Life often sometimes throws you a curve ball, even when you think nothing can go wrong in your life or business. One day you are being sued, or even a personal disaster such as your house being destroyed by fire (like happened to me last week which I'll explain in a later issue)
There are numerous things you can do in your business in advance to protect you from the most common causes of failure, fines, or lawsuits. During the past several years, I've noticed a common thread among clients, and in the reasons that found themselves in a mess which they hired me to assist with.
Many of my clients had the same thing in common, and almost all of their issues could have been avoided if they had just implemented some basic procedures to grow and safeguard their businesses.
So that you don't make the same mistakes as my clients, I'd like to share some of the most important strategies with you.
1. Establish a Company With Limited Liability Protection
Before you race out to incorporate a new business, you first want to have vetted your concepts to make sure they are worth pursuing. But assuming that you have already confirmed that it is worth pursuing, it is also a good idea to operate the business under some form a of limited liability shield so you can safeguard your personal assets.
For instance, the most common business types that offer limited liability shields are LLC's and corporations.
No matter what you do, you should stop to think long and hard prior to you ever operating as a sole proprietor, since it subjects you to unlimited personal liability. For instance, if you operate on your own as a sole proprietor and your company ever does anything inappropriate or gets sued, a creditor could go after your personal house, revenue, vehicle, or other personal assets.
On the other hand, if you operate your business under a limited liability shield, like a corporation or LLC, then the only assets the creditor could get are the assets of the company.
Normally, when you elect to file a new corporation or LLC, you submit the proper formation documents with the Secretary of State in the state where you want that company formed. A lot of Secretary of State web sites have online forms that you simply download and then submit interactively.
2. Decide On The Proper Name For Your Business and Products
Before incorporating your business, it is a good idea to do some initial research to pick a name that another person or entity is not already using to sell similar goods and services as you. For example, you do not want to start your new business off with a name that could cause you to be sued for trademark infringement because you chose a name that another person or entity owns. Be sure to get "all your ducks in a row".
Trademark law is protects consumers from becoming confused between different companies. Trademarks identify the source of that product or name.
This means that any time you decide on a company name, product name, or slogan, it is critical that you do some initial research to make sure that someone else is not already using that name or a very similar derivative of it in a way that would cause consumers to be puzzled as to the difference between your two companies.
In general, it is usually okay for companies in two totally different industries to have the same name, because most folks would not get the two names confused (unless it is a famous trademark, where that company retains rights across all industries). However, if you use a product or company name that is confusingly similar to another company who has a superior interest in that name, they could initiate legal action against you for trademark infringement and possibly be awarded significant money damages.
You can research is the Internet search engines to see if another person is already using your preferred name or a similar name in a similar industry. However, the best place to begin your research is to search the United States Patent and Trademark Office trademark database.
To designate that you are claiming an interest in the brand/name, you will want to mark your trademarks with (TM) (the TM sign). If you then later obtain an actual federal trademark registration, you will want to use (R) (the circle R designation).
3. Obtain the Appropriate Licenses
Another step you should consider in setting up your new business is whether you need to secure and obtain any special licenses in order to operate.
Some businesses require a special license to operate, such as a daycare, insurance agency, law firm, or doctor's office. If you are a business that requires a special license, you are more than likely already aware of that through the licensing process that you already went through in order to obtain that specialty. You definitely should spend a few minutes to do extra research to double check that your type of business doesn't require any additional licenses.
The sales tax license is the most commonly overlooked license. For example, if your business is going to sell products, then you are more than likely required to collect sales tax for any of those products that you sell to consumers in your state. Many states do not require you to collect sales tax on services. Nonetheless, you should always check with your state's Department of Revenue to verify what exactly you are required to collect sales taxes on, if anything.
4. Utilize The Proper Written Agreements with Contractors and Employees
The absolute most important practice you should put implement for your business is to use the proper written agreements with the employees and contractors who you work with.
If you disregard this step, you may not even acquire ownership/title to the very thing you paid someone else to create for you, and you may even end up owing that person royalties later. Or worse case yet, you could end up in a disagreement with the other party because of unclear terms.
The agreements do not have to be complex, and there are many products that you can buy that have simple agreement templates you can utilize with employees and contractors, such as our BizShield product.
The primary reason that it is absolutely critical that you obtain a written agreement with contractors and employees is because of the way the intellectual property laws are. It's a little complicated, but to put it simply, the contractor/creator owns the copyright in the work that you pay them to create, unless they transfer that copyright over to you in a written agreement.
So in plain English, this means that a web developer or graphic designer or other type of contractor who you engage will keep the copyright ownership in the work you pay them to create, unless you persuade them to sign an agreement transferring those rights over to you. This may sound backwards, but that is the way the copyright laws work.
With your employees, you do automatically own the copyright interests in the work you pay them for. But, you do not automatically obtain their patentable ideas. Thus, you should always get a written agreement with your employees.
Here are the most important terms that you should have in your written agreements with employees and contractors.
This is an approach that you should be AWARE of. It can save you from the many common causes of lawsuits and damages later in your business.
5. Follow Established Accounting Principles To Keep Your Business In Good Standing
This accounting principle is one that a majority of folks never like to follow, but is just as important to highlight as the others covered so far.
It is vitally important that you follow the good accounting procedures to keep your business in good standing. Below are some examples of what those good accounting procedures involve:
1. Keep your business records totally separate from your personal records.
2. Never pay personal bills from your business checking account. An example of this is making a house payment from your corporate checking account.
3. When you pay for something personally with cash or on a personal credit card that is business-related be sure you submit an expense report, along with the receipts to your business for reimbursement.
4. If feasible, utilize an electronic accounting system to enter your income and expenses as it occurs during the year. This will make preparing of your taxes a lot simpler, and also will make it a lot easier for you to organize financial statements for your bankers whenever you are requesting loans, etc.
Examples of the most common pitfalls that can arise if this is not done correctly are:
1. By mixing your personal and business funds together, you may lose the shield offered by your limited liability company (assuming you formed one).
2. If you fail to follow good accounting practices, it will take a lot more of your time to prepare your tax returns and financial statements for your bankers. With an electronic accounting system, it would take minutes versus possibly taking several days or even weeks.
Preferably, you should work with a bookkeeper or CPA to take care of the accounting tasks for you. It doesn't cost as much as you might think.
But some individuals choose to do the accounting internally, and that's alright too. Either way, please just make sure you follow the proper accounting principles that are stated above.
So there you have it. Those are the 5 most major steps you should take to set up a solid foundation for your new business. And if you apply these in your business, you will save yourself from some of the biggest pitfalls that could have caused you serious problems.
There are numerous things you can do in your business in advance to protect you from the most common causes of failure, fines, or lawsuits. During the past several years, I've noticed a common thread among clients, and in the reasons that found themselves in a mess which they hired me to assist with.
Many of my clients had the same thing in common, and almost all of their issues could have been avoided if they had just implemented some basic procedures to grow and safeguard their businesses.
So that you don't make the same mistakes as my clients, I'd like to share some of the most important strategies with you.
1. Establish a Company With Limited Liability Protection
Before you race out to incorporate a new business, you first want to have vetted your concepts to make sure they are worth pursuing. But assuming that you have already confirmed that it is worth pursuing, it is also a good idea to operate the business under some form a of limited liability shield so you can safeguard your personal assets.
For instance, the most common business types that offer limited liability shields are LLC's and corporations.
No matter what you do, you should stop to think long and hard prior to you ever operating as a sole proprietor, since it subjects you to unlimited personal liability. For instance, if you operate on your own as a sole proprietor and your company ever does anything inappropriate or gets sued, a creditor could go after your personal house, revenue, vehicle, or other personal assets.
On the other hand, if you operate your business under a limited liability shield, like a corporation or LLC, then the only assets the creditor could get are the assets of the company.
Normally, when you elect to file a new corporation or LLC, you submit the proper formation documents with the Secretary of State in the state where you want that company formed. A lot of Secretary of State web sites have online forms that you simply download and then submit interactively.
2. Decide On The Proper Name For Your Business and Products
Before incorporating your business, it is a good idea to do some initial research to pick a name that another person or entity is not already using to sell similar goods and services as you. For example, you do not want to start your new business off with a name that could cause you to be sued for trademark infringement because you chose a name that another person or entity owns. Be sure to get "all your ducks in a row".
Trademark law is protects consumers from becoming confused between different companies. Trademarks identify the source of that product or name.
This means that any time you decide on a company name, product name, or slogan, it is critical that you do some initial research to make sure that someone else is not already using that name or a very similar derivative of it in a way that would cause consumers to be puzzled as to the difference between your two companies.
In general, it is usually okay for companies in two totally different industries to have the same name, because most folks would not get the two names confused (unless it is a famous trademark, where that company retains rights across all industries). However, if you use a product or company name that is confusingly similar to another company who has a superior interest in that name, they could initiate legal action against you for trademark infringement and possibly be awarded significant money damages.
You can research is the Internet search engines to see if another person is already using your preferred name or a similar name in a similar industry. However, the best place to begin your research is to search the United States Patent and Trademark Office trademark database.
To designate that you are claiming an interest in the brand/name, you will want to mark your trademarks with (TM) (the TM sign). If you then later obtain an actual federal trademark registration, you will want to use (R) (the circle R designation).
3. Obtain the Appropriate Licenses
Another step you should consider in setting up your new business is whether you need to secure and obtain any special licenses in order to operate.
Some businesses require a special license to operate, such as a daycare, insurance agency, law firm, or doctor's office. If you are a business that requires a special license, you are more than likely already aware of that through the licensing process that you already went through in order to obtain that specialty. You definitely should spend a few minutes to do extra research to double check that your type of business doesn't require any additional licenses.
The sales tax license is the most commonly overlooked license. For example, if your business is going to sell products, then you are more than likely required to collect sales tax for any of those products that you sell to consumers in your state. Many states do not require you to collect sales tax on services. Nonetheless, you should always check with your state's Department of Revenue to verify what exactly you are required to collect sales taxes on, if anything.
4. Utilize The Proper Written Agreements with Contractors and Employees
The absolute most important practice you should put implement for your business is to use the proper written agreements with the employees and contractors who you work with.
If you disregard this step, you may not even acquire ownership/title to the very thing you paid someone else to create for you, and you may even end up owing that person royalties later. Or worse case yet, you could end up in a disagreement with the other party because of unclear terms.
The agreements do not have to be complex, and there are many products that you can buy that have simple agreement templates you can utilize with employees and contractors, such as our BizShield product.
The primary reason that it is absolutely critical that you obtain a written agreement with contractors and employees is because of the way the intellectual property laws are. It's a little complicated, but to put it simply, the contractor/creator owns the copyright in the work that you pay them to create, unless they transfer that copyright over to you in a written agreement.
So in plain English, this means that a web developer or graphic designer or other type of contractor who you engage will keep the copyright ownership in the work you pay them to create, unless you persuade them to sign an agreement transferring those rights over to you. This may sound backwards, but that is the way the copyright laws work.
With your employees, you do automatically own the copyright interests in the work you pay them for. But, you do not automatically obtain their patentable ideas. Thus, you should always get a written agreement with your employees.
Here are the most important terms that you should have in your written agreements with employees and contractors.
This is an approach that you should be AWARE of. It can save you from the many common causes of lawsuits and damages later in your business.
5. Follow Established Accounting Principles To Keep Your Business In Good Standing
This accounting principle is one that a majority of folks never like to follow, but is just as important to highlight as the others covered so far.
It is vitally important that you follow the good accounting procedures to keep your business in good standing. Below are some examples of what those good accounting procedures involve:
1. Keep your business records totally separate from your personal records.
2. Never pay personal bills from your business checking account. An example of this is making a house payment from your corporate checking account.
3. When you pay for something personally with cash or on a personal credit card that is business-related be sure you submit an expense report, along with the receipts to your business for reimbursement.
4. If feasible, utilize an electronic accounting system to enter your income and expenses as it occurs during the year. This will make preparing of your taxes a lot simpler, and also will make it a lot easier for you to organize financial statements for your bankers whenever you are requesting loans, etc.
Examples of the most common pitfalls that can arise if this is not done correctly are:
1. By mixing your personal and business funds together, you may lose the shield offered by your limited liability company (assuming you formed one).
2. If you fail to follow good accounting practices, it will take a lot more of your time to prepare your tax returns and financial statements for your bankers. With an electronic accounting system, it would take minutes versus possibly taking several days or even weeks.
Preferably, you should work with a bookkeeper or CPA to take care of the accounting tasks for you. It doesn't cost as much as you might think.
But some individuals choose to do the accounting internally, and that's alright too. Either way, please just make sure you follow the proper accounting principles that are stated above.
So there you have it. Those are the 5 most major steps you should take to set up a solid foundation for your new business. And if you apply these in your business, you will save yourself from some of the biggest pitfalls that could have caused you serious problems.
About the Author:
To learn more about how to grow a business, download my free 47 page "Business Thrival Blueprint". BusinessThrival.com is a site dedicated to helping business owners achieve a thriving business and life.
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