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So many entrepreneurs have dreams of making big money in business when they first begin. Regardless of the exact amount of money or type of lifestyle desired, all entrepreneurs want to feel the pride that comes with having a successful business. But as a business progresses and the revenue increases, the legal stakes rise higher and higher too.
Today, we’ll be discussing the legal considerations that you may experience at different stages of your business. I’ve recently had conversations with a number of my legal clients who’ve hit the milestone of seven figures in revenue. While all of these clients have very distinct businesses, they’re experiencing a big overlap in the type of legal needs they have right now.
It inspired me to put this episode together so that we can talk about some of the most common legal issues that all business owners face at all phases of their business, not just those who’ve hit the million-dollar mark. You’ll hear me quickly go over the four business stages as I’ve created them, followed by the legal considerations necessary for each one. I’ll give you advice and tips for each stage and any caveats to be aware of.
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In this episode:
[02:23] – Danielle gives a few caveats about the four stages of small business.
[03:23] – Starting off with the first, Danielle dives into a short description for each stage of business as she sees it.
[04:37] – Then Danielle starts discussing the different legal considerations for the business phases.
[06:56] – At this point, business is likely moving beyond what you can handle by yourself, so you’ll need to recruit people who know your business.
[08:19] – With contractors, you’ll probably want to include this provision in your agreements.
[10:10] – There are a lot of legal implications when you get to this phase and begin hiring employees.
[11:19] – In business stage three, you may also start attracting different types of clients such as more corporate clients.
[12:37] – Unfortunately, this stage also has one of Danielle’s least favorite parts of business growth.
[13:59] – Not everyone wants to be in the CEO role and people often realize that during phase four.
[14:38] – If you have a business that’s heavily legal, you might want to think about doing this.
[15:57] – Danielle wraps up the discussion with some action steps.
Links & Resources:
- Episode 003: “Do You Need an LLC?”
- Episode 004: “How to Protect Your Website”
- Episode 005: “How to Protect Your E-Commerce Website”
- Businessese
- Businessese on Facebook
- Businessese on Instagram
- Liss Legal
- Liss Legal on Instagram
Episode Transcript
Introduction
Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.
Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.
If you've ever felt legal was too scary, too overwhelming, too complicated, or just plain incomprehensible, you're not alone. The Simplifying Legal podcast was created to help.
In each episode, we’ll do a deep dive into a legal topic and give you concrete next steps so you can apply it to your business.
My goal is for you to walk away from each episode thinking, oh, that was easier than I thought it would be.
Let’s get started.
Episode Content
Hey there, I’m Danielle Liss. Welcome to episode 6. Today we’ll be discussing the legal considerations that you may experience at different stages of your business.
This episode was inspired by recent conversations I’ve had with a number of my legal clients at Liss Legal. For a handful of clients who have hit the milestone of seven-figures in revenue, we’ve been concentrating heavily on their legal strategy. Especially how their approach to legal has changed as their businesses have hit a million dollars and beyond.
While they all have very distinct businesses, they’re experiencing a big overlap in their legal needs right now. It inspired me to put this episode together, so we can talk about some of the most common legal issues that business owners face at all phases of their business, not just those who have hit the million-dollar mark.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
Now, let’s talk a bit more about your legal considerations in various stages of your small business.
Stages of Your Small Business Pertaining to Legal
First and foremost a few things about the 4 stages:
- I’m including some dollar amounts and ranges when I talk about the different stages, but keep in mind that these can vary and may not be reflective of your own business.
- Generally, the revenue figures provided are thresholds for a virtual service-based business that starts out with one owner. However, the legal needs at the various stages are typically similar even if you aren’t the owner of a virtual service-based business.
- If you have a partner, the dollar amounts may vary, but the stages and legal considerations are often the same.
- Last, it’s important to remember that not every business will hit each stage. You may never want your business to get past stages 1 or 2 and that is, of course, perfectly fine. I want you to be prepared for any stage that your business is in.
Now let’s talk about the four stages.
Solo Stage
Stage 1 is the solo stage. In this stage, you are working in your business full-time, but it’s typically just you, or some occasional vendors for support. In terms of income, this is usually between $30-90,000 in revenue.
Solo with Support Stage
Stage 2 is the solo with support. In this stage, you likely need additional support as your business continues to grow. For many businesses in this stage, revenue is between $100-250,000.
Stable Team Stage
Stage 3 is the Stable Team phase. Here, most businesses are no longer okay working with only contractors and they begin hiring employees so they can keep growing. The revenue range for this stage is fairly broad, from about $300,000 to 1.25 million.
CEO Stage
Stage 4 is the full CEO phase. In this stage, you are likely fully immersed in a leadership role, rather than performing a lot of the work yourself. You will also have team members who you’ve empowered to make a lot of the day-to-day decisions. Revenue for this stage is usually $1.5 million and up.
Legal Considerations for Each Stage of Your Business
Now that you know more about the 4 stages as I’m defining them, let’s talk about the different legal considerations for each.
Solo Stage Legal Considerations
Stage one is typically going to be a solo service-based business owner with revenue between $30-90,000. This may vary, depending on the kind of business you are in.
If you are in Stage 1, you probably don’t have a team yet, and you’re working directly with your clients. When you hire outside individuals, it is often through another company or individual service provider, like a virtual assistant who works on a project basis or a website designer.
Either in (or quite possibly before) Stage 1, you’ve decided how to structure your business. For example, setting up an LLC or a corporation. If you haven’t done this yet, check out Episode 3, where I discussed if you need an LLC for your business.
In Stage 1, one of the most important things on the legal side of your business is the agreement between you and your clients. This is often one of the first legal investments I see many businesses make. If you are performing services for clients, your client agreement is a key part of your legal foundation.
If you’re working with vendors, they are likely independent contractors who you’ve hired for a particular project. Often, they’ll provide you with an agreement, rather than you creating something for them. If you are reviewing an agreement from a vendor, make sure you review and understand it before signing. If you aren’t sure about something or there is a piece you don’t know how to negotiate, this may be another time when you work with a lawyer.
If you are doing business online, your website is a key asset for your business, so you want to make sure it is protected. In Stage 1, you should set up your website policies, if you didn’t do that when you launched your site. If you aren’t sure which policies you need, check out Episode 4 and Episode 5, which discuss protecting your website and eCommerce policies.
In Stage 1, you may also start to consider trademarks and copyrights to protect your intellectual property. Depending on what you need for your business, this is a time when you would want to talk to a lawyer.
Overall, Stage 1 business owners are focused on their client agreements, along with protecting their websites and intellectual property.
Solo with Support Stage Legal Considerations
Now, let’s move to stage 2. This is the solo business owner who needs more consistent support as the business grows. Revenue in stage 2 is usually between 100-250,000.
In this stage, business is likely moving beyond what you can manage by yourself and it’s time for help. For example, you may be spending all of your time providing services to your clients and you need consistent admin help. Or you may need subcontractors who help you provide the services.
In Stage 2, you need people who know your business. So, instead of hiring contractors on a project basis, unless it’s for a one-time need, you move toward hiring people for ongoing services. These hires are people who will understand your services and the needs of your business.
For example, you may hire a content agency to assist you with copywriting and ongoing content creation. Or you might hire a VA who can assist with ongoing administrative tasks.
In a lot of these scenarios, the contractors you’re working with have their own business and they are serving other clients too. In Stage 2, you may start providing your agreements to these contractors, or you may sign more robust agreements with the contractors and agencies for ongoing services. Rather than project-based, you’ll be looking more at retainer agreements and buying consistent services.
In Stage 2, as you work more regularly with contractors, you may also want to ensure that your contractors are not trying to solicit your clients. This might mean that you will request non-solicitation provisions in your agreements. (Caveat, this may depend on where you live.)
As stage 2 starts to approach stage 3, you may also start to look at the amount you’re spending on contractors and decide that it’s time to hire your first employee, rather than continue working with agencies or contractors who have multiple clients. This decision is a big one and you should probably connect with both your accountant and lawyer before deciding.
In Stage 2, when it comes to our website, ensure that your website policies are continually updated to reflect any new changes to your business.
Stage 2 is often when more business owners want to invest in protecting their intellectual property. That might include registering copyrights for content you’ve published or applied/applying for trademarks. Or, it may be working with a lawyer to determine an overall intellectual property strategy to see what you need to protect as you continue to grow and move toward stage 3.
To wrap up stage 2, this is usually about working with people on a more consistent basis, potentially considering hiring an employee, and more focus on intellectual property protection.
Stable Team Stage Legal Considerations
Stage 3 is when you start to shift from a solo business owner to a stable team. Revenue is typically between $300-1.25 million. And if you’re thinking, wow, that’s a big range, you’re right. But there are usually a lot of hires that are made before your business hits Stage 4.
There are a lot of legal implications when you begin hiring employees, so it’s key that you work with an expert. You’ll be dealing with employment contracts, employee handbooks, confidentiality, intellectual property policies, social media policies, and so much more. And, if you’re a virtual company and hiring people from multiple states, payroll, taxes, and setting up foreign entities can get complicated. If you’re overwhelmed just hearing that list, you’re not alone, and I promise, there are a ton of great professionals who can assist.
Stage 3 is usually when people want to find a lawyer that they work with on a consistent basis, as opposed to occasional a la carte projects. Your lawyer should be someone you can rely on to help you as the business grows. Your lawyer can help you make sure you have a solid legal foundation. If you’ve ignored legal in the past, this may require playing catch-up. This is why it’s so good to have someone you work with on a regular basis.
In Stage 3, you may also find that you’re attracting different types of clients. If you previously worked with other small businesses, you may start attracting larger corporate clients. This can mean more complicated contracts and corporate legal departments. Closing a deal isn’t as fast, but it can often mean a bigger payday. This is a great time to have a lawyer who can review agreements and assist you with negotiations.
Stage 3 has a lot of focus on your internal team, and if you are shifting from working individually with clients to having team members perform services, there are often growing pains surrounding this. Where people expect to work with you and don’t want to talk to your new person. This is, however, something that you can start to ease clients into by shifting your marketing and updating proposals and contracts.
During Stage 3, you may also be hiring fractional leadership team members, like a fractional CFO, a fractional COO, or an outside in-house counsel. This is often the stage when your leadership team begins to form and you’re no longer wearing ALL THE HATS in your business.
Unfortunately, Stage 3 often has one of my least favorite parts of business growth – more people copying your intellectual property. I wish copycats weren’t an issue, but they often seem to pop up at this stage. This is why it’s so important to make sure you are working with a lawyer in the earlier stages of your business to protect your intellectual property. And, in the event that someone infringes on that intellectual property, your lawyer can also help you address the situation.
To wrap up, Stage 3 is heavily focused on your internal team, but it may also bring new challenges with your contracts and intellectual property.
CEO Stage Legal Considerations
Next, let’s talk about stage 4. I call this the True CEO stage. In every stage, you are running your business and implementing the vision as a CEO would. But, you’re probably also doing a lot of the other roles in your business too, especially when you’re personally providing services.
However, once you reach Stage 4, which is usually $1.3 million and beyond, you will need to stop handling a lot of the smaller day-to-day tasks, turn it over to the team you hired during stage 3 and settle into your role as CEO. This is sometimes hard for people who are used to knowing everything that happens in their business and are accustomed to making every business decision.
It’s also important to address another side of this. Not everyone wants to be in the CEO role. Stage 4 is often when people realize this. You may prefer doing other things within your business, like working directly with clients. This is the best time to consider what you want your role to look like so you can make a trusted hire and bring in someone as CEO.
In stage 4, you will likely need to bring more of the administrative work in-house and hire a leadership team. So you’ll shift from fractional to employees. This often starts with roles in finance and operations. If you have a business that is heavily legal, it may be time to hire in-house counsel, although I find for many businesses, this is still when they are working with an outside in-house counsel.
When you hit stage 4, your needs shift dramatically. The people you hired early in your business may not be the people that you elevate into those c-level leadership roles. This may also be the time when you want to start hiring people with more corporate experience, especially since you are becoming much more corporate internally.
In Stage 4, you may also want to revisit your business entity structures, meet with a tax attorney, and consider succession planning for your business. No one wants to think about it, but if there is an emergency in your life, who on the team has access to the information they need to keep things running smoothly?
In Stage 4, you are likely going to have far more legal needs. Most businesses need to work with a lawyer who knows their business and can help them adopt a strategy. A good outside in-house counsel can also refer you to specialists in a particular area of law if something unusual comes up. From contracts to HR, you will need someone who knows the legal side of your business well and can help you determine how to address those areas.
Action Steps
This wraps up our discussion of the different legal considerations for the stages of your small business. Let’s talk about the action steps:
- What stage is your business in? Is there any particular legal area that you’ve been ignoring? Remember, ignoring it in the past doesn’t mean you can’t deal with it now. This is the perfect time to take action.
- Depending on what stage your business is in, have you found a lawyer who you have an ongoing relationship with? This is often a key role that is incredibly important.
- If you are in a fast-growth stage of your business and legal is the last thing you want to deal with, is finding a potential lawyer something you can delegate to a member of your team? Then, once the top candidates are identified, you can then take the next steps. It doesn’t have to be overwhelming.
- If you have transitioned through different stages of your business, make sure you revisit the already completed legal. Legal grows and changes like every other area of your business, so you may need to update existing legal as you grow.
That wraps up today’s episode.
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