Iowa Corporate Lawyer & Attorney : Rush Nigut of Brick Gentry Law Firm : Serving Des Moines, Cedar Rapids, Davenport, & Sioux City

I have seen many articles on the Internet which state that you absolutely need to form a limited liability company (LLC) if you are a small business owner.  The S corporation, once the darling of small business entities, is probably feeling a little lonely these days.

One important aspect of the S corporation is that you may be able to save on self-employment taxes by using an S corp instead of an LLC.

But don't get too carried away in the belief that you can set a low salary says accountant Joe Kristan in his latest post on Iowa Biz regarding s corporation salaries.  The key is to set a "reasonable salary" if you are the owner, although admittedly no one really knows what that means.

As is often the case in dealing with tax issues, Joe's advice is to remember that "pigs get fat, but hogs get slaughtered."  It's definitely a good idea to talk with an accountant when setting your salary in your S corporation.  It could save you considerable time and expense in dealing with the IRS. 

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A recent article from the Wall St. Journal online discusses something I thought I would never see from a franchisor: A money back guarantee. 

Others are not convinced and warn to investigate the details carefully in the Franchise Disclosure Document.  

Thanks to Joel Libava for pointing out the article.  Joel is a franchise consultant from Cleveland,Ohio that publishes an extraordinary amount of content regarding franchising.  Both the good and the ugly.  And never dispassionately.  Be sure to check out his Web sites if you have an interest in franchising.

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Twice a month I blog for IowaBiz which was acquired by the Des Moines Business Record this summer.  Since that time it appears the bloggers have stepped up their game.  The posts have been informative and entertaining.  I encourage you to take a look.

My post today for IowaBiz centers on the trend of hiring outside law firms on a non-billable hour basis.  It's a trend I embrace and use frequently in my law practice.  Similar to the law firms mentioned in my post, I have already provided outside general counsel services to certain business clients based upon a mutually agreeable fixed monthly fee.  These clients receive a fixed monthly bill and do not receive bills for phone calls and overhead costs such as copying and postage.  I also have performed certain projects such as incorporation and LLC formation on a fixed rate and have also done so with contract review and writing.  No, I have not completely eliminated the billable hour from my practice but would love to do so.

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Great post from Susan Reid on the Small Business Trends Web site on the 15 Ways the Olympics Exemplify Success for Small Business Owners.  In the comments of Reid's post, Anita Campbell has some terrific words about West Des Moines, Iowa's very own Shawn Johnson.  Johnson definitely made us all proud with her amazing attitude and fantastic performance.

But I'll add one to Reid's list:

Be Honest.  Although you may initially capture the gold it certainly won't be worth the consequences if you are caught being dishonest.  It includes your dealings with the IRS, customers, suppliers, employees and business partners.  The dishonest small business owner will likely get sued, or worse, end up being prosecuted.  And with the Internet it is very hard to keep your reputation quiet.

photo of Shawn Johnson in butter at the Iowa State Fair on Flickr by Iowaarcheryboy.

 

 

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I will be speaking at the Midwest Entrepreneur and Small Business Conference scheduled for September 12 & 13 at the Jordan Creek Marriott in West Des Moines.

I encourage you to check out the preliminary presenters' list for this first of its kind conference in our community.  Hope you will consider attending.

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Gavin Craig in his new Twin Cities Business Litigation Blog has an excellent post on the importance of making sure the world knows you have a corporate entity.  Craig is convinced that many small business owners (especially contractors) do not know how to properly operate a corporation or LLC. Craig says,

When a person incorporates their business, it takes more than just filing a form with the Secretary of State. When a business is incorporated, it can't be a secret to those that do business with the new corporation. In other words, the new corporation needs to disclose the fact that the business (the party that is contracting with others) is incorporated on its letterhead, business cards, invoices and checks.

Craig is right on with his warning on this issue.  Whether you live in Minnesota, Iowa or Timbuktu, you must make sure you disclose the fact you have a corporate entity on your letterhead, business cards, invoices, checks and especially CONTRACTS. 

This is a particularly important message for franchisees.  Many franchisees operate under franchise trade name but fail to disclose in contracts, letterhead, business cards, etc. the name of their actual corporate entity.  One franchisee I know was personally sued for the damages related to an advertising contract because he had not disclosed to the other side that he actually operated with an LLC rather than as a sole proprietorship.  He had signed the contract using only the trade name of the franchise.  The other side said at trial that it didn't know the franchisee had an LLC.  So ultimately the judge sided with the advertising company.  It was an expensive lesson that could have been easily avoided. 

 

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Many people dream about owning their own business.  More and more people are choosing franchising as the avenue to to pursue these dreams.

The Federal Trade Commission (FTC) has excellent information in its consumer guide for buying a franchise.  The FTC recommends that BEFORE you invest in or select a franchise you should think about how much money you have to invest, your abilities, and your goals. The guide warns you to "be brutally honest."  Three key areas are listed:

1.  Your Investment - How much do you have to invest?  How much could you afford to lose? Do you need financing? What's your credit score?  Do you intend to invest with partners? How much do you have in savings?

2.   Your Abilities - Does the franchise require special education, expertise or training?  What skill sets do you bring specifically to this business?

 3.  Your Goals - Do you need a specific annual income?  Do you have interest in a particular field?  Are you interested in retail or service?  How many hours can or will you work?  Do you intend to hire a manager or run the business? Is this a primary source or supplement to income? Do you get bored easy or are you in it for the long run?  Would you like to own multiple locations?

One of the biggest questions to ask yourself in my view is whether you are just buying yourself a job.  If you buy a franchise you should treat it like an investment and expect a return on that investment.  Otherwise, you are most likely better off just looking for employment.  It's certainly less risky and considerably less stressful. 

In the next post we will examine what it means to "buy yourself a job" and how to avoid that trap.

 

 

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Franchisee lawyer Richard Solomon has a passion for spreading the word about conducting pre-investment due diligence.  His latest post on the BlueMauMau site outlines many of the pitfalls experienced by franchisees in various industries.  It also discusses the fact that a mere review of the franchise disclosure document and franchise agreement is not enough.  On that subject he says,

Every failed franchisee hired some cheap lawyer to “read the contract”.  When you add up what you are risking, you will appreciate that a few hundred dollars for an incompetent review of documents by someone who doesn’t know where else to look for what needs to be considered is really stupid. You can’t afford that approach. But it’s your money and your decision.  

I agree with Richard that due diligence is critically important.  I also agree that prospective franchisees must do more than just read the contract (i.e. Franchise Agreement and Disclosure Document).  Real due diligence will require a multi-disciplined approach.  The prospective franchisee should get a lawyer, accountant, banker, and even a marketing professional into the decision-making process.  If a specific location is key (such as retail or restaurants) you will want a commericial real estate agent also involved.

But above all, the franchisee must become engaged in the process.  Don't rely on the professionals to do the hard work for you.  You must roll up your sleeves and investigate.  In the next post we will discuss more of the details about how conduct franchise due diligence.    

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These posts demonstrate some good business basics:

Small Biz Survival has a good blog post on how to keep good tax records. 

Kyle Kruidenier of the Iowa Law Blog talks about the importance of thinking with the end in mind when forming a business.

Marc Ward shares why LLC operating agreements should be in writing.

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Nothing like a good article on franchising to bring me out of a blogging hiatus that I anticipated would last at least another week.  But thanks to the Small Business Trends site and franchise consultant Joel Libava, my rest is over.

The Franchise King posted on a Central Ohio restaurant franchise called Roosters that seeks experienced franchise operators rather than newbies that might not understand the industry.  Like Joel, I agree it's a good concept for a franchisor to target franchisees that have experience in the industry.  Experienced operators are much more likely to be successful.  We agree on that.  We actually couldn't agree more on that.

However, Joel doesn't carry that logic forward when it comes to working in a franchise before buying one.  Joel says he is often asked this common question:

“Joel, are there any franchise companies out there that will let me work with a local franchisee, to see if I like the business?” 

And being the laid back guy he is (now don't get me wrong, Joel is a well-intentioned guy who wrote a book on Franchise Research Steps), Joel responds with an emphatic "No!"  He doesn't recommend it because the franchisee won't get the full story.  After all, they don't have any "skin in the game, so how could they possibly understand what the franchise business owner is going through?  He more or less says that if you aren't willing to go "all in" from the outset perhaps you should take it as a sign that you shouldn't go into business for yourself.  (Unfortunately too few people will heed this advice in my experience and take it as a personal challenge to go forward).

So it's my view working in a franchise business BEFORE buying doesn't make you a chicken!  In fact, it may be the best due diligence any prospective franchisee could do.  It's the same reason why so many successful business owners were once employees of the business they ended up buying.  It's the same reason a successful franchise owner I know worked in retail for a year before buying a retail franchise.  She wanted the experience.  No, she NEEDED the experience before investing much of her life savings.    

Now, it's true that some prospective franchisees might not benefit from the experience.  Some prospective franchisees have no business ever owning a franchise or any other kind of business.  But to say all prospective franchisees shouldn't avail themselves of the opportunity to work in a franchise system seems a bit bold in my opinion.  As a franchisee and reader of this blog pointed out:

The most difficult information to obtain and verify is franchisee profitability.  The profitability of the franchisor and the franchisees is not always related.  Sometimes those selling franchises make money while the franchisees do not.  And it is not always due to lack of due diligence on the part of the franchisee.  It may be because of inaccurate information supplied by the seller or franchise support that was promised but never delivered.

Risk is inherent in any business venture.  You are taking a chance and a leap of faith.  But actually working in a franchise business before you buy may allow you to find out whether you want to stake your life savings on the opportunity.  Taking a chance with maximum information is not random chance but a calculated risk - and that could make all the difference.

photo on flickr by ™bluhousworker and original photo by TedSher

 

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All Business has a decent article describing the ten key provisions of a franchise agreement.  However, I do take issue with the comment in Section 1 that "most franchisors offer ongoing support including administrative and technical support."

As I discussed in my last post on franchising, it is my experience that "most" franchisors DO NOT offer much in the way of ongoing support including administrative and technical support.  I believe this is a major item that separates the good franchisors from the bad ones.  And trust me, the MAJORITY of franchisors I have seen are downright awful in this category.

The majority of franchisors are good at only one thing - getting you into business.  After that, you're on your own and you'll be left to wonder why you are paying all those franchise royalties.  Perhaps harsh words for the industry overall but the truth hurts.  If you are buying a franchise make sure to do your due diligence and find those franchisors with a system for ongoing support.  Otherwise, why buy a franchise?

 

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With the help of Doug Mitchell and Andy Brudtkuhl I will be going live with an Interactive Learning Environment to complement this blog very soon.   The Rush on Business Legal Wire will focus primarily on employment law, franchise due diligence  / investigation issues and business purchase or sale considerations.  I also hope to attract top speakers to participate in the process.  The online seminar presentations will include in-depth written materials, audio presentations, podcasts and possibly video.

Forums will also be available for you to share your insights and ask questions.  Similar to the blog format, I won't be able to answer questions regarding specific situations but we can discuss topics generally.

I welcome your comments and suggestions on topics you would like to hear more about.

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Don't forget that Iowa's smoking ban in public places starts July 1, 2008.  If you are a business interested in learning more about compliance with the new law please visit the Iowa Department of Public Heath site at www.iowasmokefreeair.gov.

An informative Q & A concerning the smoking ban is available here.

Bar owners in particular are upset about the new law.  Is a challenge in the works?

 

 

 

photo on flickr by greefus groinks

 

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While discussing a franchise case recently an attorney working with me observed that the franchisor really didn't agree to do anything for the franchisee in its franchise agreement.

Unfortunately most franchisees are under the mistaken belief that franchisors will provide all kinds of support.  When it doesn't happen and the business relationship has fallen apart, the franchisee is surprised to learn that the franchisor isn't contractually obligated to do much of anything.  Which generally means that if a lawsuit occurs the franchisee may have very little recourse.

The solution:  Franchisees should discuss specifically with the franchisor exactly what the franchisor is going to do to support the franchisee during the term of the agreement.  If the franchisor makes promises that are not contained in the franchise agreement, ask for those promises in writing.  If the franchisor won't put those promises in writing be ready to walk.   And never, I mean NEVER, believe the franchisor that tells you they won't hold you to the terms of their written agreement.  You can be assured that the franchisor's lawyer in any lawsuit will never acknowledge that such a statement was ever made and most franchise agreements are written so that any such statement could not be used as evidence anyway.

Ulitimately there is no validity to the claim that franchise operations are less likely to fail than non-franchise operations.  A franchisor that just gets you into business doesn't offer you much.  Always do your homework, ask the tough questions and demand answers.

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Indiana civil and business lawyer Sam Hasler recently expressed his view that the place to incorporate your business is generally in your home state.

I agree with Sam. 

Delaware or Nevada may offer viable options for some companies but in general most Iowa small businesses are probably wise to incorporate here in Iowa.  First, Iowa has very low fees when it comes to incorporating your business.  It is a $50.00 fee to file Articles of Incorporation for a domestic corporation in the state of Iowa.  Further, it only a $30.00 fee every two years for a biennial report if you file online.  These fees are extremely low compared to other states.

Second, you won't avoid Iowa taxes by incorporating your Iowa small business in Nevada or Delaware if you are doing business here in Iowa.  The tax and corporation laws of Iowa will require you to register your company and pay fees as a foreign corporation in Iowa and you will be required to pay Iowa state income taxes for any income earned.  (You also do not avoid federal income taxes by incorporating in Nevada despite the lack of an information sharing agreement with the IRS).

And the perceived court advantages in Delaware?  That might be fine for a large business that is actually going to litigate a case in Delaware but it is probably not cost effective for most Iowa small businesses to litigate their cases in Delaware.  Besides unless you have well-written forum selection clause in contracts your Iowa small business will likely end up in Iowa courts anyway.

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Do you have bad credit?  If so, this article on how to qualify for a franchise loan even with bad credit may interest you.  But please don't be offended when I say I hope you don't get the loan.

The number one reason I see for business failures is the lack of sufficient capital.  I have seen several people invest their entire life savings only to have their business fail because they lacked the money to survive the first 6 to 24 months.  These overly optimistic business owners scraped the money for the initial loan but had no room for error.  When the business didn't cash flow right away they were doomed.

My advice is simple for those that have bad credit and want to start a business.  Work on improving your credit and accumulate cash to invest in your business. You should plan on having at least double the capital you believe you need.  If you have the idea you just cannot pass up at this time you may need to go raise capital through a rich uncle, an angel investor or venture capital.  If you are investing in a franchise operation as discussed in the article you can probably forget about venture capital.  It's not likely to happen.

I am not saying every person with bad credit shouldn't consider starting a business.  But the odds of business success (a difficult task under the best of circumstances) go down measurably when the potential business owner cannot manage money well and does not start out with adequate capital.  A much better article would have been about how someone could improve their credit and increase savings to start out a business on solid footing.  Providing loans to those that cannot afford them is not the recipe for business success.  After all, it's the same mentality that caused the mortgage crisis our nation currently faces.

 

 

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Tomorrow's BIZ networking luncheon features Jonni Tonnemacher, a CPA specializing in fraud detection services.  Learn how to identify fraud in your business and implement controls to prevent fraud from occurring.

I have not heard Jonni talk previously but the topic is fascinating.  It is downright scary how much fraud occurs in business.  Don't be a victim.  Be informed.

Read more about the offerings of BIZ at www.bizci.org.

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I am frequently involved with the purchase and/or sale of a business.  Often the purchaser discovers the business through a business broker.  In the Des Moines area, it seems as though several of the business brokers convince prospective buyers to make an offer before seeking legal advice or reviewing the basic terms before the offer is signed. (i.e. price, financing terms, earn-out, non-compete, etc.).  The selling point is that the broker's form offer to purchase makes the agreement contingent upon review by professionals including a lawyer and/or accountant. 

While the contingency is a good one, the problem is that it does not replace a consultation with a lawyer or accountant before the offer is made.  The simple reason is that once the offer is made it creates a binding agreement.  If you fail to consult the lawyer before signing the offer the basic terms of the sale are complete.  At that point, the lawyer may be able to help you with the legal wording in the final contract but it is awfully tough to change the terms of the deal.

So if you are purchasing a business be sure to consult a business lawyer before signing the offer.  Don't fall for the notion that a contingency permitting legal professionals to review the agreement will allow you to change the terms of deal in the final agreement.  Once you sign the offer it is probably too late.

 

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Former general counsel and small business owner, Anita Campbell, offers sage advice in her post on the Build a Solo Practice Blog about how to write a better contract .  What is the better contract in Anita's view?

1. First and foremost, the better contract protects the client.
2. The better contract is written in plain English.  (A novel concept indeed!)
3. The better contract is written for a 12th grade education or lower.
4. The better contract incorporates standardization.

A word of caution concerning standardization of contracts:  Clients will often take a standardized contract and fail to adapt it appropriately for the current business transaction.  Clients should be reminded that it is a good idea to have the business lawyer review the agreement to make sure it adequately protects the client in the current transaction, contains the actual terms of the current transaction and fulfills the goals of the current transaction.  I can't tell you how many times I have seen the embarassing situation where a business person took a standardized contract and failed to revise it appropriately for the situation.  It happens often when people pilfer agreements from the Internet and fail to modify the terms.  If litigation occurs, the result of this carelessness could be a verdict against the client.

Anita's solution involves providing a set of instructions to the client along with the standarized contract.  Included in the instruction sheet is the direction to have the business manager consult the corporate lawyer before signing or implementing the agreement.  This may work well with organizations that have in-house counsel but is probably less intuitive for businesses with outside counsel.  I offer the reminder to always have contracts reviewed by your business lawyer.

Hat tip to Susan Cartier Liebel and her Build a Solo Practice Blog.  Susan is passionately building one of the best blogs in the country.  Notice I didn't limit it to legal related blogs either.

 

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The Small Business Administration (SBA) and FranNet have teamed up to offer an online training course for those interested in franchising.

The free online course on franchise basics provides three key sections that examine more than 10 essential areas relating to franchising, including Whether Franchising Right for You and How to Choose the Right Franchise. The course also covers franchising options, strategies for growth, and pitfalls to avoid. Course participants will be able to better understand franchising and decide if it is the best small business option for them.

For more information please be sure to contact Joe Cooney who is the FranNet consultant for the Iowa / Nebraska region.  I have found Joe to be a very helpful resource.

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Anita Campbell of Small Business Trends shares her thoughts about how to avoid the contract from hell on the Build a Solo Practice site. 

As a former general counsel and now a small business owner, Anita has been on both sides of the fence when it comes to contracts.  According to Anita, here are some things to avoid in your next contract:

• Too much legalese.
• Using adverbs like "whereas" and "heretofore".  It's kind of like using "COMES NOW" for pleadings.  Does anyone really talk like that?
• More than 5-7 defined terms.
• Attaching multiple exhibits.  I can speak from experience that multiple exhibits is a real pain for the drafter so I can't imagine what it is like for the reader.
• Making it so hard to understand that it leads to avoidable litigation just because no one can understand it.

 

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Teri Rasmussen of the Ohio Practical Business Law Counsel blog has gathered some excellent resources for those who are interested in pursuing a franchise to start a business.

Thanks to Teri for referring to a couple of my blog posts but I also recommend checking out the Small Business Administration's consumer guide to buying a franchise as well as attorney Mike Hamblin's 4-part series on franchising.

 

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Do you have an estate plan?  It has been reported that approximately sixty percent of people in the U.S. do not have a will.  Of course having a will is critical if you have children but let's not forget about another baby - your business.

As the owner of a closely held business much of your wealth may be tied up in the business.  If you have not planned properly you may cause tremendous problems for your heirs.  After paying probate and estate taxes your heirs may also encounter liabilities that were payable upon your death.  All this during a time where the business may have decreased revenues due to your death.

Fortunately proper planning may eliminate many of these problems.  Using buy-sell agreements and trusts are two of the ways that business owners can protect their assets and reduce taxes.

Another important life-goal for business owners is charitable giving.  This week's Des Moines Business Record has an informative article on available options for starting your own philanthropic legacy. 

Even if you are young, consider an Acorn Fund through the Greater Des Moines Community Foundation.  For an initial contribution of $1,000 and a commitment of $600 per year until the amount equals $10,000, a young business owner could start their own permanent endowment fund.  And not only do you get the deductions for charitable contributions but you may also be eligible for additional tax credits.

photo on flickr by Norma Desmond

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One of my franchisee clients offered a very simple question that every prospective franchisee should ask of other franchisees when conducting due diligence:

What doesn't the franchisor do well?

He says this evoked the best responses from franchisees when he conducted his due diligence.  If you are considering a franchise be sure to talk to as many franchisees as possible.  Speaking to only a handful is not enough. 

For more information be sure to read this article on franchise due diligence resources.

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A new program from the non-profit Iowa Foundation for Microenterprise and Community Vitality (IFMCV), will provide a statewide mechanism for Iowa's microentrepreneurs to connect with community development agencies for assistance. Among the groups spearheading the effort are the Greater Des Moines Community Foundation and the Community Vitality Center (CVC), a policy analysis center based at Iowa State University. The program specializes in providing loans of $35,000 or less to small businesses.

State legislators are considering ways to fund microenterprise assistance programs that would be offered through the Iowa Department of Economic Development. An appropriations bill now under consideration would provide $500,000 to fund a microenterprise specialist at the IDED and begin a microloan program, using unspent Grow Iowa Values Fund dollars.

These are exciting developments for the state's small businesses which have long been ignored in Iowa. For more information please read this article from the Des Moines Business Record.

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It's no April Fool's joke, the Iowa Secretary of State corporate biennial reports are due today, April 1, 2008.  If you have not filed your report be sure to do so today.  In Iowa, limited liability companies are also required to file the report.  If you file online the cost is $30.00 for the filing fee.  The cost is $45.00 if you file a paper report.

If you do not file your report a notice is generated and eventually your corporation will be administratively dissolved after the notice.  You can get your corporation or LLC reinstated but that will cost you additional time and effort.  You also cannot get reinstated unless you have paid all applicable state taxes.

So get your report filed today.  If you know your corporation # and pin # you can file the report by going to the following link:

https://www.sos.state.ia.us/BiennialReports/index.asp

 

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Ohio business lawyer Terri Rasmussen has an excellent overview of the resources available on the SBA Website.  (With a hat tip to Joel Libava on the Small Business Trends Blog for the original post).  Terri also refers to a helpful post from Anita Campbell on the Ten Ways Business.gov Helps Your Business.

While I couldn't agree more with these posts about the valuable information found on the SBA Web site, I would add I find the Kauffman eVenturing site to be one of the most useful business resources on the Internet for pure business advice and information.  The quality of the ideas and writing on the Kauffman site is outstanding.

P.S.  If you are looking for an interesting interview, be sure to take some time to listen to Central Iowa's very own Sherry Borzo interview Anita Campbell on the dsmBuzz site.  It's terrific!

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A cautionary tale about partnership from Richard Fox on the Kauffman eVenturing site is an absolute must read.  Fox shares how he thought his legal background would protect him well as he created shareholder agreements, buy/sell agreements, voting trusts, special bylaws and articles of incorporation when he entered into a business partnership.  But even he was surprised when a 50 percent partner tried to sell the company out from underneath him after his father's funeral.  To make matters worse the partner tried to sell the company to their number one competitor.

Fortunately for Fox he was able to ultimately sell the company for a handsome price because he continued to concentrate on building the business rather than retaliating against his partner.  But it's pretty clear Fox believes any business person should be extremely careful when taking on partner.  He offers the following priceless advice (with my comments following):

• Know Your Existing Shareholders' Rights. Shareholders of private companies—even minority shareholders—hold the same legal rights as shareholders of public companies. When you accept shareholders, you accept the same scrutiny that comes with being a public company without the benefits. Understand that you can never be adequately prepared for a shareholder who wants to maliciously assert their shareholder rights to cause you problems. 

(Comment:  In Iowa, all shareholders are entitled to the financial information of the company as well as copies of all corporate documents   I strongly suggest you keep all copies of all important corporate documents and financial information routinely, not just when you need them.  In particular make sure you have any documents that would evidence ownership rights.  It is my experience that often one partner will have access to the corporate documentation while the other partner does not.  Don't let that happen to you).

• Avoid Taking on New "Legal" Shareholders. Entrepreneurs sometimes give ownership interests to key employees to allow them to share in the equity growth of the business. For the reason stated immediately above, you might consider offering "phantom stock," (read this article for more on phantom stocks) which carries all the economic benefits of common stock ownership without the potentially abusive rights of legal ownership. A lawyer should be able to advise you on the details. 

(Comment:  My experience with clients is that most employees really want to be paid more.  I know entrepreneurs often want employees to feel as though they have a "piece of the action".  But I also caution you to think twice about employee ownership).

• Take the high road. Rather than counter-suing the partner, Fox chose to put his energy into building the business. Not only was it good for the business, but it kept from muddying the waters any further and made a much needed ally out of the company's other corporate director. 

 (Comment:  This is very difficult to do is some situations.  Sometimes you may have no alternative but to fight back.  But I agree it is critical to continue growing the business). 

• Be prepared for anything. Pushed to the edge, some people will fight back with extreme measures. Although secretly passing legislation is extreme, be prepared for the unexpected.

(Comment:  I have learned this lesson the hard way myself with business partners in a few of my endeavors.  Do everything you can to protect yourself.  Start by knowing your rights and make sure to document, document, document.  Adversity often brings out the worst in people but amazingly people also change with substantial success.  Researchers have found the mere presence of money changes people.  It is also a good idea to have a trusted confidant that can help you vet a potential partnership without emotion).

• Sell on your way up. Entrepreneurs are "hard-wired" to grow businesses. The idea of selling is usually a far-away concept that is considered, but knowing the best time to sell is not intuitive. Don't wait until you can see the peak because chances are your buyers can see it too and will discount the price accordingly. Plan on a full year for the sale process to be completed; if you pull the trigger too late, you may miss.

(Comment:  This is a tough one for most business people.  You need to have a little luck on your side to sell at the right time.  But it's just like investing in the stock market.  You will likely never sell at the peak so don't be greedy.  A business sale should be a win-win for the buyer and seller). 

Overall, I just can't stress enough the importance of carefully considering whether a business partnership is right for you.  I often joke that it is not a matter of "if" but a matter of "when" the partnership will end.  But this is one joke I don't consider to be a laughing matter.  Fox's tale proves it.   

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Today is my last day with the Sullivan & Ward law firm.  This coming Monday I am taking a hop, skip and a jump over to the law firm of Brick Gentry, P.C. in West Des Moines, Iowa.  This is actually almost literally true as the Brick Gentry law firm is located across the parking lot just to the west of my current office location. 

It is difficult to leave my friends at the Sullivan & Ward firm but I am excited by this new opportunity.  Brick Gentry is a growing law firm with an excellent reputation in the Des Moines legal community for over 40 years.  The firm now consists of approximately twenty-five lawyers practicing in a wide range of areas including business law, municipal law, health care law, employment law, litigation and real estate.   

I'll join the firm as a shareholder and continue to work with my current business law clients and litigation matters.  Rush on Business will also continue although you will notice some changes to the links and contact information on the blog in the next couple of days. 

My new contact information is:

Rush Nigut, Brick Gentry, P.C., 6701 Westown Parkway, Suite 100, West Des Moines, IA 50266.  Phone:  515-274-1450; Fax:  515-274-1488; email:  rush.nigut@brickgentrylaw.com

Thank you again to all of you that read this blog.  I appreciate your support and look forward to this next step in the journey.  Stay tuned for more because I have a few plans ahead to mix it up and enhance the blog.  I'll need to settled in but I am looking forward to working on some new challenges very soon. 

photo on flickr by phxpma

 

 

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Here's some great tips for new small businesses.  Some terrific advice.  The top ten tips as listed:

1. Save up as much money as possible before starting.
2. Start on a shoestring.
3. Protect your personal assets.
4. Understand how--and if--you will make a profit.
5. Make a business plan, no matter how short.
6. Get and keep a competitive edge.
7. Put all agreements in writing.
8. Hire and keep good people.
9. Pay attention to the legal status of your workers.
10. Pay your bills early and your taxes on time. 

I especially appreciate the emphais placed on paying your payroll taxes on time, particularly the portion you withhold from your employees' wages. (See the commentary on No. 10).  It is critically important to understand that a corporation or LLC will not protect you from personal liability in the event these taxes are not paid.  (For an example, see a post from my favorite blogging accountant, Joe Kristan).

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As disclosed in the last post the new amended FTC rule concerning franchise disclosure documents requires franchisors to update their UFOC by no later than July 1, 2008.  After July 1, 2008, franchisors must comply with the new FTC rule only.  Currently, franchisors may comply with either the former rule or the new rule.

Here are some key differences between the former rule and the new rule:

• Use of unaudited financial statements.  Start-up franchisors may phase-in the use of audited financial statements.  In this case the franchisor must clearly and conspicuously disclose that the franchise has not been in business for three or more years and cannot include all required financial statements.  (There may still be requirements to submit audited opening balance sheets in registration states).  Franchisees should make sure to review the financials carefully as always.
• Financial Statements.  The FTC will allow the use of financial statements prepared according to U.S. generally accepted accounting principles ("GAAP").  There must be separate audited financial statements for any parent that "commits to perform post-sale obligations for the franchisor or guarantees the franchisor's obligations" in the disclosure document.
• No Broker Disclosures.  The Amended FTC rule eliminates the broker disclosure requirement.  However, the broker will need to be listed on the Receipt Page because the Receipt Page requires the franchisor to identify all "franchise sellers".
• Litigation.  Franchisors will be required to disclose material franchisor-initiated litigation against its franchisees.  The rule will be more lenient as a franchisor will only have to disclose actions that the franchisor filed during its last fiscal year - not the last 10 years. Further,  a full description of the case will not be necessary.  If a counterclaim is filed against a franchisee the disclosure will need to be treated as any other franchisee-initiated action and the regular, full disclosure will be required.  (Franchisees will need to more fully investigate whether franchisor-initiated litigation occurred whether it is in the disclosure document or not).
• Financial Performance Representations.  The new rule encourages franchisors to provide financial performance representations but it is still voluntary.  Franchisors may provide a more detailed cost and expense analysis which could be helpful for prospective franchisees.  Also, franchisors may provide financial representations based upon a subset that shares the same characteristics. 

There are other differences so be sure to talk with an attorney experienced in franchise matters if you are looking at purchasing a franchise.

 

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Interested in franchising your business and have an extra 36 minutes? 

You may want to listen to this informative podcast on AllBusiness featuring franchise lawyers Julie Lusthaus and Warren Lewis discuss the pitfalls of the Franchise Disclosure Document (formerly known as the UFOC).

The new amended FTC rule concerning franchise disclosure documents requires franchisors to update their UFOC by no later than July 1, 2008.  After July 1, 2008, franchisors must comply with the new FTC rule only.  Currently, franchisors may comply with either the former rule or the new rule.

Stay tuned for the next post on some of the differences between the new franchise disclosure document and the UFOC.

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Welcome to a RAGBRAI inspired Blawg Review.  What is RAGBRAI?  The Register's Annual Great Bicycle Ride Across Iowa is an annual seven-day ride across the state.  Heading into its 36th year, RAGBRAI is the longest, largest and oldest touring bicycle ride in the world.  It's not a race.  It's an experience.   And since Blawg Review is a carnival, nothing says carnival in an uniquely Iowa way like bicycles, spandex, pork chops, pie, frivolity and 10,000 of your closest friends!

The weather in Iowa is frigid this winter.  As the weekend of this Blawg Review approaches Iowans brace for another heavy snow.  Our friend Charlie Longbrief looks at the floor below his stationary bike and dreams of summer.  A person can stand only so many YMCA spinning classes.  He thinks back to his first RAGBRAI as a twenty year old when law school hadn't yet entered his mind and the biggest celebrity on the ride was Oakland Raiders great and Miller Lite spokeman Ben Davidson.  Now it's nothing to see the likes of lawyer turned politician John Edwards or the bicycling legend himself, Lance Armstrong.  Armstrong may have participated in the famous New York City Marathon but his heart will always belong with RAGBRAI.  Listen for yourself:

Day 1:  Missouri Valley to Harlan  - 58 miles

This year's ride starts in the river town of Missouri Valley.  While performing the traditional dip of his back tire in the Missouri River, Charlie sees Liz Overton of the Iowa Law Blog who warns him that because of the $350,000 settlement in a 2004 RAGBRAI death bicyclers better beware of the new proposed legislation from the Iowa State Association of Counties.

Unfazed Charlie gets on his bike and sets out on his adventure.  But as he rides off he does ask himself whether Mad Kane is right.  Is it wise to travel with friends particularly where tents are involved?

About 15 miles down the road Charlie takes a break and starts getting an earful from New Yorker Eric Turkewitz about how State Farm has been hit with a RICO lawsuit over alleged sham medical exams.  That hasn't been reported elsewhere and Charlie worries whether State Farm might be doing the same thing in Iowa.  Charlie is so interested he and Eric ride the rest of the way to Harlan together.  Although its only the first day Turkewitz remarks that he agrees with Lance Armstrong . . . RAGBRAI is a hell of lot more fun than his beloved New York City Marathon.

As he pulls into Harlan, Charlie finds himself a little short on cash and heads off to find an ATM.  There he sees John Crenshaw who starts telling him about the biggest scams banks are pulling off everyday. Charlie just shakes his head in agreement as he pays the $2.00 charge to get the money out of the ATM.  After a little angel hair pasta its time to hit the sleeping bag.  There is a big week ahead and unfortunately Charlie isn't twenty any longer.

Day 2:  Harlan to Jefferson - 83 miles

The next morning Charlie wakes up bright and early and sets off for Jefferson.  He has some clients that are buying a business nearby and that reminds him he should heed Larry Staton Jr.'s advice to know what you are getting when you buy a trademark from an existing business.

About half way to Jefferson our city boy is a little mesmerized by the miles and miles of corn.  It makes him wonder whether Farmer David will be able to pay that large patent judgment he now owes Monsanto as reported by the Patent Baristas.

In Scranton, just short of Jefferson, Charlie sees a big group of people gathered in a park off the town's main drag.  There he sees Dan Slater of the WSJ Law Blog who explains that all the hoopla is because the M & M boys have turned their attention to the RAGBRAI water slides because the Naked Cowboy drove them outta of Dodge.  The revelers love it and the log jam causes a very slow ride into Jefferson that evening.

Day 3:  Jefferson to Ames - 56 miles

It's a big day for politicians on the way to Ames, home of Iowa State University.  Barack Obama and John McCain are expected to make appearances today.  Hillary Clinton is here too and keeps talking about how the Florida and Michigan delegates must count.  Obama shrugs it off by saying even his six year old knows it wouldn't be fair to count votes where there was no campaign.  But at least Florida has made significant strides in improving its jury system according to Juries.  While Diane Levin points out voters can learn a lot from the field of negotiation.  Eugene Volokh shares that John Mellencamp may be able to stop McCain from playing his songs after all.

All the political talk has people addressing serious issues on the road today.  Riding on a three person tandum, Leon Gettler of Sox First tells Charlie that Sarbanes-Oxley not only failed to stop the subprime meltdown, it contributed by giving investors the false confidence that they could rely on the law, and not prudence to protect their market holdings.  Scott Greenfield shares that Congress has a pending bill that may immunize banks from paying billions in dollars to a small Plano, Texas company.  Patently-O adds that although DataTreasury is not directly mentioned in the bill it is pretty clear that Section 14 is directed primarily at the company. 

As Charlie rides into Ames he sees Kevin O'Keefe and  Holden Oliver of What About Clients engaged in a heated discussion about whether corporate clients really want a lawyer that blogs.  O'Keefe says yes while Oliver says no.  It then gets a little personal when O'Keefe accuses Oliver of being someone else.  Charlie blames Teri Rasmussen who started the whole thing when she said every client should want a lawyer who blawgs.

Day 4:  Ames to Tama-Toledo - 75 miles

Charlie gets ready to head off to Iowa's version of the twin cities today.  In the pancake breakfast line he meets Connie Crosby who is kind enough to introduce him to David Bilinsky.  David tells Charlie all about how there is a great need for law firms to turn their senior partners into business leaders.  David Maister overhears them and chimes in that one-firm firms are often quite successful.

After an uneventful morning Charlie witnesses an accident on today's route where someone goes to the hospital.  It looks like the rider will be okay but David Harlow of HealthBlawg warns that hospital-acquired infections are a real problem.  Iowa estate lawyer Matt Gardner says that even if the rider makes it through he should still think about the disposition of his bodily remains.

 As he enters Tama (or is it Toledo), John Phillips of the Word on Employment Law almost runs smack into a little beagle that darts in front of him.  The incident causes John to conclude that beagles should no longer be excluded from the Animal Employment Protection Act (AEPA).  John is obviously a little excited about the near miss and starts rambling about how he handled the situation a whole lot better than Roger Clemens handled the accusations from Brian McNamee.

Day 5:  Tama-Toledo to North Liberty - 82 miles

Now that we have passed the mid-way point for this year's ride, everyone is a little loosey-goosey today.  Charlie's cadence starts to pick up as the wind blows with the sweet smell of pork chops.  That could only mean that Mr. Pork Chop is nearby.  As he pulls off the roadside to visit our pork chop hero, Charlie sees that Iowa legal blogger extraordinaire Brett Trout and his band of Iowa legal bloggers are engaging Mr. Pork Chop in a battle of wills to determine who has the loudest pork chop call.  Sadly, while Trout may be Iowa's toughest attorney he is no match for Mr. Pork Chop in this arena.  Hear why:

 

After a pork chop and a short nap Charlie rides along to catch up with Michael Moore who discusses risk management in employee terminations and explains sometimes the "How" is as important as the "Why".  Pretty soon both of them come across a big party along the roadside.  A crowd is gathered around Dennis Kennedy who apparently is still celebrating his blawgiversary and birthday.  During the party Tulane Law Professor Alan Childress