Also in this series: {Part 1: Website}  | {Part 2: Contracts} 

You are halfway through shoring up four critical aspects of your business foundation. Next we are going to focus on making sure your business structure is solid.

This group of tasks is my least favorite; they have very little creativity and involve lots of red tape! But I do them because keeping my business legit is my top priority, even when it involves tasks that I don’t like so much.

Business Type

Most creative business owners start by operating as a sole proprietor or a partnership. We do this because the cost is low and it’s easy to set up. Often the most difficult task in this process is a trip to City Hall to get a business license.
But as our businesses grow, operating as a sole proprietor or partnership often isn’t the best solution and many businesses opt to become a limited liability company (LLC) or a corporation. This is because of the legal concept of limited liability (Sorry, Canadians – LLCs only exist in the U.S.).

I like to think of the concept of limited liability as a fence. When in place, it puts a fence between your business life and your personal life.

Say your business gets sued. Maybe because someone slipped and fell during an open studio, because they had an allergic reaction to your products, or they took your e-course and implemented your ideas and their business tanked.

When you are operating as a sole proprietor or a partnership and they sue you and win their lawsuit, your business assets first will be used to pay the judgment. But if your business assets aren’t large enough to pay the judgment, then your personal assets must be used to make up the difference. This means that your home, your personal savings, and in some locations your spouse’s income might have to be used to pay that judgment.

However, if you are operating as an LLC or a corporation and they sue you and win their lawsuit, only your business assets can be used to pay the judgment. Your personal assets are off limits.

Determining when it’s time to make the switch is a balancing act. On one side you want to consider your risk of being sued, on the other your personal assets. If you have substantial personal assets, then even if your risk of being sued is low, changing over might be a good idea. If you have little personal assets then it would take a greater risk of being sued before the switch makes sense.

If you are not sure, pick up the phone and call your favorite attorney or accountant* and they can help walk you through how the switch will impact you and your business.

Appropriate Documents

If you are currently operating as an LLC or corporation, then pull out your business’ Operating Agreement or By-laws (If you don’t have this document, contact whomever helped you set it up and get a copy). These documents will list very specific items that you must keep in a central file. Often these are things like financial statements, tax returns, minutes of meetings, and the entity’s formation documents. Double check that you have all of the documents listed in your formation documents, and they are organized and easily accessible. If you’ve only got them electronically, make sure that they are backed-up regularly to another location or that you’ve got a printed backup.

The reason these documents are critical is they are required to keep the fence up around your business. These documents show that you are doing everything in your power to treat your business like a business, and not like your personal piggy bank. Keeping your business life separate from your personal life keeps the fence strong around your business.

Failing to keep these documents, holding meetings or other things that the Operating Agreement/By-laws require means you are poking holes in your fence. And if we poke holes, then when you get sued the opposing attorney will drive a bulldozer over your fence and your personal assets are once again up for grabs.

Licenses and Permits

Regardless of your business type, you probably need one or more license/permit to run your business. This could be as simple as a business license from your City. Or you may need a Seller’s permit so that you can purchase components at wholesale price and collect sales tax from consumers. I exclusively work with businesses in California, so this is my go-to resource for finding out what permits and licenses are required. Even if you don’t live here, it is a good jumping off point for thinking about the kinds of permits and licenses your business might need.

Team

At some point in your business, you’ll have to hire a team. If you are there, congratulations! This is a huge step.
As a business owner, hiring someone as an independent contractor and not as an employee sounds appealing. It eliminates the need for payroll, taxes, and worker’s compensation insurance. But calling someone by the wrong “name” can result in a huge tax bill and fines.

The rules vary a little country to country, but they all come down to the same principle: control.

They are an employee if you control how the work is done, what equipment they can use, and when they can do it. If they have the freedom to decide how to get to the final outcome, they use their own supplies, and they can do it at 2am or at 3pm; they are likely an independent contractor.

If you’ve currently got any independent contractors, evaluate who is the boss: you or them. And if you are, then switch them over to an employee.

Print out the worksheet by clicking here or on the image above and pull out any business structure documents you can find: employee agreements, independent contractor agreements, formation documents, licenses, and permits.

As you work through the worksheet think about if any gaps exist between where your business is and where you want it to be. Maybe you need to talk to your CPA about switching over to a LLC, or you need to block off time to get your LLC paperwork in order. If you’ve got any gaps, take out your calendar and block off time to tackle these not-so-fun tasks.
Congrats! You’ve solidified your business foundation by getting your business structure secure. I’d love to know in the comments below the first gap you are going to tackle. Or if you are all squared away, let us know so we can give you a high five.

Kiffanie Stahle | The artist’s JD

Kiffanie Stahle is a lawyer, photographer, and small business owner. In April 2014, she created the artist’s JD, a place where creative business owners can get the tools and resources they need to tackle the legal aspects of their businesses. Kiffanie believes that the law doesn’t have to be scary or hard to understand. And she knows this to be true because she’s been practicing law since 2011. When Kiffanie is not creating art or running her business, you might find her concocting something in the kitchen, soaking up the sun, or plotting her next adventure.

WEBSITE | FACEBOOK | TWITTER | INSTAGRAM

This is part 3 of a 4 part series publishing every Thursday in January to help you dig a solid foundation for your business in 2015! Mark your calendars for a special Q & A#OMHG chat with Kiffanie on Twitter, January 29th from 1-2pm EST. 

Also in this series: {Part 1: Website}  | {Part 2: Contracts} 

Also in this series: {Part 1} 

I’ll admit it; I’m a total contract nerd. I’m the one that goes off in the corner and reads through every last word when I’m buying a new phone and they hand me a contract to sign.

So, I’m sad that contracts often get a bad rap. Since contracts really just define the boundaries of your relationship with the other party. They are there to say what you expect from each other, what the ideal outcome will be, and what happens if something gets off-track.

Having contracts that make sure you get paid, aren’t taken advantage of, and protect your creations are essential to the foundation of every creative business.

At minimum you should have two kinds of contracts in place for your business: client/customer contract and independent contractor agreement.

Client/Customer Contract

Getting paid by your clients and customers is how you keep the lights running, so it’s a no-brainer to have a solid contract with these people.

While I could give you a whole list of items that you could include in your contract, I think the following are the most critical.

What is being exchanged?

There’s a contract term called “mutual consideration”. This is a fancy way of saying that to have a valid contract both of you need to give something to the other party. This can take on many forms; it might be that one of you is providing services and the other giving cold hard cash. Or it could be that you allow someone to use your illustrations on their blog in exchange for publicity. The bottom line is we need to define what this exchange will be and clearly outline not only what’s included, but anything not included (in other words you should clearly outline the scope of the project).

What happens if the scope changes?

At some point the other party might ask you for a task outside the original scope. Because of this, it’s important to outline how this agreement can be changed. For example, if you sold 50 pieces of jewelry to a wholesale account and they’d like more do they have to order a minimum number of pieces? Can they do this via e-mail? If you provide graphic design and web design services and I hire you to create a graphic, but during the process we decide I need work done to my site, do we need a new contract? Or can we add an addendum to our current one?

What happens when we disagree?

If for some reason the two of you can’t agree on what the contract says, or if one of you is failing to live up to the promises you made in the contract, how will disputes be resolved? Do you have a mutual friend that you want to listen to your cases and then make a decision? Do you want an outside third-party, like a mediator, to be the one to make the decision?

How can we end this relationship?

While we hope that the contract will be a success, sometimes it’s just not a good fit and you need to get out. So you should outline how the contract can end. It might be that either of you can end the contract for any or no reason with 30-days notice. Or you could end it with 10-days notice if one of you fails to live up to your end the exchange.

Who owns the intellectual property?

If you are creating or exchanging something of a creative nature, you need to define who owns the intellectual property that will be created as a result of the contract. If you are collaborating, you might be co-owners. If you are the artist and they are giving you cash, you might retain the copyrights and only grant them a license to use your work.

Independent Contractor Agreement

At times, your business will be hiring independent contractors to help you. This might be a virtual assistant, a web designer, or a social media consultant. Some of these professionals will have their own contracts for you to sign, but many times you’ll be asked to provide a contract.

All of the items that we discussed for your client contract should be outlined here as well. In addition to these things you also should make sure that you are hiring them as an independent contractor and not as an employee. This assures that you are not responsible to pay their taxes or give them benefits.

When you are given a contract

Even though you have these contracts in your arsenal, it doesn’t mean that you’ll always get to use them. Sometimes the other side will want you to sign their contract.

This is where my biggest contract rule comes into play:

Never sign a contract you don’t understand

This is where most creative businesses get in trouble. They are given a contract, understand 90% of it, and sign it. Sometimes it works out, but occasionally, something goes wrong and they get upset about what the other side is doing. When I’m wearing my lawyer hat, my least favorite conversation to have with a creative is to tell them that I understand why they are mad, but there is really nothing we can do about it because the other side is a-ok according to the contract.

Having a process in place to evaluate and assess the contracts given to you is critical for securing your business foundation. Your process might involve Internet research to translate the legalese into English or you might have an expert on your team that you pass this task off to.

Click here or the image above to print out this worksheet and pull out your contracts. As you work through the worksheet assess if there are any gaps between where your current contract process is and where you’d like it to be. If you’ve got work to do, take out your calendar and block off time to tackle these issues.

Congrats! You’ve now reinforced the foundation of your business by getting your contracts squared away.

I’d love to know in the comments below which contracts you are going to tackle next. Or if you are all squared away, let us know so we can give you a high five.

Kiffanie Stahle | The artist’s JD

Kiffanie Stahle is a lawyer, photographer, and small business owner. In April 2014, she created the artist’s JD, a place where creative business owners can get the tools and resources they need to tackle the legal aspects of their businesses. Kiffanie believes that the law doesn’t have to be scary or hard to understand. And she knows this to be true because she’s been practicing law since 2011. When Kiffanie is not creating art or running her business, you might find her concocting something in the kitchen, soaking up the sun, or plotting her next adventure.

WEBSITE | FACEBOOK | TWITTER | INSTAGRAM

This is part 2 of a 4 part series publishing every Thursday in January to help you dig a solid foundation for your business in 2015! Mark your calendars for a special Q & A #OMHG chat with Kiffanie on Twitter, January 29th from 1-2pm EST. 

Also in this series: {Part 1} 

Also in this series:  {Part 2: Contracts} | {Part 3: Structure | {Part 4:} Intellectual Property

I bet you, like me, start off the New Year with huge dreams for what the year will hold. I like to pick a theme for the year. In 2015 I’m working on cultivating a strong community, both online and offline. So when I sat down and created my 2015 business plan, I made sure that the goals and activities I selected reinforced this theme. While our 2015 goals are likely different, to accomplish these goals we both must have a solid business foundation in place.

Digging in and working on your business’ foundation, I’ll admit, isn’t very fun. I know that when I wear this hat I often have to give myself a little tough love and a kick in the pants. This is because working on the foundation of our businesses doesn’t fit in a 140-character tweet or a pretty Instagram picture. It requires us to admit to ourselves what our vision is, create a plan, and then execute it. And often this plan requires lots of not-so-fun, not-so-creative tasks.

Because of this, the foundations of our business often get ignored. We focus on attracting social media followers, getting our products in publications, and guest posting – the shiny things that are fun to share with friends and that give us an upswing on the roller coaster of running a creative business. And things like drafting terms of service, having a solid client contract, or registering our copyrights fall to the bottom of the to-do list and off the radar.

But what happens when you get your big break? If the foundation of your business isn’t set up to support it, then you’ll have to scramble to get things in place.

If you are anything like me, you don’t make your best decisions when you are reacting. I am definitely on the side of the fence that thinks best when I have time to thoughtfully work through and weigh all my options. I do my best work when I’m being proactive and setting up solutions for possibilities, hoping that some of these possibilities never come to pass. There’s been more than one instance where I’ve created a solution on the fly that wasn’t right for my business and so I’ve had to go back and totally repeat a project, costing me not only time, but money.

I also know that selecting and prioritizing which aspects of your business foundation to work on can be overwhelming. To help you out, this month we are going to work on shoring up four areas of your business foundation: website, contracts, business structure, and intellectual property. As we move through each area, we’ll discover what gaps exist between where your foundation currently is and where you’d like it to be. Each area will have a short exercise to help you identify and prioritize the most important tasks you can take this year to reinforce the foundation of your business.

So take out your calendar right now and block off four 20-minute blocks this month to work through each of the exercises. Because when Martha Stewart, Oprah, or Ellen calls and your big break is on the horizon I want you to be thanking your lucky stars, not scrambling to get things in place to support the influx of new fans to you and your work. Let’s dive right into looking at the foundations of your website.

Your Website

Our websites are often the first interaction clients and customers have with our brand. I know only too well how easy it is to get caught up in selecting the right template, font, and color palette for your website. Don’t get me wrong, these shiny parts of our website do matter and will impact if your ideal clients and customers stick around. But your website’s foundation is built on some not-so-fun, not-so-creative parts: disclaimers, privacy policies, terms of service, and affiliate links.

These foundational aspects of your website will help protect your butt if, or when, one of your clients/customers goes crazy on you. Not to mention that some of these are legal requirements and not having them can land you in hot water. Click here or the graphic below to download your website foundations checklist.

Disclaimers

We encounter disclaimers on a daily basis. Disclaimers are created when there is a risk of something bad happening, but we can’t be sure if that outcome will happen this time.

For example, you enter a parking lot and there’s a disclaimer when you enter (or on your ticket) that says the garage is not responsible if your car gets stolen or broken into when it’s parked in their garage. The garage knows that occasionally this will happen, even though they have cameras and staff on site, but they don’t know exactly when it will happen. So they tell you that you have to park at your own risk.

Do you do any of the following on your website?

1. Give advice
2. Make promises or guarantees
3. Sell products that could cause an allergic reaction
4. Sell products that vary piece to piece
5. Allow users to generate content

Then you can (and should) have a disclaimer. For example on my site, I tell visitors that my site is an educational resource; not a replacement for working one-on-one with a lawyer. If you include health and nutrition tips on your website, you might want to disclaim that you aren’t a licensed medical professional. If you provide small business or social media advice you might want to tell them that you can’t guarantee that they will get the same results.

Privacy Policy

As was pointed out in an earlier OMHG post if your website attracts visitors from California, it’s a legal requirement to have a privacy policy. The goal of a privacy policy is to make it transparent to visitors what information you are gathering on them and what you do with it. While these rules can seem complicated, if you keep in mind that they are all about making it clear to me, a visitor to your website, what you know about me and my Internet surfing habits, then the rules start to make a little more sense.

When you are developing your privacy policy tell visitors the answers to the following questions:

1. What kind of information are you collecting on them and how?
2. Who is collecting this information?
3. How are you using this information?
4. How do you protect sensitive identifiable information?
5. Do you share this information with others? If so, who, what, and how?
6. How can a visitor find out what information you have on her? Who does she contact? How long will it take you to provide it to her? Does she have to pay a research fee?
7. When was this privacy policy last updated?
8. What is the process for updating the privacy policy?

When answering these questions you should not only consider user-generated information (e.g. sales pages, contact forms, or comments) but information that is automatically collected (e.g. Google Analytics, MailChimp, or Shopify). Also don’t forget to keep in mind third parties you share this information with (e.g. do you give it in the aggregate to sponsors, affiliates, or partners).

Terms of Service

I like to think of contracts as outlining the boundaries of your relationship. And terms of service is just a fancy word for the contract between you and your website visitors.

When developing your terms of service tell visitors the rules around each of these topics:

1. E-commerce rules: Explain to visitors your policies around: payment, shipping, refunds, and exchanges.
2. Comment rules: Explain to visitors your policies surrounding comments. Are promotional comments allowed? Are comments moderated? What happens if I break the rules?
3. Intellectual property rules: Explain to visitors how they can use the content on your site (this is extra important for those of you that do DIYs and tutorials on your site) and the process to contact you if they think your site infringes on their content.
4. Rules about change: Explain to visitors the process for changing the terms of service.

Affiliate Links

If part of your business model is creating content based on sponsors or if you are part of an affiliate program, then you need to make it clear to visitors that you are getting a kickback in exchange for your review, comments, or link.

Again, the rules around this are pretty common sense when you think about them from the consumer’s standpoint. I should know if you are writing about this awesome blender because you got it for free or if you use it everyday in your own kitchen.

There are four elements to properly disclosing your affiliate/sponsor relationships:

1. Placement: You can’t hide the disclosure in the footer. It must be conspicuous and obvious to website visitors.
2. Action: Visitors can’t be required to take extra steps to read the disclosure (e.g. no click-through links).
3. Clear: Visitors must be able to easily understand that you are getting compensation in exchange for placement on your website.
4. Timing: You can’t just tell visitors once; the disclosure must be tied to every post, social media interaction, link, or comment related to that product or service you are pimping.

(I like to remember these as the PACT I’m making with my visitors.)

Print out the worksheet and open up your website. As you work through the worksheet pretend you are visiting your site for the first time. Can you find (and understand) each of items? If there are gaps between where your site is and where you’d like it to be, take out your calendar and block off time to give these items a face-lift.

Congrats! You’ve now reinforced the foundation of your business by getting your website legit.

I’d love to know in the comments below the area of your site that you are going to tackle next. Or if you are all squared away, let us know so we can give you a high five.

Kiffanie Stahle | The artist’s JD

Kiffanie Stahle is a lawyer, photographer, and small business owner. In April 2014, she created the artist’s JD, a place where creative business owners can get the tools and resources they need to tackle the legal aspects of their businesses. Kiffanie believes that the law doesn’t have to be scary or hard to understand. And she knows this to be true because she’s been practicing law since 2011. When Kiffanie is not creating art or running her business, you might find her concocting something in the kitchen, soaking up the sun, or plotting her next adventure.

WEBSITE | FACEBOOK | TWITTER | INSTAGRAM

This is part 1 of a 4 part series publishing every Thursday in January to help you dig a solid foundation for your business in 2015! Mark your calendars for a special Q & A #OMHG chat with Kiffanie on Twitter, January 29th from 1-2pm EST. 

Also in this series:  {Part 2: Contracts} | {Part 3: Structure | {Part 4:} Intellectual Property