Making It Legal:

Hooah! (Or Oorah! for those of you who prefer the Marines) Here’s some tough talk for you: If you’re reading this on December 31 (or January 1), get the “eff” off the computer and treat yourself to some down time. I’ve seen firsthand how running myself ragged can negatively affect my health–and if you don’t put yourself first, rest assured, no one else will–no matter how loving your spouse or significant other.

More important, if you don’t build a business that can ultimately function without your active involvement, you’ve not built yourself a company–you’ve worked yourself onto a self-imposed hamster wheel that you can’t get off of.

So get past your comfort zone: Pretend you’re a 6-year old. Turn off the computer and go play outside. Turn on Earth, Wind, and Fire (or whatever gets your toes tapping) and flail about the living room–the more ridiculously, the better.  Do it until you get out of breath or drop onto the floor in peals of laughter. Now that’s a way to ring in the New Year! 

Thanks to all of you for reading this year–wishing you peace, health, and prosperity for 2010!

You may roll your eyes and picture your grandmother waggling her finger in your face saying, “An ounce of prevention is worth a pound of cure, young lady,” but she was right. How simple would it have been to floss regularly, instead of having to go through the time and expense of filling a cavity? My husband recently chose to undergo arthroscopic knee surgery for a meniscus tear. 

Notice I say “chose.” He was in some discomfort, but the result of not dealing with it now could have meant more serious, invasive and expensive surgery later–not to mention the increased risk of never getting the full mobility he once had. [Crazy man, he's back to running as he did before the surgery!]

Your business is no different. If you think of the legal foundation as the skeleton of your company, are you making sure that the bones don’t get brittle and break? Here are some of the different “bones” of your legal foundation:

• Entity formation and corporate formalities–have you been keeping up?
• Business ownership–are expectations clear with partners and investors?
• Financial issues–Any personal guaranties? Are you current on all bank loans?
• Contracts–Have you been meeting your obligations? Have others been meeting their obligations to you?
• Leases–Do you know the terms?
• Employee and ICs–Are you using them properly?
• Intellectual property–Have you protected yours and guarded against misuse of other people’s?

 If you’re reading this with eyes glazed over, your business records and practices may not be fortified against potential claims and lawsuits. For an ounce of prevention, get a copy of my legal health checklist, Is Your Business Legally Healthy?, available through my GreatBusinessLawResources.com site.  It will help you spot the areas where your bottom line could flatline!

Q: I’m in a situation where one owner is an active “sweat equity” owner; the other is inactive but provides financial capital. I’m the sweat-equity owner who has put in the hours and grown the business, while the other has been gone for months at a time. I am now in the process of trying to buy out my business partner. He put $20,000 into the business and I am trying to figure out where to start on coming up with a fair number to buy him out. He seems to think $32,000 is the number, although we are just barely starting to turn a profit. Any suggestions?

A: Whether $32,000 is a fair number depends on a number of factors:

1. Whether you have a partnership agreement that sets out the method for valuing a partner’s interest upon exit (If so, follow that.)
2. How businesses in your industry tend to be valued–$32,000 may be fair for a product-based business if you’re on the upswing and your partner relinquishes all rights to develop similar products, but not fair in a service-based business where he’ll walk away with a fair amount of the goodwill. Your accountant may be able to provide you with guidelines of how to value the business at this stage.
3. The cost of litigating the dispute. If you don’t have a written partnership agreement and can’t reach an amicable agreement, your only recourse is to go to court to have a judge figure it out–and he/she will probably expect you to hire your own valuation experts to provide guidance on the financial terms, etc. The likelihood is that you could spend more than $32,000 and then still have to pay him something. Best to consult with an attorney in your area to get a sense of the costs involved.

I was recently contacted by an entrepreneur (”Marie”) for a “rush job”: She had formed an S-Corporation about a year ago, and now a couple of investors were waiting in the wings to take an equity piece of her company. She needed the deal signed, sealed and delivered within two weeks.

Now I won’t say that’s impossible (although given my current caseload, I couldn’t fit her in). And you certainly don’t want attorneys dragging their heels when you have a deal that needs to get done. But bringing on an equity investor is not something to take lightly. Leaving aside the legal issues, there are a number of tax and valuation issues that need to be addressed.

And here’s what smelled fishy:

• If these were sophisticated investors, they’d know that these kinds of deals take time (and they’d want their own counsel to review it).
• If they were pressuring Marie to do the deal fast, there could be something about it that could come back to bite her in the future.
• And if these were just “friends and family investors,” what’s the rush?

Here’s another problem. Marie had formed an S-Corporation. But an S-Corporation is not a legal form of business that permits passive investors. In order to accommodate them, they’d either have to become active participants in the business (which they probably wouldn’t want), or Marie would have to change her tax status to a C-Corporation (which takes time and could affect the timing of the deal). 

The moral of the story: Even assuming Marie had found the right investors, she didn’t have the right legal foundation for inviting them into her company.  Sometimes it’s not so much understanding the details (like “entity-level taxation” or “limitations of liability”), but knowing where you want your business to go.  Have a look at  my article, “Uncover the Stories Behind Business Entities,” which tries to put a human face on a sometimes complicated and technical decision.

So you start your business from home. Makes sense, so you can keep costs down. But then you realize that your home address–nay, your home state–lacks a certain cache. What to do?

Q: I currently have a business in Michigan. I am looking into e-commerce; however, my product is a fashion item. Unfortunately, the state of Idaho is not the fashion hub of the world. As a result I recognize negative implications of having my address on my web page and my shipper information reads Boise, Idaho. What are my options short of relocation to get my address to read N.Y. or Miami?

A: The only way to legitimately have your address read N.Y. or Miami is to have some form of business presence there. This doesn’t mean you need to physically relocate your business. However, if you start to use either of those addresses (N.Y. or Miami), you would have to register to do business in those locales, plus you then would be on their radar for paying taxes.

Before you make the switch, you may want to do a little digging/research to see just what kind of impediment is really would be (in terms of $$) to remain in Idaho. Idaho may not be the fashion hub of the world (yet), but given that your potential customers will be purchasing online, it may not make much of a difference to them where the product comes from (unless association with N.Y. or Miami will form the basis of your marketing). If it does, speak to your accountant about the fees and costs (from a tax perspective) associated with having a presence in NY or Miami–you may find that the additional sales you generate could well outweigh the additional tax and cost burdens.

As I’ve learned in nearly 15 years in business (gulp! Has it been that long?), change doesn’t need to be–and usually isn’t–a complete and total metamorphosis in one go, like the makeover shows you see on reality TV. It’s a process that unfolds over time. Sometimes, all you need to get to someplace better is one shift, one new action (or one new task to delegate). 

On Small Business Trends, Jason Cohen provides a list of transforming actions you can take, many of which involve doing just one thing.  Not 100 things, all of which need to be accomplished immediately. Just one. One step at a time. They include:

• Identify one person who can get your company more exposure.
• Find one metric about your business that you know the least about–and learn more about it.
• Come up with one thing you could do to increase your conversion rates by 1 percent.
• Identify one mundane task you could easily outsource.
• Remove one blog from your feed reader that’s not worth your time; and add one that is (OK, Cohen suggests 5 . . . but why not start with one?)

What’s the one thing you could do today to make your company more productive?  Get in the habit of taking one action at a time and, by the end of the year, you’ll have taken more than 250 steps to reach your goals.  Let me know what you choose!

Q: I have a small business in which I sell bails for jewelry. Another company (of course larger than mine) is claiming I’m infringing when the two items don’t even look alike. What should I do? 

A: For those of us Saturday morning cartoon fiends, this is reminiscent of the Ant and the Aardvark. The aardvark, much larger and tougher, was always trying to eat the little ant. So the ant had to come up with a host of tactics designed to either outsmart the aardvark, or make the aardvark believe that eating the ant would be an unpleasant experience indeed. 

Your task is to make this experience unpleasant for the larger company by not simply capitulating (assuming, of course, you have a good case). To do that, I’d strongly suggest that you consult with an intellectual property (trademark) attorney. They are trained in evaluating claims of infringement and could look at your actual product vs. the “aardvark’s” to point out the areas of dissimilarity. In situations like this, it’s best if your response comes from an attorney–that way, you come across as less vulnerable, and the other side will have to seriously evaluate how much it wants to spend in legal fees to keep the claim going. If you’re on target, and there really is little similarity between your products, a strongly and intelligently worded letter may be all that’s needed to turn them away.

I had a stress meltdown recently. Not that this should have come as any surprise–after all, I run myself ragged; I spend way too many hours in front of the computer, the phone and other people, and not enough hours resting, exercising, trusting. Meltdowns for me feel like a mini-volcano: the anger, stress and frustration start to rise in my body, beginning somewhere in my stomach, like a lava flow about to erupt through my throat. I feel simultaneously pulled in all directions and yet too paralyzed to move in any one of them. I thought the issue was that I needed to systematize what I did (I do).  Create some kind of operations manual (I should). But I couldn’t wrap my mind around it, as I couldn’t see the forest for the trees.

Then my friend, colleague, and strategic cattle prod, Dawn Fotopulos of Small Business How 2, pointed me to an article written six years ago by Jim Collins–and I was whisked into the world of the “stop doing” list. WOW! What a life-saver. 

This is the basic premise. You receive two phone calls:

1. The first one says you’re about to receive $20 million dollars–no strings attached no taxes.  In other words, enough money that most of us would never have to work again (if we chose not to).  Whee!
2. The second phone call tells you you have only 10 years to live–no bargaining, no miracle cures, no extra wishes from a magic genie. In other words, the impetus to make every moment count because you know they are limited.

Now here’s the $64,000 question: Assuming you choose to continue working, what would you stop doing?

Think about that for a minute. Most strategic plans are about what you would start doing–like a series of flimsy New Year’s resolutions for your company, most of which drop off after the first few weeks. This gets you to think about what you would stop doing. If you have only a finite number of moments, what would bring you the greatest joy, the greatest sense of fulfillment, the greatest positive impact on your communities? Are you doing any of that now? Does any of what you want to do generate money for you? You may find, as I did, that you’re buried under a mountain of administration, bookkeeping and management of your business, rather than spending more of your time with above-the-dashboard thinking and creativity.

Once you identify what you would like to stop doing, you can then create a viable plan for how you can stop doing it. This may not happen overnight, so be prepared for a time of transition. For example, I’ve been drowning in social media upkeep (among other things). No time to check out followers, maintain profiles or research groups I might want to belong to. I don’t need to do the research and upkeep myself: My time is better spent having actual social media conversations because that’s what nourishes me: learning from and being in dialogue with other like-minded entrepreneurs. Having identified what I want to stop doing, I can create a plan to delegate those tasks to my VA.

Looking at my different lines of business through the lens of my “stop doing” list, I now have a powerful foundation for setting my goals for the coming year. I see where each of the strategies I adopt, and the tactics I employ, fits within the goal of getting things off my plate. It creates a system for my business that, ultimately, won’t need me to run it. And when I have that, I’ll have a salable asset and the most wonderful gift of all: total and complete freedom of choice in how I spend my time.

Women-owned businesses generate approximately $2.8 trillion dollars a year, according to a recent study done by the Center for Women’s Business Research.  In gross amounts, that’s no chump change (I could do a LOT with $2.8 trillion.).  However, the study also seems to indicate that only 4.2 percent of all revenue is generated by women-owned businesses . . . which isn’t as impressive a figure.  One theory: Women-owned businesses tend to stay small.

All the more reason that they should ask for help, so that they can develop a strong foundation for growth. Listen in to my interview of Elisa Balabram, author of the recently released Ask Others/Trust Yourself.  Elisa talks about the importance of listening to your own passions and intuition, getting over the shame/discomfort of asking for help, and prioritizing the goals that you’re prepared to take action on.

Q: I want to sell goods online. There is a specific product which I can get for a very low price. The problem is that it may be a fake. The name is a well-known name, but I think it is a copy. Can I get in trouble by selling fake goods on the internet?

A: The short answer is “yes,” you can get in trouble selling fake merchandise online.  Making sure that your distribution source is reputable and acting legally (that is, adhering to license agreements from the appropriate source) is an important part of your due diligence as a business owner. Part of the reason you may be able to get the goods for a low price is that the distributor is knocking off the rightful manufacturer and trading on its name. That can put you at risk of being named in a trademark infringement or “dilution” lawsuit. Also, you have to be careful that the knock-off goods are safe to use–you could run into trouble with not just the rightful manufacturer, but with customers as well.  Your smartest move at this point is to speak to an intellectual property lawyer who is also familiar with e-commerce. Do it before you start operations.