When you start a new business, there are SO. MANY. QUESTIONS. And for good reason—living the dream of entrepreneurship can be tricky and financially risky. That’s where we come in! As a law firm primarily focused on business, our sweet spot is working with people starting and growing their own businesses. Our domain name is “Davis Means Business,” after all.
One of the first things we often advise clients on when starting a new business is how to protect finances—that involves keeping business and personal matters separate, preventing scams, drafting strong contracts and becoming familiar with Conciliation Court.
I recently presented “10 Things You Should Know to Protect Your Finances” at our first BTAP Series with the City of Minneapolis and Main Street Alliance, and want to share the list with you here in case you weren’t able to attend.
1. You shouldn’t ever have to buy copies of required postings or notices
Seriously, business owners are a strong target for scams because they get a lot of mail and email and are often too busy to review each piece carefully. Once you register your business, you’ll likely receive the first and most common scam—a letter that says you need to buy a bunch of business/compliance posters. But you don’t—you can actually get them online for free here, here and here.
2. Never pay money if you haven’t previously heard of the person/company – There are places to find out info (AG, SOS, USPTO)
If you’re not sure whether a business communication is legit, we always advise to either check with the Attorney General, Secretary of State, Patent and Trademark Office websites or take a picture of the communications and send it to your lawyer. They’ll be able to tell you if it’s something you should just throw away (and most of the time, it probably is). You can find out more about scams business owners need to know about here.
3. It’s not too hard to create a business and separate your personal liability
Setting up a Corporation or LLC effectively establishes your business as a separate legal entity—that will create a recognized separation between you and your business. Here’s a rundown of everything you’ll need for starting your own business.
4. If you stay on top of renewals, you will only pay one time for setting up your business at the state (for some industries, you may also need a state or City license)
5. Signing a personal guaranty can negate the separation of liability (and the guarantee might be hidden in the agreement)
Once you’ve set up an LLC or corporation and are doing business as the company (signing things in your position with the company and not personally) you’ll be able to keep your personal assets away from any liability the business might incur. UNLESS you sign a personal guarantee, where you basically say, “I know the business is entering into this contract, but if the business doesn’t or can’t pay, I will pay personally.” Some personal guarantees will be separate documents and easy to identify, but sometimes language about a personal guarantee will be buried in an agreement, so read them carefully and make sure you’re only signing as the business, NOT yourself.
6. Big questions for any contract – What do I expect you to do, what do you expect me to do – what happens if we don’t?
If you sell a good or service, you have clients and need to understand what the rules are that govern that transaction. Here’s what you need to know about client relations and here are five reasons why you actually need a strong client contract.
7. Many times, with contract breaches and slow/no pays, a bit of communication might help
Though it’s not that common, breaches can and do happen. However, if you’re using a well-drafted agreement, you can define what will happen if a breach does happen. Read how to handle those situations here.
8. Invoice regularly or make your client getting something they need contingent on them paying you
Most of us are not taught in school how to ask for payment for services or goods we provide, but here are some tips that we give to all clients and potential clients to make it a bit more likely you won’t be faced with the prospect of sending your once-favorite client to a collection agency.
9. Conciliation court claims can be up to $15,000 and you can often DIY
Many clients come visit us only after they have received a complaint or a letter threatening legal action. Here are five tips to prevent litigation (even though, unfortunately, the only sure-fire way to prevent litigation is to never start a business and avoid human interaction). The good news is that if you have to bring suit, you can bring your claim in conciliation (small claims) court if it is $15,000 and under, and often you don’t even have to have an attorney represent you.
10. There IS assistance for “what you do next” after a judgment, but it may not be easy to collect – persistence can often pay off
At what cost is litigation really worth it? Business owners and entrepreneurs must make a “business decision” when faced with potential litigation. The fight to prove that you are right, both morally and legally, may not be in your best interest. Taking a practical approach to resolving disputes versus always trying to prove you’re “right” is another way to prevent litigation.
You can watch the full recording of my presentation here or check out a handout with useful links here. And don’t miss our next BTAP presentation on May 18 on 10 Things to Know Before Signing a Lease. Stay tuned for more information!