Best of… week of July 23

Okey dokey… here’s my wrap up of what’s happening and “things you should know” from this past week in Small Business and the Craft Beer Business:

Small Business

Love this: “(Q) How many lawyer jokes are there? (A) Three – the rest are true stories.” I’ve been following Nina Kaufman the last couple of weeks and she has some great insight. Her book: How to Choose and Use Attorneys is a good reference for any company, especially startups. Check her out at
http://askthebusinesslawyer.com/
 and  
http://askthebusinesslawyer.com/how-to-choose-and-use-attorneys

Running a small business is always smooth sailing, right? Especially at home, nothing ever goes wrong there. For the most part, we all have families or lives outside of our businesses, what happens when the s— hits the fan? 3 Tips for Leading Your Business During a Personal Crisis 
http://www.entrepreneur.com/blog/224022

Let’s say everything is running fine. “If it ain’t broke, don’t fix it.” Right? Not always. Apple is the king of improving or changing an already winning strategy. Why? When to Change a Winning Strategy 
http://blogs.hbr.org/cs/2012/07/when_to_change_a_winning_strat.html

Are you an S-Corp? Make sure that you periodically check in with a business attorney so that you stay that way! S Corporation Corner: Practitioners Should Schedule Periodic Check-ups
http://www.jdsupra.com/legalnews/jdsupra-65136/?utm_source=jds&utm_medium=twitter&utm_campaign=bizlaw

Since we’re talking tax implications, there are some changes on the horizon that you – at least – need to be aware of. The Fiscal Cliff: 3 Tax Changes You Need to Know Are Coming 
http://www.entrepreneur.com/blog/224051

We’ll segue from tax to other money matters. When is it (or is it not) worth your time/money to go after late payments from customers? here’s a short video (like 60 seconds) on when it’s a good idea. When to Take Legal Action Over Late-Paying Customers 
http://www.entrepreneur.com/video/223932
 also browse around the rest of the website, there’s a ton of good information and I love these little 60 second clips on how-to, when-I-should, or other business tips from experts. And it’s free!

Moving on to intellectual property… here’s a great overview – again short and to the point – on intellectual property and when to use what. How To Make Sure Your Intellectual Property Is Protected 
http://alltopstartups.com/2012/07/24/how-to-make-sure-your-intellectual-property-is-protected/

I can’t let a week go by without something on Social Media. If you’re just starting up, here’s crash course on what you should be (i.e. “need to be”) doing for your business.  Social Media Lite: If You Do Nothing Else, Do This (Part I) 
http://openmindworks.com/social-media-lite-if-you-do-nothing-else-do-this/
 and Social Media Lite Part II: If You Do Nothing Else, Do This for Your Brand 
http://openmindworks.com/social-media-lite-part-ii-if-you-do-nothing-else-do-this-for-your-brand/
 Also, follow OpenMindWorks on twitter at @openmindworks_, a lot of great information and swell people.

Beer Business

I wrote a piece on whether a brewery could/should be a non-profit. Tonka Beer Co, takes it another route – donating all profits to charity. Tonka Beer Co. goes 100% nonprofit in effort to fight invasive species. 
http://beerpulse.com/2012/07/tonka-beer-co-goes-100-nonprofit-in-effort-to-fight-invasive-species/

Certificate of Label Approval (COLA) changes discussed by TTB. Good read to get some idea of what they’re going through also. TTB Addresses Label Approval Issues 
http://www.alcoholicbeverageslawblog.com/2012/07/articles/state-federal-beverage-license/ttb-addresses-label-approval-issues/

The midwestern US is taking a beating this summer in terms of weather. I haven’t heard of this having an effect (yet) on brewers, but it’s something (I think) to watch. Midwest drought worsens, food inflation to rise 
http://www.reuters.com/article/2012/07/25/us-usa-drought-idUSBRE86N1M120120725?feedType=RSS&feedName=environmentNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2Fenvironment+%28News+%2F+US+%2F+Environment%29

On the other end: Soggy Summer in North Europe Delays Grain for Region’s Beer 
http://www.businessweek.com/news/2012-07-26/soggy-summer-in-north-europe-delays-grain-for-region-s-beer

This is an interesting one. AB-InBev started registering trademarks for airports and now ZIP codes. I don’t know if this is quite the way to capitalize on the “buy local” trend. But the boys at the Big Beer companies aren’t stupid (they may be a lot of things, but they’re not stupid). We’ll see where this goes.  Anheuser-Busch creates “zip code” beers 
http://www.nj.com/entertainment/dining/index.ssf/2012/07/anheuser-busch_creates_zip_cod.html

While we’re on intellectual property, one near and dear to my heart: trademark. PLEASE work with an attorney before you build a brand or name so this doesn’t happen to you. Coronado Brewing asked to stop using the name, “Stoopid” 
http://beerpulse.com/2012/07/coronado-brewing-asked-to-stop-using-the-name-stoopid/
 By the way, love both beers!

Not strictly beer, but related:  there are less… obnoxious ways to deal with possible TM infringement or unauthorized use. Jack Daniel’s Sends the Most Polite Cease-and-Desist Letter Ever 
http://mashable.com/2012/07/22/jack-daniels-trademark-letter/

The Brewer’s Association always has great resources (especially for members), but here’s a special one – August Power Hour: Food & Drug Administration Brewery Inspections and Reporting Requirements. Free to members (of you’re not a member, it’s not free, but it may well be worth the price of admission) 
http://www.brewersassociation.org/pages/events/calendar/show?title=august-power-hour-food-drug-administration-brewery-inspections

Just for fun

For the science and math geeks out there, this is just AWESOME : 
http://www.kleinbottle.com/
 I’d love to see a one of these labeled with a brewery logo!

Related articles

• ‘Instagram For Business Tips’ Report Released by Black Box… (prweb.com)
• Why Social Media Metrics Are Important (smallbiztechnology.com)
• Avoid jointly owned intellectual property like the plague (ipstrategy.com)
• Social Media and IP at John Marshall (madisonian.net)
• How Secure is Your Small Business’ Intellectual Property? (openforum.com)

Why should a brewery start out as an LLC?

Startup financing cycle (Photo credit: Wikipedia)

So, I got this question late last week and advised a client appropriately, but perhaps it is worth a bit more discussion / generalization. Sorry this post turned out longer than most, but it is all important stuff. So here goes:

You may have seen my article earlier on LLC v Inc, and that is all generally valid. But there’s more to it than that (as you might expect).

As a start up brewery, if you’re looking to limit your liability (and you are) and you looking to raise capital (and you will be), you want to be some sort of business entity other than a General Partnership or a Sole Proprietorship. For the most part that points you to either an “LL” company or a traditional Corporation (Inc.). Unless you’re looking to structure the business as a partnership (which would be… unusual for a brewery), you’re focusing on an LLC or an Inc.

Why an LLC?

1. Design: An LLC is *designed* to be owned by only a few people and that the interest (i.e. ownership) in the company doesn’t change much. Sounds like a start-up brewery so far. A traditional Inc. uses stock to define ownership and (just like IBM) you can buy/sell or trade stock to change ownership. But, as an owner of an LLC, you’re a Member of the LLC, and membership (so they say) has advantages. As a Member, it is hard for the company to get rid of you and you are guaranteed broad voting rights (for the most part) in the company. The law protects Members and Members’ liability is limited only to what they put into the company (you can’t lose more than you’ve already invested). Sounds pretty good.
2. Income: Like an S-Corp, an LLC avoids the so-called “double-taxation” problem by letting the income pass through the LLC to you as a Member. That is, you only get taxed on what you get paid by the company, not what the company makes. Big difference. When you’re starting up a brewery, no one expects to make money very quickly, and if they do it’s all going back into the business, right? Well with an LLC, the company doesn’t pay income tax on that money. Sounds pretty good.
3. Formalities: The threshold for conducting “business formalities” (such as owner meetings, reports, voting, etc) is pretty low AND you get to decide what and how you’ll do it. You define this structure (and the operating structure of the business) in the LLC’s Operating Agreement (works like the By-Laws in a traditional corporation). This agreement says who runs the company, who owns the company, who gets to decide what, and how the company will generally function. “Formalities” sounds like it’s no big deal, it is a big deal. Without adhering to the formalities, a court can decide that your “company” isn’t really a “Company” and that they’re going to ignore the limited liability part of the LLC. That is, you could lose the limitation on liability and that was one of the main reasons why you started a Company to begin with. Formalities, hmmm, generally a pain, but at least the LLC sounds like it makes it as little pain as possible. Sounds… well, it doesn’t sound *bad*.
4. Employees: Because of the “income” bit above, an LLC is designed so that most of the income goes to the Members and the Members are active in the business. This TOTALLY sounds like a startup brewery. When there’s just a few of you opening a brewery, it’s more than likely that you’ll also be the only employees of the company – at least for a while. Having an LLC really simplifies the taxes, payroll deductions, reporting, and payroll process for getting paid if you’re a Member and not just an employee. Having non-owner employees is a major reason for going with an Inc instead of an LLC. Sounds like that fits too.
5. Flexibility: This is probably the single biggest reason I advise people to go with an LLC. An LLC gives the Members a tremendous amount of latitude to define how they’ll run the business. You can designate Managers (that run the day-to-day business) as a distinct sub-set of the Members, so you can have folks that are purely investor/owners and not employee/owners. Also, like I said above, you get to write the Operating Agreements (and there aren’t a lot of requirements). You want to have an Official Meeting only every other year? Go for it. You want to only let people from Debuke, Iowa be members? It’s your prerogative. The important bit is that you have some governing document, the content or rules are (more or less) your call. Oh, and all it takes to change those rules? The Members write/adopt a new Operating Agreement – so the rules can change over time as you grow or change strategies. That part sounds really good if you’re a startup.

Ok, that’s the basics. I think these few reasons definately point a startup brewery toward an LLC as a first step (you can always change later). Think about it.

Keep in mind that the above is (1) VERY general and (2) does not constitute legal advice, just some thoughts. You should always consult an attorney licensed in your jurisdiction to make sure that you’re making the right decisions for your business. If you need help in NC, drop us a line at info@jslawcenter.com or check out our website at www.jslawcenter.com

Related articles

• How to Form an LLC (answers.com)
• Choosing the Right Partnership for Your Business (openforum.com)
• Yes, an LLC Can Be Taxed as an S-corp, But Why? (nclawlife.com)
• Starting a Business: Inc v LLC (jslawcenter.wordpress.com)
• Types of Business Entity Formation in US (barunsharma.typepad.com)
• Limited Liability Company Taxes (turbotax.intuit.com)
• TurboTax – Tax Advantages to Incorporating (turbotax.intuit.com)
• LLC Advantages and Disadvantages (minnesotaattorney.com)

Best of… for the week of June 11, 2012

President Barack Obama delivers remarks to small business owners, community lenders and members of Congress in the East Room of the White House in Washington, DC. Secretary of the Treasury Timothy F. Geithner has his back to the camera. (Photo credit: Wikipedia)

I thought I’d try something new on the blog this week… I’ve been posting some interesting articles that I’ve found on other blogs, websites, etc. that I think are particularly relevant to small businesses (especially breweries, which are near and dear to my heart). So, today, I thought I’d recap the “best of” for this past week. Let’s get started with…

Mark Sperling blogs about decisions by the NC Business Court

Ok, so this is a little dry for most business owners, but it’s occasionally worth a read or search. NC is one of the few states in the country that has a specialized Business Court specifically to hear business issues and cases, particularly complex ones. This is a great blog to check out from time to time, especially if you’re a business attorney. 
http://www.ncbusinesslitigationreport.com/

Peer to Peer Business Lending

There’s been a lot of discussion about Crowdfunding lately, here’s an additional twist: Peer2Peer lending. Businesses use other businesses as investment opportunities, cutting out the bank altogether. If you’re thinking about starting a business and need startup money, it’s worth a read. 
http://under30ceo.com/consider-peertopeer-p2p-lending-business/

Debt v Equity

Another great topic for startup businesses. I advise clients everyday on the difference between debt and equity and what that means to you as a business owner. Read this over before you finalize your business plan. 
http://venturebeat.com/2012/06/09/debt-vs-equity-which-is-right-for-your-startup/

USPTO Offers IP Awareness Assessment

This is more of a press release than an article, but it’s a great tool for small businesses to make sure they know what their Intellectual Property (IP) issues are. Need copyright? Trademark? What’s a “trade secret,” anyway? The USPTO has some great resources. Check out the press release at

http://www.iplawalert.com/2012/06/articles/patent-1/uspto-offers-ip-awareness-assessment/
  and their main page at 
http://www.uspto.gov

Let’s start there for this installment. I’ll post more next week as things come up that are pertinent to small businesses and the craft beer industry.

Thanks for reading and please, let me know what you think in the comments!

Related articles

• America Invents Act – Patent Office Funding (tacticalip.com)
• Peer-to-peer lending at encash provides a new way of financing between friends and family (prweb.com)
• USPTO and NIST Unveil New IP Awareness Assessment Tool (ipwatchdog.com)
• Small Business Lending Demand Drives Five Point Capital’s Addition of 13 New … – PR Web (press release) (prweb.com)
• Government to invest in startups through P2P lending platforms (wired.co.uk)

Starting a Business: Inc v LLC

IRS building on Constitution Avenue in Washington, D.C.. (Photo credit: Wikipedia)

PC, PA, LLC, LLP, Inc, LLLP, huh? There are so many acronyms and they’re thrown around all willy-nilly. What’s an aspiring entrepreneur to do?

So, here’s the thing. Each of these denotes a form of business, how a business is structured and who the “owner” is. Each is also relates to two special topics: (1) taxes and (2) liability.

I’m not an accountant nor a tax attorney, so I’m not going to give too much advice on taxes, but I’ll give you some basics. I’ll spend most of this post on the liability question. But first, the tax basics…

Generally speaking (and almost universally before 1987), if you formed a corporation (think companies like IBM, Inc., Coca-Cola, Inc., etc) the profits of the corporation were taxed as income to the corporation AND they were taxed again as income to the individuals that owned the company – the so-called double tax problem. However, in the last 20-30+ years the IRS has allowed the profits for certain kinds of companies to be taxed only once – when the owners claim it as income. Who wants to get taxed twice? Or even once, if we can avoid it? Get with your accountant or tax attorney for the details.

So, back to the liability stuff. One of the main reasons someone creates a corporation is to establish a liability shield between the business and themselves. Example: a customer gets hurt by your product. They sue the company. If you’re a sole proprietorship (i.e. no corporation), they can take everything the company owns AND everything you personally own. If you’re a corporation (and follow certain rules), they can take everything the company owns but they CAN’T get to you personally. That’s big. Limiting liability encourages business owners to take risks and drive the economy without being terrified that they’ll lose everything they’ve ever had or will ever have.

All those acronyms at the beginning identify the type or corporate structure, how it’s used, and what you can expect liability-wise.

• PC – Professional Corporation
• PA – Professional Association
• LP – Limited Partnership
• (P)LLP –(Professional) Limited Liability Partnership
• (P)LLC – (Professional) Limited Liability Company
• LLLP – Limited Liability Limited Partnership (only available in certain states, right now)
• Inc – Incorporated (a traditional corporation), also seen as Limited or LTD

To figure out which acronym (and, therefore which business form) is right for you, contact your business attorney. Or stay tuned here.

In the meantime, check out our website at www.jslawcenter.com

Related articles

• LLC Advantages and Disadvantages (minnesotaattorney.com)
• Choosing a Business Entity (arkansassmallbusinesslawblog.barberlawfirm.com)
• Limited Liability Company Taxes (turbotax.intuit.com)
• How to Form an LLC (answers.com)
• Legal Structure: The Difference Between LLCs And LLPs (smallbiztrends.com)

The Death of “The Customer is Always Right?”

I was thinking of titling this post “In Defense of Lawyers,” but I think the above is more appropriate because I think it’s not just lawyers that need defending.

So, here’s the thing, I have this client…. And every attorney as a story about a bad/crazy client (some of us have more than one, a lot more), but that’s not what this post is about. The client I’m talking about isn’t happy with how I’m pursuing her case. She wants a drooling, rabid, vicious, all-out, what-ever-it-takes, willing-to-make-any-argument lawyer. That’s not me. It is never going to be me. So why is she my client?

When she first engaged me, I told her precisely how I would work her case. As time has gone on, she’s insisting more and more “can’t we sue them for *something*?!” or “what if we went to the media or picketed them?” I have counseled her (repeatedly) that neither of those options are likely to help resolve her situation, in fact they may make it considerably worse and cost her a significant amount of money, etc.

But, I’m conflicted. I grew up and learned my customer relations skills with the motto “the customer is always right.” Lawyers are, inherently, a service industry. We serve at the client’s pleasure. I should work diligently to gain and keep my clients’ business. Otherwise, they can go just down the road [I should really update that euphemism to me “just down the information superhighway.”] and hire someone else. With the internet making a lawyer at the other end of the state just as accessible to a client as those in their own neighborhood, this is probably more true than ever.

But, the opposite is also true. I can now reach clients hundreds or thousands of miles away just as easy as those two blocks away from my office. So, can I – almost as easily – “ go just down the information superhighway” and get a new client? Almost.

Are we really saying that – as service professionals – it’s more important than ever that we match our clients and vice versa, rather than alter who we are or what we do, just to keep the business? Your thoughts?

Related articles

• Easiest customers to get are not the ones you want (kevin.lexblog.com)
• “Agency and Equity: Why Do We Blame Clients for Their Lawyers’ Mistakes?” (sentencing.typepad.com)
• I sell services. What the %{title}! do I sell? (mimiran.com)

Starting a business

I gave a presentation yesterday to a group of folks looking to start a horticulture, landscaping, or plant nursery business. It was a great impetus to force me to write this post – that I’ve been meaning to write for a while.

So, let’s start with what you need to start and run a successful business in NC

• A lawyer – a lawyer is going to be your best friend in the early stages. A lawyer will help you decide how to organize the business, what you need to do to be compliant, and how to protect yourself from future claims by creditors, potential liability, and other sources of risk. An attorney will also help you with whatever licenses you might need to operate in your state, county, or city (or all three!). Work with a lawyer to develop your overall business structure to protect your investment and yourself from future risks. Also, a good lawyer will work *with* you (not just *for* you), so you can help yourself and save money where possible.
•  An accountant or bookkeeper – there is so much going on (especially early in developing your business) that it’s easy to make a mistake, forget something, or make a choice that will impact you later. When it comes to finances and taxes, you need to get an expert to help you understand the consequences of your choices: Do I start as a home based business? Is it cash-only? Can I claim mileage on my car for business? Even if you’re a professional accountant or bookkeeper, it’s probably a good idea to get an independent assessment in the beginning, if nothing else.
• Business Plan – I cannot stress enough how important it is to have a business plan. Whether you’re trying to raise money from investors, trying to get credit, or just knowing what to do next for your own peace of mind, your business plan should be your road map. Your business plan may change over time (because your business may change over time!), but you should make every effort to follow you business plan. There are lots of resources (including the Small Business Administration) for putting together a solid business plan.
  

  business plan (Photo credit: Wikipedia)

•  Insurance – you will need insurance (in some form or other). Especially if you have anything to do with dealing with the general public, government contracting, or working with businesses (ok, so, pretty much if you do ANYTHING). Find a reputable insurance agent and let them work with you on what you need – you may not even know what or how much you need until you talk to your attorney or when you’re getting started. Whether you need liability insurance, premises insurance, malpractice insurance, or how much… don’t underestimate how important it is to protect your investment from accidents or potential claims.
• Bank – the same way you need to find a good insurance agent, you also need to develop a relationship with a banker. Not only do you need a bank account, you may need things like merchant services (credit card processing), a lined of credit, a small business loan, or even just someone to call when you can’t figure out why your deposit is showing up in your account. Your banker should work with you to address your financial needs.
• Policies, Procedures, and Systems – it doesn’t *really* matter if you’re using a fancy software system to manage your business or if you’re using good ‘ol paper and pencil. What does matter is that you can do it consistently and efficiently each and every time. You will spend a lot of your time, as a small business owner, on the administrative work that’s needed to keep the business running. Find forms, checklists, or whatever you need to streamline your routine processes and make them consistent. The less mental energy you have to spend on this aspect of the business, the more you can spend on…
• Marketing – you have to go get the business. Most people start a business because the like doing the work. For example, if you’re a woodworker, you start a woodworking business because like woodworking. Here’s the bad news: you better be pretty good at selling woodworking too! As a small business owner a tremendous amount of your time will also be spent in actively searching for new business. You have to fill not only your workday, but tomorrow’s workday too. And the day after that, and the day after that, you get the idea. The more time you can spend here, the more – overall – successful the business can be or can grow to be.

This is really just a “getting started list.” My presentation included another bullet in this list: “about a billion other things.” As you develop your business, it can be overwhelming, complex, frustrating, and a bunch of other adjectives too. There are a lot of moving parts and it’s a stressful time. Get help from experts and remember – you get what you pay for! (beware of the free advice from cousin Earl).

And, when you forget something or make a mistake (and you WILL forget something or make a mistake), it’s OK. Small business is the backbone of the US economy. Millions of people own and run businesses everyday. You’ll get through it, there are people that can help – like lawyers. (sorry one last shameless plug)

This post is getting on the long side, I’ll expand on some of these themes in the coming days. In the meantime, let me know if you think was helpful in the comments and check out our website at www.jslawcenter.com

Next time: Business Structures in NC – what makes sense for you?

Related articles

• How to Make a Business Plan (answers.com)
• Why it’s smart to buy insurance before you launch your small business (hiscoxusa.com)
• How to Get a Small Business Loan (answers.com)
• Business Planning – Why Bother? (sme-blog.com)
• How to keep your business plan fresh (ismckenzie.com)