Small Business: Do I need a lawyer?

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A Small Business guide to deciding when to pursue legal advice.

As a small business owner, you wear many hats.  Sometimes it’s office manager, sometimes it’s janitor.  This may not be what you signed up for, but you understand that things have to get done, and sometimes that means doing the things no one else can (or there is no one else).  A one-man (woman) show.

A lot of times, that one-man (woman) show is breed out of necessity.  There may not be money in the budget to hire an outsider, or there may be trust issues with letting someone into your business.  All of these are understandable; after all it is your business. And like you, your business is unique.

Unfortunately, while you can get away with painting your own walls, and doing your own payroll, handling your own legal affairs should not be a one-man (woman) show.  Of course, some small items may not need a lawyer’s eye; like an installation agreement for new carpet, or the plumber’s invoice to fix your toilet. But other items? It may be imperative that you need a lawyer!

You need a lawyer when: 

1.      You are signing a lease.

If you are signing a lease, for anything, you need a lawyer. Especially commercial leases.  Here is why: do you know that some leases require you to pay annual Common Area Maintenance (CAM)? You might think that’s no big deal, you understand the space might need things and are willing to pay your share.  However, some of these leases allow the Landlord to deem anything they seem necessary as CAM- including ornament shrubbery, sealing the parking lot (when it’s not needed) and remodeling the building.  Worst part, some of these leases require you to pay your pro rata share of the occupied space! This means that if the 3,000 square foot retailer moves out, you must pick up some of their expenses!

CAM is just one of the many things to be aware of; another is understanding what type of lease you have. Triple Net? Modified Net? Gross?  These all have different tax implications and responsibilities.  You may even be expected to true up all taxes in the beginning of the next year, in ONE BIG CHECK. This can be difficult for many small business owners to come up with on the spot!

Did the drafter sneak in an escalation clause? Sometimes those pesky things are buried deep down and allow the landlord to escalate the cost whenever the Consumer Price Index rises! This can be included on leases for equipment, space in a retail space (like a booth), commercial space or even residential space!

Do you understand where you deposit is going?  Did you have to put up collateral? All things that having a legal eye on would benefit you!

2.      You are hiring your first employee or contractor.

Congratulations! Now hopefully you can loosen the reins a bit!  If you want to ensure that this new relationship starts off properly, then it is important to set expectations regarding employment.  Essentially you can either hire your new addition as (i) an ‘employee’ or (ii)as an ‘independent contractor’.  Each have different rights and responsibilities for both you and the new addition to your team.  Many times, I see business owners hiring independent contractors in hopes to avoid liability.  And yes, this can be a very effective way to do so!  However, in certain instances, the business owner will treat the independent contractor like an employee, exposing the owner to liability.  Terming your new hire “independent contractor” is not sufficient enough to have this person recognized as such in the eyes of the law.

Alternatively, when an owner hires an employee, they may not realize just how liable they can be for the actions of that employee.  Did your employee get injured goofing around on your premises? Did your employee have an altercation with your customer? These are just a few things that can expose an owner to liability.  However, proper drafting of an agreement before hiring, and policies, can help you to avoid these common hiring pitfalls!

3.      You are Selling or Buying a business.  

While in law school, I bought a business.  I did fervent research on what type of agreements I needed and even worked with a professor (licensed attorney) to help me understand the proper path.  I needed all this help and I had already taken contract law and business law. Why? Because buying a business is not as simple as you may think.

A real-life example: a well-known accountant purchased a business from another accountant.  This included all the assets (computers, printers, etc.…), the book of clients and an agreement to take over the existing lease.  The previous accountant agreed to stay on and help the new accountant transition and learn the business. As compensation, the old accountant would see a few of his old clients and take a small percentage of the revenue.  Seems like a win-win, right?  In theory, yes.  However, the agreement used was not the proper agreement for the purchase of the business and there was no end date for when the former accountant was supposed to quit working! The two accountants never defined their relationship in the agreement and when the new accountant realized he was not getting a proper percentage of revenue he asked the old accountant to leave. The old accountant refused…

This was obviously painful for both, and rather costly to resolve.  A simple look and revision by an attorney of the agreement prior to this transaction would have benefited both accountants and avoided all this drama.

If you are buying or selling your business, speak with a lawyer! You do not want to deal with a mess years later!

4.      You engage with the public, either in person or online.

Maybe your business is an Esty shop where you sell handmade baby clothes.  Or you clean people’s homes.  Or they come to your blog for advice on parenting. Or they take your online classes. (You get the picture) ANYTIME you are engaging with people, you need to set boundaries around that relationship!  These boundaries make a smoother operation for both you and the customer.  Terms and conditions can set these boundaries, general liability waivers can also establish these boundaries, along with numerous other devices.  It is important to talk to a lawyer about your specific business to find what boundaries you need. This is a must to avoid liability! I could tell you numerous horror stories about how small businesses face lawsuits from a not so well-meaning customer, but for the most part, they end the same.  A small business may win, or lose, but the attorney fees and court fees eat so deeply into their revenue that it makes it difficult to keep things afloat.  It is much cheaper to get ahead of a legal problem than behind it!

5.      You are signing a contract.

Many business owners need things! They need inventory, construction, a website, and so forth.  All of these things typically require a contract.  This contract governs the relationship between the business owner and the other party they are interacting with.  Of course, you knew that.  But have you thought about having a lawyer review it?

Another real-life example: a small business owner opens a coffee shop. This coffee shop has that cozy vibe where you can sit for hours and drink coffee, while getting lost in some wonderful thoughts.  This shop specializes in a unique blend they can only get from a special coffee place in Colorado.  They sign an inventory contract for this special coffee.  Everything is great and all the customers love the coffee. The coffee shop decides to host an open mic night. They are expecting a big turn out and up their order with the special coffee place.  The coffee never arrives. Now they have a coffee shop full of people, and no coffee to serve them! Meanwhile, they are incurring the expenses of keeping the place open! They go back to the special coffee place and demand a refund.  The special coffee place apologizes and says the delay was due to equipment malfunction and that due to the contract, the coffee shop can only receive a credit towards future purchases! The special coffee place cannot even grind coffee for another two months due to the malfunction! The coffee shop still has to pay the monthly contract fee, and has a group of not so satisfied customers, who do not leave nice reviews after coming for a special cup of coffee they could not receive.

You might think that escalated quickly, and you are right, it did! When you sign a contract, you are bound by the terms, even if they seem unfair when enforced! Do yourself a favor, and have a lawyer help you review the contract at the onset!

6.      You are not sure what you need

As business owners, it can be very difficult to articulate your problem. Why? Because your juggling a million things at once and you feel like you just need to clone yourself to make all the things happen! Your signing vendor agreements, searching for budget friendly marketing, trying to keep your website up to date, blog, social media, and so on.  You just know things need to get done, and a lawyer sounds like a good idea, but you don’t know why! Believe it or not, lawyers are (usually) trained in identifying the problem. That means that you may not be able to label it, but a trained lawyer can! We can sit down, hear your pain points, and let you know where to start and how we fit in to protect you and your business!

 

If any of these situations sound like you, then yes, you need a lawyer! Do not let the cost scare you.  Many lawyers will work with these types of situations for a flat fee, and you will know that fee upfront.  If you find yourself in need of a lawyer, please reach out to courtney@cenglishlaw.com.

Courtney English