Updated: Feb 23, 2021
As business owners, new and seasoned, we like to believe we have all of our business practices in place. However, there may be simple things that have been overlooked that you don't even know you should be concerned with.
Becoming a business owner is a serious commitment. It's more than just taking your side hustle and getting a business license and now calling yourself a business owner. You now become liable for many things, and if you are not prepared with the correct information, you can lose everything; your business, house, car, children's college fund. Any assets that you have you could lose.
I collaborated with small business attorney, Courtney English, where we discuss and break down 6 important things you need to know when starting a business.
These 6 topic are often misunderstood and overlooked. As small business owners ourselves we want to share these important topics so that you can protect yourself and your business.
🎯 Make sure you watch the videos, the topics are linked to the videos.
We chose the topics that we get the most questions about, broke them down, and shared tips about how you can protect yourself and your business.
It's so important to be proactive instead of reactive when it comes to your business.
Here are the topics we discussed:
Do you use a contract when working with clients?
We find that many businesses work without contracts. This is a scary practice for any business owner, large or small, new or established.
Don't think that your business is never at risk for any type of liability.
Top 5 Things You Should Always Have In a Contract:
How long are you in a contract for?
How will you renew?
Do you want to renew?
💡 Tip: Terms can also be a great business tool. It's a great way to start a conversation if you want to continue working with your client when you need to renew a contract.
📍 Question: What if you did not put an end date in your contract, and the client wants more time than you discussed?
📌Answer: The courts would look at the industry-standard for the amount of time that the work generally takes, and that time frame would reside.
2. Termination and Cancellation:
What happens when you don't want to work with your client or partner(s) any longer?
What if things don't work out, are you going to refund the funds that have already been used?
You don't want the courts to decide this for you!
You need to set boundaries, and this is the perfect place to do just that. In your contract, you would include the language to protect how you want the situation to be handled.
If you are working with a partner, how do you resolve the work you are doing together?
Have you set a time frame and certain work obligations that need to be completed before you can terminate the agreement?
If your client is not happy with the work you are providing, are they to still provide you a certain amount of money for the work you did and any materials you supplied?
It's extremely important to be as clear as you can in your contract so that both parties understand what they will receive from working together.
3. Dispute Resolution:
Dispute resolution can protect you from having to go to court, and having the courts decide how to handle the situation.
For instance, you can add a 30 days clause that allows you to try to remedy the situation, so you don't have to go to court and incur expensive court and attorney fees.
Clients cannot ignore this clause. If the client decided they don't want to try to resolve the issue with you and allow you to remedy the situation and the client takes you to court, this clause would be in your favor, and the client would have to allow you the 30 days to fix the issue.
4. Governing Law:
What state law is going to govern?
This is the law that is going to govern based on the state law that is written in your contract.
For instance, my business is in IL, and I have contracted with a company in Washington. So that the law is unbiased and fair for both parties, we may pick another state, for instance, Texas could be written into the contract, and the laws of Texas would preside so that it's the same for both parties versus IL where my business is located.
🎯 Always have an attorney help you with this!
5. Entire (Integrated) Agreement Clause:
Everything in the contract is what sticks and is binding.
Conversations you may have had via email or text that were not written into the contract, the business cannot be held accountable to those agreements.
🎯 Example: Let's say you had an email exchange regarding a discount for a product you were purchasing. In the meantime, you signed the contract, not realizing that the discount was not in the contract. Now the invoice comes, and you are billed for the full amount. The business does not have to honor the discount because it was not in the contract. The price in the contract stands firm. Everything in the contract sums up the agreement.
🛑 MAKE SURE YOU READ THE ENTIRE CONTRACT AND ASK QUESTIONS BEFORE YOU SIGN IT!
Be careful who you go to when having a contract written. You want to make sure the information you receive is accurate and pertains to your business situation.
Ready-made contracts may be handy, but most times, the contracts are not complete and accurate or specific to your business needs and could cause you liability.
Remember, the goal is to prevent issues from happening.
When you go from side hustle to a business that is making money, you need to decide on what type of business entity you want to establish.
How do you determine what business license is right for you?
You need to first think about what does the future of your business look like.
Here are some questions to ask yourself before you decide on what type of business structure you want to register for. You want long term protection for your business even when you're not here.
📍 How many employees?
📍 Are you making products?
📍 Is your company international?
📍 Will you have partners or investors?
📍 Liabilities - tax and personal.
📍 Licensing and renewal costs.
📍 Can I pass my business to my family, and can they access my business assets should I parish?
Here are the choices of business entities:
👉 Sole Proprietorship:
A Sole Proprietorship is just that, you and the business are the same. This has the least amount of protection for you legally. You hold all of the liability of the business. This one is often not advised because all the liability is on you and your personal assets are also part of the mix. You also can't pass your business as a legacy should you parish.
A Partnership is when you and another person(s) are in business together. This is often not recommended. Each of you is liable for a part of the business. As a partner, you are also liable for the actions of your other partners. You can't pass your business as a legacy should you parish.
👉 Limited Liability Corporation (LLC):
A Limited Liability Corporation, often referred to as an LLC, has members. It's created by a statue of the state versus federal. It provides you personal liability protection separate from your business; however, the business taxes pass through your personal tax return, and you do also get some business tax benefits.
👉 S-Corp (Standard Corporation):
An S-Corp is for smaller businesses, and it has shares. It's the gap offering between an LLC and a C-Corp. It provides more tax incentives than an LLC. An S-Corp can raise funds through the sale of stock, but there are limits to how many shareholders it can be distributed to.
🛑 Many states require that you have a board of directors for your S-Corp. Check with your local state to confirm what your state requirements are.
👉 C-Corp. (Large Corporation):
C-Corporations are very large corporations like Walgreens, Walmart, etc. they hire hundreds of employees, have more tax incentives, and have shareholders. A C-corp takes away liabilities against your personal assets and strictly goes through the company assets.
👉 DBA (Doing Business As)
DBA's are branches of the primary business entity. It's a great way to have multiple levels of your business without having to have numerous business licenses.
🛑 Check your local state for the requirements for a DBA.
💡Tip: Do a business name search through your local secretary of state to see if the name is available before completing an application.
What is the best way to protect yourself as a business owner when working with clients?
Tell your clients what they can expect from you and what you expect from them.
✅ If you're a product-based business, check with your state for any requirements on how to label your products.
✅ Do you need a special permit to sell your products?
✅ Are you adding disclaimers to your products/services?
🎯 Even if your state doesn't have requirements to add disclaimers, it's recommended that you add them to your products/services.
✅ Don't make any claims!
🎯 Guaranteeing results is a dangerous practice. You could open yourself to personal liability, and if you don't have a business entity or insurance to help protect you, they can go after your personal assets.
✅ Set Boundaries
Make it clear!
📍 Late fees
📍 Delivery Date
📍 Funds Not Available
📍 How are you going to deliver the product or service.
📍 How will you communicate with them.
✅ Have them agree to your policies and procedures.
✅ Have a paper trail.
👉 CPA (Certified Public Accountant) VS Accountant:
✅ CPAs have taken an extended test, so they are licensed within a particular state.
✅ An Accountant does not have to be licensed.
✅ CPA has to do continuing education.
✅ A CPA is more versed in the tax laws in your state.
✅ CPAs can represent you in a tax audit.
✅ An Accountant can't represent you through the entire audit process.
✅ A CPA may cost more than an Accountant to hire.
👉 Business Attorney
Why a Business Attorney over a CPA or Accountant?
A business attorney and a CPA or accountant are recommended for your business needs. Each of them has their own skills on how to protect you and your business.
If you have legal and tax things, that's when you want a Tax Lawyer. Tax lawyers are generally for larger businesses.
There are times when accountants may offer to prepare a contract for their clients; this is highly NOT recommended. If they are not licensed to practice law, they cannot draft a contract, though sometimes they are not aware of that.
They may feel they are helping their clients, but you need to be cautious about a contract from someone other than your attorney.
When working with a business attorney, make sure they are asking you questions about your specific business. You want to make sure that they understand your specific business needs and your goals so that they are preparing a contract that is meant for your needs, not a general business contract.
A good attorney will know when to draw the line and stick to their boundaries between what they can help you with and what a CPA or Accountant should be helping you with.
👉 Terms and Conditions
You don't have to include terms and conditions on your website, but you should.
It's like a contract. You are setting business boundaries letting users know what you expect from them while on your website. These are the rules while they are using your website.
You are telling them what they can and can't do on your website and what the outcome will be if they don't follow your rules.
For instance, you have a membership site that allows your users to connect with other users. You could include terms and conditions that state they may not bully, use bad language, spam your audience, etc.
The key thing you want to remember is that you want to limit your liability.
Having terms and conditions on your website:
📍 Limits your liability for you in regards to your content.
📍 Holds your content under Copywrite law.
📍 It's a contract between you and the user.
If you're a licensed professional, and you include examples of things such as policies, terms, and conditions, etc. you will want to add "this is for informational purposes only."
👉 Privacy Policies
Privacy policies are to protect you and provide the users with how you are going to collect their information and their use on your website. You must have these on your website!
If you use or do the following, you must have privacy policies on your website.
📍 Redirect a user to another website.
📍 Use Google Analytics.
📍 Credit card information - how you are collecting the information and how are you storing the data.
📍 Pop up's and freebies where you collect names and email addresses - make sure you include a disclaimer that the user can check to accept when providing you their information, and include if they are subscribing to your email list for future correspondence.
Privacy laws vary from state to state, and just about every state has one, so you must check with your local state and county to make sure you have added any language that is necessary for state laws.
You can have a blanket statement that protects you across all the states. Make sure to check with an attorney to confirm that the language is correct.
A cookie is a tech file that is used for marketing purposes that can access the device that you are using (phone, computer, tablet, etc.), so the company can collect private information about you.
Here are some of the things Cookies can collect:
📍 Browsing activity
📍 Device settings
📍 Preferred language
📍 Security settings
You must know about the GDPR!
In 2011 the European Union adopted the Cookie Elective to keep the privacy of the European citizens safe.
Why do you need to know about the GDPR if you don't do business in Europe?