- How it All Began for Me
- Generating Ideas
- Locating Suppliers
- Contracts With Manufacturers
- Locating Your Clients
- Closing The Negotiations
- The Final Two Contracts
- What To Do if There is No Manufacturer
- Finding Expert Professional Aid
- Financial Aspects and Money Matters
- Company Status
- Fundamental Management and Documentation Keeping
- Dictionary of Terms
There is a secret to the epic success of Bill Gates’ Microsoft corporation and it has nothing to do with being in the right place at the right time, unparalleled intellect, or computers!
Many critics will wonder what William H. Gates III is doing on a list of the greatest innovators of the last 75 years. The world’s largest software company is often accused of piggybacking on the innovations of others rather than inventing itself. It’s even accused of using its market clout to suppress creations from rivals.
Still, Gates deserves to be counted as a great American innovator – just of a different sort. More than anyone else, he can be credited with turning the disorganized PC tribes of the late 1970s into today’s huge industry. Gates was among the first to recognize that all sorts of companies and products would be created if a computer’s operating system and all the other software programs were separated from the hardware. The insight liberated innovation. Anyone, anywhere could concoct new technologies, not just the engineers working on a new computer. “That was a doozy,” Gates says. “We allowed there to be massive innovation on the hardware side and massive innovation on the software side.”
Just as crucial, Gates understood the importance of ‘owning’ the dominant operating system in this emerging industry. His moment of truth came in the summer of 1980, when IBM (IBM ), in a rush to produce a PC quickly, was looking for another company to supply it with an operating system. Gates provided it and persuaded IBM to allow him to license the operating system to other computer makers, a move that both expanded the market exponentially and created a standardized platform for other companies to build upon. “He’s always thinking about the competitive chess moves he has to make to make his products more successful,” says Paul G. Allen, Gates’s boyhood friend who founded Microsoft with him. “I don’t know if anybody else back then had as broad a vision of what could be accomplished or that kind of competitive juice.”
Now, Gates is at the point in his life where his legacy is beginning to take shape. He’s certain to be remembered for the billions he amassed on his way to becoming the world’s wealthiest man … and the secret to his success?
Licensing … And how you can leverage it’s power today …
How it All Began for Me
“Most people are too busy earning a living to make any money!”
This is definitely true, particularly if you are a salaried individual. This is often the case even with people who are self-employed, more so if they charge by the hour, or perform some tasks wherein they are paid a standard fee for the work.
This was the story of events in my life, just a few short years ago and how I discovered the secret of Licensing; a secret leveraged by many of The World’s Masters of Wealth.
At 27, I was spending about 70 hours every week at work. This included weekends as well and also a couple of nights every week when I got home not before 3 in the morning. Although you could say that I was earning a decent living for someone my age; like a lot of others, there was not much money left over after the mortgage had been paid and all the other day-to-day expenses were taken care of.
I was certain that there was a better way; the only problem was I didn’t know what. Watching a lot of advertisements about promising ‘get rich quick’ schemes, I even tried a few of them, but unfortunately not a single one lived up to its exaggerated promises. I even stuffed my garage with costly stocks of cleaning supplies through those pyramid selling plans, which were so famous some years back.
And just like that, one fine day, I came upon something that was the break I’d been searching for all this time. Like a lot of great business ideas, this is a straightforward idea; but unlike many schemes, it doesn’t require you to purchase large stocks or work an entire day to earn good money.
Much of our business now revolves around Licensing but back then, on average, I only worked 2-3 hours per week developing it, and for every 10 items that I handled, I’d make as much as I was earning on my full time business.
So, what do I do exactly?
I obtain the select rights for distribution of any item from its maker, and then I simply sell that right to another person.
Let me start by telling you how it all began, and then you’ll know that there is no lack of prospects here, and how you too can make this idea work for you by utilising your own knowledge. My very first idea was linked to the catering business, but you will come up with various other ideas that are connected to your existing line of work. You should put your ideas down on paper as soon as they enter your head – never let a good thought slip away!
Here’s how it all came together …
My entire working life, at the time, revolved around the food industry as I owned my own outside catering business and also ran a nice little sandwich deli of my own. In my sandwich shop, we would prepare different sandwich fillings everyday and then display the fillings in chilled units for our customers to choose from. I thought the visual display needed to be spiced up a little, so I would spend hours carving tomato roses, and swans from lemons to create a nice and attractive finishing touch to the visual display.
The only problem was that the carvings would last just two days at the most and I’d have to spend hours recreating them. Thus, every second day, I’d waste a lot of time making the carvings. Not exactly waste, but you get the gist.
This got me thinking that perhaps there must be someone who could supply them pre-prepared so that my time could be better utilised elsewhere.
I called up all the catering suppliers that I could find and asked them if they could help me with my requirements. All of them had the same two things to tell me: none of them had pre-prepared food carvings, but all of them agreed that it was a super idea and hoped they were obtainable.
I was losing patience and preparing to give up. Then one day, at a friend’s place, I happened to notice some pre-prepared ornamental food carvings which my friend had got back from a trip to the Far East as a souvenir for his kids. The only problem was they were plastic and I thought that would detract from the quality image I was trying to portray in the shop. But when I saw the product in my hand they were so lifelike they were perfect …
My friend gave me the number of the place where he picked them up and I called up the given number, which was one in the Far East.
“Hi, may I be of assistance?” an Oriental woman enquired.
“Hello, I’m calling from England”, I replied. “Could you inform me who your supplier is over here”
“I’m sorry; we do not have a supplier in England.”
“Oh, alright”, I said. “Could you let me know who you have supplied to in the United Kingdom or Europe?”
Once again, “I’m sorry; we have never supplied to anybody outside the Far East.”
At that moment, the thought came to me.
“Would you be willing to let me have the exclusive UK rights to sell your merchandise?” I enquired.
She answered, “Sure!”
“Would you also be willing to let me have the exclusive European rights too?” I enquired.
Once again, the same answer: “Sure!!”
To be honest, I had no notion of what to do after that, but I intuitively knew that I had something great on hand. I had chanced upon such an item that was not to be had anywhere in all of UK and Europe, and I would soon have the exclusive rights to the product. Just the thought had me so keyed up that I was even ready to foot the expenses for drawing up the legal papers and importing them from the Far East.
I’ve learnt my lesson about that. But I do know that trying to obtain the solitary rights to an item is not preposterous, even though it may sound that way. You’re essentially telling the other person that you think their product is good. Nobody would ever be affronted by that, and they sure are not going to turn their noses up at the thought of having an entire new market for their goods. Any foreign business would spend thousands of pounds to start a European branch, and here you are – doing it practically for free!
Since you are already based here, it would be very easy for you to build the required contacts, which the company would find quite hard to do.
So, that’s what I started to do – build those contacts. I called up all the catering suppliers I had spoken to earlier, and they all were thrilled to know that the item I was looking for before would now be obtainable. And then came the bolt from the blue – they needed me to stock a warehouse full of goods, so that the product would be available as and when the need arose. This meant that I would need to get an entire load of pre-prepared ornamental, carved display foods, spend money on storing them, some more money to insure the goods, and then distribute them; all of which would cost me thousands of pounds! This was certainly not what I wanted!
After this, I decided to approach a producer of other types of table and unit displays. Their Sales and Marketing department was quite excited. They enquired whether I could give them sole rights to the product, in return for which they were prepared to pay me a royalty. This got me really excited and then the CEO of the company burst my bubble.
According to him, the plastic food carvings would be competing with his current range of table display products. With plastic ornamental food carvings on the scene, people would not use his products, thus decreasing his sales. “Thanks, but we’ll pass” was his decision.
Here I learned an important lesson. Any new item should not decrease sales of present goods, but add to them, thereby providing users a wider selection.
I discussed my dilemma with a customer, and he told me, “Get in touch with the main source of distribution for catering accessories.”
“And who would that be?” I inquired.
“Those who produce the real goods – bigger food carvings and ice carvings”, he said.
Initially, I thought it was not a very great idea. Obviously, if they had the marketplace cornered with bigger food carvings and ice carvings, they would probably not be fascinated at the idea of an alternative. But then it struck me that my product was not an alternative. I had small plastic food carving displays, which would perfectly complement the bigger ones. Thus, I grabbed the Yellow Pages and called up the first number.
I talked to the Top Man and he was so thrilled with my idea that he hopped on to an airplane the very next morning and met with me. By the end of the day, we had reached an agreement wherein he would pay me a royalty on whatever sales of the pre-prepared ornamental food carvings he managed sell, and I left with a cheque in my pocket. Yes, there were some formalities to complete and loose ends to tie up, but that was just a little administrative work. The deal was on!
From then, till now, I have obtained and re-sold the sole rights of various other goods such as:
- A product for gift wrapping presents in balloons
- A device for keeping open bin bags
- A collapsible bin
- A series of novelty door knobs
- Vending machines
- A device for rocking babies to sleep
- A bracket for holding paint tins on ladders
By reading all this, you are probably realising that here’s an idea which may work well for you too. You may have, in all likelihood, even come up with some possible ideas about goods that you can handle. Even if you haven’t, worry not. That’s what I’m going to do – educate you about how to search for goods and products, and come up with ideas, which will enable you to strike your own deals and earn handsome royalties. And they don’t have to be physical products – I now hold licences to distribute many digital, information products on the Internet.
*The Appendix has a few sample agreements, which can be altered as per your individual needs.
So, how exactly are you going come up with goods which will help to strike up royalty creating deals? Here are some useful suggestions:
- The products should preferably be manufactured in a foreign country and not available in your own.
- The goods should enhance products already available in your country.
- They must be in keeping with safety guidelines.
- They should work with regular equipment already available (for instance, electrical goods).
- They should be connected to a field which you are knowledgeable about. (But this is not always the case).
There are a couple of methods to locate actual goods. One way is to start thinking and come up with a list of some products that you have often wanted, but never found. You can rack your own brains and also ask others who may have decent ideas. Once you have thought of a few such products, you go searching for them. The second way is to find some unusual products, and see if anything of the kind is available here.
Now you probably have a better idea why the last suggestion advises you to work with products related to an area which you know about. Else, what appears to be an awesome idea to you may well be ‘old hat’ to the very people you think will go for it.
Utilize your work experience:
- There may have been some occasions when you hoped you had a particular product, which could make work a lot simpler.
- Are you a salesperson? Maybe you require some items to help manage your brochures better; or perhaps some product that dispenses samples at the flick of a switch.
- Do you often find yourself in dim areas? Maybe you could do with a small torch attached to a headgear that could be charged using your car battery.
- Do you use your hands a lot? Possibly you have often wished for an added pair, or some product that could accommodate different things while you worked on them.
- Does your work involve a lot of driving? Perhaps you need something to help keep the back of your footwear dirt-free, or a product to keep cash to pay for tolls, within reach?
Try to conjure up every amazing device that you’ve seen people utilizing in their line of business – the sonic measuring tape, the wet meter, the lighted screwdriver – all of these are the product of someone’s great imagination.
Look around your house or use your hobby:
Similar to work, there are often times when you may have hoped you had some device to make your housework easier. Take a look at some things that are already available. Do they bring to mind any products which would be indispensable 5 years from now, on which you can get good royalty?
- Kitchen gadgets: the fizz-saver for drinks, synthetic ‘bears paws’ for picking up meat, mechanical bread makers etc.
- Bathroom products: water-resistant headrests, toothpaste vending device, plaque removers.
- Around the drawing room: ‘lava’ lights, sand photos, trays that affix to chair arms, scent atomizer
- In your work-area: screwdrivers that can be re-charged, automatic drill chuck.
- Garden things: ‘plug’ sectioned seed trays, roll-out pathways, click-fit watering mechanism etc.
- Pet products: extendable dog chains, the vacuum brush, a tick collar.
- Sporty items: training shoes purse, the golf-tee that self-adapts, low-priced fitness equipment.
Hear what others are saying:
When you speak to others about their work and hobbies, you will repeatedly notice that people impulsively tell others about how they wish they could purchase certain things. If they are aware that you are connected to the import of such items, in all likelihood, people will tell you what they want. And even if they don’t, you should come right out and ask them. People will rarely think that they can source these things on their own.
If you or your friends and family, on trips abroad, have ever happened to come across certain things that people use there, or which are available in foreign shops, then this could be a great area for new ideas. For example, the small metal clasps that outdoor eateries Utilize to hold down their table cloths, which could come quite handy at barbecues; the plastic fasteners which clip to dish-cloths and clasp onto a ring; the trendy wicker furniture from Thailand, which could look awesome in conservatories etc. Whatever such products you come across on foreign trips, which are not seen here, would do. In fact, taking a day-trip to France and scouring the hypermarkets for inimitable, unusual products may not be such a bad idea after all!
Study trade journals:
Trade journals are an exceptional supply of information. These may not help you find items to deal in, as the goods are already available in your country. How this does help however, is in the elimination process so that you do not end up handling goods that are already available and thus not exclusive. By having knowledge about what is available, you can better judge where to fit in your unusual goods. It may even inspire you to come up with related products to look for.
For example, in the catering industry, sanitation requirements have resulted in a colour coding system for chopping boards and cutting knives. Chopping boards carry a coloured dot, and the grips of knives are coloured, so that chefs do not use the same knives for raw meat, which are meant for cooked meat on a board which is to be used for dairy products only. Such colour coding could work for which other products? Is it likely that home cooks and commercial chefs would use them if their packing was attractive? Could such a colour coding scheme be used for other DIY tools as well?
Apply creative lateral thinking:
If you aren’t finding it easy to come up with fresh ideas from existing ones, attempt the exercise of conjuring up different uses for a common, everyday item. The item that is mostly used in this exercise is a brick. Majority of the people can think of various uses, but essentially, there are only two – using the brick as a building material (for e.g. making walls, pathways etc), or as a weapon (for e.g. to throw at retailers windows, knock someone’s head with etc).
But those who actually tax their minds, and who think apart from the obvious (lateral thinking), are the ones who really come up with fresh ideas and unique uses such as: brick door stopper, ashtray, holder for matches, match striker, using bricks as steps in a ladder, vehicle jack, ruler, tyre wedge, feet warmer (after a little time in the oven), paperweight, added in the toilet cistern and used as a water saver, stand for cooking dishes, animal hobble (with a rope or cord), stepper for exercising … can you come up with some more?
Undertake the same exercise with different items and check what you wind up with.
Are any of the ideas any good?
Making the effort to work out a deal with a product maker isn’t going to do you any good, if the product is not going to be wanted. It could get worse if you actually made the effort to locate someone to carry your products, and then realised there were no buyers for it! That won’t earn you any money, nor any friends.
You thus have to evaluate each product that catches your fancy, with regards to its marketability. Simply because an item enjoys tremendous sales where it is made, does not essentially indicate it will do well here too. Some items that I have mulled over, and rejected, were a collection of bow-ties and cummerbunds in one-of-a-kind designs, and even a device for printing photos on dinner shirts. Although they sell a lot in the US, they don’t in UK. Why is that?
Because of the fact that, men’s evening attire market in the UK is quite traditionalist. Perhaps more than 75% of dinner suits are worn to Masonic dinners, where any attire except a black tie and a plain white shirt, is frowned upon.
I have even discarded the idea of a type of computer software for self-hypnosis, as I foresaw various kinds of legal problems; and a crossword puzzle book, in which every square had to be scratched to disclose the letters beneath. It appears that people would rather write using a pen.
Perhaps a sure fire way to evaluate whether or not a certain item will sell is to go through the initial process of trying to sell it to the wholesale merchants. Here, I’d like to give you a few words of caution: NEVER, UNDER ANY CONDITIONS, DISCLOSE TO THE WHOLESALERS WHERE YOU OBTAINED THE PRODUCT FROM.
Don’t mention who the manufacturer is, which country it originates from, how you came by the item, and don’t even mention any other goods that the manufacturer produces.
If you let this information slip, the wholesale merchants can go right to the source and cut you out – which most WILL do. If they enquire where the item is from, tell them you aren’t ready to part with that information till such time that an agreement has been signed. It would even do to imply that you are just about to sign the contract for exclusive rights with the maker.
It’s really a positive indication if they attempt to get this information from you. They wouldn’t try if they didn’t believe the product to be feasible for their market. Contact at least 6 different wholesalers in various regions of the country/county, and check whether all of them have a similar reaction.
If anyone is not excited about the item, ask their opinion about why the item won’t sell, and then evaluate the answers. If all but one say Yes, you must keep an eye out for the one who said No, as he might have said that to discourage you, and may well be planning to do it himself. Do you still remember that first table and unit display maker, who said No to my ornamental plastic food carvings? Well, the thing is, he has recently announced his own line of pre-prepared food carvings. Perhaps I’m suspicious without reason, and he’s simply trying to profit from the market I created. Then again, perhaps I’m not.
If your creating an internet product do a search on Google Keyword Planner to see how often it’s searched for.
There are hundreds of niches you probably didn’t even know existed that are searched for every day and there are products that you’d expect to see hunted down with surprisingly few searches.
Have a plan of action:
- Prepare a list of the various items that you’ve always wanted but could not locate in the stores.
- Enquire of your friends what stuff they’ve always sought but could never find.
- Study as many trade journals you can lay your hands on.
- Start speaking with wholesalers.
If you wish to find a certain item that you’ve thought of, or you simply want to know what’s out there, you have to start by finding some likely product manufacturers. I get a host of products from the US and Asia and have built up solid contacts there, but the entire universe can be your arena. As I said earlier, launching a foreign operation is very costly for any producer. The further they are from their target market, the more difficult it is for them, particularly if English is not their native tongue.
Foreign languages do not have to be a barrier for you. You can correspond with your manufacturers through letters and faxes, and the Chamber of Commerce in your area will assist you with any required translations. This may not even prove to be necessary as English is now used widely in global business.
You may believe that you can find goods manufacturers by going to wholesalers and seeing who produces items that are akin to what you’re searching. Although you can get a general idea of items from wholesalers, and you may even determine how well different products do; it is my understanding that majority of the wholesalers are far too shrewd to disclose where they source their goods from. In fact, they even remove all the labels from their items so you can’t find out on your own. To find wholesalers, look in the Yellow Pages, or in Wholesaler magazines – a good UK magazine called ‘The Trader’. This magazine gives you access to interesting ads which will help you determine what all is available.
Your closest City library, which can offer you directories on global trade, can be your direct method to find manufacturers. I always take the librarians into confidence and they then assist me to find the correct directories. The key information to unearth is which countries produce the kind of merchandise you are fascinated with.
With this information in hand, your next step is to dispatch a letter to the Commercial Department at the London Embassy of your selected nation (or equivalent trade body in your country, such as The Chamber of Commerce) . You can use one of two approaches in your letter. The first one is to tell them that you wish to import certain types of goods and would like the contact details of manufacturers of such goods. On doing so, you will get a horde of brochures in your mail. The trouble with this plan is that the manufacturers generally want you to import the merchandise on your own; or work as their regional agent, which entails making clients and delivering the orders to the manufacturer.
Thus, the second approach, which I also use, seems to be the smarter choice. I request the Embassy to provide me with a listing of all the trade magazines that are related to the goods I am interested in. I even request the British trade journals to give me information about their foreign equivalents. When I have a list of these magazines, I contact them and request a sample copy and subscription details to be Air Mailed to me.
On studying the samples provided, I determine which has the maximum usefulness, and then subscribe to that publication for an entire year. If you pay through your credit card, you neither have to concern yourself with exchange rates, nor have to pay bank charges for a non-pound cheque. Although you can locate these publications through trade directories; in order to get the most up to date information, you are advised to contact the Embassies.
Similar to British trade journals, these journals too have various adverts and also a ‘What’s New’ segment. From here you can get the details about the manufacturers that you seek. From here, you do as I did – you call up the manufacturers and enquire who they supply to in UK (or your country), and the rest as they say … You might need to speak with their Export unit or their Sales and Promotion department.
As I mentioned previously, if language is a problem on the phone, simply email them a letter instead.
Gauge the time difference prior to placing your call. The American East Coast is about 6 hours behind UK time, whereas the West Coast is about 9 hours behind us. In Europe, areas that lie east from Denmark to Tunisia, are a minimum of 1 hour ahead of UK time. All these countries employ the ‘daylight saving’ hours system, wherein their work day begins at 8am in place of our 9am.
When you call, be ready for them to ask about you (where you’re from, what you want etc). Not many ask, but you need to be prepared just in case. I generally circumvent any such queries by telling them that “I have the exclusive rights to various items like theirs, and wish to add their item to my range to expand it.”
The next chapter provides information about settling deals with the makers, but before that, a novel method to find great merchandise.
The Wonderful World of the Internet:
You’ve surely heard of the internet!
I for one, use it on a daily basis. I have global connections and I chat with my contacts frequently through e-mail. I am also a member of various websites which have excellent information sharing forums (chat groups). The forums on ‘New Ideas and Innovative Inventions’ usually provide new information from people who wish to sell new goods. You even get the latest news, have access to advertisement columns, and can participate in ‘CB simulators’, which are live discussion forums.
Just a few minutes on these forums can give you excellent marketing ideas as well as fresh new products for sale. Some of the ideas may not be novel to you, but there will be plenty that are and these could help you make your fortune.
Do a Google! (or Yahoo!)
About Trade Exhibitions:
I visit trade fairs every chance I get. One more advantage of finding those trade publications that I mentioned previously is because the trade fairs are promoted in them. I tried to avoid British trade shows because even if I was to find some promising products, there is a good chance others will too. And what I needed was to discover items before others found them; which is why, the minute I could afford to go abroad, I started visiting trade shows in foreign countries and discovered many new products and suppliers.
If you do not have the means to visit the trade fair, you should at least call the fair organisers. Let them know how sorry you are to have missed the chance to attend the fair in person, due to prior commitments, and request them to send you a copy of the fair brochure. Rarely do they say no, and you get the contact details about all the booth holders.
Before I forget to say this – when you have located the perfect item, and found its manufacturers, please see to it that they are the exclusive makers of that product. You would be wasting your time and money by trying to procure sole rights from a particular producer when a host of other people manufacture the same goods and could be selling the rights to others.
Here’s a summary of your plan of action:
- Go to the City library and discover the countries where your chosen items are made
- Contact the Commercial Department at their Embassy and request a listing for the trade journals of that particular country
- Request information about their global counterparts from British trade publications
- Get in touch with the publications and request sample issues and subscription charges
- Visit trade shows and exhibits
- Get in touch with prospective manufacturers and try to get information about items that catch your fancy.
- Get onto the Internet and join information forums
Contracts With Manufacturers
After you have found a product maker who is ready to give you the solitary rights to his goods, you have to begin discussions with them and sign a formal contract.
An important observation that I have seen is that not even one of the manufacturers I have done business with has had a standard contract for me to sign. They all appear to be quite satisfied with the fact that since I have a contract ready means that I know my job, and are thus entirely content dealing with me. This is not to suggest that you may never come across a manufacturer who has his own contract, but it does seem that the majority never have one.
Things to include in the contract:
*The appendix carries a sample contract, which you can modify as per your needs; or you could hire an lawyer do draw one up. Whichever way you choose to go, certain things that need to be included in the contract are:
- The manufacturers name and the registered address of the company
- The name of your company and its registered address.
- A ‘recital’, which is a declaration that the manufacturer (also called the ‘principal’) makes the products that you are interested in, and also includes the statement that you wish to sell these products.
- Detailed meanings of all the terms used in the contract. This prevents any misunderstanding which could later lead to arguments about the meanings of things. The important terms to watch out for are addressed later.
- Something known as ‘Grants and Reservations’. Grant is a declaration that the maker gives you the right to distribute his product, and also concurs that he will neither choose any other person to distribute or sell the goods, nor will he appoint an agent to do so. These conditions provide you with exclusiveness in the region. The Reservations part enables the maker to change the price of the goods, or modify its design or styling. The manufacturer thus ‘reserves the right’ to carry out all this if desired.
- Responsibilities of the manufacturer: This indicates all the things that the manufacturer needs to do, such as, supplying the samples and catalogues, and offering you protection in case any claim arises from a faulty item. Payment details are generally included here as the maker needs to offer you terms of credit.
- Responsibilities of the Distributor: All the duties that you need to fulfil are listed here. These typically comprise – not distributing competitive goods, not transferring the contract without consent, ensuring that the goods are stored suitably, they are never tampered with, and also consenting to clear invoices in a timely fashion. (More about this later)
- Any causes which can result in the automatic cancellation of the contract, like liquidation or insolvency
- ‘Termination Details’: This indicates what will happen when the contract period is completed. What happens to the remaining stocks of goods; to the brochures; with any un-cleared invoices etc; all that is included here
- Sundry Items: This is where you list all the other little details that do not fit elsewhere. These include – who has to insure the goods, how changes in address will be notified, and of the utmost importance, how will disagreements and disputes (if any) be settled. Disputes can be sorted in one of two methods – either through arbitration, or you can include a stipulation that says that the contract and any dispute is to be judged as per the laws of a certain nation (preferably UK). Here I’d like to offer some personal advice: you should always choose the arbitration method (which is what I do) as it is much more cost effective than court battles. This crisis will perhaps never arise (it hasn’t with me), but as they say – always be prepared.
Now we come back to the Schedules, where all the important meanings related to the products should be listed:
1) What will be the legal tender: Here you specify which currency you’re going to work with. Although it can be any that you want, I generally deal in US dollars or UK pounds only. Since most of the manufacturers I deal with are in the States, it is convenient for them to deposit payments in my US bank account, whereas it is also convenient for me when I need to pay for any items in the US. (For instance, there are times when my suppliers need me to pay for trial products, etc.) If you routinely visit a certain place for trips and holidays, you can choose the currency of that nation and have your own bank account there. Just make sure that you do not end up paying personal income taxes in both the countries. Consult with your CA and the international trade unit of your bank prior to making your final choice in this matter.
2) The contract ‘term’: Here you specify what duration the contract will be for. This is typically mentioned as being for a specific amount of time (I generally opt for 6 years), and also for an unending period after that, till such time as decided by either of the parties to terminate the contract, after providing the required notice. I generally put in a notice period of one year.
3) Your exclusive territory: You must exercise utmost caution when outlining your territory. Don’t say England if you have exclusive rights for UK, or you may just have to contend with someone in Wales or Scotland, distributing to companies there which have a presence in England as well. Specifically state United Kingdom in the contract, or mention all regions including England, Wales, Northern Ireland, and Scotland. Keep in mind that Ireland (Eire) is a country in its own right and should be treated as such. Defining ‘Europe’ is the critical part. You may take the term ‘Europe’ to mean the geographical region called Europe (which comprises Iceland, a little of the USSR, Bulgaria, and Romania). However, others could think of it as the European Economic Community, which incidentally does not comprise all the nations that are in the geographical region. Since the definition of Europe is subject to change, you are advised to mention every country that is included in your territory.
4) ‘Purchasing’ the goods: The final contract is worded such to indicate that you will be purchasing the goods yourself and distributing (selling) those to wholesale merchants and other clientele. You need not stress over this point as it is the accepted procedure and does not indicate that you will have to hold large stocks of goods. Instead, what is going to happen is that whenever you find a taker for your products, you will allocate your rights in the goods to them, from where on it is their duty to import the product and sell it. This even serves as a solution to what could have been perceived as a hitch in the contract, where it mentions that you need to establish your capability to sell the products in your region.
The actuality that you will be allocating the contract to a third party is implied from the start. I have seen that manufacturers tend to take my word more at face value when I tell them that this is my plan all along rather than when I act as if I am going to sell the goods on my own. My standing as a single person is much less than that of a large organisation that is currently selling in the market. So I tell them that I will be finding someone to assign the rights to; someone with an annual turnover of at least XXX million pounds and a sales team of at least XXX number of people at their disposal. I don’t give any indication as to who that might be, regardless of whether I know or not. As I have to bear all the costs of locating this third party, the manufacturers are quite content to let me do my thing. I propose to them that if within three months I do not find the right company to sell the goods, then the contract will be treated as cancelled. Till date, I have not seen any manufacturer who wasn’t satisfied by this approach.
Here’s a summary of your plan of action:
- Ask your attorney to draft a standard contract for you to use with the suppliers. You could use my sample as a starting point
- Make sure you fundamentally understand all the inclusions in the contract. If you’re not entirely sure what a certain clause means, ask your attorney to clarify it for you.
Locating Your Clients
After you have signed the formal contract, you need to locate people to assign your rights to, who will sell the products in the market. There is always the option of importing the goods yourself and distributing them, but if you ask me, it’s more trouble than it’s worth! Why should I invest my own money and spend precious time distributing the items, when the alternative is to locate someone to do all this work for me, and even have them pay me in return!
Now you know why it is an advantage to handle goods that are connected to a business that you are knowledgeable about. If you don’t have any idea about the product field, you will need to search through the Yellow Pages, trade directories and journals to trace the ideal company. Once you find them, and tell them about your product, a typical reaction to expect is “How would you know what might do well in this particular industry?” If your answer is likely to be “Umm, because I seem to think so”, you will definitely be on the back foot in dealing with the company.
However, if you answer, “I have worked practically my whole life in this industry and am quite thrilled with the possibilities of this particular product, because it is far superior to the one that is currently being used, etc”, then you will have established that you do know what you’re speaking about, which will inevitably make them trust your take on the subject. (There are those who will act as if they don’t, but that is simply a normal strategy to gain the upper hand in negotiations).
Another benefit of handling items from a knowledgeable field is that you are likely to be aware who the best people in the business are and you can start directly with them, rather than spending time searching the right company. You must go with the best people as the preferred outcome is to assign all your rights in the goods to a single entity, instead of dealing with various organisations who handle separate segments of the market. You could break it up and give the UK rights to one entity, the Italian rights to some other company and so forth. Except, why would you not make the effort to locate a single company (if possible) and avoid all this extra work and cost?
And it’s not simply the added work of the initial deal. You will need to organise all the payments that you get every three months, and also stay abreast of how your customers are doing. So, why do all this many times over when you can do it just once? By breaking up your territory, there is an added peril that you could miss out on some important regions, thus having a hole in your coverage. Your supplier can then take back the rights of those particular areas. Why take that chance? So, it’s much better to assign all your rights to a single company and be free from such headache.
One more goal in finding the best company is that you can ensure that you have a presence in the entire market. For instance, suppose you have the sole rights to a novel type of plastic consumer bags. You could approach the people who purchase plastic carrier bags for a particular chain of stores and offer them your rights. They would jump at the thought of being one up on their competition by giving the novel bag to their patrons. However, by doing so, you could be limiting your earnings. After all, how many plastic carrier bags can any one chain of stores use?
But, if you approach the big fish – the people who supply plastic bags to all the big chains of stores, then you could literally enjoy sales of billions of bags, instead of a few million. Just imagine the profits that this could entail???
Here, I must say that I always attempt to locate companies which absolutely love my merchandise. If anyone is even slightly hesitant and need to be cajoled into trying my products, they probably won’t do full justice to the goods and no one would profit from the arrangement. An excited client will also be someone you can bargain better with about the royalty, and will not even hesitate to provide the details of their corporation, which you will require to give to your manufacturers to convince them that they are the ideal company to sell their products.
Closing The Negotiations
Your product is a hit. Your customer is persuaded. They even wish to obtain all rights for the goods. All that remains is to hash out the financial aspects and sign a formal deal.
It’s not easy to offer precise opinions regarding what earnings to expect from a particular item. This will depend on the item as well as your negotiating powers, which is why it will differ a lot. If the product is likely to be for the masses and will sell easily, you could bargain for a bigger royalty cut. But, if the product proves slightly more difficult to sell, you could persuade the client to handle the item by asking for a smaller royalty (in reality you want to be spending time on sourcing the best selling merchandise). In such circumstances, you could even end up receiving larger commissions from your manufacturer.
Yes, that’s the beauty. Both the parties – your manufacturer and your distributor, will pay you. You receive a royalty from your distributor as you are offering him sole rights for the item, without any competitors. In addition to which, you receive a commission from the manufacturer on all the items that are sold in your region.
This may cause you to question why the manufacturer would go for such a deal. Since he already has a contract with you, wherein you will purchase the items at their regular cost, why would he give you a commission on whatever he gets from your distributor, when the distributor too is paying the regular cost.
Well, to answer you in a single word – quantity. You tell your manufacturer this, “If you let me allocate my rights to another party, you will sell a lot more items than I could possibly manage myself. For which you pay me the commission.” They simply will not say no as you already have a signed contract, which does not state anything about the least amount of goods that need to be sold. Till such time that you are giving them some orders (regardless of how small), they cannot cancel the contract and take back their rights.
However, they will want some information about who your distributor is going to be. You obviously do not want to disclose that information, pretty much for the same reasons as why you don’t want to disclose to your distributor who your manufacturer is; because they might just cut the middleman (which is you) right out. Thus, you need to give them some useful information, just not the whole truth.
Do not mention something like, “It is the largest plastic carrier bag producer in the UK” – you might as well just say the name.
Instead, you should tell them, “The company has a supply agreement with the majority of big store chains in the country, and are also establishing a sales team of XXX number for their European expansion plans.”
The term ‘Supply agreement’ is truthful enough but also adequately unclear, as it indicates items ranging from bags, to sanitary ware, to cleaning supplies, to kitchen ware etc, which means you could be referring to any number of companies. After they decide to let you pass the contract onto another, you get ‘the licence’ (the third contract) signed by them, but still do not disclose who your distributor is on the agreement.
You might have to undergo some degree of running back and forth between your manufacturer and distributor before you get the desired rate of royalty and commissions. I usually try to get about 5% to 10% of all sales, which typically winds up being evenly distributed between the supplier and my customer.
I really do favour that the supplier proposes what percentage they pay me in commissions; at the very least I inquire what rate they would most be at ease with. It is simply not possible for me to study their account books, so I prefer not to force them into a situation where they need to ‘tamper’ with their accounts. Some manufacturers believe that they can recover this commission by charging a higher price for their products. However, I always recommend that they not do so. Why give clients cause to look around for another product?
The arrangement with the manufacturers is quite clear-cut. You wish to be paid a percentage commission on their proceeds from the distributor; nothing more, nothing less. The arrangement with the distributor however, can be worked out in various ways, which gives you added negotiating powers. Keep in mind the main rule for negotiations – you need to settle more than just the price aspect, the structure of the arrangement has to be worked out too.
The next rule of bargaining is that the deal should be mutually beneficial or it will fizzle out quickly. However, it is human nature to do dumb things. People become selfish and upset the deal as they desire more than what is practical, or sometimes get a superiority complex and just have to show that they are smarter than the other party. Regardless, all things said and done, the only evidence of your smartness is the money in your bank. And that hinges on the satisfaction of your customer with the arrangement so that they stick by you instead of finding someone else to do business with.
Your dealing can be done through written correspondence (faxes and letters) but that can take a considerable length of time. And although phone dialogues are quicker, I somehow am not quite at ease trying to negotiate an important deal without being able to see the other party. Thus, I always attempt to do my entire deal making in person. Being face to face with them gives me a chance to gauge their reaction to any of my proposals, and I can even determine when their counter offers are genuine and when they are just testing me out.
All your people-reading ability needs to be used while finalising the deal; an essential facet of which is body language. Since I am not writing this to teach you about body language, I will not go into details here. But I will tell you that it is vital to observe their stance: is it defensive and suspicious, with either the legs or the arms crossed, and are they facing away from you or leaning backwards. Or, is their stance open and calm, with their hands by their side or on the desk, and leaning towards you as if interested in knowing what you are proposing.
When the other party exhibits the defensive stance, I pull away from them, take my papers away from them and try to give them some space, which actually appears to help. With those who seem comfortable, I lean towards them and push my papers closer to them, all the time keeping my eyes on theirs (don’t bog them out just keep eye contact!).
They believe that rug dealers out in the Middle East keep watching their clients’ eyes at all times, biding time till they see their pupils widen, which indicates that they have come upon a rug that they absolutely love.
I too keep an eye on the faces of people whom I am negotiating with, when we are just talking pleasantries. Majority of the people shift their heads or faces in a particular direction when they are agreeing about something, or when they see something that they like. Whereas, if they are disagreeable about something, or when talking about something that they don’t particularly care for, they move their faces and heads in the other direction. A ‘Yes’ is usually accompanied with a slight nod or even a half curl of the lips; whereas a ‘No’ usually comes with a tiny shake of the head or a small grimace. Thus, I usually ask sociable questions to which they will answer yes or no. And when they do, I keenly study their body language and the subtle signals that they give off.
Another thing that I look out for is any indication that they are lying. I never believed that people actually raise their hand to their faces (mouth, nose etc) when they aren’t being honest, but that is the truth.
Some people might even give an edgy little cough (no, I’m not kidding!). And yes, at times you will even come across a tough guy who has ‘poker face’ down to an art. But, by and large, I notice that peoples’ body language and facial expressions are quite easy to interpret.
By the way, I’d like to offer you a small piece of advice: if a few years after your initial few contracts, you recognize that you may have ms-interpreted the signals which may have landed you a superior deal, don’t stress over that. We’ve all been there, and you need to treat it as something that just happens, and should simply think of it as valuable experience. You definitely should not grumble about it to your clients, or even bring the topic up should you get the chance to negotiate another deal. If you do, they might think that you are attempting to cover your previous losses and laying down unreasonable terms for the new deal, even though you might not be doing anything of the sort.
The structure of the arrangement:
You can shape up your arrangement in various ways, depending on whether you want a one time payment, or repeated royalties, or both. Your choices are:
- A one time payment without any ongoing royalties, and infinite rights
- A one time payment that applies to a predetermined period, after which you get back your rights
- A lump sum payment followed by royalties for a specified period; at the end of which the deal can be carried forward as is or re-negotiated
- A lump sum payment as well as royalties for ever
- No one time payment but ongoing royalty for ever
- No one time payment, royalty for a limited period, at the end of which you get back your rights. Even though you will not get a lump sum up front, I still attempt to get at least some up front payment so that my legal cost and charges will be taken care of.
However, I usually attempt to get them to pay me a lump sum, particularly if the goods are such that they could enjoy an initial run and then fade out. But it may not always be possible for your distributor to part with considerable amount of money right at the start. You simply have to gauge their circumstances from their body language and facial signals and bargain till you reach a deal that makes both of you happy. Just so I do receive an up front payment, I generally agree to a lesser royalty, and that may just be the deciding aspect if they believe that the goods will sell for a long time to come.
After we have reached a mutually satisfying arrangement, we go ahead with the signing of the contracts. If there is enough time, I dispatch bare copies of all three contracts to them prior to our meeting so they have time to study the papers. I’ve just told you about the chief contract, and in the next chapter, I’ll take you through the others. (Copies of all are available in the Appendices.)
Here’s a summary of your plan of action:
- Let your manufacturer know that you have located someone to pass your rights onto, but DON’T give the name
- Settle on a percentage for your commission with the manufacturer
- Touch up on your people reading talents and negotiating powers
- Prior to meeting to settle the deal, think about all the various ways you can shape the arrangement.
The Final Two Contracts
1) The Deed of Transfer
Even though this is known as a deed, it is like a contract. This deed should include the following essential clauses:
- The deed is among you and the distributor corporation, with the Managing Head of that corporation acting as guarantor. The guarantor will see to your royalties if the corporation goes bankrupt
- The ‘recitals’: Statement saying that there is a contract which confers the rights in the goods to you; which you in turn are selling to the assignee, and also that the principal manufacturer has given his consent
- The meanings of terms: This consists of invoice dates, generally ends of quarters (e.g. 30th June) and payment period (15 days after invoice e.g. 15th July); the percentage rate for royalties and what it depends on; the legal tender to be used; rate of interest on delayed payments; how much one time payment; and the period for which the contract holds
- The formal transfer
- The distributors consent to give you statements and to hand over your royalties inclusive of VAT, and not to transfer the contract to another party without your consent
- Specifics of damages due in case the contract is ended earlier
- Your right to examine their account books, or to hire an assessor for the job
- The specifics of the guarantor.
After the distributor company (its legal signatories) and the guarantor have put their signatures to the Deed of Transfer, you are in no risk and can then divulge your principal manufacturer’s name. You can accomplish this by handing over a copy of your chief contract, which contains the principal supplier’s details, and also a copy of the licence (third contract) after their name has been included in it and they have signed it. Those who need to sign this are the principal supplier, who you will already have gotten to sign at the time they decided to let you allocate your rights to another person; and the distributor, as they need to consent to particular items in the contract.
2) The Licence (third contract)
This contract is just an official paper which says that the principal manufacturer gives his consent for you to pass your rights to another named entity. Some essential clauses included in this document are:
- The personnel details (names, addresses etc) of all three parties – the principal manufacturer, you, and the distributor
- The ‘recitals’: Again a statement which says that this contract is an add-on to the chief contract; that chief contract which includes a clause that enables you to pass your rights, and that the need for this contract is to get the principal manufacturer to consent to such passing of rights.
- The meanings of terms: which are much the same as those in the Deed of Transfer (invoice dates, payment period, currency used, commission percentage, interest rate etc)
- A declaration that the principal manufacturer confers on you the licence to pass all the benefits of the chief contract to the distributor
- A declaration that the distributor agrees to do all the duties regards to distribution
- A declaration from the principal manufacturer freeing you from such distribution duties.
Thus, you will require a minimum of three signed copies of all the contracts, so that all the three parties have one copy of each contract. However, if the guarantor is not the same person who signs the Deed of Transfer (if it is signed by other company signatories) then you will require an additional copy of that contract.
Here’s a summary of your plan of action:
- Have your advocate draw up a Deed of Transfer and the Licence contract
- Ensure that you fully comprehend each contract
- Enter the manufacturer’s name in the Deed of Transfer, but do not show it to your distributor till they have signed the Licence
- Enter your distributor’s name in the Licence, but do not put your principal’s name till the distributor has signed the Licence.
- After the distributor has signed, enter your principal’s name, and provide your distributor with one copy of all the three contracts.
What To Do if There is No Manufacturer
OK, so you have just come up with this amazing concept for a new item and your family and friends think it’s an awesome idea; but what do you do if no one actually manufactures such a product?
Let’s see … if you’re absolutely sure that your idea is indeed an amazing one, and that people would actually buy your product, you could think of acquiring a patent on your item. This way, you will be secure for twenty years; in which time you will hold the sole rights to Utilize and sell it.
However, I must caution you that acquiring a patent is quite a costly process. I’ll educate you about how it’s done, and then I’ll do one better and tell you how to safeguard your brilliant idea without incurring all the costs.
What you first need to know is that every nation has its individual patent law. Acquiring a UK patent may not automatically safeguard your invention in the US, or in New Zealand, or anywhere else for that matter. Although, there are a few European laws which protect new products in all of Europe, and even some international rules which make it simpler to apply in foreign countries; you still may need to acquire different patents in different nations.
Although individual requirements may vary, there are some which are standard everywhere. The four major ones in UK are:
- Your product should not be in a category that the Patent Office deems ‘excluded’ creations. These consist of items that could promote corrupt, anti-social, immoral, or hateful behaviour; medical practices like new kinds of healing; or different ways to play games
- It has to be a tangible product and not an intangible idea or theory
- It should actually be new. It should not have been offered to the public, at any place, prior to applying to the Patent Office. This indicates that you need to be ultra cautious not to disclose your product to any person, at least not without having them sign a confidentiality contract. However, you will be absolutely secure in telling the Patent Office employees and Patent Agents, as they all maintain utmost secrecy
- It has to be inventive in nature, which implies that it should have some facets that would not be very apparent to any authority in that industry.
The basics of patent applications:
A patent is an official document given by a national government to an inventor (or business or corporation) who wishes to have sole rights over a product for a limited amount of time. Once the patent is granted, no one else has the right to make, sell, market, or profit from the invention.
In the United States, the U.S. Patent and Trademark Office (USPTO) allows inventors and patent owners (including businesses and corporations) to protect their products and identification from others.
Information can be found at:
Not just anything can be patented. In fact, obtaining a patent may prove difficult given the necessary paperwork, research and signatures needed. In order to obtain one, the invention has to be brand new. This new invention has to also be useful, original, and not easily created. In the United States, these products might be machines, compositions or methods, and manufactured products. Ideas cannot be patented, nor can products that have been “improved” or which have “changed” in size.
Plant patents, which protect non-pollinating plants, utility patents that protect regular, new inventions, and design patents, which protect the look or creativity of a tangible product, are examples of the types of patents that exist under the USPTO.
Patents give an inventor or business corporation the legal right to own their invention. This means the patent holder now has a legal monopoly and can do with it, what s/he desires for the life of the patent. U.S. patents are good for twenty years from the date the patent was requested. This can be extended, but is difficult to do. And, payments to the government must be made throughout the life of the patent .
An inventor may sell all their rights to the patent, or may opt to sell only a certain part of it. When the patent holder licenses his or her product to a manufacturer, for example, he or she receives royalties based on the sale of the product or invention.
The phrase “patent pending” has no legal hold, but simply means that an individual or corporation is in the act of patenting a certain product. If an item already has a patent on it, then the copying of this item is infringement. The patent holder can file a claim to sue the accused.
Acquiring a patent:
Your first step would be to request the Patent Office in your country to post you an application form, and also send you any other relevant information that you might need. They have some free leaflets, which give you good information on the process of applying for a patent and most documentation is available on their sites.
With your filled in application form, you have to send them their charges, and also give them a summarised description of your invention in about 150 words. You will need to enclose a design that includes the drawings of the product, a thorough description, and precise claims to your product.
Prior to posting your application, you have to ensure that your creation is indeed unique. For this, you will need to carry out an exploration for like products at any of the Patent libraries (you could pay a patent agent to do this for you). The libraries in the UK are located Leeds, London, Belfast, Glasgow, Birmingham, Newcastle, Liverpool, and Sheffield. Your local Patent office will advise you of the locations in other countries.
Even though it is engrossing to carry out the search on your own, it takes quite a lot of time. You can rest assured that the employees at the library will honour the privacy of your search, and you could also end up saving considerable amount of time if you let the staff know exactly what you’re searching for.
Even though you can fill your own application form, it is usually a good idea to have a Patent agent handle it for you. It does lead to an expense, but since you are filing an important legal form, you absolutely need to be aware of the patent laws so as to ensure that you are safeguarding your product completely.
When you visit any Patent agent, they are likely to enquire whether you are absolutely certain that your invention holds commercial promise. But by now, you should have a good idea about that.
If you choose to file the application yourself, you should first get as much knowledge about the application procedure as you possibly can. You can get assistance from the Patent Office, as well as from various books on the subject. Begin by just giving the Patent Office the picture and the description of your invention. This way, you are at least protected for the next year, in which you can finish the remaining procedure.
Some Patent offices allow you to submit your idea for evaluation, they will compile a report for you as to the chances of it succeeding in a patent application … for a fee of course … but this can save you time and money in the long run.
However, if you do not send them anything else after that, your application will come to an end after the year, and you will forfeit your right to carry on. If you should choose to proceed, you will have to send them the remaining papers, and also pay a charge to the Patent Office to carry out their own investigation. A record of these searches is sent to you, and your application is also acknowledged.
The final step is called the ‘complete assessment’. You need to pay yet more charges for this, but barring any opposition, your patent will be given to you. In order to keep your patent alive, you need to keep paying some charges for duration of twenty years.
If your patent is denied as there is an existing patented product like yours, you simply carry on normally by getting in touch with the person who has the patent and try to acquire the sole rights to handle the goods. An interesting rule applies here – if any patent holder is not using the patent for his own good, and if he does not agree to pass the rights to someone else, you can have the Patent Office intervene and confer the licensing rights on you.
Protecting your idea without incurring all the costs:
You simply cannot protect your invention without paying any money, but you can lower your expenses considerably.
What you need to do is get to that phase in the process where you have sent the drawings and description and have achieved protection for the next year. After this, you locate someone who is ready to manufacture the goods, and try and convince them to shell out the rest of the expenses; in return for which you will grant them some (or all) the rights. For example, you could locate a producer in France and give them the French rights, for which they will help you to get the US rights.
While we’re on the subject, I must tell you that there isn’t any law that requires you to get a patent for new products. However, acquiring a patent is the lone manner in which you can legally call the product yours, which means that only you have the legal rights to use it or sell it.
You can also protect the design of your invention (how it looks and not how it functions) by acquiring a trade mark for it. And as far as books, paintings, pictures, photographs, or music is concerned, you need to have a copyright to protect such works. But you do not have to do anything to get such copyrights. A copyright is implied as soon as these things are created, and extends for as long as 70 years after you die.
Locating someone to manufacture your new invention:
The apparent choice of people to manufacture your item is someone who manufactures goods that are like yours. But since it’s so apparent, why am I telling you this?
Well, because the trick lies in the meaning of ‘like products’. There are merits in studying the manufacturing procedures used to make your kinds of goods, as you may just come across an organisation which does not manufacture anything like it, but does have the ability required to do so.
For example, I once went to a manufacturing unit where they made little plastic rings using plastic extruding machines. Everywhere you could see there were small plastic rings popping out of the machines one after the other. And then I happened to notice that in one comer, one machine was not tossing out plastic rings but round disks to be used on vehicles! Seeing my obvious bewilderment, I was told that a plastic extrusion machine could churn out anything when fitted with different moulds. And as the manufacturing unit had some idle machines lying around, and since it was so simple to swap moulds, they simply agreed to help manufacture someone else’s goods.
Thus, you too could locate such a unit which could help to produce your product and yet not be any threat to you as they don’t make any similar items themselves. Although they surely will not help you in finishing your patent application, they will provide you with an avenue to make your product and distribute it in the market, so as to discourage others from doing so and cutting you off.
Here’s a summary of your plan of action:
- If there are no makers for your product, think of acquiring a patent for it.
- Contact the Patent Office for application information, forms, procedure etc.
- Ensure that your invention is 100% unique by searching at the Patent Library.
- Get drawings of your invention and write a summarised description.
- Send your initial application to The Patent Office.
- In the next twelve months, choose to go ahead and complete your patent application, or simply record the design or trade-mark of your invention.
Finding Expert Professional Aid
There are quite a few important aspects of managing your Licensing business which you must handle on your own, but there are some which can only be done by hiring a professional. You require professional services as there could be facets of the job that you may simply not think of, but which would occur to a professional; and even for the simple reason that a professional increases your odds of being successful.
A choice instance of this is when dealing with the Revenue Services. They are more likely to be cooperative when trashing things out with your chartered accountant than dealing with you directly, as they are ware that your accountant works by professional standards and will not try to fleece them like tax payers sometimes attempt to do!
Another argument in favour of hiring professionals is that, even though you could do various things on your own, you are likely to waste a lot of time in gaining knowledge about the tasks and in ensuring that you’re doing it correct. So much so that the cost of your time could far exceed what you would pay the professional. You might think that you have a lot of time on your hands at the start, but you may get real occupied, or could chance upon a huge problem that warrants your undivided attention, and thus it is a good idea to hire a professional.
The key people you will be looking at are advocates and accountants, and amusingly enough, the basic standard for selecting good ones are completely opposing.
For the kind of work I told you about, your ideal choice is to look for a small corporation of accountants in your area. You only require a big firm of if you have a limited company.
What you have to find is some company where any of the top people will be handling your business and not delegate it to one of the minnows, who are typically allocated the work of handling smaller clients. In bigger organisations, each member of the staff has to enter time sheets, assigning each half hour shift to a particular task. Thus, it is quite common for inactive trainees to peruse a list of the company clients, pick someone randomly, and charge them for a few hours of work, which were actually spent at lunch or sleeping in.
And you don’t always get charged erroneously. The trainees may have actually spent time on your books, but are so inept to begin with that no real work gets done, only the charges being real. All such ‘work’ time is fed into the system, which finally translates into a huge bill for you, with you consequently working your rear off to get the charges lowered. That is why I suggest going to a smaller firm where the top people are aware of what exactly your job entails, and they bill you on the entire job (what they think is fair) rather than give you an hourly rate. You will require an accountant to organize your year-end books, draw up your tax returns or help you do it, and maybe even negotiate for you with the Revenue Services. Your accountant can also offer valuable tax advice, so that you know what to do in order to lower your tax liability.
This could entail timing your purchases right and other such tasks, so you will perhaps have to inculcate the habit of consulting your accountant prior to doing anything big. The perfect accountant is one who calls you a few days from the budget release and explains to you what you need to know and how the budget will affect you.
Asking your friends and business acquaintances for a personal reference is the best method to locate a good and economical accountant. If this does not work, go to the Chamber of Commerce.
When it comes to hiring solicitors and advocates, you should not go to a small firm in your area (like with the accountants) and definitely not a one-or-two person outfit, except if they are commercial law specialists. The problem is that the majority of the small firm solicitors do not specialise in commercial law, and even though they are usually trained in all kinds of legal tasks, such advocates typically spend most of their time handling household property stuff, wills, probate etc.
They are generally out of practice with business matters that you may need them to do. And since they will just try and spend some time brushing up on their business law acumen, you will probably get charged for such time spent poring over their law books. Another problem with small timers is the rule of the Law Society for solicitor rates. The rule mentions some suggested minimum hourly rates for different level employees, where the trainees and legal executives form the base, while the partners form the top brass. In a small organization, there are likely to be only partners, which essentially indicate that you will be charged highest rates for all the tasks. But in a bigger firm, where there is a separate commercial law unit, you could end up paying less.
Even though the charges for partners’ time will likely be more in big firms, almost all your jobs could be handled by the lower brass consisting of trainees and legal secretaries. These people are not as highly qualified as top lawyers, but they do tend to have more training in a specific aspect of the law, thus being much more knowledgeable in their area than a regular general lawyer would be.
You require the services of an advocate to: peruse or draw up the contracts with your manufacturers and distributors; to find and offer you counsel on commercial leases (for when your business becomes so big that you need a separate office!); and maybe even to assist you in debt collection if any of the distributors give you trouble (although thankfully I have never been through this).
The Chamber of Commerce can give you references or you can inquire at the library in your area for a listing of all the solicitors’ firms and their areas of specialisation.
Other professional services:
If you choose to go the whole route for acquiring a patent, you may need the services of a patent agent. You can get in touch with Chartered Institute of Patent Agents and request them to mail you their area-wise list of agents.
If you wish to import products for sale and require assistance with the legal documentation and with HM Customs and Excise, you need to find good Import Agents or Forwarding Agents. The Yellow Pages is a good place to begin and so is the international trade department in your bank.
How to select professionals:
Degree of competence being the same, it is best to select a professional who you are comfortable with and who is easy going. Keep in mind that their basic duty is to counsel you, and in such a manner which enables you to take good decisions as you have comprehended all the outcomes of a particular situation. You won’t get this kind of clearness if the professional you choose is very intolerant or too egotistical or in a great hurry to elucidate matters for you.
A majority of the professionals are very decent and civil, but you may happen to meet someone who tells you that your only job is to give them the required papers and details and then leave them to their work, for which you simply pay them. If you do know precisely what you require and are okay with simply giving directions and butting out then this is OK. But, most of us in a new business, want someone who will take the time to make us understand and offer guidance, thus the advice to choose someone you’re comfortable with.
Another thing with professionals is that you should not hesitate to inquire what their charges are going to be, and should not refrain from saying they are a lot if you seem to think so. When the whole economy is bad, which it has been for some time now, lawyers too are quite ready to bargain about their rates.
Here’s a summary of your plan of action:
- Locate a capable commercial advocate.
- Locate a capable accountant.
- Build contacts at the Chamber of Commerce, with people who may be of help.
Financial Aspects and Money Matters
The bottom line for starting any business is to get rich (ok … let’s just say earn money), thus you have to take care of the economic aspects as well. The major ones are:
Your business account should be different from your personal one. If you do have various businesses, you should ideally have a different account for each. You should also have a separate business credit card, one which can be used globally, so as to facilitate payments for subscribing to those trade journals I told you about.
Banks levy different fees for having a business account than they do for personal ones. Banks typically charge you for every transaction, and thus it is a good idea to look at various banks so as to find the lowest charges. If you will be getting inward remittances from foreign nations, ask the banks what their charges are for that and if the charges are same for cheque payments and wire transfers, or they differ.
Majority of the banks offer free banking services for a 12 month period after opening a commercial account. You could try to get a longer free period, or perhaps get them to decrease their charges.
A bank is usually one such place where people typically believe that they must do exactly as told, but that is not necessarily so. In today’s times, the banking sector is highly competitive, with bank managers having minimum numbers of various types of bank accounts that they must open. That oft-used tale about taking your overdraft business someplace else is not just a tale anymore, but instead a good bargaining tool. Bear in mind that banks make their money through interests on overdraft facilities, and if you should choose to go to another bank, that will also create a gap in their minimum requirements.
If the situation ever arises that you have to arrange funds for your work, you should go with the overdraft facility rather than taking out a business loan, which is what your bank will persuade you to do. The basis for this choice is that even though interest rates may be lower on the loan, you will have to pay interest for the entire term of the loan. But with an overdraft facility, interest is calculated on a day-today basis, depending upon the balance in your account every day. Thus, you will end up paying interest on a smaller amount, the minute you have deposited your royalty payments in your account. All in all, you save a considerable amount of money on interest with an overdraft than with an official business loan.
Whatever route you decide to take, your bank will require you to generate a cash flow estimate to establish your capacity to repay them; and you can get their esteem for your professional business methods by giving them such cash flow estimates without their asking. Better yet, you should generate two estimates; one for an official business loan and the other for the overdraft facility, which will also go to show your rationale for going the overdraft way.
Your accountant can help you in producing the cash flow estimate, but it typically constitutes a monthly graph that shows your probable earnings and expenses, and the variation in the balance amounts.
The last thing to know about banks is that you just cannot rely on them to always get everything right. You should maintain that they post you bank statements every month, which contain an itemised description of any charges, and should then tally these with your cheque book and deposit slips. If you come across any unusual items, write to the bank for a clarification, and then study your following month’s statement to ensure that the entries have been corrected.
Book Keeping and Accountancy
Accounts are definitely one aspect of your work where it is just too easy to overspend. Most people tend to believe that keeping accounts is a very tough job, and that it has to be carried out in a particular manner so as to keep the Revenue Services happy. This is why people hire Chartered Accountants, who create an accounts system for their business and then periodically send a person to them to enter the books, do the Profit and Loss accounts, and create the balance sheets at year ends.
However, you do not actually require a CA to handle all this work. Although you are required to create the year-end accounts, and also file your tax returns, you certainly do not require a CA for this, except in the case of a limited company. If you do not work under a limited company, you can simply approach someone with slightly lower credentials for handling the year-end accounts, and can hire a part time book-keeper to help with the other stuff if you don’t have the time to handle it on your own.
Seriously, it’s not that tough. You won’t really be doing any complex stuff like keeping a sales book with numerous accounts, handling returned merchandise, crediting it etc. Your earnings will generally comprise some lump sum payments and a cycle of royalty cheques every three months.
Your expenditure is also not going to be a lot – perhaps some phone bills, stationery costs, stamps and postage, subscriptions for publications, fuel etc. You should never throw away the receipts for any payments and should always write down expenses which do not carry a receipt. Your accountant will tell you exactly what you can deem as a business cost, but it essentially encompasses all the expenses that are incurred in running your daily affairs.
For those who have a PC, various accounting software is available to them. Else, you can simply purchase a regular lined notebook and keep your accounts by hand. You just have to make a note of all your earnings on one page and every expense on a separate page. You should write a small note with every amount so that you know what it is about, and the rest will be handled by your accountant when the financial year ends.
Value Added Tax (VAT)
If you apply for VAT, your accounting tasks will increase a little. The VAT figures will have to be noted separately alongside your earnings and expenses, which then have to be summed up when preparing the VAT returns every three months.
An important thing that needs to be done is to give your distributors the correct VAT invoices. This is how I usually go about doing this – my distributor gives me a record of the sales achieved and royalties accrued. I then post him the VAT invoice mentioning ‘Royalties from XXX date to XXX date’, after which they post me my cheque.
Not once have I thought it necessary to examine their accounts. Trust does play a role here, but I can even double check to see that the sales details from the distributor correspond with the sales details provided by the manufacturer.
You might not need to apply for VAT. If your total earnings (entire income, not just profit) are more than the minimum amount as declared in the annual budget, you are applicable for VAT. However, if your total earnings are less than such amounts, you are not required to apply, but do have the option if you so desire. If you spend a lot of money on things that include VAT, you can claim the VAT back by registering. But only you will be able to judge if the VAT claim is worth pursuing, in light of the added accounting work which will surely need to be done.
Here’s a summary of your plan of action:
- Look around for a bank that offers you the best deal. It is best to choose an overdraft facility over formal loans.
- Manage your day-to-day book keeping with someone helping you out for the year end accounts.
- Determine whether it is worth your while to apply for VAT.
A major error that people usually make when beginning a new business is to spend great amounts of money in forming a limited company.
A limited company has its pros as well as its cons, but there is no rule which states that you should have only a limited company. This is simply one of three choices available to you; the remaining two being Sole Trader and a Partnership.
You are not required to do anything to form a sole trader. It’s just you, alone, operating as a sole trader. No legal formalities to begin your business, no one that you are answerable to (other than the Revenue Services and tax-man), and none to take a part of your profit away. If you are not already employed by another person who is footing the cost of your National Insurance stamp, you will need to announce yourself as being self-employed and purchase the stamp yourself.
Although you can do business with your personal name, it is advisable to come up with a proper business name, which indicates what exactly it is that you do. I call one company of mine ‘Baker-S-Treat’ (a confectionery business), for which I have a logo of a Sherlock Holmes chef. Cute, isn’t it??? And it is effective too. You can name your company ‘John Doe Inventions’, or perhaps ‘John Doe Unusual Items’, or simply ‘Unusual Items’. You just need to ensure that you don’t pick a name which is currently being used by a bigger organisation. If you do, the other company is sure not to appreciate it and may even start legal proceedings to stop you from utilising their name. Under the law, this is termed as ‘passing off’ because it is seen as though you are attempting to pass off your business as the other bigger business.
Starting off as a sole trader is the easiest, quickest, and most cost effective status for a new business. If you want, you could alter your business status anytime you wanted; just make sure you consult your accountant prior to doing anything of the sort.
As a sole trader, you are not required to register your accounts in any public place, thus your financial status can be kept under wraps (other than giving a record to the Revenue Services, of course.)
Although you are not required to do anything official to start business as a partnership, it is best to do so as a precaution. In the eyes of the law, a partnership comprises two or more people who are ‘trading in common’. Thus, if you carry on your business with another person, or more than just one person, and all of you get earnings or profits from the trading, you are working as a partnership.
The benefits of a partnership are that you have someone to share the workload with and can thus take some time off when you need it, without stressing about work while you’re gone. And if your spouse was to be a partner too, there could be some tax benefits as well.
A partnership has two main drawbacks. In a partnership, you have what is termed ‘joint and several liability’, which essentially indicates that every partner in the business is individually responsible for clearing any debts that the partnership may have. What this means is that even if you have only a 50% stake in the partnership, you are still liable to pay off 100% of any debts, in case the person holding the other 50% is unable to contribute anything. And to make the situation even grimmer, you may even have liability that extends to the personal (non-partnership) debts of your partner.
However, most of this can be circumvented by having an official partnership deed drawn up by your advocate. The partnership deed typically includes:
- Entire names and addresses of each and every partner.
- The complete official name of the partnership and its registered address; as well as the name under which you are doing business (if this differs from the first)
- The exact date on which the partnership was created.
- Precise duties of all partners. For instance, someone is involved in the sales process, another handles the administrative work etc.
- Who is responsible for taking decisions? Here you can mention that a particular partner is the managing partner and will take all decisions; or that every partner has the liberty to make the required choices.
- Who has the financial control? Here you need to state who will be the signing authority for the cheques. Ideally you should have all the partners as signatories but if you have many partners you can choose to designate this control to one or a few.
- The profit sharing ratio – which can be equal or whatever the partners decide.
- What will become of any partner’s share in the business in the event of their death or other incapacitation? If this clause is not included, you may just come across a situation where one of your partners is an estate executor!
- The signatures of each and every partner along with the date of signing. This is usually done in the presence of some witnesses.
It is quite common to have a ‘passive partner’ or a ‘sleeping partner’. Such a partner gives some money for the partnership, in return for which he gets some share in the profits, but the partner is not involved in the daily managing of the partnership.
Another drawback with a partnership is that of human nature. In the business world, stories abound about how partnerships can go bust. Partners purchase stuff using the money from the business, but pocket the sale proceeds instead of putting it back into the business. Sometimes partners also Utilize partnership money to buy things that are needed for their private work. This is defended with the excuse, “But, half the money is mine as it is”. There are also times when a partner will just relax and wait for his share of the profits, without doing any work and letting the other partners slog their behinds. The lesson to be learnt from all this is that you should get into a partnership only with such a person who you can trust completely and thoroughly, who will do his share of the work, and who will not rob you blind.
A Limited Company
The major benefit with a limited company is that you (the directors) will not be held individually liable for the outstanding amounts of the company in case the company goes bust, so long as bank loans are not part of the debts. Even though the thinking goes that acquiring funds is easier as a limited company, this is false as far as banks go. Banks are not that gullible, and even if they give a loan or agree to an overdraft facility for a limited company, they will require it to be secured with a personal guarantee from the directors, which comes right back at you.
However, conducting business with the status of a limited company does communicate a degree of propriety.
The drawbacks with a limited company are: having to register your accounts and miscellaneous company data each year, and also the need to get your books formally audited. Your company letterhead also needs to carry some legal information. Doing all this entails a considerable expense, and if you do not follow the rules, there can be fines to be paid as well.
If you choose to go the limited company route, consult with your accountant about the best possible timing to do so. However, you should not ask your accountant or your advocate to actually do all that is required to form the limited company. You will be charged on a per hour basis, which will ultimately end up costing you a pretty package; when all you have to do is purchase a ready-made company through any professional registration agents. You will literally be purchasing your company off-the-rack. After that, you simply carry out the process of altering the directors’ and shareholders’ names and addresses, and also the company name if you so desire. Your ready made company pack will contain all the relevant forms.
However, there are a few rules regarding the names. For instance, you cannot make use of the word ‘Royal’ in the company name, and you cannot Utilize any name that is currently being used. The best way to go would be to keep a name that combines the personal name of a director (could be you), your area of business, and some sign of what your business is about. This would go something like this, ‘John Doe Inventions of Worcestershire Limited’. Or, if you wanted, you can simply use the name that was included in the pack and just add to it, ‘doing business as John Doe Inventions’.
Here’s a summary of your plan of action:
- Think before you choose to form a Limited Company.
- Only form a Partnership if you are completely sure that your partners are trustworthy.
- Settle on a trading status for your business only after consulting your accountant.
Fundamental Management and Documentation Keeping
The royalty business does not involve large amounts of paperwork and documentation, but it does entail some. And whatever papers you generate, it is important to do it in a systematic manner and also store the resulting papers properly. Your actual administration will obviously depend on you, but here are some useful suggestions from my end.
You will not require a lot of supplies at the start. In fact, used cardboard cartons can easily be used in place of a costlier filing cabinet. However, some things that you will need to get are:
- Something for typing. This can be an old typewriter or even your personal computer. If you cannot have one at all times, you should at least have access to one, as it is important that all written correspondence be typed
- A phone line
- Fax device or access to one
- Printer or access to one
- Company letterhead and visiting cards
- A large notebook in place of a costly personal planner, so as to keep an account of telephone calls and other miscellaneous things.
Once your business has picked up a little, you can invest some money to buy all this equipment rather than paying someone to Utilize theirs. When you can, you should look to purchase a computer, which has word-processing software, cash flow generating, some accounting software, and a planner. The benefits with such computerised systems is that they can be used to plan and record things for years later, so that you can be reminded when any important agreements and contracts are coming up for renewal. And if you purchase a computer that has a modem, you will also be able to get onto the Wonderful World of the Internet. Although I do find this to be critical to my business, it is definitely not vital for everyone’s.
Another piece of equipment that you should consider buying is a fireproof vault for your important documents and contracts. At the start of your business, you can request your bank to safeguard these for you, but you will have to pay a considerable fee.
Important Papers and Books
At the minimum, you should do the following:
- Have some basic books or software of accounts for organising your finances.
- Make lists of any good ideas that occur to you and keep the lists safe.
- Make lists of prospective clients and any other useful people you come in contact with.
- Make copies of all written correspondence and keep such copies.
- Maintain a record of your phone calls in a large book.
Duration for which documents should be saved:
Accounting papers: things such as payment receipts, invoices, bank slips, bank statements, credit card notifications etc should not be thrown away for at least seven years. (Because the Revenue Services can check your accounts from so far back). Any letters from or to the Revenue Services and filed returns should preferably be kept forever.
All the original contracts with your manufacturers and distributors should be kept for a minimum of seven years even after the business arrangement has been terminated. If any problem arises, legal recourse is available only for seven years, which is why you should keep such contracts for that time. All Diaries and books should also be kept for a minimum of seven years even after the business arrangement has been terminated with all parties.
Letters, faxes, and other correspondence papers are generally kept for an indefinite period, but to be practical, you should keep the correspondence for at least the last seven years on hand. It is best to save copies of hostile correspondence forever. If your correspondence papers become too many, you can have them transferred to micro film.
Catalogues, manufacturer’s price sheets, brochures, samples, trade journals etc should be kept for as long as you deem necessary.
Here’s a summary of your plan of action:
- Print some nice letterheads and visiting cards.
- Organise a convenient and uncomplicated filing arrangement.
- Purchase a vault or keep your contracts at the bank vault.
- Inculcate the routine of taking down notes of telephone conversations.
- Save important documents and papers for at least seven years.
Dictionary of Terms
- Contracts: These are the official papers to safeguard your interests. Other names for contracts include agreements, deeds, and licences.
- Transferring (assigning): The process of officially giving your rights to someone else.
- Commercial Department or Attache: The unit in a nation’s embassy which is in charge of supporting trade between their nation and the UK.
- Electronic mail: Written messages sent via computers.
- Exclusive (sole) right: Having the right for a particular thing which no one else has.
- Expenses: Costs incurred in your daily business activities.
- Income (Earnings): Whatever money enters your business resulting from your business dealings.
- Manufacturer (Supplier, Principal): The producer of the goods you are interested in.
- Patent: Having the legal right to use or sell a particular item, which no one else has for that same item.
- Profit: Whatever money remains after deducting all your expenses from your earnings.
- Registered address: The place where the official headquarters of a Limited Company are located.
- Reservations: This is a lawful term, which indicates everything that anybody ‘reserves the right’ to do.
- Royalty: The money that you are given for passing your rights.
- Tax assessment: The decision of the Revenue Service about how much tax you owe them. An estimated assessment refers to an educated ‘guess’ about the tax due in case you have not filed a tax return.
- Trade Journal: a magazine or publication intended for those doing a certain kind of business.
- Trading address: The location that you work out off.
- Turnover: All the money that comes into your business in any one year.
- Feasible (Viable): Some business idea that has promise and will return a profit.
Here are the contracts that I use. These can be altered for your own use by changing the terms and words where appropriate. Please do have your lawyer take a look at these contracts prior to using them.
The contracts here are meant to only be samples, and under no circumstances will the writers or the printers be held liable for any mistakes in the contracts. The writers will not cover any claims, which may arise from utilising these contracts.
Victories often occur after you see no way to succeed but refuse to give up anyway.