“It is better to look ahead and prepare than to look back and regret.”
~ Jackie Joyner-Kersee

Regardless of what stage your business is in, chances are you can use some reminders of vital ways to protect your business. The following is a list of 10 ways to protect your business regardless of size, location, or stage of your business. Use it as a checklist to measure your business protection quotient against. If you are doing all of these, then let this serve as validation. If not, then add these tips to your list of business items that need focus.

  1. Think Big – Do not get caught up in the thought process that your business is too small to incorporate. Entrepreneurs often make the mistake that because the business is a one-person show, it is too small to have a structure that provides protection. Think “big” even if the business isn’t big. Even the smallest company can incorporate or form an LLC.
  2. Put it in Writing – If you are an entrepreneur offering services, develop a basic written agreement to use with clients. An agreement promotes consistency of policies, exudes professionalism, and clarifies the understanding of the parties. It does not need to be fancy or long, but should be understandable.
  3. Make Friends with Tax Deductions – Try to familiarize yourself with all of the basic business tax deductions so that you can maximize your tax write-offs. Even if you use an accountant to prepare your taxes, it will benefit you greatly to be aware of the various deductions that are permitted. It will certainly force you to keep better records!
  4. No Commingling of Funds – Do not use business funds for personal expenses or visa versa. Keep separate bank accounts and credit cards for business and personal. The IRS likes to see the bifurcation of business and personal finances. Give the IRS what it wants, and keep ’em separated!
  5. Proceed With Caution When Hiring or Retaining – If your business is growing and you want to hire an employee or retain the services of an independent contractor, proceed with caution. Be slow to hire. Take your time to interview, check references, do a background check (with permission), etc. It will be time well spent.
  6. Classify Team Members – If you have individuals that work for your business, you need to determine whether they are employees or independent contractors. The IRS has a wealth of information on this topic on its website at www.irs.gov, and you can also check with an accountant. Get the answers you need. Do not guess because if you are incorrect, it will be a costly mistake.
  7. Pad Your Bank Account – In this time of economic uncertainty, it is wise to keep extra funds in the bank “just in case.” If your business should suffer a down turn, are you financially set for several months? Will you be forced to close shop? Think through and be prepared for the worst-case scenario, and then when it does not occur, feel relieved.
  8. Be Insured – If you are in business, you need business insurance. Period. If you do not have business insurance, do yourself a favor and take a look at it. Work the cost into your budget. Yes, some industries are not as high risk as others, but why take the chance? It is generally considered a valid business tax deduction, and gives you the peace of mind of knowing your business is protected.
  9. Get Credit – If you create a fixed work through your business, give yourself credit. Use a copyright symbol on your fixed works to let the world know that you are the owner. You can get even more protection if you file the copyright with the US Copyright Office (www.copyright.gov), although registration is not required.
  10. Snag Your Domain – If you do not own the domain name for your business, buy it now. If you wait, it will most likely be taken. Then, your choices are to pay a lot of money to buy it, wait until it expires, or think of another domain name. For those of you that already have the domain of your business name, buy your tag line, slogan, moniker, or any other name that you feel embodies you or your business. In the world of domain names, you snooze, you lose. Play it safe and act now!

Copyright © 2009 Lisa Montanaro of LM Organizing Solutions, LLC.

Want to Use This Article in Your E-zine or Website?

You can, as long as you use this complete statement:

Copyright 2008. Lisa Montanaro is a Productivity Consultant, Success Coach, Business Strategist, Speaker and Author who helps people live successful and passionate lives, and operate productive and profitable businesses. Lisa publishes the monthly “DECIDE® to be Organized” e-zine for success-minded individuals, and “Next Level Business Success” e-zine for entrepreneurs. Subscribe today at www.LMOrganizingSolutions.com. Lisa is the author of The Ultimate Life Organizer: An Interactive Guide to a Simpler, Less Stressful & More Organized Life, published by Peter Pauper Press. Lisa also publishes the DECIDE® to be Organized blog at www.DecideToBeOrganized.com. Through her work, Lisa helps people deal with the issues that block personal and professional change and growth. To explore how Lisa can help take your business to the next level, contact Lisa at (845) 988-0183 or by e-mail at .

Is the Threat of a Lawsuit a Real Fear?

As a small business owner, you may be one of the 48% concerned about frivolous or unfair lawsuits.  According to the U.S. Chamber Institute for Legal Reform, actual lawsuits and the fear of lawsuits cost U.S. small businesses $98 million in 2005.  That figure may seem large because it includes money spent on damage awards, settlements, legal costs, liability insurance premiums, and costs incurred by insurance companies on behalf of policyholders.  Is the fear of lawsuits a real fear?  Unfortunately, yes.  Anybody can sue anybody over anything at any time.  In reality, 46% of small business owners have been threatened with a lawsuit, 34% have been sued in the past 10 years, and 62% have made business decisions to avoid lawsuits.  Indeed, small businesses bear 69% of the total cost of the tort system to all U.S. businesses.

What is the Best Course of Action?

What’s a small business owner to do?  For starters, realize that the best defense is a great offense.  While most small business owners fear the law, it is much wiser to use the law as a protective shield.  There are many business and legal components that contribute to creating the strongest shield possible – business entities (the type of structure that governs your business), insurance, and intellectual property (copyright, trademark, patent, and trade secrets) to name a few.

As a former full-time practicing attorney and now a small business owner, I have been on both sides of the fence when it comes to the legal issues a business owner may face.  It is imperative that entrepreneurs understand the basics of the legal side of running a business, and how to use the law as a shield to protect yourself and your business. 

Creating a Shield Through Business Structure

The first item a small business owner should consider is the structure of the business.  There are 4 basic types of business entities: sole proprietorship, partnership, corporation, and limited liability company.  A common misconception of small business owners is that the business entity itself always creates a legal shield.  In some instances (a corporation, or limited liability company, for example), this is generally true.  However, if you are a sole proprietor (and, if so, you are not alone, as 78% of all small businesses in the U.S. are sole proprietorships), then you essentially have no shield.  As a sole proprietor, you are personally liable for all business debts and other obligations.  Fortunately, the law is not the only means to create a shield to protect your business.  If the business entity itself does not provide a shield, then you can create one by acquiring appropriate and adequate insurance coverage.  Thus, a sole proprietorship that is adequately protected by insurance may have an effective shield. 

In the case of partnerships, another misconception is that the partnership is a distinct legal entity that provides a shield.  A partnership is essentially a sole proprietorship run by two or more individuals.  Thus, the structure itself provides no shield.  Again, insurance can be used to fill in the gap, and/or a different business entity can be chosen.  For example, did you know that you can create a corporation and the same two people that would have created a partnership will now be shareholders?  What about a limited liability company with more than one member?  There are many ways for two or more individuals to own a business together.  Carefully consider which makes the most sense, not only from an operations and decision-making standpoint, but to garner the most legal protection for the owners involved.   

Even with corporations and limited liability companies, there are limits to the force of the shield.  Simply creating a business entity is not enough.  The business must be operated as a distinct legal entity, including refraining from co-mingling of personal and business funds, keeping personal guarantees on behalf of the company to a minimum, maintaining corporate/business records, and paying business-related taxes.  If the business entity is a sham or the owner does not follow the rules in terms of keeping the business shield up, the legal doctrine of “piercing the corporate veil” may be applied by a court if the business is sued.  Piercing the corporate veil allows a litigant to pierce the business structure and reach the owner personally.  Granted, piercing the corporate veil is only applied in very limited situations, but it should be used as a reminder to keep that shield up at all times when it comes to operating your organizing business as a distinct legal entity.

Creating a Shield Through a Written Client Agreement

When you agree to perform services for a client, and the client agrees to pay you for such services, you and your client have entered into a legal contract.  The terms of the contract, however, are difficult to recall and prove unless in writing.  A written contract is pivotal as it puts clients on notice of business policies and terms, sets a professional tone, promotes consistency of policies, and is legally enforceable in court (the decision whether to sue a client to enforce a contract is, of course, a business decision, as well as a legal one, and should be carefully considered).  The contract, thus, helps to prevent misunderstandings and clearly defines the expectations of the parties.   

Some entrepreneurs choose not to use contracts for fear that a written agreement may be too formal or legal in nature and, thus, may scare a client away.  Again, this is a business decision that should be given consideration, and you should determine if this is a real or imagined fear by communicating with your clients to test the waters.  You can also use a “letter agreement,” which may be less intimidating for clients.  In the corporate arena, a written contract is generally expected.  Another disadvantage of using a written contract is the cost of creating and advising if you use an attorney.  While there are standardized contract forms available online and in books, be careful not to accept such standardized forms carte blanche.  I often see small business owners fail to adapt contracts appropriately, which causes embarrassing typos, inappropriate clauses, and general confusion.  Not only does this look unprofessional, but in extreme cases it can also result in unenforceability of the contract in court.  Therefore, it is a good idea to have a business lawyer review the agreement to make sure it adequately protects you, contains the relevant terms, and fulfills the goals you want to accomplish.  It is an expense worth paying for to secure adequate protection in the long term.

A word of caution: stay away from “legalese.”  Use plain English so that the agreement is easy to understand and helps, rather than hinders, the understanding between you and your clients.  If you do use a client agreement, here is a list of sample clauses you should consider including:

  • Definition of the parties (define your status as an independent contractor if the contract is for corporate organizing);
  • Services to be performed;
  • Code of ethics for your professional association, if applicable;
  • Confidentiality;
  • Pricing and payment policies (pricing structure, retainer guidelines, travel time or expense, charges for supplies or products purchased on the client’s behalf, cancellation policy, when payment is due, fee for bounced check, credit card acceptance, payment of expenses, etc.);
  • Provision of materials, equipment, and office space;
  • Assurance of insurance coverage;
  • State law governance;
  • Permission to take and use photos for marketing purposes, if appropriate;
  • Term of agreement/termination of relationship.

Now, go forth with shields raised!

In honor of my speaking engagements this week in Denver for the IRIS Conference for interior redesigners and home stagers, I decided to post some of my best articles for entrepreneurs. Here is the first one. Hope you find them useful for your own business!

“It is better to look ahead and prepare than to look back and regret.” ~ Jackie Joyner-Kersee

Regardless of what stage your business is in, chances are you can use some reminders of vital ways to protect your business. The following is a list of 10 ways to protect your business regardless of size, location, or stage of your business. Use it as a checklist to measure your business protection quotient against. If you are doing all of these, then let this serve as validation. If not, then add these tips to your list of business items that need focus. 

  1. Think Big – Do not get caught up in the thought process that your business is too small to incorporate. Entrepreneurs often make the mistake that because the business is a one-person show, it is too small to have a structure that provides protection. Think “big” even if the business isn’t big. Even the smallest company can incorporate or form an LLC.
  2. Put it in Writing – If you are an entrepreneur offering services, develop a basic written agreement to use with clients. An agreement promotes consistency of policies, exudes professionalism, and clarifies the understanding of the parties. It does not need to be fancy or long, but should be understandable.
  3. Make Friends with Tax Deductions – Try to familiarize yourself with all of the basic business tax deductions so that you can maximize your tax write-offs. Even if you use an accountant to prepare your taxes, it will benefit you greatly to be aware of the various deductions that are permitted. It will certainly force you to keep better records!
  4. No Commingling of Funds – Do not use business funds for personal expenses or visa versa. Keep separate bank accounts and credit cards for business and personal. The IRS likes to see the bifurcation of business and personal finances. Give the IRS what it wants, and keep ’em separated!
  5. Proceed With Caution When Hiring or Retaining – If your business is growing and you want to hire an employee or retain the services of an independent contractor, proceed with caution. Be slow to hire. Take your time to interview, check references, do a background check (with permission), etc. It will be time well spent.
  6. Classify Team Members – If you have individuals that work for your business, you need to determine whether they are employees or independent contractors. The IRS has a wealth of information on this topic on its website at www.irs.gov, and you can also check with an accountant. Get the answers you need. Do not guess because if you are incorrect, it will be a costly mistake.
  7. Pad Your Bank Account – In this time of economic uncertainty, it is wise to keep extra funds in the bank “just in case.” If your business should suffer a down turn, are you financially set for several months? Will you be forced to close shop? Think through and be prepared for the worst-case scenario, and then when it does not occur, feel relieved.
  8. Be Insured – If you are in business, you need business insurance. Period. If you do not have business insurance, do yourself a favor and take a look at it. Work the cost into your budget. Yes, some industries are not as high risk as others, but why take the chance? It is generally considered a valid business tax deduction, and gives you the peace of mind of knowing your business is protected.
  9. Get Credit – If you create a fixed work through your business, give yourself credit. Use a copyright symbol on your fixed works to let the world know that you are the owner. You can get even more protection if you file the copyright with the US Copyright Office (www.copyright.gov), although registration is not required.
  10. Snag Your Domain – If you do not own the domain name for your business, buy it now. If you wait, it will most likely be taken. Then, your choices are to pay a lot of money to buy it, wait until it expires, or think of another domain name. For those of you that already have the domain of your business name, buy your tag line, slogan, moniker, or any other name that you feel embodies you or your business. In the world of domain names, you snooze, you lose. Play it safe and act now!