Why Do 80% of Businesses Fail In Their First Year?

rows of silouhettes of diverse peopleEric is really angry. Less than a year ago, he started a business with four guys he knew from friends of friends. They shared the dream of opening a sports bar dedicated to soccer that would serve international beer and bar food.

They found the perfect spot and signed a lease. Eric personally guarateed the lease and put $30,000 down for a deposit. He paid for all the kitchen equipment and hired a contractor to bring the building to code.

His partners (they were all equal according to the one page document he typed up) chipped in for a little while. One brought in some TVs. Another bought some beer and tended bar sometimes. Another pitched in a few thousand dollars to buy some advertising to announce their grand opening.

After a month, the first partner was run out by Eric after taking cash from the till. He never came back.

Then one of the partners got sued for pinching the waitresses. Eric became embroiled because they were not a registered partnership or corporation.

Six months in, Eric ran out of savings before the bar started turning a profit and he got behind on rent. He asked the third partner for money. Instead, the third partner took all the TVs and left.

The waitresses quit because they were paid late. There was no cash for food or beer. And the landlord said that Eric was personally responsible for the five year lease — a debt of $250,000 at least.

After a few more months of barely scraping buy, Eric closes the doors to his dream bar. And the landlord sues.

Although this is a fictional story, I get a call from someone like Eric at least once a month. The details vary, of course. But the story is more or less the same: an erstwhile entrepreneur gets burned by less-than-honest partners or landlords and now has major problems. He’s broke, depressed and ruined.

It’s a really depressing story for an optimistic entrepreneur like me. But sadly, 80% of businesses fail within their first year. And the blow up is usually spectacularly devasting for an owner like Eric.

I am CONVINCED that many businesses would not fail if they had simply started off right. New business owners make a lot of the same mistakes that lead to failure. These include:

  • Not organizing legally, following ALL the steps necessary (e.g. just filing an LLC is not good enough)
  • Failing to keep professional accounting records from Day 1 and getting into tax problems
  • Not having good contracts with business partners and investors (this is one of the biggest mistakes)
  • Getting stuck in a bad commercial lease
  • Not having adequate resources to deal with all the things a new business must do because of lack of planning or education, which destroys cash flow because of constant traps and problems
  • Failing to follow good employment and pay practices from Day 1
  • Underestimating what starting and running a successful business takes

Eric didn’t call me before starting his business. If he had, I would’ve given him my ebook, How to Start A Business… Legally: A Quick and Easy Checklist.

I cannot stress this enough. Getting set up right and under the guidance of someone who has started or help start many businesses will save you thousands of dolalrs and help prevent failure.

Someone like Eric spends $100,000 to open his bar, only to crash and burn in just a few months. Now he’s liable for another $250,000 just with a broken lease…. There are still employee liabilities and taxes to deal with (and that’s if the partners all just disappear). His legal fees with me are going to be a minimum of $50,000. Alternatively, he will bankrupt and lose everything.

In a more perfect universe, Eric would have come to me a year ago. He would have hired me for between $5000 and $18000 and I would’ve helped him set up everything and given him the benefit of my years experience in business start ups.

He would’ve avoided the bad partners, the bad lease, the sexual harassment lawsuit and the waitresses quitting.

He also would have been on track to avoid the plethora of other problems that come from starting a business.

And then his $100,000 investment would not have been such a hopeless risk!

If I practiced law just for money, I would rather have people like Eric pay me $50,000 or more to pick up the broken pieces of their dreams and help them move on.

But I’d rather more small businesses be successful. And the odds of that are much improved when you invest in the foundation when you start up.

Either way, you’ll be calling me.

Documents you should never sign "as is"

Bee seeking nectar from purple flowerI know how busy you are.

You barely have to get through your email inbox everyday, so you certainly don’t have time to ready everything that comes across your desk.

This means you sign “paperwork” without thoroughly reading it.

You don’t have to admit this out loud but, chances are, you are just like every other business leader I know. (To be totally honest, I’m a lawyer, and even I do this sometimes.)

The copier guy delivers a new machine and you “sign for it.”

The guy who does your pest control work takes off his mask (which is actually a chemical filtration respirator) long enough to hand you a pen to sign the “standard service form.”

You pick up a car at the rental counter and you sign a 3×12 card in two places and initial it in 3 other places…and you can’t even read the print with a magnifying glass.

My point:

We’ve created a cultural norm that makes it perfectly acceptable to sign things without full and complete knowledge of the information contained on the very document we are signing. I bet you use a website every single day and agree to their terms of service without reading a single sentence!

As a reality check – I don’t think I’m ever going to convince you not to sign a car rental agreement or make changes to your copier lease. And some of these agreements do not have enough at stake or are non-negotiable, so I wouldn’t even try to convince you to read every word.

But there are some really risky documents you sign all the time without a second thought. Here are five documents you should examine closely before you sign:

Commercial Leases: Commercial leases are written for the benefit of the landlord. It is not uncommon for them to include personal guarantees, rent escalation clauses, and fees and liability shifts for everything. At best, you receive a form agreement that does nothing to protect your rights. In fact, in just a couple days, I’ll be going to trial in a commercial lease case where $350,000 is on the line, because the landlord snuck in a fraudulent clause without my clients’ knowledge. Commercial leases are a big deal.

Insurance Paperwork:  Insurance companies make a lot of money. They do so by limiting their liability. All of us assume there are regulations that protect us when we purchase insurance. (There are, but insurance companies are also one of the most powerful lobbies around.) In short, you don’t want to comb through your insurance documents after a catastrophic event to make sure you are covered. You should have a good idea what it says in advance. And you should check the policy changes at renewal every year, because they can change the coverage definitions.

Contracts with Your Clients:  Many businesses rely on template contracts they get off the internet when a client engages them. Or worse, they just do a bill of sale or a purchase order, without any contract whatsoever. Your business is not the same as every other business pulling contracts off the internet. So why would you assume that the same contract can work for all of you? Bad contracts and lack of a contract causes a good amount of litigation. Review contracts your customers given you carefully. And have a well-drafted Master Services Agreement for your business that is written by a lawyer who knows all about what you do.

Employment Agreements: So first of all, I do not recommend having a bunch of employee agreements because they might interfere with the at-will employment doctrine that (if you had me write it) is so jealously guarded in your handbook. But offer letters, policies and (sometimes) arbitration and confidentiality agreements are necessary. Executives also may require specially negotiated employment agreements. A template document cannot cover you for employees and unconsidered employment agreements should not be bandied about (unless you like wrongful termination lawsuits).

Indemnity Agreements:  These can come up in several contexts. For example, an equipment supplier may require you to indemnify them if someone gets hurt. Or a landlord could require you to indemnify them if the building is not up to code. Data privacy is also a big deal, and when you are working online or with partners who have trade secrets or collect sensitive data, you may end up indemnifying them in the event of a hack. Whenever a document is not prepared in a way that minimizes your exposure, you should think long and hard before signing it.

Here’s the reality: You shouldn’t sign legal agreements without having a lawyer review it.

Why?

Because those documents were prepared by attorneys and they were designed to protect the interests of the other side. Who is looking out for your interests when you sign something without an attorney’s review?

Yes, most of the time you’ll be fine without taking your car rental agreement to your lawyer for review. But it would be nice to know if you should accept the collision damage waiver, right? When I skim these things, at least I have the benefit of knowing what they mean!

And no, the exterminator will not be happy with you if you don’t sign the standard service form. But what happens when someone visiting your office gets sick from the formaldehyde in the bug spray and, by signing that form, you have waived all liability and indemnified the pest control company?

Bottom line: If a lawyer wrote it, your corporate lawyer should review it BEFORE you sign it.

Always.

Equipment Finance and Leasing Attorneys

EQUIPMENT FINANCE AND LEASING

Depending on factors like the size of your workforce, the industry you work in, and the degree of funding available to your business, it may be more advantageous for your company to temporarily lease equipment rather than commit to a purchase.  This is particularly true of organizations which operate equipment requiring frequent replacements or repairs, or which are limited in their purchasing power by budgetary constraints.

While renting equipment often proves beneficial in terms of tax considerations, ease of making upgrades, and overall productivity of the workforce, it is also a major decision with long-term effects, and must be weighed carefully by a critical eye.  Before you rush into signing a deceptive, ambiguous, or outright unfavorable contract, let the experienced business lawyers of Bellatrix PC review the transaction.  Our knowledgeable legal team will walk you through all of the options and potential outcomes, and will negotiate aggressively to protect your company’s best legal and financial interests.

To start discussing your options in a private legal consultation, call the attorneys of Bellatrix PC at (800) 889-8376 today.

industrial piping and vats or silos

Why Should Companies Lease Equipment Instead of Buying?

For tax or affordability reasons, some organizations may choose to lease or finance rather than making a permanent purchase.  For example, some business owners prefer the flexibility of a lease because it allows them to replace or update their equipment more frequently.  Other employers choose to lease because it grants the opportunity to make a cost-efficiency evaluation before investing in a purchase.

Sometimes, it is simply not possible from a cash-flow standpoint to make an outright purchase, while leasing or financing allows your business to grow using leveraged debt.  In other cases still, leasing equipment creates more immediate tax write-offs than purchasing and depreciating capital assets, though of course, it is always prudent to consult with a qualified accountant before making a decision.

Some common examples of materials companies tend to lease rather than purchase include, but are not limited to:

  • Computers and Servers
  • Copy Machines
  • Farm Machinery
  • Furniture
  • Heavy Manufacturing Machinery
  • Industrial Appliances
  • Vehicles

Companies operating within certain industries may have greater need to lease than others.  For example, the owners of a small office containing just a few desks, chairs, and a single copy machine may not have a strong financial motivation to lease — but for the owners of a large restaurant containing numerous industrial appliances and dozens of tables and chairs, the financial considerations are very different.

The decision to buy or lease comes down to determining what will best meet the objectives of each particular organization.  Our attorneys will work closely with your team to help you make informed decisions that maximize efficiency and foster growth.

Drafting and Negotiating Commercial Contracts

In addition to weighing the financial calculations which inform the decision to rent or buy, as well as the quality of the material itself, it is also important to consider the supporting contracts and documentation.

As with any other contracts, it is critically important to have your lease agreements reviewed by an experienced attorney.  For instance, consider the following questions:

  • What happens if your building is flooded, and the property or material is damaged?
  • What if an employee gets hurt while using the equipment?
  • What if economic conditions change, and you need to terminate the lease or contract?
  • Who is responsible for maintenance and upgrades?
  • Is the lease in your corporation’s name?
  • Do you have to buy insurance?
  • Is there a personal guarantee?
  • What happens if one party is involved in a breach of contract?
  • In a collection scenario, will you be waiving your rights to dispute a breach, or can the renting party repossess the materials?

Of course, you want to negotiate the best possible terms for your organization, from both a legal and financial standpoint. For example, you want to avoid or minimize personal liability.  Having a well-constructed property or equipment lease or contract can also indemnify your business for liability to third parties if the equipment is defective.

You also want to pursue a favorable tax scenario.  You may want flexibility to upgrade, terminate, or maintain the equipment.  If you leased in order to conduct a “test run” before making a commitment, you will also want an option to purchase at the end of the lease.

Simply put, there are countless scenarios in which an unclear, unethical, or unfavorable contract could harm your bottom line.  By having an experienced contracts attorney review the paperwork for problematic terms and clauses, you can avoid a costly case of buyer’s remorse, or rather renter’s remorse, in the future.

Contact Our Business Attorneys

The lease and contract attorneys at Bellatrix PC are prepared to draft or review commercial real property or equipment leases and contracts, and will educate you on your rights and responsibilities, as well as the advantages and drawbacks associated with each of your options.  We are effective negotiators, precise draftsmen, and creative problem-solvers, and are ready to help companies of all sizes and structures make the most of their contractual agreements.

When your organization needs trusted and dependable legal advice, you can count on Bellatrix PC for assistance.  Call our law offices at (800) 889-8376 today to schedule a review of your equipment finance or lease deals.

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Commercial Real Estate Transactions

COMMERCIAL REAL ESTATE TRANSACTIONS

Commercial real estate transactions can be particularly complex and high-stakes transactions where millions of dollars may be at stake. Whether you are buying, selling or conveying property your transaction should be thoroughly reviewed prior to its execution. Taking the time now to perform a meticulous legal review by an experience Bellatrix PC attorney can reduce the likelihood of a dispute or costly litigation further down the line. As Your Peace of Mind Advocates we can guide your business through both relatively straight-forward and complex real estate transactions while protecting your company by performing due diligence and a thorough review.

Contract Form

Attorneys handle commercial real estate transactions

Our commercial real estate practice is designed to meet the needs of business and companies dealing in commercial real estate regardless if they are a buyer, seller or landlord. Some of the services we can provide regarding commercial real estate transactions include:

  • Drafting commercial real estate contracts – Our attorneys can draft real estate contracts for purchasers and sellers. Our contracts address and contemplate the unique needs and considerations present in every transaction.
  • Thorough review of real estate contracts — We will review your contract thoroughly and meticulously. Our goal is to protect you from contractual provisions that you neither bargained for nor expected. We can explain the terms and language utilized so that you can fully understand the benefits and obligations of the contract.
  • Commercial real estate due diligence – Prior to executing your real estate transaction we can perform a title search to check for the existence of liens, easements and encumbrances that can affect your title.
  • Attend real estate closings – We can represent you at a real estate closing or settlement to address any last moment concerns.
  • Real estate litigation – unfortunately despite the best efforts of all involved sometimes transactions do not pan out and end up in disagreement and conflict. We can advocate for your business’ position professionally and aggressively.

The foregoing is merely a brief synopsis of the services our legal team can perform regarding your potential commercial real estate transaction. Our attorneys can provide a clear and thorough view of the transaction and its effects.

Regulatory compliance, zoning, and other concerns can be handled by Bellatrix PC

When you secure a piece of land it is often for a particular purpose whether that purpose is to run a business, make an investment, or another goal. If you are a buyer, it is essential that real estate that you will be able to use the real estate for your intended purpose. Failure to perform diligence regarding land use regulations can result in obtaining property that cannot be used or the necessity of further legal action; in any case, neither situation would be ideal. Similarly as a seller, you may offer a warranty or assurance regarding the property you are transferring. You should ensure that what you have promised is what the buyer will receive or you are likely to find yourself litigating the matter in the future.

Reassurance and peace of mind in your commercial real estate dealings

As Your Peace of Mind Advocates the attorneys of Bellatrix PC are dedicated to guiding you or your company through commercial real estate transactions. We offer an array of legal services packages to meet the varying needs of businesses. To schedule your free & confidential legal consultation, call (800) 889-8376 or contact our firm online.

Commercial Leases

COMMERCIAL LEASES

If you are starting a new business or looking to move to a new location, chances are you will be signing a commercial lease. Before you engage in the leasing process, it is a good idea to retain the services of Bellatrix PC. Our skilled attorneys can help draft, review, or negotiate commercial lease agreements. We are also able to represent your business, should a dispute arise involving your current commercial lease, resolve the issue in an efficient and cost-effect manner.

San Diego skyline from beach across bay

How can an experienced attorney protect your interests in a commercial lease?

There are many facets to commercial leasing and services that Bellatrix PC can offer, including:

  • Drafting and reviewing commercial lease agreements
  • Negotiating new or re-negotiating existing commercial lease agreements
  • Resolving landlord/tenant disputes
  • Reviewing advisory opinions regarding lease provisions
  • Handling lease-to-own contract proposals
  • Handle disputes or litigation after a breach of contract

To protect your lease investment, a careful review of your commercial lease is essential. Our attorneys will educate you on the different components of the lease and their importance, pointing out any liabilities. There are a number of key provisions of a commercial lease that are important for business owners to review and understand before signing on the dotted line. These include:

  • Basic Lease Information — These sections usually include the monthly rent amount, address of the property, term of the lease, square footage of the property, and option period to renew.
  • Subletting — Some landlords will permit the tenant to sublease space to additional tenants and some will not. If you plan on subletting, it is very important to read the lease’s provisions. For example, most leases will state that if the subtenant fails to pay rent, you as the primary lease holder are responsible for the past due amount.
  • Alterations or Improvements — Most commercial spaces are not designed in a tenant’s optimal layout upon signing the lease. Therefore, it is important to negotiate in the ability to make alterations or improvements to the commercial space as long as they are approved by the landlord. It is also essential to clearly state whether these alterations or improvements will remain property of the landlord upon termination of the lease, or if they will be owned and removed by the tenant.
  • Failure to Pay and Remedies — These sections of the commercial lease detail specific actions that make the lease go into default, including failure to pay rent, abandonment of the property, failure to pay all required taxes, filing a petition for bankruptcy, etc. This section will state which county and state court systems have jurisdiction over legal actions, should any arise. This is especially important if the landlord is located in a different county or state. This section may also permit the landlord to obtain a judgment of possession to take back the property without any prior notice to the tenant, should the lease go into default.
  • Attornment and Subordination — In today’s economic climate, this section of the commercial lease is especially important to read, as it dictates what would happen should the landlord sell or foreclose on the commercial property. In most leases, if an owner loses the property, the new owner will take over the already intact lease and it’s agreed upon components.
  • Additional Rent Charges for Maintenance and Insurance — Most commercial leases will require the tenant to pay for a few additional items on top of the monthly rent. These items typically include securing commercial liability/property insurance on the building, maintaining the cleanliness of the inside and outside of the property, and paying a portion of the real estate taxes on the property. Sometimes these are added in as monthly charges or yearly payments.

Our attorneys at Bellatrix PC are dedicated to spending the time necessary to fully understand your commercial leasing needs and goals. Once these aspects have been determined we can examine a proposed lease agreement and explain key lease provisions, identify potential areas of concern, recommend corrective steps, and negotiate for you. Our legal guidance can help you identify unfavorable provisions that may affect your company’s bottom line or business model. We will work to ensure that your rights and interests are protected, and that you can make full use of the space according to the provisions of the lease. Contact Bellatrix PC today or call us a (800) 449-8992 to schedule a confidential consultation.

 

Americans with Disabilities Act (ADA)

AMERICANS WITH DISABILITIES ACT (ADA)

The Americans with Disabilities Act is commonly known as the ADA.  Enacted by Congress in 1990, the ADA is meant to protect disabled individuals from discrimination in the workplace, public places and at businesses while simultaneously promoting equal-opportunity participation in the American workforce.  In addition to the ADA, which protects disabled employees on the national level, many states have adopted similar laws. The Fair Employment and Housing Act, or FEHA, grants additional legal protections to persons employed or seeking employment in the state of California. The Missouri Human Rights Act also protects individuals in much the same way.

Man walking his disability Dog

While the ADA has afforded countless Americans invaluable employment opportunities by challenging negative stereotypes, noncompliance with the Act can spell financial doom for employers of all natures, structures, and sizes.  If an employee or job applicant alleges disability-based discrimination and files a claim against your company, you could be facing considerable civil penalties in addition to the ongoing disruption to overall productivity wrought by litigation.

At Bellatrix PC, our knowledgeable employment law lawyers have years of experience defending businesses against discrimination lawsuits.  We will guide you through each and every stage of the legal process while vigorously protecting your legal and financial interests.  Don’t allow a minor problem today to become a major problem tomorrow: for a private consultation, call the business defense attorneys of Bellatrix PC at (800) 449-8992.

Is My Business Subject to the ADA?

With a few exceptions, the ADA prohibits workplace disability discrimination by the following types of entities:

  • Corporations
  • Employment Agencies
  • Federal Agencies
  • Private Employers
  • State Agencies
  • Unions

Generally speaking, the ADA applies to employers who have 15 or more employees.  The ADA prohibits employment discrimination against all “qualified individuals with disabilities,” meaning job applicants are also potentially covered in addition to existing employees.

An individual has a disability under the ADA definition if he or she:

  • Has a physical or mental impairment that substantially limits one or more major life activities.
  • Has a record of such impairment.
  • Is regarded as having such an impairment.

For the purposes of the ADA, a person is considered to be a “qualified individual with a disability” if they meet the actual, performance-based qualifications for a job and can perform a job’s essential functions with or without a “reasonable accommodation.”  We will discuss the concept of reasonable accommodations in greater detail in the next section.

Employer Compliance: Requirements of the Americans with Disabilities Act

The Americans with Disabilities Act requires that the applicant must be able to perform the essential functions of the job with or without “reasonable accommodations.”  The employer is duty-bound to attempt to provide reasonable accommodations to a “qualified individual with a disability,” as long as these accommodations do not impose an undue burden on the employer.  Unfortunately for employers, the standard for an undue burden can be difficult to meet and is determined on a case-by-case basis.

Generally speaking, employers should seek to provide reasonable accommodations (1) when faced with disabled employees, and (2) wherever feasible.  Attempting to determine whether an individual is a “qualified individual with a disability” and whether an accommodation is truly “reasonable” can be a challenging task, but the attorneys at Bellatrix PC can help you analyze and find workable solutions to these types of situations as they arise.  Another important part of this process is documenting your efforts to accommodate, and/or discussing accommodations with any of your disabled employees.  The evidence contained within your written records can have a tremendous impact on the outcome of a legal claim.

“Reasonable accommodations” for disabled workers is a broad term which can include a wide array of options, as such accommodations depend on the nature of the employee’s disability.  Some examples may include:

  • Modifying work schedules.
  • Acquiring adaptive equipment or modifying work equipment, including equipment renting and leasing.
  • Appropriately modifying examinations, training, or other programs.
  • Reassigning the employee to a vacant position for which he or she is qualified.

Finally, it is important to note that the ADA is not the only anti-discrimination law with which California employers must comply.  The California Fair Employment and Housing Act, or FEHA, also prohibits discrimination against individuals with disabilities.

In fact, the FEHA has a broader definition of disability than the ADA, covers more conditions than the ADA, and is applicable to a greater number of employers by virtue of the lower employee threshold.  More specifically, the FEHA generally applies to employers with five or more employees, subject to certain exceptions.

Under the FEHA, employees can potentially sue their employers specifically for failing to provide a reasonable accommodation or failing to engage in a timely, good faith interactive process to attempt to find a reasonable accommodation for a disabled employee.

Contact Our Employment Law Attorneys

Disability discrimination is a complex area of law, and related claims require persistence and knowledge. If you have a disabled employee who notifies you of a need for accommodations, you must act promptly to comply with the disability discrimination laws and find workable solutions for your business.  Our business defense lawyers will work closely with you to identify and evaluate your potential courses of action.

If you have been sued by an employee for alleged discriminatory practices, including wrongful termination and employer retaliation, our experienced attorneys can help.  Whether it is most appropriate to settle your case prior to suit, bring your case through through arbitration or mediation, or challenge the claim in court, Bellatrix PC is prepared to assist.  In addition to handling disability-based discrimination claims, we also handle claims arising from:

To schedule a confidential consultation and learn more about how our legal team can serve your business, call Bellatrix PC right away at (800) 449-8992.  The sooner we can initiate a review of your employment policies, the greater peace of mind you will feel knowing your company is protected.  Ask about our business risk review package.

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Alicia Dearn

Alicia I. Dearn is the founder of Bellatrix PC, a woman-owned law firm with offices in Missouri and California. Bellatrix PC handles lawsuits and business transactions. We advise in business, employment, real estate, intellectual property, civil litigation, and election law.


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