Artificial intelligence (AI) tools can streamline many aspects of running a small business – but it’s important to remember that AI can also make costly mistakes.
AI tools have changed the way many small businesses operate. In many cases, using AI can feel like having an extra staff member who can take care of certain tasks, leaving more time and resources available for other areas of the business.
It’s important to know that AI takes data and creates solutions based on the patterns it can find. Generative AI produces responses by identifying patters in the information on which it was trained or to which it has access. Its answers can sound confident and authoritative but may be incomplete, inaccurate or based on outdated information. This means that AI can make mistakes – and these can cause complications and even legal issues for anybody relying on the information it generates.
Here are some real life examples of problems that some Western Australian small businesses have found themselves facing after relying on advice from AI and how you can avoid these issues in your own business.
The risk of incorrect business advice
AI tools can pose major risks for small business owners who rely on them for legal advice, or to get quick answers on an issue, without reviewing the information provided accuracy. AI tools give confident answers – but this advice can be wrong or incomplete. Getting the correct answer can depend on the specific legislation, lease or contract – and AI often makes mistakes.
Generative AI tools may not identify or apply legislation correctly. For example, it might not find distinctions between retail and non-retail leases, or the difference between common law principles and statutory obligations. AI can use information that is outdated or draw on legislation that has changed or is irrelevant.
AI can also misunderstand the commercial context of an issue, including the history of negotiations and the intentions of each party involved. These details matter in terms of receiving correct advice and guidance.
AI can’t replace professional advice for your business
If a question involves a lease, contract, employment issue or legal process where the correct answer often depends on a specific document, the jurisdiction, and other specific facts, a general AI answer can provide incorrect and misleading information.
The consequences of relying on AI for legal matters can be financial, operational or reputational and can be hard to reverse, costly, difficult to fix and affect how your business runs. The cost of fixing a problem caused by relying incorrect information from AI can be more than the cost of getting professional advice in the first place.
Examples of AI issues experienced by WA small business owners
Our business advisers have spoken with a number of WA small business owners that have run into issues, often with devastating consequences, when relying on AI advice alone. Some examples include:
- A business owner relied on AI advice for guidance on vacating a leased premises, without properly accounting for notice requirements and potential ongoing liability.
- Another business owner relied on AI to claim they were entitled to a new lease on the same terms as their current expired lease. AI referenced outdated information about the property, which the business owner acted on. The tenant argued that their lease had now become periodic, which resulted in the landlord finding a new tenant and issuing a termination notice. In this case, if the business owner had sought advice earlier, they would have known the landlord wasn’t obligated to offer the same terms and may have approached the negotiations differently.
- The guarantor of a commercial lease asked AI whether the tenant could terminate their lease because the guarantor had not been provided with a disclosure statement. (NB: the disclosure statement had been provided to the tenant). AI confused a commercial lease guarantee with a banking guarantee and incorrectly stated that the tenant could terminate their lease for non-disclosure. The guarantor then acted on this incorrect advice by requesting the termination of the lease due to non-disclosure.
- A business sale agreement drafted with AI merged leasing provisions and asset sale terms in a way that created a confusing and potentially unenforceable document.
- A retail tenant went directly to State Administrative Tribunal (SAT) with an AI-drafted application, which was well presented but had no legal grounds. The tribunal directed the business owner to seek professional legal advice and contact us at the SBDC. Most retail tenancy disputes require a certificate from the Small Business Commissioner before they can proceed to SAT, which the AI tool had not identified.
How to prevent AI mistakes from impacting your business
Whether it’s polishing your customer communications or streamlining a workflow, there are many ways you can use AI to help in different areas of your business. Here are some tips to help you avoid issues that can result from AI mistakes.
Don’t rely on AI for legal matters
You might use AI tools for generalised help to understand a law or how it might apply in a certain situation – but don’t rely solely on this information when making key business decisions. Hiring a lawyer is often an investment worth making in your business, especially when you could save time and money in the longer term.
Sometimes your customers might use AI to investigate an issue with your product or service, such as their right to a refund. In WA, Consumer Protection is the best place to turn for this information as both a consumer and business owner.
Check the source
Some business owners rely on AI generated information, for example, an AI summary of search results, without fact checking the information. The answer can appear authoritative, even where it has not property considered the relevant jurisdiction, the terms of a lease or contract, or the specific facts of the business owner’s situation – but this information can be completely incorrect.
To avoid these issues, don’t rely on AI summaries for correct information and always fact check against reliable sources. For example, your AI tool might list a link or source after making a claim or giving you certain information. Always check this source to see that it’s from a trustworthy and reputable source, and that the information actually matches what you have been provided by AI.
Have your own AI policies
Make sure your team members know your business practices and polices around AI use. Banning AI can lead to what’s known as ‘shadow use’ where employees might use it anyway but not let you know it has been used. The best way to avoid issues is to be clear on how AI can be used within your business.
It’s important to know how your suppliers use AI too. For example, if you pay for a report, social media content or certain documents to be produced for your business, you can question whether AI is used to do this, and how.
Avoid sharing sensitive information with AI tools
Some business owners have copied and pasted sensitive information, including client contract details, into AI tools without realising the potential implications of this. Just as you wouldn’t post contract details on social media or your website, you shouldn’t share confidential details with an AI tool.
Always make sure your business data, including your customers’ details and any personal or commercially sensitive information, is managed securely.
Find out more
- Explore how you might use AI in your business.
- Learn more about contracts and agreements.
- Understand your data collection and privacy obligations.
- Sign up to the SBDC small business news to receive more updates like this straight to your inbox.
