Posted: Monday, 1 March 2010 @ 14:42
Data Protection sounds, understandably, a very boring - some may say largely irrelevant - subject to small business owners. But it can cost you many thousands of pounds to ignore it.
Many business owners are not aware of the effect the Data Protection regulations may have on how much they can sell their business for and what they can borrow.
For e-commerce businesses, and many others too, a key asset is almost bound to be the customer or contacts database - the “data”. Imagine the effect on the value of the business if the potential purchaser was informed that it could only be provided with general, statistical information about the customers with whom the business deals, but no information such as names, contact numbers, addresses and so on.
The Act requires the person who controls the data (you) to comply with eight "data protection principles" or principles of good information handling. The most important of these is the first principle - that the data must be processed "fairly and lawfully". Essentially, this means that the data subject must have given his or her consent to the processing of data about them. If it is envisaged that a database may be sold as part of an exit strategy, data subjects should be informed of this when their data is collected. This can be communicated in a data protection policy or statement which also sets outs the identity of the data controller and the purposes for which the data will be used.
But be aware - most data protection policies are not worded correctly for this purpose and tend to say the opposite, such as “We will not sell your information to anybody”. That is a major mistake. You WILL want to sell their information if and when you sell the business, as it constitutes about 95% of the value of your business.
Why does this affect how much you can borrow? Because a lender will want to look at the value of your business, what they could get for your business if the lending “went bad” and the business had to be sold.
Contact Cousins Business Law for advice on this topic.
Blog by Gary Cousins
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
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