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Holding on to clients

Discussion in 'Business & Startup Investing' started by Bantam Roosta, 22nd Mar, 2007.

  1. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Hi all,

    My wife is a primary school teacher who won't be teaching for a while due to my quest to populate the earth, with her assistance of course. Anyway, I thought tutoring would be good for her and then I kept thinking and thought she could possibly continue with it and start a business. The idea is that as her numbers increase she would employ someone to do some tutoring so on and so forth.

    Now to my question. Is there a way to prevent a tutor stealing her clients, by offering a cheaper deal, or just forming a bond with them and talking them in to breaking ties with my wife.

    An example would be Bob gets tutored by my wife's employee for $40 hr of which the employee receives $30hr. Employee says to Bob, hey come with me and I'll tutor you for $35 hr. Is there a way to prevent this from happening?

    BR
     
  2. Jacque

    Jacque Team InvestEd

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    Hi BR

    I would think that getting both parties to sign some type of legal documentation upon employment and enrolment could be the answer here?

    The tutor could be bound by an obligation to the employer (ie your wife) that he/she is not allowed to take on any student that has been introduced by your wife's company or any student that subsequently he/she has not located themselves through their own advertising efforts etc.

    The student (or more accurately the guardians/parents of the student) could sign an agreement that prevents them from hiring the employees of the company outside on an individual basis.

    Perhaps there is actually nothing to stop both parties from doing this except ethics :rolleyes: but having at least some form of paperwork may make them think twice or reconsider before going down the private tutoring path, rather than maximising their chances through your wife's excellent programme instead :)

    I worked for a period of time in two tutoring centres- Kip McGrath in Qld and The Swot Shop here in NSW. As a teacher, the work was made easier for me as the programmes and individualized plans for each student/group were provided for me and were (naturally) subject to copyright, which meant I couldn't copy or replicate them even had I wanted to.

    You may be best to chat to other tutoring centres to find out how they prevent this sort of poaching from happening, as I can see how tempting it would be for parents just to hire someone "on the side" rather than going through the company or particular institution.

    I'm sure legal advice from a solicitor on what can be drawn up in the way of agreements would prove most helpful here. Good luck with it all!
     
  3. Glebe

    Glebe Well-Known Member

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    Yes it's doable, sorta.

    A clause can be inserted in the employee's contract that says something to the lines of "cannot work in professional capacity with existing client base within 12 months of ceasing employment with XYZ Tutoring".

    But you need to speak to a lawyer because there are potentially restraint of trade issues. eg how small is the town, how large is the existing client base etc...

    My wife has had this clause in her contracts as a consultant, but we've been a bit unsure as to whether it's legally enforceable. Enough to scare us off anyway, so she's steered clear of exisiting customers despite them wanting her services.

    Nigel???
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Good point about the restraint of trade.

    I was told by my advisor that any agreement must be reasonable and not overly restrictive, otherwise it will simply get thrown out when challenged in court.

    You'd need to specify a geographic exclusion zone (which will seem very small) and a timeframe (which will seem very short). There's not much else you can do. You can't just choose an arbitrary length of time or region for the restrictions.

    Definitely need to get good advice about this.
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    Yes good points raised by all.

    A couple of distinct issues.

    Firstly non-compete/restraint of trade.

    What you usually see in employment agreements or contracting arrangements of this sort is a restraint of trade clause that's a bit like an onion.

    The outer layer is (and I'm exaggerating a bit here) the employee/contractor can't compete with you "any time ever, anywhere in this universe or any parallel universe" :p
    Then if that doesn't work it's "5 years and within Australia" but if that's too unreasonable then it'll be "3 years and the eastern seaboard capital cities" or failing that "12 months and within Sydney"

    etc you get the drill (somewhat reminiscent of those great lines from Maxwell Smart from when he was cornered by KAOS agents and would allude to imminent reinforcements on the way :D )

    The second issue is poaching your clients. That's a definite no-no which you can expressly prohibit. Of course the practical problem is proving that the tutor poached them rather than the client deciding independently to move their business because they like the tutor so much...

    With respect to starting the business, I say go for it! It's low/nil capital outlay and the rates can be pretty lucrative I understand. Not sure if you need a "Working with Kids" clearance, but your wife will have that already and it shouldn't take to long to get other tutors cleared I expect.

    Keep us posted how you go.

    Cheers
    N
     
  6. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Thanks for the info so far. A lot to think about. I have very little (none) business knowledge so will have a few numpty questions coming.

    To further the background info, we will be catering for 1-2 kids at a time, not group tutoring. We intend on slowly building up the client base to 2-3 sessions per day and then 'employ/sell off' as many of those days to other tutors and then we can increase my wife's base and do it again. The idea behind this is if we don't get many clients, well that's all good, Karen will just keep tutoring herself, but this idea allows for expansion if possible.

    Will my wife need an ABN and/or company structure, business name etc? Initially it will be very small, but I want to set it up right, just in case. Will there be many costs in setting this up and does it have to be done initially or can it wait until we are ready to employ someone?

    Sorry if my questions seem vague, I don't really know what questions to ask.

    BR
     
  7. Glebe

    Glebe Well-Known Member

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  8. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Personally I think this is a potentially dangerous (to your business) move. I can tell you, if I went to see a tutor and they tried to get me to sign one of these things, I'd tell them in no uncertain terms where they could stick their agreement and go elsewhere. I would not, under any circumstances, be willing to give money to someone that tried to demand something like that from me.

    It's fair advice with employees, but I wouldn't be trying something like that on clients. To me, at the end of the day if a client isn't happy with the service or even prefers to follow a former employee to another business, there's nothing I could do about that other than try my best to convince them to stay.

    Mark
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    Agree with Mark on this. Stitch up your employees/contractors on non-compete/restraint of trade...but keep the documentation with your customers i.e. the parents to a minimum...less is more.

    i.e. here's the rate per hour and no guarantees little johnny will pass maths...

    Cheers
    N.
     
  10. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Thanks Glebe. A nice little resource. Will be back with some more stupid questions after I have digested it.

    BR
     
  11. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Well, I've done a bit more research, thanks to all your comments. It is quite hard to work out where I sit, as we are not starting a 'full' business straight off the cards and so don't have a lot of the capital issues involved in a lot of small businesses.

    Anyway, we will start as a sole trader, as this is the easiest to start and least troublesome on the organisation part. Yet to decide whether to just go with my wife's name or something different like 'little tacker tuition' or something like that (any ideas?).

    We will just get started as if we try and set up a fully running business with a business/marketing plan, feasibility studies etc we will never get going and in my case I don't think it is necessary at this stage anyway.

    If things go as planned we will review our situation as we grow and then look at the possibility of changing business structure and getting a bit more 'formal' as appropriate.

    Does it sound like I'm going about it a bit half-assed?

    Any thoughts on the above?

    BR
     
  12. rejoice

    rejoice Member

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    Is it something your looking forward to and are motivated to follow through with?
     
  13. MattR

    MattR Well-Known Member

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    I say go for it. Make sure the house insurance is up to date in case little Johny gets a splinter.

    When making plans - quick and simple to start with, then suck it and see, adjust as necessary. Don't get paralysis analysis. In the end its activity that will create results.

    On the tax side, be careful of claiming home office expenses etc as it may trigger capital gains tax on your family home. Also look into using the Simplified Tax System and in particular the accelerated depreciation (pooling) and the 25% Entrepenuers Tax Offset on this business income.
     
  14. Steve

    Steve Well-Known Member

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    Great advice that applies to just about everything in life.
     
  15. TryHard

    TryHard Well-Known Member

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    Might be worth considering some retention and reward schemes ? Nothing to stop most employees setting up in competition to their employer, except the employer often has the premises, infrastructure, business tools, training, vision, marketing, security of tenure, rewards etc. that most employees find hard to replicate.

    Maybe look at it from the perspective 'how can we make sure our staff never want to leave or scr** us ?" and see what ideas that generates ?

    Just a thought

    Cheers
    Carl
     
  16. JamesGG

    JamesGG Member

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    Hiya,

    A friend of mine started a business like this last year, at my prompting.

    She never tutored a single child. All she did was find kids who needed to learn stuff, and found older kids (uni students, mostly) who could teach them. She charged the clients $35 per hour, and paid the tutors what seems to be a going market rate of about $20-25.

    At one point, she made this into a semi-passive income of close to $200 per week. Since then, though, she's lost motivation and interest (due to a number of personal issues) and let it slide.

    She did ask her staff to sign papers to ensure she wouldn't lose business to them. Being uni students, many just signed away without asking any questions and didn't seem to care too much. I think she lost one client to a student in the six months she was running it.

    Good luck to you (and the wife) mate.

    James.