Brick and mortar businesses hire a lawyer and an accountant before they ever sign a lease or choose their vendors. After that, they may not contact their lawyer until they’re in trouble.
Online businesses, especially those that jump in with two happy feet, don’t think about a lawyer until they’re in over their head and realize they should have contracts, non-disclosures, or maybe even a trademark.
So, this week’s ONE BURNING QUESTION is, “When do I Need to Hire a Lawyer?”
This One Burning Question comes from Christa Hutchins of Do a New Thing. Christa is a Strategizer helping Go-Getter Jesus girls focus & turn their big ideas into completed projects. You can find her on Instagram @doanewthing.
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As a small business owner, you’ve likely taken one of two approaches:
1) You perform market research, check the trademark registry before choosing a business name, research color and font branding, and takes courses before launching a new business line.
2) OR, you start a blog, maybe sell a few things on Etsy to see what will take off, ask a few people you know to hawk your wares and services with you, roll with the punches, and worry about the big stuff later.
There’s no right or wrong, but what is best for how you work, make decisions, and recover from failure. And for anyone starting a small business, regardless of your background, personality, or business approach, you will see failures. And if you’re serious about your business, you’re going to want to ensure you have all your ducks in a row.
Online businesses usually run into this question more than brick and mortar businesses. Anyone can create a webpage, often for free and say, “hey, I’m a business coach,” but eventually they’re going to need financial and legal help to protect their personal assets.
In your quest to find a lawyer, my educated guess is that you are actually going to ask yourself NOT IF you need a lawyer, but if you need a lawyer or an accountant. And then you’re going to want to know which you need first. Because eventually, you’re going to need both.
Before I get started, I need to protect myself. Even though in my intro episode, I give you the disclaimers that I am an HR professional and entrepreneur and NOT giving legal advice, I want to be very clear that the information you hear today, is based on my own experiences, some research, my continuing education and my small business peers and should be considered peer advice and not legal counsel in any way.
I’m sharing ten questions you need to ask yourself to determine if you need a lawyer or an accountant first. AAAANd, I’m sharing how I answered these questions for myself.
As you get to know me you will understand that when I say, “Ask yourself,” what I really mean is research it, reflect on it, meditate on it, pray on it, journal about it, rest on it, then make a decision.
Here we go:
1) Am I running a small business or am I just trying to turn my hobby into something I get paid for?
Answer: I need an accountant who can set me up as an LLC. If not-for profit, then I’ll need the appropriate designation for my fundraising. When I’m suddenly listed in business directories as the “President and CEO of Vim & Vigor Business Operations Consulting” vs. Kass Fogle with a website and a dream, trust me, it takes on a whole new perspective. The designations brings some legitimacy to my business and with financial skin in the game, I work much differently.
2) Second question you should ask yourself, Am I creating proprietary programs (especially high dollar ones) that I will license or sell?
Answer: I need a lawyer to help me navigate these murky waters. These programs typically come with guarantees and if you don’t have a team in place to help you respond, I would seek legal counsel.
3) Speaking of guarantees, you should ask, “Am I entering a highly regulated field or making specific claims about my product or service?”
Answer: For example, if you claim your aerosols help reduce stress or even hint that someone could get off their anxiety medication if they used your product, you need a lawyer.
4) Question #4 – What does my risk assessment say? What is a risk assessment? Easy…a list of all your risks, and then a rating of the likelihood it will happen, how often the risk presents itself and the damage it will cause IF it happens. If you are considered high risk, you need a lawyer.
Answer: How hazardous is your product? Do you sell earrings in bags that don’t have the choking hazard warning? Do you sell products with ingredients but don’t include information about the ingredients? Have you researched your product, company name, or other information that someone else may have trademarked? Have you looked? Do you use licensed images or logos in your work? Are you “stealing” memes to promote a paid product or service? Honestly a good branding manager will help you with many of these, but if your likelihood for getting sued is high, (if your risk assessment points to high risk in your business), you should consult a lawyer.
5) Am I confident I am tracking and/or filing quarterly and submitting the right content to the IRS? Do I understand the rules and regulations around my spending, know the difference between taking a salary and a distribution? Do I understand how to prepare and why I need to prepare a P + L, my KPIs, a cash flow cycle report and/or forecast, Accounts Receivable and Payables? So, this was more than one question, but you get the point, and it requires more than one answer.
a. First, If you are not doing these things yourself, then you need to hire a bookkeeper ASAP who will do a monthly review with you.
b. Second, You need an accountant to help you set up appropriate sales tax, give you tax projections, file your returns and do all things tax.
c. Third, an accountant or bookkeeper (but probably your bookkeeper) will help you with your income statement, your balance sheet, and your statement of cash flows.
d. Finally, and Seriously, if you haven’t started with these basic things in your business, then it’s not a business. It’s a hobby you want to earn a bit of income from. Listen to me carefully. I’m not trying to throw shade on you. And if you’ve made your goal income this way, that’s great and I celebrate your success along side of you, but you are at risk of becoming frustrated because a year or two from you’re your sales have plateaued, you’ve not met new clients, or your new ones are not renewing. I want you to be here for the long haul and these are the most basic steps that small business owners take.
6) Do I need contracts, sales agreements, non-disclosures, non-competes, and the like?
Answer: You need a legal service like hashtaglegal, Legal Shield, or need to hire a local lawyer to draft a fillable template. You’re actually better off drafting one of your own and having them review it than draft it from scratch, because even though they will likely use the standard template, you will be charge the ‘from scratch’ fee.
7) Do I understand if I am a sole proprietor, partnership, a shareholder or something else?
Answer: If you do not understand the differences, you need an accountant
8) How much am I spending in legal fees vs. accounting/bookkeeping fees per month?
a. This is an easy one. If you’re spending a ton in legal fees each month, you need a lawyer. If you’re losing money because invoices, receivables, taxes are missed, you need an accountant.
b. Same goes for your time. If you are spending time on creating new contracts each month, responding to inquiries about your agreements, you need a lawyer. If you spend tons of time on the accounting side, then you need an accountant or bookkeeper!
9) Are legal issues growing in my industry?
Answer: Depending on your industry, and based on case law happening in your district, you may see an uptick of suits. Even a frivolous suit can cost you dearly in time, money, and reputation. Make sure you stay on top of what is going on locally, regionally and in your state. Choose a good law firm in your regional area, for your industry, and subscribe to their email list for legal alerts. Similarly, you can subscribe to newsletters and legal alerts by joining a local organization like the Chamber of Commerce or industry specific organizations.
10) Finally, if you are hiring more and more employees, make sure you understand your responsibility as an employer. Training for sexual harassment and hazard communication are very real things. If you have a brick and mortar, do you have all the required legal postings hanging? Are you doing safety inspections, have you verified your I-9’s and hired an outside firm to audit your payroll in the last three years? The more employees (not independent contractors), you have the more likely you are to need a lawyer (AND an accountant for that matter).
Christa, I hope that answers your one burning question or at least gives you some information to use as a starting point.
Let me know what you think – did you hear something in this episode or read something in this blog that makes you want to talk to a lawyer or an accountant? And for those of you who are more established, which did you hire first? Join us in the Facebook group for the discussion. What questions would you add?
Thank you for listening to this episode of the ONE BURNING QUESTION microcast. Please join me in our private Facebook group Small Business Confidants where we come together to join, share, plan, create, and give.
So, what’s YOUR One Burning Question? Send it to email@example.com and it might just get on a future episode.
I value your time and I’m so very grateful you spent a portion of it with me. If you think you might be ready to walk through strategically mapping your business so you can increase your visibility, reduce your stress, hire better, and grow a bigger vision, then let’s talk. Don’t wait any longer to schedule a free call to see if Vim & Vigor is the right plan for your business. If you’re not sure where to begin, my website has a short quiz just for you. It all starts by visiting my website at ,vimandvigor.biz