If You’re Going to “Wing It” as an Entrepreneur

December 28, 2017 by Leave a Comment

“Yay!!” by Subharnab Majumdar from Flickr (Creative Commons License)

Plenty of entrepreneurs start out as a person or two, a business idea, and a shoestring budget. They know their craft but have limited or not experience starting or running a business. They don’t know what they don’t know – and that’s what gets them into trouble.

Many entrepreneurs employ the “we’ll learn as we go” approach to operating a business. Often times these are smart people, but if they get too focused on doing their business that they don’t take care of business within their operation, it can lead to costly mistakes: thousands of dollars in legal expenses and painful heartache to try to fix a problem that was completely avoidable.

Real-Life Facepalm Moments
I’ve had countless times where a business owner comes to me for help and I cringe and think, “We could have helped you avoid this if you had come to us sooner.” This is just a sample of my facepalm moments as a lawyer:

KAWS “At This Time” Sculpture by Guilhem Vellut from Flickr (Creative Commons License)

  • Owners who don’t create a business entity: put their personal assets at risk if the business gets sued;
  • LLC with multiple owners and no operating agreement: painful business “divorce” when things didn’t work out between owners;
  • Filing a trademark application with the USPTO that wasn’t trademarkable: the application might have had a chance if the description of the products and services was written more effectively;
  • Not filing a trademark and your competition files a trademark application that’s confusingly similar to or the same as yours: costly to make a claim against them and it may not be successful, which could force you to rebrand even though you were using it first;
  • Flawed customer contracts: doesn’t fully protect the company’s interests or address all likely contingencies;
  • Hiring a third-party contractor without a contract: if the person is hired to create an original work for the company, the company won’t own the copyright in what they hired the person to create and may have to pay to acquire it;
  • Working without a contract: so many problems. Whenever I get a call about a business deal gone bad, my first question is usually, “What does your contract say?” (Ideally, you want to be in a situation where, if the other side doesn’t perform as you agreed you can essentially respond with, “F*ck you, pay me.”)

If You’re Going to “Wing It”
If you are starting a business, my unsolicited advice is “Do your homework.” Invest the time to learn what goes into running your business and figure out what you don’t know. Reach out to established entrepreneurs to ask for their advice and avail yourself to resources in your community. In Arizona, we have dozens of these organizations like Arizona Small Business Association, Local First Arizona, and SCORE.

Even if you don’t think you can afford it, look into hiring a business and intellectual property lawyer for an hour. Bring them your ideas of what you want to do, and ask for their recommendations on how to make it happen. A good lawyer will respect your budget and tell you what you can do yourself and what you should hire a lawyer do for you. They can also recommendations resources to help you based on their experiences helping others.

If I’ve learned one thing as a lawyer it is that it’s easier and cheaper to prevent problems than to fix them.

True Story
Years ago, I worked with a new company where the owners hired me to create their operating agreement. I asked a lot of questions about things like intellectual property rights, compensation, and worst-case scenarios (e.g. disability of an owner) to create custom provisions for this document.

A few years later, the owners realized it wasn’t working out between then and decided to part ways. Their operating agreement dictated how they would address this situation, and they hired us again to revise the agreement to account for the exit of one of the owners. The process was professional, respectful, and cost-effective. I’m sure there were hurt feelings on both sides, but having this operating agreement helped the owners mange them and made for a smooth transition.

If you want more information about the legal dos and don’ts of starting and running a business, you can send me an email (Note: I can’t give advice to non-clients), and I maintain a mailing list where I share my thoughts about being a lawyer/entrepreneur, updates about projects I’m working on, upcoming speaking engagements, and I may provide information about products, services, and discounts. You can also connect with me on Twitter, Facebook, YouTube, or LinkedIn.

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The 10 Legal Commandments of Entrepreneurship

December 13, 2017 by 7 Comments

“Stained Glass Window Full of Light and Color” by Stock Photos for Free from Flickr (Creative Commons License)

Since becoming a lawyer in 2011, I’ve had the privilege of working with businesses on a variety of legal issues. Looking back at some of the most cringe-worthy moments I’ve experiences I’ve had and heard about from other business and intellectual property lawyers, I’ve come up with a list of the 10 legal commandments of entrepreneurship:

1. Thou shall have a business entity.

When you start a business, create a business entity – an LLC or corporation. Your accountant can tell you which option is best for you. By separating the business from your personal assets, you limit your personal liability if the business is sued. If you open a business without an entity (aka a sole proprietorship), you don’t have this layer of protection.

2. Thou shall maintain your corporate veil.

Creating a business entity is how you begin to limit your liability, and you perfect that protection with a “corporate veil.” This means having a separate bank account and credit card for the business, and the business accounts pay for business expenses and your personal accounts pay for personal expenses. This creates a clear delineation between where the company ends and the person begins in terms of your finances. If the company is sued and loses, it’s clear which assets belong to the company and your person assets are protected.

3. Thou shall have a signed contract at the beginning of a business relationship.

When you are hired by a client or hire someone, start with a signed contract. A contract is a relationship-management document. It is your master document that puts everyone on the same page regarding their responsibilities. This will help you avoid confusion and resolve problems. When a client comes to me with a problem with a customer, I often start by asking “What does your contract say?”

4. Thou shall be thoughtful and careful about looking online for a contract template.

Looking at templates online is a good place to get ideas about terms you might want to have in your contract, but don’t indiscriminately use any contract you find. You don’t know where it came from or whether it’s suitable for your needs.

5. Thou shall take the time to fully read and understand a contract before signing it.

Never be afraid to ask questions or request changes when considering a contract offered to you. Don’t sign anything you don’t understand, because if you sign it and later regret it, you may be stuck with it.

6. Thou shall respect others’ copyrights.

Do not use others’ work without permission. Create your own original content. It’s ok to be inspired by and quote others, but add something to the conversation. If we’re talking about images, do not pull any image you find using a regular Google search. Seek out sources that provide licenses for use, including images available under Creative Commons. If there is an image you want to use that’s not available, contact the copyright holder and ask for permission. To date, I’ve never had anyone say, “No.”

7. Thou shall check the USPTO before branding a company or product.

When entrepreneurs think “branding,” lawyers think “trademark.” The United States Patent and Trademark Office (USPTO) has a database where you can see what company names, product names, and logos others have applied for and registered for their products and services. You don’t want to fall in love with, or invest a lot of time and money in, a branding idea to find out that it’s already been claimed by someone else.

8. Thou shall outsource your taxes.

Every entrepreneur needs an accountant. Let them do what they’re good at.

In the time it would take you to try to do your own taxes, you could make more than enough money to pay an accountant to do your taxes for you.

9. Thou shall consult thy attorney.

Even when you want to do things yourself, talk to your lawyer to make sure you’re not setting yourself and your business up for future problems. My most cringe-worthy moments as a lawyer have been problems clients created for themselves that we could have helped them avoid completely if they had told us what they were thinking about doing. It is easier and cheaper to prevent legal problems than to fix them.

10. Thou shall act with integrity.

Put your energy into your own business, creating quality products or services for your audience.

You don’t need to stoop to bad-mouthing the competing, using trademarks that are confusing similar to others, or ride other’s coattails by doing things like using a web domain that will allow you to pull an audience based on someone else’ popularity (e.g., cybersquatting). Be so good at what you do that you don’t need to use others to make a name for yourself.

One last note: If you’re an entrepreneur, don’t be afraid to ask for help. Accountants help you make money, lawyers help you keep it, and your peers will share their experiences so you can learn from them. If you are an entrepreneur, or have plans to become one, I hope you have people around you who can help you be successful.

If you want additional information about the legal dos and don’ts of starting and running a business, I maintain a mailing list where I share my thoughts about being a lawyer/entrepreneur, updates about projects I’m working on, upcoming speaking engagements, and I may provide information about products, services, and discounts. Please add yourself if you’re interested. You can also contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn.

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Can You Afford to be an Entrepreneur?

May 16, 2017 by Leave a Comment

Money Unfolding by CreditCafe.com from Flickr (Creative Commons License)

When I decided to launch this law firm, a good friend and fellow entrepreneur/lawyer warned me: “You’re going to need 6 months’ worth of money and 12 months’ worth of patience.” He was right. Fortunately, I had nearly 3 months from deciding to opening my practice until our first day in business, which gave me time to research and formulate my offerings and tap into community and professional resources to get my business off the ground.

Other entrepreneurs aren’t that lucky. They may not have the time and/or money to consult counsel prior to launching a new venture. Even on a condensed time frame or on a shoestring budget, your legal needs should be part of the discussion and plan.

Full-Time Venture Needs Financial Backing
If you want your new venture to be your full-time job, you need to be prepared for the potential financial strain that comes with that undertaking if you don’t have a spouse or other income supporting you in the meantime. You may have the gift of time, but you can only operate your business as long as you have income or savings to cover your bills. I don’t recommend jumping into a new venture without some type of financial safety net.

For entrepreneurs starting with a side hustle, you have the opposite issue. Your regular job can pay your bills while you develop your business, but it limits how many hours you can work. And depending on your circumstances, you job may not provide much money to put towards your business after paying your bills.

Make the Business Fund Itself
While every business needs some seed money to get started, make your business fund itself. When you decide to start a business, make a list of all the services, equipment, and supplies you think your company needs. Then step back and categorize each item as “Must Have” or “Nice To Have.” Ask a trusted colleague or friend to review your list and challenge you on what you need.

Many businesses don’t need much to get started. When I started this firm, I only needed an LLC, client contract templates, computer, scanner/printer, website, email address, phone number, and business cards. I gave myself a limited budget for supplies, bar dues, and to pay for my LLC and my accountant, and after that, I didn’t buy anything for the business until the business could afford it. (Even if my personal account could afford it, I made myself wait until the business could afford it.) It forced me to be scrappy, creative, and thoughtful about how I spend my money. It’s something I recommend to other entrepreneurs, including seeking out low-cost and free options when appropriate.

Prioritize
I regularly receive emails from people who need help with the legal side of starting a business, and some of them claim that they can’t afford an hour of legal services. Sometimes I wonder if these entrepreneurs didn’t do any research into the expected costs of a consult, contract, or trademark when creating their business budget. (When people can’t afford my firm, I’m happy to provide referrals to other options and/or tell them what things they can do themselves – like filing an LLC with the Arizona Corporation Commission. The forms and instructions are online.)

A fellow entrepreneur suggested that these potential clients don’t see value in paying for quality legal services. That sounds plausible. Many new entrepreneurs are focused on their expected success that they don’t want to ponder the what-if scenarios. In many ways, quality contracts and other legal services protect you when things go wrong. You often don’t need to rely on them when things go right.

My recommendation for all new entrepreneurs is to meet with a business accountant and a lawyer to make sure you’re starting out on the right foot, and that you understand the legal implications of your venture. If you have questions about business needs, you can contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

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Choosing a Business Entity

November 3, 2016 by Leave a Comment
"Leap" by Sabrina C from Flickr (Creative Commons License)

“Leap” by Sabrina C from Flickr (Creative Commons License)

Just like you wouldn’t ask your plumber to change your car’s oil, don’t ask a lawyer what type of business entity you need. Ask your accountant.

What your Accountant Can Do
Anyone with access to their state corporation commission website can see the different types of corporations and limited liability organizations are available where they live. Determining which one is the ideal for your situation is best left to your accountant, an accountant who does business accounting. The tax code is too complex and has too many changes year-to-year for a regular person to navigate on their own. Get yourself an accountant which whom you can have a candid discussion about your current financial situation and your future plans, so they can tell you what’s the right business entity for you. What’s right for your friend, may not be the best plan of action for you.

And I’ve always said, a good accountant is worth their weight in gold. I’m happy to pay my accountant’s bill because handles the tax side of my business for me and he always answers my random questions.

How a Lawyer Can Help
A business lawyer can describe the differences between the types of corporations and LLCs, what it costs to file the documents in the state to start an entity, whether an annual report is required, and other legal obligations and suggestions accompany different business entities. If you have a limited budget, filing your documents with your state by yourself is one way to save on legal fees. If you can afford it, and you don’t want to take the time to do it yourself, you can hire a lawyer to do your filing for you and take care of the require publication.

Your lawyer can also create the documents that accompany the creation of a new business – bylaws, operating agreement, terms of service, and/or contract templates. They can also advise you about how to protect your intellectual property and the importance of maintaining your corporate veil. Even if you don’t need a lawyer to create your business entity, it’s pragmatic to bring your lawyer into the loop sooner than later, just to make sure you have your ducks in a row.

Being a business owner and running the business are two full-time jobs in one. As an entrepreneur, I sympathize with what my clients go through with the challenges of providing for their customers and managing the nuts and bolts of being a business owner. If you want to connect with me and my experience as a business owner, you can contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

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Getting Fired because of your Side Hustle

August 30, 2016 by Leave a Comment
Explosion by Charles Dyer from Flickr (Creative Commons License)

Don’t Blow Up Your Master Plan | “Explosion” by Charles Dyer from Flickr (Creative Commons License)

When I was on one of the weekly calls with my mastermind group last week, one of my fellow Shankminders asked me to comment on a phenomenon amongst entrepreneurs – working on your side gig while at your full-time job.

Wait . . . what?! There are people out there sitting at their desks, and while they are supposed to be working for their employer, they are working on their side hustle? I was incredulous, but the members of my group knowingly nodded their heads.

I thought my head was going to explode. How can anyone think this is ok?

Am I the only person who read in their employment contract? What are you supposed to do on the first day of work besides read the company handbook? Even before I went to law school, I remember signing off on company policies that said employees couldn’t use company time or company resources to run a side business. At the time (2005ish), I assumed this policy primarily applied to people who might be realtors or the like on the weekend, but now I see how this applies to anyone who has a side business – including bloggers and other social influencers.

The notion that people are running their side gig during regular work hours raises a lot of red flags for me.

  • If you are an at-will employee, you can be fired for any reason, or no reason at all. Working on a side project when you’re supposed to be doing your work tasks seems like a good reason to fire you, especially if you’re neglecting your work duties to do it.
  • Employers can easily track what employees are doing at work with technology like keystroke trackers. You may be telling your employer a lot more than what websites you’re visiting – like passwords and your company’s trade secrets.
  • Your contract may have a provision that says anything you create during company time or using company resources is owned by your employer. If your contract has this provision, you may unwittingly forfeit your business to your employer, without any options for recourse.

Some employees have a provision in their contract that says that anything they create during the ten-year of their employment that is related to the work of their employer, is owned by the employer. This could apply to projects done even outside the office.

In general, I am an advocate of employer’s staying out to of employees’ business – personal or otherwise – and that comes with the obligation that employees keep non-work issues out of the office. I understand why it makes sense for someone to occasionally check social media at work, or like during their lunch break. And unless there is a security reason to prohibit it, employees should be allowed to have their phones at their desks to take phone calls or respond to text messages related to their families, permitted it doesn’t interfere with doing their jobs.

But work on a side gig while at the office? No no no. (At least, not without permission.) There are too many risks, the least of which is losing the job which is paying your bills while you’re getting your side hustle off the ground.

If you don’t know what the rules are at your office, go back and read them. Ignorance of the company rules, particularly the ones you signed off on, will not save you from discipline or worse. If you need help understanding how to work on your side gig while at your current employment, talk to a business attorney her knee or a resource that helps entrepreneurs in your community. If you want to see me pontificates more about this and related topics, you can contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

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Ask the Hard Questions Before Starting a Business

September 19, 2013 by 2 Comments
dock at dusk by Scott Ellis from Flickr

dock at dusk by Scott Ellis from Flickr

When business owners are launching their new venture, they can get so excited about launching the business that they don’t put the energy into making sure they have the structure of their business relationship laid out. Why would they want to do that? That sounds really boring and kind of a downer when you think about it.

Even though it might seem boring or superfluous, people who are going into business need to have a meeting of the minds and address some of the hard questions that come with owning a business. It might be the first stressful conversation you have to have and it’s a good way to gauge how well your partner(s) communicate under stress. You might learn that they’re an irrational nutball when things aren’t smooth sailing and you don’t want to go into business with them.

When I’m working with new business owners, here are some of the questions I throw at them to see how well they’ve thought through their plans.

  • When and how much will each owner get paid?
  • What happens if an owner gets divorced? Becomes disabled? Dies?
  • What are each person’s responsibilities? How much can each owner spend without getting the other owner(s) approval?
  • If the owners are deadlocked on a decision, how will you resolve it?
  • What should happen if an owner isn’t performing up to par?
  • What will happen if an owner wants out?
  • Under what circumstances can an owner kick another owner out of the company? What will the process be?
  • What’s the goal of the business, including the exit strategy?

Ideally, these answers should be a part of the owners’ operating agreement if they have an LLC or otherwise documented in a master plan so everyone’s on the same page. Business divorces can be as messy as family divorces, especially when the owners didn’t figure some of these things out in advance.

It’s much easier to deal with these questions when everyone’s happy and thinking about what’s fair and what’s best for the business than to wait until everyone’s pissed off at each other and looking for ways to get ahead or screw over the other owner(s).

Before you start a new business, talk about the hard questions with your potential partners before you launch your venture and consider meeting with a business mentor and/or a business attorney to make sure that you’re setting yourselves up to be a success from all angles from the beginning.

You can connect with me on Twitter, Google+, Facebook, YouTube, LinkedIn, or you can email me.
You can also subscribe to the Carter Law Firm newsletter.
Please visit my homepage for more information about Carter Law Firm.

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How to Avoid Screaming Matches in Coffee Shops

July 25, 2013 by 2 Comments
Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

When you and a friend have a great idea for a new business, you create an LLC.

When you create an LLC, you get super-excited about your new venture.

When you get super-excited about your new venture, you forget to put in the business infrastructure behind the scenes.

When you forget to put in the business infrastructure behind the scenes, you and your partner may have different ideas about how you’re going to run the business.

When you and your partner have different ideas about how you’re going to run the business, you get frustrated with each other.

When you get frustrated with each other, you get into screaming matches at coffee shops.

Don’t get into screaming matches at coffee shops.

Get an operating agreement at the beginning of your business relationship.
This will make sure that everyone is on the same page and you can predetermine how you’re going to address certain problems before they arise.

You can connect with me on Twitter, Google+, Facebook, YouTube, LinkedIn, or you can email me.
You can also subscribe to the Carter Law Firm newsletter.
Please visit my homepage for more information about Carter Law Firm.

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