So many entrepreneurs have great ideas for businesses, small and large, that could make a killing in the open market. The problem? They aren’t sure where to start and can get caught up in “analysis paralysis,” where so much information can be overwhelming. It can be difficult to know where to begin. Allow me to simplify things to make it incredibly easy: hire a good lawyer, an accountant, and an insurance agent.
Members of Your Team: The Attorney
Usually, people hear “hire a lawyer” and think of how expensive it might be. The truth is that not having an attorney, or the right attorney, can cost you significantly more in the long run. Not all attorneys are well versed in business law and business structuring, so it’s important to find a legal practice that does this type of legal work regularly to ensure they fully understand how to best serve your business. A lawyer can help discern what documents and processes are needed based on the business structure, activities, and size of the company to best limit liability and provide the most legal protection.
Choose the Correct Form for the New Business
A lawyer can speak to the benefits and risks of a company registering as a partnership as compared to an LLC or corporation. I consulted an attorney from Coleman & Horowitt, LLP, a California-based firm with experience helping startups, about opening a real estate business. Based on the information found online, I thought that opening the business under an LLC seemed like the best option for me. However, the consulting attorney, Jared Clemence, Esq., pointed out that an LLC cannot hold a brokerage license, which is required for a real estate business to operate in California.1J.Clemence, personal communication, July 21, 2022 The company could instead be created as a corporation or utilize a single person who acts as a broker and takes on personal risk in all real estate transactions.
Customize Your Documents for Optimum Protection
Once the business is created under the correct structure, other documents may be needed for legal protection. Non-disclosure agreements, employment contracts, and liability waivers are all types of forms that can limit the liability that a company would have under different situations. The verbiage used in these forms can be critical, and a lawyer will know what terminology is needed to provide the most protection for the business and its activities. They will also know what additional forms may be required to provide further protections and limit liability when possible.
For example, recently, Coleman & Horowitt helped one small business startup by creating custom lease agreements that will be used for vendors that share a common space with the startup’s main business activities. Template agreements found online or at a local business supply store would not have provided adequate protection for the small business owner.
Ensure You Have the Correct Licenses and Have Met All Filing Requirements
Business filing requirements can vary greatly from state to state.2www.sba.gov/business-gude. (2022). SBA.Gov. Retrieved July 21, 2022, from https://www.sba.gov/business-guide/launch-your-business/choose-business-structure#section-header-1 While there is plenty of information available to the public, an attorney will be aware of some of the more subtle laws and regulations when it comes to filing for a new business. A business lawyer will know the requirements for registering the business at the local, state, and federal levels. Registering your business can help provide personal liability protection, legal benefits, and tax benefits. These processes can change regularly, so it can be incredibly helpful to have a professional that is well versed in the procedure to ensure it is done correctly the first time, which can save significant time and headaches. You know what they say, time is money!
If your business activities require licenses, permits, or certifications, an attorney can help get the ball rolling with these as well. Planning to open a restaurant in California? You may be required to obtain building permits, a business license, health permits, a permit to operate, and an alcohol beverage license: to name a few! A lawyer can help draft the documents needed to apply for these permits and licenses with relative ease and a lot less confusion. They will also know when the permits are required and when you may not need them at all.
Members of Your Team: The Accountant
Once you’ve hired a good attorney to help with all the filings, licenses, permits, and forms, the next call you should make is to an accountant. Finances and taxes can start to get complicated when you open a business, and making mistakes with taxes is never a good thing. An accountant can help. Thinking of just using QuickBooks to save some money? Maybe think again.
Accountants are professionals when it comes to knowing tax codes and changes to taxation, which happen regularly. Depending on the activities of your business, an accountant will know which filings and forms are required, as well as which taxes are owed. Some organizations are eligible for tax exemption filings, such as non-profits or religious organizations, but should still have an accountant to file these documents to show the eligibility for such an exemption.
An accountant can also make recommendations on different corporate accounts that should be set up for the business to prevent any money mismanagement. While most business owners have good intentions, not having separate accounts can make business accounting incredibly complex when commingling of funds occurs. Accountants are knowledgeable about the different types of bank accounts and which might be best for your business. Having the correct accounts set up can be key to the financial assessment of the business.
Benjamin Franklin had it right when he said, “nothing is certain but death and taxes.” Starting a business? Expect there to be ample taxes to pay. An accountant is vital to knowing what taxes may be owed and what constitutes possible tax write-offs to lower the tax burden of a business. A good accountant is a great investment in your business as they usually have knowledge of the latest exemptions, credits, and adjustments that can create a healthier bottom line overall. A good accountant can also help estimate your tax burden for the year depending on the business structure and help the business forecast revenues based on taxes owed.
Planning on opening a retail store in California? You will be required to obtain a seller’s permit to pay and use sales tax in your daily activities.3Obtaining a Seller’s Permit. (2022). Www.Cdtfa.ca.Gov. Retrieved July 21, 2022, from https://www.cdtfa.ca.gov/taxes-and-fees/faqseller.htm You are also obligated under that permit to keep adequate records of all transactions subject to those taxes, and those records can be subject to tax audits. Do you know who is great with tax audits? Accountants!
Members of Your Team: The Insurance Broker
Insurance is the one thing that people purchase with the hopes that they will never need to use it. Without insurance, your company is assuming the risk involved with day-to-day operations that could potentially make them legally liable in the event of an accident or injury. Insurance can reduce that risk or assign it to someone willing to take the risk and pay the cost should that risk be realized. Insurance agents are experts at knowing what plans are best for small and large businesses based on their activities to help mitigate costs should a loss occur. By consulting a great insurance broker, you can be ready for any disaster.
Let’s consider a hypothetical situation: A cardiologist practicing out of Bakersfield, CA, owns the three-story building where his practice is located. He leases several offices to other businesses and medical professionals. While this sounds like a business that should be highly profitable, what happens if the building has a broken pipe on the top floor and floods the floors below?
Hopefully, the good doctor has insurance! In this case, different types of insurance can be helpful, including commercial property insurance, general liability insurance, water damage insurance, business interruption insurance, or electronic equipment insurance. Not sure which insurance coverage would be best for your business? An insurance agent can help.
Small businesses make up over 99% of companies in California, employing nearly half of the Golden State’s employees. To run successful companies and protect their employees, small business owners rely on business insurance.4California Business Insurance. (2022). Https://Www.Thehartford.Com/Business-Insurance/California. Retrieved July 21, 2022, from https://www.thehartford.com/business-insurance/california Even a small disaster or adverse event can be fatal for a new company without insurance coverage. While insurance, in general, is purchased at the business owner’s discretion, some insurance is required by law, and an agent can help ensure you are meeting those regulations. One example of this is worker’s compensation insurance. As a California employer, you are required under California Labor Code Section 3700 to provide workers’ compensation insurance from a licensed insurance company or through the State Compensation Insurance Fund (State Fund).5Commercial Insurance Guide. (2022). Insurance.ca.Gov. Retrieved July 21, 2022, from http://www.insurance.ca.gov/01-consumers/105-type/95-guides/09-comm/commercialguide.cfm#whatkindofinsurancedoI While some insurance coverage can be costly, an agent can work with you to find the best coverage for the company budget.
Putting It All Together
With these three business professionals in your corner, your new business should be ready to go! For additional resources, you should consult the Small Business Development Association near you for free information on how to ensure your business is set up for success. If you need help getting in touch with a lawyer, accountant, or insurance agent, the SBDA can help point you in the right direction. For information on the nearest SBDA office to you, please visit https://sba.gov/local-assistance.
This article was authored by Tarah Poochigian, an M.B.A. candidate at Texas A&M University, and edited by Jared R. Clemence before publication at https://ch-law.com and https://jaredclemence.com.