay legal fees upfront to identify, manage and minimise the risks than to sort out the failure of a business with all the financial and emotional consequences that flow.
We at Nevile & Co. have many years of experience in dealing with effectively risk management. For an obligation free consultation, please do not hesitate to contact us through our website nevile.com.au or on our telephone 9664 4700.
Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.