My Own (Informal) National Start a Business Day

I don’t know why or what’s in the water but November 17th must have been my own little national start a business day as I helped people form and start four businesses today. It is days like today that certainly keep you energized as a business lawyer and it is fun to see the excitement new business owners have for their mission!

Best of luck to these entrepreneurs!

 

 

Entrepreneur Magazine Says Hire a Good Lawyer When Starting Business

Entrepreneur Magazine columnists Courtney Spritzer and Stephanie Abrams list Hiring a Good Lawyer as one of the four things a start up business owner should do that may not be in the business plan. Another professional they suggest engaging is a knowledgeable accountant. And I could not agree more. In fact, I get worried when a client tells me they are not working with an accountant.

Two other professionals I strongly suggest seeking out:

  1. A business insurance professional. Notice I said “business” insurance professional. All insurance agents are not created equal and over the years I have seen clients that have serious gaps in coverage for their business. It is absolutely critical to work with an agent who is willing to learn the details of your business and what risks you face.
  2. A banker. A solid relationship with a banker is invaluable. Many business owners will bank with the most convenient bank or perhaps their personal bank and never seek to establish a relationship with a banker. This is a mistake. The time to establish a relationship with a banker is from the outset rather than waiting until you need a loan. And if you need a loan to get your business going, talk with your lawyer and accountant to get recommendations for a business friendly banker. All bankers are not created equal either.

I must admit I love it when I see articles from business publications discussing the need for a business lawyer. Just like the other professionals I mentioned it is important to establish a relationship with a business lawyer from the outset to get your business on the right track.

Watch for Alleged Yellow Page Advertising Scams

I was recently contacted by a business client whose employee signed a “contract” purporting to be from YELLOW PAGE IOWA that had been faxed to their business for what appeared to be a free Yellow Page or Facebook ad. The contract is misleading and deceptive and the fine print actually attempts to lock the client in to paying $99.00 per month for a two-year period all, payable one year in advance. The client has since received numerous bills and threatening letters from this organization apparently headquartered in Dubai despite numerous attempts to resolve the situation.

My client’s experience is like a business owner from New Jersey who apparently had the same thing happen.

Unfortunately it appears as though this is an all-too-routine scam according to the Iowa attorney general and Federal Trade Commission (FTC) Websites.

If you receive an contact by fax or otherwise from YELLOW PAGE IOWA or Yellow-Page-USA.com managed by Open Business Directory Ltd. you will want to be sure to throw it in the trash.  DO NOT sign the contract or send it back.  It is a good policy to steer clear of any fax solicitations for your business and to make sure that only authorized management employees sign agreements for your organization.

Wall St. Journal Lists Troubled Franchise Brands

A recent Wall St. Journal article discussed some of the franchise brands with higher-than-average default rates. The highest on the list? Planet Beach at a considerable 41.1.% default rate for SBA loans from 2004 through 2014 according to the article.

The franchising industry and its model of business does a wonderful job of marketing itself. I hear all the time from prospective franchisees about wanting to be a part of a “system” that helps them with the sales and marketing and a business that has processes in place. Unfortunately all too often the supposed “system” is broken, out-dated or maybe never existed. I can assure you that if you are looking for a franchise don’t expect extensive help with the sales and marketing. There are very few franchises that can boast about its sales and marketing assistance for its franchisees. Believe me, if it is to be, it is definitely up to you Mr. or Ms. Prospective Franchisee. Just because you own a franchise does not mean you can sit back and watch sales automatically walk through the door which is sadly what I think some prospective franchisees think will happen.

Am I down on franchising? Not necessarily. I’ve seen it work for franchisees, particularly those with significant resources and multiple locations. What troubles me most is the lack of accountability on the part of many franchisors for the success of their franchisees. Instead of hitting franchisees with significant fees and royalties in times of trouble, why don’t more franchisors put their money where their mouth is by offering reductions in fees and royalties during tough times, or perhaps suspending those fees and royalties entirely? Or what about letting franchisees out of their contracts after losing their life savings rather than sticking the franchisees with claims for lost royalties and fees. Shouldn’t a franchisor bear some responsibility for the failure? In my experience some franchisors will work with franchisees in that regard but all too often franchisors are unwilling to provide any assistance whatsoever to the struggling franchisee.

If you are considering franchising as an option, be sure to do your homework. All franchises are not created equal. And be sure to read the Wall St. Journal article.

Franchise Focus Blog Discusses The Secrets to Success in Franchising

I read an excellent post recently about The Secrets to Success in Franchising. I love what blog author Mike Sheehan had to say to start the article,

If the title of this article caught your attention because you’re looking for a magic bullet, stop reading right now. There is no such thing – for any of your goals. Whether you’re trying to lose weight, quit smoking or achieve success in franchising, a quick fix or an easy solution will lead you to only one inevitable destination: failure.

But he does come forward with some concrete action steps in the blog post to increase your chances of success in franchising. One thing Mike says is that people will do more due diligence in buying a car than buying a franchise. As impossible as it sounds, particularly given the fact many people are investing their life savings, this is often true. Don’t be one of those people. Conduct due diligence on many fronts including a self-assessment of whether you have the mindset to be a franchisee, your strengths and weaknesses as a prospective business owner, and your financial picture. Only after performing those assessments would I look at researching specific franchises.

By the time most people come to me they have already decided to purchase a specific franchise. Sure I have seen people change their mind but most often they are moving forward regardless of what I tell them. Don’t be one of those people either. Don’t make the review of the franchise disclosure document and franchise agreement an afterthought. A good business person will consider the agreement as an crucial part of the deal. If it doesn’t make sense to sign the agreement, the good business person will walk away. Be one of those who are willing to walk away. You just might find that you will get a better deal and hopefully one that can help put you on the path to success. And if you can’t get a deal done that makes sense, don’t be afraid to acknowledge it just wasn’t meant to be. There are plenty of franchise concepts out there to consider.

Like any business, success in franchising is not easy. The statistics show that franchise businesses fail at roughly the same rate as independent businesses. But following the steps Mike sets out in his post definitely should help to increase your chances of success.

Iowa Company Choice Energy Powers Toward Top of Inc. 5000 List

A big congratulations to client Choice Energy for its inclusion on the Inc. 5000 list of fastest growing company debuting at No. 40 on the list and No. 1 for Iowa companies! The company has experienced incredible growth for their operations posting a 6,021% growth over a 3-year period. The company supplies electricity to residential and commercial customers, and is currently licensed to conduct business in Connecticut, Ohio, New Jersey, Pennsylvania, Illinois, Massachusetts, and Maine.

You can check out the company’s profile on the Inc. 500 list here.

Iowa Company Bawte CEO Discusses TechStars

I wanted to share a recent interview from the Des Moines Register with John Jackovin of Bawte. Bawte landed a spot in the prestigious business accelerator, TechStars of Boulder.

John’s worked hard throughout his career as an entrepreneur. It was interesting to hear him say that one of the biggest lessons he’s learned is the right way to ask questions. Asking questions is an art. If you really want to learn about your business, rather than leading people to YOUR answer, it is much better to phrase questions in a way that gets people to give honest answers.  Asking leading questions is not helpful if you are looking for answers to help improve your business. Hearing what you want to hear isn’t going to get you there.

Congratulations to John and Bawte on the honor of participating in TechStars and best wishes for continued success!

Rush Nigut Receives Recognition by Peer Review Publications

Rush Nigut has been selected by his peers for inclusion in the 2015 Edition of the Best Lawyers in America© in the practice areas of Business Organizations (including LLCs and Partnerships) and Franchise Law.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers is based on an exhaustive peer-review survey. Over 52,000 leading attorneys cast more than 5.5 million votes on the legal abilities of other lawyers in their practice areas. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Additionally, Rush was selected as a Top Rated Lawyer in Labor and Employment for 2014 by American Lawyer Media and Martindale-Hubbell™ . This is the second year in a row Rush has been recognized as top rated in the Labor and Employment practice area.  He holds an AV Preeminent Rating® from his peers which is the highest rating in legal ability and ethical standards.

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Please note:  The fact that a lawyer has been voted by his or her peers into Best Lawyers in a legal practice area does not signify that the lawyer has been certified by a state board of legal specialization in that practice area or specialty. A listing in Best Lawyers does not guarantee a desired legal result. – Best Lawyers

Martindale-Hubbell™ is the facilitator of a peer review rating process. Ratings reflect the confidential opinions of members of the Bar and the judiciary. Martindale-Hubbell™ ratings fall into two categories – legal ability and general ethical standards. – Martindale-Hubbell™.

 

Lessons from an early Long John Silver’s Franchisee

Recently I reviewed a restaurant franchise offering for a client. One of the things I pointed out is the franchise agreement is freely assignable by the franchisor. This means the franchisor could sell its franchise to another entity and the original franchisor could disappear. If a sale occurs it is difficult to predict whether it will be good or bad for the franchisee. As discussed in a recent Business Record article written by David Elbert, it definitely was not favorable for a long time Des Moines family who owned 31 Long John Silver’s restaurants in Iowa, Illinois, Arizona and South Dakota.

According to the story, there were ups and downs but no serious problems occurred with the restaurants until Yum Brands (also owners of KFC, Taco Bell and Pizza Hut) decided to sell the franchise to a private equity group in 2011. Under the new owners, mistakes were made that alienated longtime customers including changing the tartar sauce and other problems occurred with the cole slaw. Then more changes occurred when Long John Silver’s was called out for using trans fat oils. A non-trans fat substitute had taste and consistency issues which caused significant drops in business. Eventually, the franchisee elected to close 16 of its 31 stores.

The assignability of the franchise agreement is something that you need to consider when looking at any franchise. A new franchisor may have a very different plan than the original franchise owner. They may not handle problems in the same manner and may not be as experienced in the industry as the former franchisor. (It also shows that people’s tastes can change rather quickly in the food industry but that is a topic for another blog post). In the case of the Long John Silver’s franchisee, it is apparent they had a nice run over at least a few decades. But I am sure that it didn’t make the decision to close 16 stores and lay off 200 people any easier. It sounds like they definitely ‘longed’ for the good ‘ole days.

 

Zoom Past Legal Zoom – Revisited

Years ago now I wrote a post called Zoom Past Legal Zoom. For years it has been one of the most read posts on this site and no post on the site has more comments. In that post I talked about how Legal Zoom does NOT give out legal advice and how the company’s documents are not guaranteed to be correct, complete, or up-to-date. I also talked about how many people may be surprised at the expense comparison between Legal Zoom and business lawyers, particularly here in Iowa. I think most prospective clients would find that many Iowa lawyers charge comparable fees to Legal Zoom in setting up a corporation or LLC.

Of course that has not stopped millions of Americans who have engaged in using Legal Zoom’s "self-help" services and I’ll be the first to admit that the company has done a great job at marketing. Legal Zoom has also withstood several challenges in various states alleging the company engages in the unauthorized practice of law. One such challenge occurred in South Carolina where recently a judge found that the company did not engage in the unauthorized practice of law and the Supreme Court of South Carolina signed off on his recommendation. But the judge’s words are very telling and actually should serve as a warning to consumers:

“LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer,” Newman wrote in the report, adding that its “does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.” 

I know many lawyers are upset about the inroads that Legal Zoom has made into many areas of the practice of law, not just business law. But the judge’s words above are stinging to Legal Zoom in my opinion. Does a software that offers no judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program protect the public? There is no doubt people who use Legal Zoom are missing out on three key areas of knowledge that lawyers bring to the table. (Hat tip to Jay Shepherd as he explained what lawyers really sell in his talk at Ignite Law 2011).

  1. Substantive knowledge – this is the knowledge about the law. 
  2. Procedural knowledge – this is knowledge about the rules. What do you file? Where do you file? Where else do I need to register? Do I need licenses? Do I need to register with other state agencies? Do I also file at the county level? There is more to setting up a business than simply filing articles of incorporation or a certificate of organization. 
  3. Judgment – this is most important. This is why lawyers will always have a job in my opinion. Unlike Legal Zoom lawyers don’t sell documents. We sell judgment. Should you form a corporation or LLC? S corp or c corp? Should you just stay a sole proprietorship? What are the tax consequences? Is the name I am considering for my business one that won’t get me in a lawsuit from the outset? These and dozens of other questions are why it is important to hire a lawyer. Plus, it is critical to form relationships with professionals that can help your business including reputable accountants, bankers and insurance representatives. Lawyers can help you make these contacts. Legal Zoom does not.

So again I say:

Use LegalZoom if you must but I highly recommend talking to an attorney before you go that route.  You might be surprised by the expense comparison, and even if the cost is slightly more, the legal advice is usually worth it.  As the saying goes, you can pay now or pay later.  The choice is up to you.

 

 

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