DennisBeaverApril 19, 2019 • By Dennis Beaver

“I work both in sales and as a tech for a mid-west technology company. As an hourly employee, I can see the potential for going out on my own and earning far more than what I am currently being paid.

“Today, with so much business, legal and accounting information available free online, along with Legal Zoom, and Nolo Publishing materials, it really seems that the rules have changed. It appears far easier to establish and run a business today than in the past, with the necessity of having a lawyer, accountant or a business consultant simply ancient history.

“Mr. Beaver, that’s what I think, but my wife–who loves your column and admits to being very old fashioned–suggested that I ask you before doing anything. Thanks, Ken.”

So, have the rules changed? Is it “old fashioned” and out of date having a lawyer and accountant or a small business consultant as part of your team, or are things far more complicated than Ken has imagined?

Two friends of this column were happy to share their views of what it takes to run a successful business today, Dr. Lyle Sussman, former Chairman and Professor of Management, College of Business, University of Louisville. Dr. David Schein, an attorney and Associate Professor at the Cameron School of Business of the University of St. Thomas in Houston.

“Having a Driver’s License Doesn’t Make You an Auto Mechanic”

“Ken is correct that it’s easy to set up everything from a sole proprietorship, LLC or a corporation with these online services,” Schein observes. “But so many businesses formed this way, which began with two or three people, got into serious trouble because no one thought about what happens when things go wrong. I tell folks, ‘Having a driver’s license doesn’t make you an auto mechanic.’”

Sussman expands upon Schein’s point, and stresses, “The importance of understanding the legal implications in starting a business.

“Many entrepreneurs–driven by passion–are often blind to the realities of competition from outside and power struggles from within, and wind up sued because they didn’t have the equivalent of a prenuptial agreement in place before starting the business. These must be carefully drafted–tailor made to fit your needs–by experienced business attorneys.

“Especially when establishing a partnership, it is critical to have a functional operating agreement among the partners. And, regardless of your business structure–sole proprietorship, LLC or corporation, everyone needs a qualified team of people.

Sussman sees this as including:

(1) An attorney who understands small business;

(2) A business banker;

(3) A CPA;

(4) An insurance agent who specializes in small business, and, if leasing or about to buy a property, an experienced commercial real estate agent.

Greater Risks of Failure Than ever in the Past

“You better have thick skin going into business today,” Schein cautions, and asks, “When was the last time you visited a new restaurant without looking it up on Yelp or some other review site? What if it’s your new restaurant and a competitor is jealous, trying to scare away customers with fake reviews?

“Social media can make your business a success or turn it into an instant failure within a matter of hours, which makes it more expensive to start a business today. Most people do not know how to respond to false or inflammatory comments, all the more reason to establish a professional relationship with an attorney who understands damage control in the internet age,” he strongly believes.

Wonderful Ideas Requires “Adults”

To Sussman, “One of the best things about our country is that we encourage people with wonderful ideas to go into business They are driven by passion, excitement and adrenaline, but experience shows that those who succeed realize they need ‘an adult,’ someone who may not have their passion, but does know the minefield of the marketplace, of the law and potential litigation.”

Absolute Truths

I asked Schein and Sussman to list three absolute truths anyone who can see themselves as running their own shop one day needs to accept:

(1) One of the most valuable courses anyone can take in college is Business Law. The course makes business managers, owners, and executives more aware of the many legal issues that arise in the day-to-day operation of any business. Also, this class makes you a safer consumer.

(2) The most common cause of failure is lack of capitalization combined with a failure of marketing. Be prepared to survive for at least a year without taking money out of the business. Learn to sell yourself.

(3) Success requires having that fire in your belly, in wanting to deliver a great product, in serving your clients and customers.

If you do not have that fire, don’t start.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.