As the owner of a law firm that works with small business owners, I can confidently say that most small business owners don't pay enough attention to the legal side of their business. And that's a shame. As a small business owner, a lot of hard work goes into developing your business and your brand. Your business becomes your baby and your everything—and you need to protect it.
Based on my experience working with small business owners, I've developed a list of five legal essentials that every business owner needs in order to establish a strong foundation and protect their brand.
1. Register your business
Businesses often start as a side hustle or hobby and quickly develop into much more. In fact, my law practice began as a side hustle outside of my regular job, and as I provided legal services to a handful of initial clients, more clients began coming to me wanting legal services. I knew that if I wanted to actually make the leap and quit my job to focus on my own business, I had to make it official.
There are three main reasons why it's important to register your business:
Registering your business with the state legitimizes your business for both you and your consumers. Customers or clients are more likely to work with someone who runs their business like a business, rather than someone who runs it as a hobby or second job. A registered business provides credibility and shows the consumer that you take your job seriously.
Registering your business also gives you the ability to apply for grants and loans. As small business owners, we all have the goal of growing and expanding our business. To do that, we need money, and grant and loan applications almost always require that your business be registered.
Having a registered business will allow you to receive an employer identification number (EIN), which means you can establish business bank accounts.
And that brings me to the next essential.
2. Establish business bank accounts
You may have started your business with personal funds, but it's important to immediately establish a separate bank account for your business. The main reason why: it helps protect your personal money if someone decides to file a lawsuit against your company. If you don't have a business bank account, you'd have to dip into your personal funds to pay any damages.
Business bank accounts also allow you to keep track of expenses and create a budget for your business. I've worked with lots of business owners who didn't have separate bank accounts. When I reviewed their bank statements, there were charges for groceries, Uber rides, and vacations, mixed in with legitimate business expenses, such as office rent and supplies. When you mix business and personal finances, it makes it harder to establish which purchases are made for business or for yourself, and that can lead to fewer tax deductions.
For more information on how to deal with business bank accounts, take a look at these 3 mistakes small business owners often make with taxes.
3. Use solid contracts
Contracts are the lifeblood of all businesses. A good contract lays out the terms of agreement between your business and your customer, and protects you if a problem ever arises.
A common mistake that I see among small business owners, especially new business owners, is that they're reluctant to put agreements in writing. I often hear that they're afraid a written contract will offend the other party or that they don't anticipate any issues ever arising. But, like clockwork, a problem or issue always arises; it's important to be prepared for those issues.
A handshake deal offers your business absolutely zero protection. I once had a client who entered into an agreement to provide a service to their friend. My client decided that they didn't need a contract because they were friends—nothing bad would ever happen. But as Murphy's Law would predict, the friend wasn't happy with my client's service and began making ridiculous demands to make up for their dissatisfaction. My client and their friend had never discussed what would happen if something went wrong, and of course, never wrote down their agreement. So by the time my client came to me, there wasn't much I could do for them.
An attorney can draft a contract that's tailored to your business and its needs, so that if an issue ever arises, your business is protected. You've worked too hard to establish and grow your business just to leave it in the hands of a handshake deal or a poorly written contract template that you found on the internet.
Contracts don't have to be time-consuming. Here are Zapier's picks for the best electronic signature apps that can help you streamline the process.
4. Register your trademarks
It's a common misconception that you have to wait until you're an established business before filing an application for a federally-registered trademark. The opposite is true: the earlier you apply for a trademark, the better. Trademarks not only prevent others from infringing on your intellectual property, but they also protect you from infringing on the intellectual property of other businesses.
Failing to register your trademark right away can be a very costly mistake. I once had a consultation with a prospective client who had built a successful retail business. She created a great logo based on the name of the business, built a website, and spent a great deal of money on marketing. A few years into her business, she decided to trademark her company's name. But when she went to file her trademark application, she discovered there was another company with the exact same name, providing the exact same service, that already had a registered trademark. My client was forced to change the name of her company and spend thousands of dollars rebranding her business.
5. Complete estate planning documents
No one likes thinking about their own death or incapacitation. But just like you'd make a plan for your children after you're gone, you also need a plan for your business.
A good estate plan will make provisions for your business after your passing or if you become critically ill. Having a plan puts you in control and ensures that your business is in good hands.
Remember to treat your business like a business and not a hobby. Establishing a good framework and base puts you in control and provides you with protection. And these essentials will allow you to focus on what you do best: running a successful business.
Disclaimer: You understand and agree that this post is intended to provide general information and education, which in some cases may be outdated, and that the information provided is not intended to be interpreted as specific business, financial, or legal advice for your business and financial situation. You agree that reading this article is not indicative of an attorney-client relationship and that any US Federal or State tax advice provided here cannot be used to try to avoid penalties, fines, or other monies due under US Federal or State tax law. You agree that the information provided here cannot be used as a defense of actions during any lawsuit and you relieve Meredith Hill Law, LLC from any liability. You should consult with an attorney, accountant, and/or financial advisor in your area who understands your particular business and financial situation so that you can take the right steps for you and your business.
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