Starting a new business is often one of the most thrilling and terrifying decisions a person can make. On one hand, it's the culmination of hard-earned experience, imagined creativity realized and an affirmative step we take towards a personal dream. It's embracing the spirit of inspiration and applying it towards something we sincerely and passionately believe in. On the other hand, approximately 50% of all new small businesses, and 90% of all businesses, will fail and close within five years of opening.
Why is that?
There could be many reasons this happens, including: (1) lack of consumer desirability; (2) budget or cash flow shortfalls; (3) pricing/costs; (4) poor marketing; (5) poor business model; (6) location issues. Or it could be caused by a countless number of other reasons, whether the causes are ubiquitous to all businesses or unique to that industry and location.
And then there's the legal side of it. Many new small business owners make their business and legal decisions based on anecdotal experiences from family and friends, from short online articles or blogs (like this one), or from a document preparation service. Sometimes this is enough to make the right decisions. However, in many cases, mistakes are made and consequences are wrought. Common small business troubles include: (1) choosing the right legal entity; (2) maintaining that legal entity properly; (3) tax obligations; (4) employment laws and obligations; (5) lease and tenant obligations; (6) contracts with customers or vendors; or (7) financing obligations.
Even when a business makes the right decision, if it does not understand why it's the right decision, it can spell trouble later. The upside of this modern age is that there is seemingly an infinite amount of information at our fingertips. The downside is that there is seemingly an infinite amount of information at our fingertips. In past generations, when an entrepreneur did not understand something, he or she would pursue the knowledge or pursue the experience of others to gain that understanding. Whereas, today, the short bursts of information readily available to us often provides us just enough information to get ourselves into trouble but not enough to avoid the trouble or escape from it.
Where the law stands
The cold reality is that the law holds business owners to tremendous standards with great expectations. Ignorance of or not understanding the law is virtually never a viable defense. Even if there may not have been a reason for a business to be aware of a law or interpretation of a law, that owner will typically, and indiscriminately, be held accountable anyway. This is particularly true when it comes to employment law in California. Employment law is an area that is often misunderstood by new and veteran businesses; and the consequences of a single violation have the potential to end a small business before it even had a chance.
In California, many people understand that residential tenancy laws are favorable to tenants with statutory safeguards in place to protect residents. Virtually none of those safeguards exist in commercial tenancy. A business tenant is expected to possess substantially more legal sophistication than a consumer tenant, and the laws typically do not protect a business tenant from exploitation or disadvantages applied. This expectation is also applied to business contracts and agreements.
The importance of having a good team
A common complaint of attorneys is that we are fearmongers, constantly trying to scare our clients. I suppose this article isn't doing much to contest that. But there is a point here. And there is a solution.
In 2014, Richard Branson famously tweeted: “Surround yourself with people who complement your weakness & share your passions – success will follow[.]”
The solution to the above fearmongering is to have a team of trusted advisors and experts. This doesn't just mean having an attorney that you trust will have your best interests in mind. It also means having the right CPA, the right insurance broker(s) (business/professional, umbrella, disability, life), the right financial advisor, and the right professionals that share in your passion and goals.
The support we receive from family and friends is monumentally important and is not to be underestimated. However, typically, that support does not extend to business and law. Even if someone is a business owner as well, their circumstances will almost certainly be different from yours. If there was a one-size-fits-all business and legal plan, the success rate of new businesses would not be where it is.
This makes sense, doesn't it? If you had a leaky roof, even if your family or friends were roofers, in most cases, you're not going to pull out the ladder and patch it yourself. When the car breaks down on the side of the road, we call AAA or some other roadside emergency service to tow the car to a mechanic. Naturally, there are some exceptions to the foregoing examples, but the vast majority of the time, we're going to trust in another professional to help us. So why wouldn't you look for professional help when you're investing your time, savings and future?
If you're thinking about starting a new business or if you have a business that is open to some fresh perspective, give us a call. Give us a chance to invest in what's important to you and we can all move forward.