If you are considering buying a business, this is quite possibly the biggest financial decision you will ever make; even more so than purchasing a home. After all, your business is your livelihood. If your business isn’t successful, it can have a devastating trickle-down effect. Prior to buying an existing business, you will want to evaluate all of your options and risks prior to making any binding decisions and/or signing on the dotted line.
That being said, nothing is more important than doing your due diligence. As defined, “due diligence,” in regard to buying a business is, “a comprehensive appraisal of a business, undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.” By taking the time and effort to do your homework, you can possibly save yourself some unnecessary, costly and nasty surprises.
Due diligence is by no means a “general” investigation. Due diligence requires an in depth, almost invasive (if you will) investigation prior to buying a business. Even if you think a seller is being completely forthcoming, you owe it to yourself to verify the information you have been given. Don’t be worried about offending anyone; again, this is your livelihood. It is imperative that you enter the “deal” with eyes wide open!
So, what does due diligence involve? Excellent question! Below are some tips that may be helpful when buying a business to make sure you know exactly what you are getting into.
There is no shame in asking (an abundance) of questions. If you ask questions and are met with resistance, or have an uneasy feeling, this (may) not be the deal for you. If it doesn’t feel right… it probably isn’t!
With the assistance of your attorney, the due diligence process should involve all concerned parties; meaning both buyers and sellers. As a buyer, if you are not completely satisfied with the information you have gathered… WALK AWAY!
Starting a new business can be an exciting experience. It can also be a little scary because there are always risks involved. Careful planning is essential for any potential new business venture. By doing your “homework,” and being prepared, you can avoid unforeseen situations and get your business off to a smooth start.
First and foremost, do your research! Knowing the industry that you are about to be involved in is key. You may think that your idea is the best thing since sliced bread; and it may well be. Market research, however, can be helpful in determining potential competitors as well as supply and demand. It would be crushing to sink your hard-earned money into a product or service only to realize that the market has been saturated or there really isn’t a need, making it difficult to attract business and make money.
It is also important to understand your target demographic. Is the consumer you are interested in need and/or want your product or service? Will you be able to offer a quality and affordable product or service to your target consumer and still make a profit? If consumers aren’t onboard with your idea, you may want to rethink your plan.
Certain legalities also come into play when starting your own business. The way your business is structured can dictate legal requirements, obligations and restrictions. Different types of business formations require specific licensees, registrations and filings. Depending on your business, you may need to apply for an Employer Identification Number (EIN), obtain a business license or get insurance. Some of these considerations vary by industry and state of operation.
There are also personal liability and tax ramifications that need to be explored before making a final decision. It is very important to know how the formation of your business affects your personal liability. If not, one bad situation could possibly wipe out what you have worked so hard for. Sole proprietors can fall into this category and need to make informed decisions.
Do you need a business plan? In a nutshell, yes! There are several reasons for a potential business owner to create a business plan. Quite simply put, a business plan is nothing more than a document outlining the basics of your business, i.e. products, services, finances, marketing, goals, timelines, feasibility and strategies. A carefully thought out business plan can help you stay on course. It serves as a “blueprint” to address every aspect of your business from inception to reality to, eventually, growth.
A business plan is especially important if you are considering bringing in partners, approaching investors and/or applying for a business loan. Banks, as well as potential business partners and investors, want to ensure that they are making a wise investment when loaning or investing money.
Is it necessary to hire an accountant? That depends. If you are a “hands-on” business owner and are involved in the day to day activity of your business, you may find that handling the finances can be a bit much. Often business owners find that they can save money by taking care of their own finances. That is true, but it is important to weigh the pros and cons. By doing your own accounting, however, you run the risk of not being able to give it your full attention.
By delegating this task to an accountant, you may actually save yourself money. An accountant’s sole purpose is to make sure that payroll and bills get paid but, just as important, that you get paid! A good accountant will also keep you apprised of your financial situation and can prepare “visuals” in the way of charts and reports to keep you informed of your company’s financial situation and cash flow.
Hiring an accountant immediately may not necessarily an absolute. You may be a whiz at the number game and find it manageable. If that is the case and it works for you, great! If not, it is best to leave it to someone in the accounting field. Remember, a good accountant can give you strategy tax advice that could save your business thousands of dollars.
These are just some of the considerations that should be on your radar when you are ready to start your own business. Again, it is always best to be prepared when venturing out on your own. Consulting with an attorney beforehand can set you on the track to “doing it right” the first time.
Trademarks and copyrights both serve to protect the legal rights of business entities and/or individuals. They are not, however, interchangeable. That being the case, it is extremely important to know the difference between the two.
A trademark is a legal way to protect the unauthorized use of a unique and recognizable design or expression of words, which serve to identify the source of a product or service of a particular entity. A trademark owner can be an individual, a business or any legal entity. Trademarks are often displayed on packaging, letterhead, places of business or directly on a product. Trademarks serve to distinguish an entity’s product or service from another entity’s for the purpose of capturing the attention of consumers. Trademarks can be an invaluable advertising tool.
Copyright grants exclusive ownership and authority to distribute an original “creative work.” Typically, copyrights are not necessarily “absolute” and are subject to limitations and exceptions, including fair use. Copyrights are limited to the protection of an original “expression” and not the underlying concepts that go along with it.
Copyrights are considered to be “territorial rights.” What this means is that they do not extend beyond their jurisdictional territory; specifically, from country to country. Each country is governed by their own copyright laws although there are some instances wherein international copyright agreements may come into play.
One major difference between trademark and copyright, aside from what they each protect, is the length of time that they are in force. Trademarks are legally enforceable for an undetermined period of time as long as they are continually in use and active, though a formal registration needs to be renewed at regular intervals. On the other hand, copyrights are enforceable for the natural life of the creator plus and additional period of time, generally 70 years after the original creator’s death.
Additionally, some trademarks are eligible for protection by copyright if they meet certain criteria. Confused yet? To find out how to best protect you work product, it is always best to consult with a legal professional to determine what is best for you. Contact our office for a phone interview to see if we can help with your copyright or trademark.
Restrictive covenants are agreements often made between employers and employees/contractors, as a condition of employment. They are not uncommon and are designed to safeguard the business owner from scenarios which have the ability to compromise their interests. Two such agreements are the non-disclosure agreement and the non-solicitation agreement.
A non-disclosure agreement is, essentially, an agreement that ensures confidentiality, insofar as the business is concerned. Employers want to ensure that their employees/contractors don’t disclose sensitive information regarding trade secrets or other data that would give a competitor an unfair advantage.
A non-solicitation agreement is an agreement wherein an employee/contractor is prohibited from soliciting or approaching customers/clients as well as other employees of a present or past employer for competitive business purposes.
In theory, and on paper, these restrictive agreements are beneficial to employers. The million-dollar question is, however, are they enforceable? The answer is… YES! The two-million-dollar question is, is it worth it? The answer to that is… MAYBE!
These agreements are definitely enforceable, as a matter of law. The problem, however, it that once an agreement has been breached, the damage has been done. Should a business owner cut his/her losses and move on without enforcing the agreement? Or should he/she spend time and resources litigating the breach of contract? That is a determination that has to be made by individual business owners.
In this day and age, employees don’t work for one employer for 30 years and then retire, as in years past. The reality is that employees, now, frequently move from employer to employer; and take their experience and skills with them. There is never a guarantee that an employee won’t breach a contract. That, in and of itself, should not deter small business owners in their endeavor to safeguard what they have worked so hard for.
We offer packages for business owners looking to hire and protect their assets. Book a call here to discuss your needs: calendly.com/----32
Although some business owners are skeptical of Search Engine Optimization, (SEO) services, they can be a tremendous asset to a small business. That being said, the reason that for the skepticism is that they are commonly not well understood.
In reality, SEOs can boost a business’ web visibility and generate business by using strategies involving a mathematical process. When consumers do an internet search, they are typically looking for options. More often than not, a consumer won’t look too far past the first page of results to any given search terms. That being the case, it behooves a business owner to make sure they are adding content to their website that has relevance to as many possible search terms, or keywords, as possible; thereby resulting in appearing at the top of the search results.
SEOs are helpful in determining what keywords and topics will get the most consumers to any given website. The higher the probability of drawing a consumer to your website, the more likely he/she is to read through your content and have their interest peaked. If a consumer can identify with your mission and/or product or service, the more likely you are to add that consumer to your list of customers.
So, now that you have drawn consumers to your website, you not only want to gain their
business; but it is also important, but not necessarily required, to protect yourself by having a Terms of Service and Privacy Agreement, hereinafter referred to as, “agreement.” Websites that do require these agreements include businesses that collect personal and biographical information from their users.
The agreement contains regulations designed to protect the business owner. Below are five important reasons to include such an agreement on your website:
1. An agreement can prevent any misunderstanding about your policies. It is also designed to prevent any potential abuses including internet spam and having people post defamatory content on your website.
2. An agreement can allow you to stake your claim to the content of your website. You
would want to include language stating that you are the owner of the website’s content
and that it may be protected by copyright laws. This is referred to as an Intellectual
3. An agreement can help you better manage your website. For example, you can provide for the right to terminate and/or ban user from your website if they fail to comply with the agreement.
4. An agreement can protect and/or limit you from liability where any erroneous errors
occur within the content of your website.
5. An agreement can determine a governing jurisdiction. For example, if you would need to seek damages from a consumer that is out of your state, you can provide for the ability to have the matter handled in your state of business, so you are not dealing with foreign jurisdictions.
As with all things relevant to operating a small business, it is always wise to seek the advice of an Attorney to best protect yourself and your business.
Leasing commercial space for your business is quite possibly just as important as day to day operations. When looking for a place to operate your business, there is much more to consider than the monthly rent. Just because a monthly lease payment is affordable, does not, in and of itself, mean that it is the right deal for your particular business.
If you have ever entered into any kind of legal contract, you know that they can be very lengthy and full of legalese. The reason being is that the landlord’s Attorney is making sure that all bases are covered. If you are not savvy to the meaning of all of this legal jargon, you may find yourself battling with “lease remorse,” after it is too late.
There are many considerations that should be carefully weighed, before putting your John Hancock on the dotted line. Below, I will discuss 5 items that require careful deliberation before signing a commercial lease.
1. Before looking at commercial space, do your homework. Check out the neighborhood to determine if it is a good fit for the product or service you are offering. For example, you probably don’t want to open a sub shop in a location where there will be sub shops on either side, just because the rent is cheap. You know what they say in the real estate industry, “Location, Location, Location!” You want to get the biggest bang for your hard-earned buck and you don’t want to throw your money away.
2. Speaking of money, have a well thought out budget. Know what you can afford and don’t look at places that are out of your price range. Anything over and above what you can afford to spend will cut into your profit margin. Inquire up front how much the rent is and when it is payable. Does the landlord require monthly or quarterly payments? What is the term of the lease? What happens if you have a change of circumstances before the term of the lease expires? Ask about a “break clause.”
3. Rent is most likely going to be one of your highest overhead costs. Be sure you understand what if any other additional fees are required, over and above the actual rent. Unexpected fees can wreak havoc on your bottom line. CAM (Common Area Maintenance) charges are very commonly passed on to tenants in some commercial leasing contracts. VAT (Value Added Tax) rates can also add an extra percentage to lease payments on commercial properties including offices, hotels, retail stores etc. Mixed use properties also have the potential for these fees.
4. By signing a commercial lease that provides for the landlord to have the ability to enter a Confession of Judgement against you, you run the risk of being compromised legally. A confession of judgement is a term that allows the landlord to enter a judgment against you, in a conflict situation, without you having your day in Court. Many states prohibit these types of clauses and/or language; however, the Commonwealth of Pennsylvania does permit this scenario so be on the lookout.
A typical confession of judgement (also called a cognovit note) looks something like this:
“The undersigned irrevocably authorizes any attorney to appear in any Court of competent jurisdiction and confess a judgement without process in favor of the creditor for such amount as may then appear unpaid hereon, and to consent to immediate execution upon such judgement.”
5. Know the difference between a net lease and a gross lease. The terms of a net lease require the tenant to be responsible for regular operating costs. Operating costs can include things like property taxes, property insurance, utilities, trash collection, maintenance and repairs, etc. Often landlords will pass a portion of these expenses on to the tenant. With a gross lease, the landlord assumes responsibility for these expenses.
Make sure you have read and understand the entirety of the lease. If you are not confident in your ability to do so, have an attorney review it for you. Once you have signed the lease, you are legally bound to the terms and conditions.
Ask yourself, all things carefully considered, if you are being realistic and if you have made the best possible deal that suits every aspect of your business. If not, revisit the terms. Contracts are always open to negotiation prior to signing. Just because you are handed a “standard” lease, don’t feel pressured to sign it. Above all, don’t be afraid to walk away if you have any unresolved reservations.
If you need help with a commercial lease, set up a time to talk to someone on our team here.
If you have realized the dream of owning your own business, then you are among the growing number of Americans doing just that. Currently, upward of 14% of Americans own their own businesses.
Opening a business is only one piece of the puzzle. If all goes well, you will have a marketable product or service that appeals to consumers. Once you have established your initial business and opened your doors, don’t fool yourself into thinking you are finished planning.
Being successful in business is not an accident. It requires a lot of planning and careful attention to detail. One thing you don’t want to do is fall into the trap of becoming complacent. Looking ahead in an effort to be proactive, rather than reactive, will serve you well. You always need to be one step ahead, so your business runs seamlessly.
One consideration that should be on your radar is that of company growth and expansion. Often, when a business starts out, there are few if any employees. Many business owners are a one-person operation simply to keep overhead low. So, what happens when your business becomes so successful that you need help?
When the time comes to expand a small business, many key logistics come in to play. Some things you would be wise to consider are finances, demand for your product or service and market saturation. Can your business afford to finance the growth? Will additional overhead reduce your profit margin? Will you be stretching yourself too thin by opening another location? By expanding your business are you selling out your original dream? All of these factors require careful consideration.
So, let’s say that you have considered all of the above and you go forward with expansion. What’s next? Chances are you will need help. Do you hire employees or independent contractors?
Small businesses tend to have a need for a flexible workforce. This is true especially in the beginning stages of any expansion. You don’t want to end up top heavy with employees and not have enough work to go around. You also don’t want to experience a growth spurt and not have enough bodies. If that leaves you scratching your head, you need to weigh your options and decide what is best for your particular business. Below you will find a list of pros and cons to each scenario.
This chart is a guideline for your consideration. If you are considering expanding your small business, it will be well worth your while to make a check list and invest in a consultation with an Attorney that specializes in small businesses. Don’t jeopardize what you have worked so hard to build.
Considerations for Choosing the Business Structure That is Right for You
Over half a million new small businesses are founded each year in the United States. Owning your own business comes with its own unique advantages and, lets face it, it is part of the American Dream.
Small Business owners are afforded many perks of being self-employed. Being in control of your own destiny and managing the perfect work/life balance are among the top reasons people go into business. To quote Marc Anthony, “If you do what you love, you will never work a day in your life.”
Being a small business owner has its risks but also has its rewards. After your small business idea comes to fruition, the next most important consideration is how to structure your business and protect yourself. This is where things can get confusing. It is always wise to consult with an attorney and and/or an accountant to determine how to best safeguard what you have worked so hard for.
Careful consideration is of the utmost importance to make sure you understand all of the tax ramifications associated with how your business is structured. As you know, tax laws frequently change so what may have been true in the past may be different by the time to are ready to get started. Protecting your business from liability, profits and personal property should not be left to chance. Other important considerations include how your business will be managed and what your long-term goals are.
There are several ways to structure your small business. On the left is a chart with the basic pros and cons of each type. An attorney can explain each structure type in further detail and help you with assessing what he/she thinks is in your best interest. Consulting with an attorney can be an important investment in your business.
Although it is possible to convert/restructure your small business after you have opened it, it is always best to do your due diligence prior. By doing so, you can save yourself a lot of time and money.
A question we get time and time again is, "What am I missing?" Maybe a business owner has set up an LLC, opened a bank account, and then overwhelm and panic sets in. What else do I need to do to set up a legit business?
The fact is, you don't know what you don't know. So many business owners are missing some critical elements in getting their business set up. If you want peace of mind and an easy to follow list of what you REALLY need to have in place for your business, sign up for your free Small Business Checklist now.
Picking the right category of goods or services for a trademark application appears deceptively simple. After all, if you're selling handbags and hats, you'd choose the categories of handbags and hats, right? Not so fast.
I always tell my trademark clients that when it comes to trademark applications, the devil is in the details. What appears to be a straightforward, simple application is actually rife with potential pitfalls. Choosing the proper category is a huge minefield, and here's why.
If you've done a proper trademark search, you should already be aware of potential conflicts with your proposed mark. If you find a conflict, but it's in a different category of goods or services than your product and wouldn't be likely to cause confusion to consumers, you might feel good about submitting the application. The sticky part is what exactly would cause confusion with consumers? A lot more things than you might think.
Let's say you own a yoga studio and want to register your name in the category of yoga studios. You might find an existing registration that has a name similar, but not exact, to yours. This registration is in the category of fitness apparel. Apparel and yoga studios are different, right? Nothing to worry about? Don't count on it! The trademark examiner will carefully consider how similar the names are and whether this apparel brand has anything to do with yoga. Let's say the apparel is strictly for boxing enthusiasts. Maybe no issue. What if the apparel is for pilates enthusiasts? Getting closer to having a problem. What we do for our clients is carefully analyze what category of goods or services we might be able to choose that wouldn't cause a problem with an existing registration. It's a time consuming process, based on analysis of the trademark statutes and using our judgment based on prior experience. It's not easy to find answers online, it really does take some skill and expertise.
Keep this in mind when choosing a category for your goods or services. When in doubt, engaging professional help may cost more up front, but will cost far less in the long run if you can avoid an Office Action or other problems with your application. If you want to schedule a quick call to talk about how we can help with your trademark registration, schedule a call here.
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way.