The top 3 legal issues facing small business – and how accountants can help

Small business owners often turn to their accountant for advice not just on finance, but on wider questions around the law, human resources and competition.

The top three legal issues that small businesses struggle with are misleading conduct, consumer guarantees and wrongly accepting payment, and the ACCC says accountants can play the vital role of trusted adviser in helping their clients to resolve any problems.

The Australian Competition and Consumer Commission (ACCC) deputy commissioner, Dr Michael Schaper, says accountants play a similar role with their small business customers as a general medical practitioner does with patients.

This special relationship has been highlighted following the ACCC’s release of its 2017 small business snapshot in March 2018, which identified misleading conduct, consumer guarantees and wrongly accepting payment as the top three issues that small businesses report.

Schaper says accountants provide a vital role in helping small business clients through these issues. Just as medical patients confide in their GP about a wide range of issues, not all of them medical, small business owners often turn to their accountant for advice not just on finance, but on wider questions around the law, human resources and competition.

“The GP is often the primary source of contact,” says Schaper. “I see the accountant in the same way. They are a primary source of contact and a trusted adviser, and people go to them for problem solving on issues from the law to employment regulations.

Even if they are not the person who can give the final answer they often give guidance on where the small business owner can go to next, he says.

Competition issues for small business

One of the likely next destinations for small business, after referral from their accountants, is the ACCC, which maintains a dedicated information line for small businesses and takes several hundred thousand calls each year in its role as the regulator of the Australian Competition and Consumer Act.

Some of these queries are referred to other agencies, such as the offices of state-based small business ombudsmen, or the Federal Government’s new franchising mediation adviser.

Around 5000 develop into reports which are logged by the ACCC, with the most common areas of concern being misleading conduct, scams and the mistaken acceptance of payments.

In 2017, these reports led to seven enforcement actions, including five for alleged breaches of the Franchising Code, and a total of A$177,000 in penalties.

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ACCC takes enforcement action

Each case, says Schaper, costs the ACCC just under an average of A$1 million to prosecute and will take up to a year to be resolved.

For this reason, the focus is on cases which have a wider impact, not on “he said, I said” disputes between two businesses.

Dr Michael Schaper, ACCC deputy commissioner.“We ask ourselves ‘is this a matter which affects a whole industry or is it just a business-to-business dispute’,” says Schaper.

“If it affects a whole industry we are far more likely to take it on, because it sends a signal to the market and can deter others and change some behaviours.”

Another observation from Shaper is that small businesses “are not shrunken down large businesses”.

Decisions are likely to be made by the owner, who is frequently the operator, and other family members are often involved. Because of this, many small business complaints are more like consumer issues than those facing much larger corporates.

“In most small businesses, a family’s wealth is bound up in the enterprise, so the personal and the business are often not separated,” Schaper says.

“Like many personal matters, the small business person often won’t come forward until a matter is well advanced and is at a critical point. Many just try and solider on and deal with it themselves.”

Small business scams

An ongoing problem is scamming. Small businesses reported losing A$3 million to scams in 2017, but the real figure is likely to be much larger.

A common scam is the fake invoice, often only for several hundred dollars, which a business owner or bookkeeper will pay automatically.

“This issue is quite a sleeper,” says Schaper. “Often by the time they realise it wasn’t a bona fide bill it’s too late, and it’s a small amount anyway and just too hard to get back, so they shrug their shoulders and move on.”

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Small business and unfair contracts

In November 2016, the ACCC was charged with the task of protecting small businesses against the market power of larger competitors, when laws on unfair contract terms were extended to small businesses.

Standard form contracts are an ongoing issue and Schaper says there are a number of cases where contract clauses create major imbalances and a “loss or detriment” for smaller businesses. Rollover contracts, where businesses are debited year after year, are an example of this.

Another area is misleading claims and conduct which can impact on small business.

In 2015, the ACCC won a A$2.5 million judgment against supermarket giant Coles, which was claiming that bread baked offsite and then finished in a store was “freshly baked in store”.

The judgment, says Schaper, helped redress the imbalance for small independent bakeries often competing against Coles in the same shopping centres.

How accountants can help small business clients

Across all these issues, Schaper recognises the role of accountants as a major channel for complaints and enquiries.

Accountants, he says, act as a “gateway” for their clients, and appropriate advice can add value to their relationships and enhance their reputations.

A client might ask their accountant if they can make a particular claim in their advertising, and in these cases the accountant might recommend they go and talk with the ACCC, he says.

“Our message to accountants is that we don’t expect them to know our Act back to front, but we are happy to give them generalised information and we welcome their role, particularly in referral.”

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