Service-based businesses cover a really broad range: from professional services, like legal, to things like educational consultants. As with any business, it’s critical to get all of your legal ducks in a row.
So today, it’s time to turn our attention to service-based businesses. If you provide a service, tune in as I guide you on selecting a legal entity, working with clients, hiring more people, and protecting yourself, your business, and your brand.
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In this episode:
[03:13] – Should service business owners choose to be a limited liability company (LLC) or sole proprietorship?
[04:51] – Don’t forget to do this if you provide professional services as an LLC.
[05:17] – Danielle makes a few recommendations for creating one of the most important documents in your business: a rock-solid client agreement.
[06:56] – Your client agreement should evolve along with your company. If you get repeat business for different projects, transition to this type of agreement instead.
[09:04] – Danielle discusses terms and conditions and disclaimers for service entrepreneurs.
[10:07] – How do you protect your service-based business and brand?
[11:43] – Although providing a service, you might eventually add digital products such as DIY templates. Here’s how to ensure the protection of these copyrighted materials.
[12:38] – Danielle mentions a few things to keep in mind as you expand your capacity and hire more people.
[13:51] – Follow these action steps today to protect your service-based business.
Links & Resources:
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.
Hey there, I’m Danielle. Welcome to episode 34 of Simplifying Legal for Small Business Owners. Today’s episode covers legal for service-based business owners.
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.
For this episode, I’m going to review different aspects of legal for service-based business owners, like selecting an entity, working with clients, and building your team.
This will have some overlap with our last episode and some others in the series. So if this isn’t the type of work that you do, you may still hear pieces that will apply to your business. Or, if you aren’t a service-based business owner, you can skip this episode.
Like the other episodes in this series, there’s a lot of information and a lot of resources to tag. To make things easier, I created a PDF with some general information on each category, as well as a list of resources that you can consult. You can download the resource guide at Businessese.com/servicebusinesslegalguide.
Okay, now let’s talk about legal for service-based businesses.
Throughout this episode, I’m referring generally to service-based businesses. This is a really broad category and can include professionals, creatives, and so much more.
In fact, many of the episodes in this series are for types of service business owners. For example, next week, we’re talking about legal for creative service business owners.
The goal of this episode is to provide general information to give you starting points. There may be areas that don’t apply to you, depending on the type of business you have. And, if you’re listening and thinking, oh, I want to know more about that, check out some of our past episodes and if it hasn’t yet been covered, I’ll be doing more deeper dives into some of the topics in future episodes.
Starting Your Business
Now that we’ve gone through that explanation, let’s look at starting your service-based business.
Starting a business is exciting, but it can also feel overwhelming as there are so many things to do. From figuring out your niche to finding clients, your to-do list can seem endless.
On the legal side, you may be considering whether you should start an LLC, which is a limited liability company, or move forward as a sole proprietor.
When you’re a sole proprietor, it usually doesn’t require a lot of paperwork, other than possibly obtaining a business license. As a sole prop, you and your business are considered the same entity. This is easy, but it could expose you to the possibility of personal liability in the event that something goes wrong.
For those who want to avoid exposure to potential personal liability, an LLC may be a great option. But, it is something to consider carefully since it requires more effort and expense than having a sole proprietorship.
You have to file official paperwork to form your LLC, typically with your secretary of state’s office. This will also involve naming a registered agent, which is someone who can accept service of process if your business is served in a legal action. You should also have an operating agreement for your LLC, which is the document that governs the business. This is especially important if you have more than one person starting the business.
After the LLC is formed, you’ll need to be careful to keep your personal assets separate from those of the LLC. Since the LLC is a separate entity from you personally, unlike a sole proprietorship, it’s key that you treat it like a distinct and separate entity, or you could reopen the door to the potential for personal liability in the event something happens.
One last thing about LLCs – if you are providing professional services, you need to check with your state to see what kind of entity you are allowed to set up. For example, the state of California will not let certain professionals set up an LLC and instead they can only have a professional corporation. If you are licensed, verify your eligibility before setting up your entity.
Working with Clients
For service-based businesses, your client relationships are the foundation of your business. One of the most important things you can do for your business is create a solid client agreement.
Your client agreement is there to protect your business and to ensure that your clients understand exactly what to expect in the relationship.
Here are a few of the areas I recommend addressing in your client agreement for service-based business owners:
- First, and most importantly, your agreement should have a detailed and specific scope of work that describes the services you’ll perform for your client. Here, you can talk about deliverables, timelines, and cover all of the details.
- Next, make sure that your agreement explains how your compensation works. How much and when are you being paid. If there are any other terms related to your compensation, be sure your agreement covers them.
- Next, what happens if either you or your client wants to end the agreement? It’s important to have a termination clause that discusses this.
- Next, are you creating content as part of the services that you provide? If so, who owns the content that you create? Make sure your agreement addresses ownership.
- Are you providing any of your intellectual property to your clients? If so, your agreement can discuss what their rights are in using your IP.
- And finally, use your agreement to set boundaries with your clients. If you don’t plan to respond to things in an hour, make sure they know how to reach you and what your response times typically look like.
If your services change at any point, it is extremely important to make sure you go back and review your client agreement to see if you need to make any updates.
For a lot of service providers, I think it’s really important to look at your client agreements and confirm the agreement makes sense for the types of relationships you have.
As your business grows, if you have a lot of repeat business for different projects, it may be time to move from a client agreement that covers just one project to a master service agreement, which will allow for you to add a new statement of work for each new project.
An MSA can make project and contract management so much easier. If you are still using a basic client agreement, but you are doing this type of work for repeat clients, talk to your lawyer to see if an MSA will make sense for your business. I’ve worked with a number of legal clients in transitioning to MSAs and they are thrilled with how much easier things are once the MSA is set up.
Protecting Your Website
Next, I want to talk about your website. If you have a website, it’s important to make sure that you’ve considered the legal side of your site. Typically there are a few legal policies you should include:
Terms & Conditions
The next important policy is terms and conditions. Your terms and conditions are your contract with your audience on how they can use your site. Often, these terms will include things your audience can do with your content, things they can’t do, intellectual property notices, licenses regarding user-submitted content, and other legal terms.
The next policy you may want to consider to protect your site is a disclaimer. It’s there to protect the business from liability for use of the information you publish. Depending on the types of services you offer, this may be an important policy for you to include.
The last policy that you may want to include is an accessibility statement to show your commitment to providing an accessible website. Check out episode 31 for more information.
Protecting Your Content and Brand
Next, let’s talk about protecting your business and the brand that you’ve built.
For many service business owners, the most important types of intellectual property are trademarks and copyrights.
A trademark is something that identifies your brand as the source of a product or service. It can be a word or phrase, a logo or symbol, or your company name. It can be anything that helps distinguish your brand in commerce.
If you are using a distinctive name for your business or service packages, I strongly recommend that you consider whether it is time to apply to register a trademark with the patent and trademark office.
If you register your trademark, it gives you the exclusive right to use that trademark for the types of goods and services that you offer.
Talk to a lawyer to see if this makes sense for your business.
Next, let’s talk about copyrights. Understanding copyright law is extremely important if you create content for your clients.
Content like written posts, images, or videos, may be eligible for copyright protection. This means that you have certain exclusive rights in content, like the right to display or sell the content.
Depending on your line of work, ownership of content comes up frequently in client agreements, so it is an extremely important area to learn about and make sure you address with your clients.
As I mentioned before when talking about client agreements, if you are providing any of your intellectual property to your clients as part of the services, make sure you tell them how they can use it. This is typically a license to use the content for a specific purpose, but it states that you reserve all other rights.
Adding Digital Products
As your business grows, you may add digital products, to give people a DIY option. This could include ebooks, printables, or courses. And don’t forget, digital products can also include freebies, like lead magnets, which are just ebooks that you’re offering in exchange for an email address.
First and foremost, ensure that you are including a copyright notice on the content. This is the copyright symbol and your name. This puts viewers on notice that you own that content.
You will also want to have terms for your digital products, which can be added to your website’s terms and conditions. If money is being exchanged for your products, you should include a purchase policy that discusses refunds and any other important information regarding the purchase.
Additionally, as I’ve mentioned before, if someone can purchase your copyrighted content, your terms should discuss how they can use that content.
Building Your Team
The last thing I want to discuss today is building your team. As your business grows, you may not have the capacity to serve all of your clients personally. This is often when it’s time to start building your team. A lot of service business owners start with hiring subcontractors to help serve clients, but you may want to make other additions to your team. Depending on the services you offer, you may also move to an agency model.
When it comes to hiring, it’s really important to know what type of role you are hiring for and whether that person will be an independent contractor or an employee. If you plan to hire an independent contractor, be sure to check your local laws regarding hiring contractors as they are not the same everywhere.
Remember, it’s important to have an agreement between you and your team members.
If you’re hiring subcontractors to assist you in serving your clients, you may want to exercise caution and ensure that you’re providing guidelines on how the subcontractor can communicate with your clients and if they can do any work for your clients in the future, if you aren’t involved.
This wraps up our overview of legal for service business providers. Now let’s talk about today’s action steps.
- First, do you have a set business structure? If not, this is a good time to consider if you want to create an LLC.
- Next, are you using a strong client agreement? This agreement should help protect your business and set out clear expectations for your client. This is one of the most important legal things you’ll need in your business, so make sure you have it.
- Next, do you have the website policies you need for your site? If you sell digital products, you should also ensure that you have clear refund and purchase policies.
- Next, have you protected your intellectual property? If you haven’t, consider whether or not you should trademark or copyright your content.
- Next, have you hired team members? Do you have an agreement for those team members? If not, you know that I’m going to recommend that you get one.
- Last, as always, if you have questions on any of these aspects of your business, please talk to a lawyer. If you aren’t sure where to start, I do offer strategy sessions through my law firm, Liss Legal and I’d love to talk with you more. I’ll include a link in the show notes.
Thanks for joining me for today’s episode. In the next episode, we’ll continue this series and we’re talking about legal online service businesses. Remember, you can download a PDF with resources at businessese.com/servicebusinesslegalguide. There’s a link in the show notes.
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