“Learn from the mistakes of others. You can’t live long enough to make them all yourself.”
– Eleanor Roosevelt
Eleanor Roosevelt’s wise words remind us that when we go into business, we need to study others’ mistakes as much as we study their successes.
Talk to other entrepreneurs who started up a business and ask them what lessons they learned along the way:
- Do they have helpful tips for balancing work and home life and for establishing boundaries when they’re working out of their home?
- Do they know how to capitalize on word-of-mouth marketing?
While you’re talking to those successful men or women, ask them what they would have done differently:
- What important lessons did they learn along the way?
- Did they hit any roadblocks?
In an effort to help you avoid some of these blunders, we are continuing our series on 10 Common Mistakes Business Owners Make within their legal affairs.
Last month we discussed the importance of using only written contracts and not oral contracts—have you taken the time to formalize your agreements?
This month we’re discussing rules for employees and the value of having a support network.
These are general tips. Be sure to consult with an attorney if you have a specific questions or concerns. The guidance below is not intended to be legal advice!
Common Mistake # 2 — Having Undefined Rules for Employees
Currently, you may be a one-person shop, working out of a home office or a small shared-workspace. As your business grows, however, you may reach the point of bringing a second or third person on board. Adding employees to your business changes the dynamic of your workplace; it’s important to set clear and defined rules for employees from the first day.
The first important legal decision to make when hiring an employee is how to define the employee-employer relationship. Are you bringing someone on as an independent contractor or employee? There are differences from a legal and tax perspective, so be sure to designate your employees properly.
If you own a coaching business and want to bring on an additional coach for a limited engagement to help with a new project, it would be appropriate to hire him or her as an independent contractor. However, if you were going to use an additional coach on a regular basis and directly control and oversee that coach’s work, it would be more prudent to designate him or her as an employee.
As you bring new people into your business, it is also important to set clear expectations and rules for employees that your new employees can understand. One helpful tool to accomplish this can be the use of an Employee Handbook.
An Employee Handbook can be an efficient way to set forth of all the policies and rules that apply to employees and prevent any issues or questions that may arise down the road in addition to promoting compliance with applicable labor laws.
If you own a small business, you may think that setting up these policies is not very important. Perhaps the new mentor, coach, or consultant you’ve added to your team also is one of your closest girlfriends and you don’t anticipate any conflicts. Remember: legal planning is frequently done for when things don’t go as you planned!
It is important to have the policies in place to prevent misunderstanding and potential litigation or regulatory action.
For example, you bring a second consultant into your home beauty line who happened to be a good friend. You often let your friend leave 30 minutes early each day to pick her children up from school. Your business continues to grow and you bring on a third consultant. This consultant starts asking to leave early each day; what do you tell her?
This example highlights the importance of having a consistent policy that is also consistently enforced.
Common Mistake #3 — Going it Alone!
This mistake is one of the more common and most preventable of business blunders—and very easy to avoid. When you are starting a new business, as I mentioned last month, it is important to surround yourself with a team of experts that can help you navigate the uncertain waters–individuals who have experience with accounting, legal, or tax issues.
Some of the most important decisions you make from a legal perspective often happen before you even officially open your doors, decisions like which legal entity—a sole proprietorship, partnership, LLC, or corporation—is best for your business (something we’ll discuss next month!).
Often, fixing a mistake that occurred during formation can be more costly to repair than the fee for upfront consultation.
It is also important to remember that ignorance of the law is not an excuse for non-compliance! You, as the business owner, must take responsibility for your actions as you can sometimes even be held personally liable for your business activities.
Do your homework and ask the experts!
Next Month: “Common Mistake #4 — Choosing the Right Legal Entity”
Photo by Flickr (mpujals)
About Leah Barteld Clague, Esq.
Leah Barteld Clague is an attorney with McLaughlin Law Group, a boutique law firm focused on corporate (small business), estate planning, and estate and trust administration, and tax law. McLaughlin Law Group, started by L. Content McLaughlin, serves clients throughout Maryland. Leah started with the firm in August 2012 after graduating from the University of Maryland, School of Law. Prior to law school, Leah completed her MBA and worked as a financial analyst in both the private and public sector.
In addition to estate planning, Leah has a passion for working with small businesses. As a student, she helped grow a program called “The York Business Academy” that provided brief classes on marketing, management, financing, and legal issues for small businesses and aspiring entrepreneurs. More recently, she consulted for a number of for-profit and non-profit clients and developed business plans, financial models, and marketing strategies that were presented to venture capitalists.
Feel free to contact Leah at firstname.lastname@example.org or 410-660-2095