Rush on Business

Carefully (and I do mean Carefully) Evaluate the Strength of a Franchisor

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 12 Mar 2010 06:00:00 -0600

Are you considering a franchise business? Read this blog post on evaluating the strength of your franchisor before signing on from the First Prize Franchise blog.

I posted on this a couple of years ago but I consistently see people who invest their life savings tinto franchise operations. Some of these people achieve great results but many (perhaps even a majority) do not. What separates the good from the bad?

One critical aspect to consider in my view is the brand itself. Is the brand recognizable? If not, the franchise better have a fantastic system, unique concept or protected intellectual property. Otherwise, I think you need to question up front whether the franchise is right for you.

There is no also validity to the claim that franchise operations are less likely to fail than non-franchise operations. The truth is that franchisees fail at a rate that is similar to non-franchise businesses. In fact, the International Franchising Association has discouraged all franchisors from making such claims. So careful due diligence is important when considering a franchise opportunity. One of the best things you can do is talk to as many existing (and former) franchisees as possible. Also, consider several key disclosure issues including:

Franchisor's litigation history;
Amount of the initial investment;
Vendor rebates and products you must buy from the franchisor;
Earnings claims made by the franchisor;
Franchisor's financial statements;
Trends concerning the number of outlets. It is important to closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures. A high number of transfers may be an indication that franchisees in the system are struggling, but bad stores have not been shut down.

And finally, be willing to walk away. This is the paradox of successful negotiation. Those that are willing to walk away usually find they get more in negotiation, especially in today's economy. Many franchisors are willing to make a deal these days. Don't get in a hurry in your negotiations. You may be able to secure important concessions if you are patient.

SBA and Bizstarts Team Up for Emerging 200 Initiative for Des Moines Businesses

rush.nigut@brickgentrylaw.com (Rush Nigut) — Wed, 03 Mar 2010 06:00:00 -0600

Growing Des Moines businesses may want to consider a six month program offered by the Small Business Administration called the Emerging 200 (e200) Initiative. Locally the course is taught by Monica Dolezal of Bizstarts. The program begins in April.

The goal of e200 is to identify 200 inner-city businesses across the country that show a high potential for growth and to provide them the network, resources and motivation required to build a sustainable business within a designated inner-city geographic location.

The cornerstone of the e200 initiative is an in-depth educational program running approximately 80-100 hours, to be held two half-days per month from April through October, 2010. It will focus on topics such as organization management, finance, growth strategies and management, market development, and strategic planning. Small business executives in the e200 Initiative participate in an intensive and comprehensive program, draw from each other's experiences and expertise, develop connections with local capital providers, and complete a growth plan by the end of the program.

Participation in e200 is free to qualifying businesses. Criteria for participation includes having been in business for a minimum of three years, $400,000 or more in gross annual revenues, and a business location within the City of Des Moines. Participation will be limited to only 15 businesses in Des Moines and 200 businesses nationwide.

For more information contact Monica Dolezal of Bizstarts at 515-229-2345 or the local Des Moines SBA office at 515-284-4522.

How Franchisees Can Avoid Personal Liability in Contracts

rush.nigut@brickgentrylaw.com (Rush Nigut) — Sat, 13 Feb 2010 10:13:13 -0600

A common thing I see from franchisees is that they include only the name of their franchise in an agreement as opposed to including their corporate or limited liability company name. Most of the time the names are different. For example, if my franchise is "Tops Franchise" but my corporate name is "Rush Nigut Enterprises, Inc.", I need to make sure the corporate name is included in the contract.

I had this exact thing happen to a franchisee client. He failed to include the name of his corporation in a contract and used only the name of his franchise. The court ruled that he was personally liable for the debt because he had not disclosed to the other side that he was signing in a corporate capacity.

So be careful to always include your corporate or LLC name and sign with your title, (i.e. President, Vice-President, member, etc.).

Mandatory Paid Sick Leave in Iowa?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 11 Feb 2010 09:19:49 -0600

A bill in the Iowa Senate could require all businesses to provide paid sick leave to their employees. My gut tells me many small businesses cannot afford to provide paid sick leave.

What do you think?

Choosing a Business Structure and Forming Your Business

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 11 Feb 2010 06:00:00 -0600

This is a part of an on-going series of posts which will form the Legal Guide for Starting a Business in Iowa.

You are considering forming an Iowa small business. What type of business structure should you choose? In Iowa, your choices generally are a sole proprietorship, a partnership, S corporation, C corporation, or a limited liability company. There are others but these are the main entities to research.

Some of the factors to consider in choosing a business structure are:

1) Personal liability protection;
2) How profits are taxed;
3) Ability to take advantage of fringe benefits;
4) Ease in raising capital.

A sole proprietorship is the easiest to set up (you generally do not need to take legal action) but you have unlimited personal liability. In today's sue happy society it is probably a good idea to consider a form of business that provides you with personal liability protection like a corporation or LLC.

Similarly, a partnership is also easy to set up and involves two or more people. A partnership requires no formal documentation but a partnership agreement is preferred. Like sole proprietorships, you and your partners have unlimited liability. With the ease of setting up and operating a limited liability company, a partnership is usually not recommended given today's litigious society.

Traditionally, most small business owners selected the S corporation as their form of business. The S corporation is often a good choice because it provides you the limited liability you need but you avoid double taxation because all business profits are taxed to you as an individual.

The limited liability company has exploded in popularity over the past decade and also provides limited liability and avoidance of double taxation. An LLC may offer flexibility not available with corporations when it comes to ongoing requirements, its ownership and how the owners are paid.

The C corporation has traditionally been used for larger businesses but accountants may recommend this entity because the owners can take advantage of certain fringe benefits. Also if you need outside capital, a C corporation may make it easier to attract investors such as venture capitalists.

So which business structure should you choose? Before choosing a business structure it is wise to talk with an accountant. The accountant can review your financial situation with you and advise you on the best strategy for your business. In my view the choice of a business structure usually boils down to tax treatment. So talk to your accountant first and then go to the business lawyer to set up the business entity.

Our next posts in the Legal Guide to Starting a Business in Iowa series will examine the S corporation, limited liability companies and C corporations in more detail.

National Start a Business Month

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 05 Feb 2010 16:08:16 -0600

This February is National Start a Business Month. To celebrate I am offering to form any Iowa incorporation or LLC for half the price during the month of February 2010. It's my small way to encourage business start-ups and help out start up entrepreneurs.

Twitter Interview Today with Lance Godard

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 05 Feb 2010 06:00:00 -0600

Today I am excited to get a chance to participate in 22 Tweets with Lance Godard. 22 Tweets is an opportunity for practicing lawyers that tweet to share their stories and tell a little bit about themselves in a 22 question format.

Lance has a terrific site (an ABA Journal Blawg 100 recipient) that features many interesting and insightful lawyers. I encourage you to check it out.

Be sure to follow us this afternoon @22twts and @rushnigut.

Legal Guide to Starting a Business in Iowa

rush.nigut@brickgentrylaw.com (Rush Nigut) — Tue, 05 Jan 2010 06:00:00 -0600

A couple of years ago I set out to write a Legal Guide to Starting a Business in Iowa. Unfortunately trying to work, write a blog, coach baseball and write the guidebook didn't quite work for me. I started the guidebook but never came close to finishing it.

So this year I have decided to blog the guidebook. At the end of the project, I'll have my book and hopefully Iowa entrepreneurs will have something that is helpful and informative. The project may take several months so most of the information on the blog over this time will be very general in nature rather than dealing with current events. I'll still blog on current events as appropriate.

Thanks for your continued support and have a happy New Year!

Wage and Hour Lawsuits: Your Business Could Be Next

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 17 Dec 2009 06:00:00 -0600

A couple of years ago I touched on how wage and hour lawsuits were on the rise. Since then Iowa's own Casey's General Stores got tagged for $11.7 million in a settlement. But not even I could have predicted the potential $1,000,000,000 liability that AT&T allegedly faces for failure to pay overtime. Yep, that's a BILLION dollar claim!

Naturally that kind of pie in the sky number might leave one to think, "It's never going to happen to me, my business is much smaller and I won't be a target." But when you look at the fact that experts believe approximately 70 percent of businesses are out of compliance with wage and hour laws, you shouldn't be quick to shrug off the prospects of a process server knocking on your door. All it takes is one disgruntled employee to contact the Iowa Workforce Development or the Department of Labor and you could find yourself in the middle of a wage and hour dispute.

So what are some helpful tips to avoid wage and hour lawsuits? (The outline below is from an earlier post. The comments from some prominent employment attorneys are especially good).

Conduct a Wage and Hour Review. Your first step should be to get with an employment law attorney or other wage and hour/human resources specialist who can review your pay practices to determine whether you are in compliance with the law. The cost spent for a review and developing a compliance program could save you tens of thousands of dollars in the long run or perhaps even millions if you run a large company.
Train Managers. Making sure managers understand the rules is paramount. Managers can avoid costly mistakes and spot problems before they become too costly.
Think Exempt-Non Exempt, Not Just Salary - Hourly. Too many employers pay employees a salary and then believe that relieves them from any obligation to pay overtime. Employees need to make sure those employees are properly classified as exempt (someone who is typically not paid overtime) or non-exempt (someone that is generally entitled to overtime).
Take Complaints on Wage Issues Seriously. You want to treat wage and hour complaints just as seriously as employment issues including harassment or discrimination. In fact, these wage and hour lawsuits could be more costly to your business.
Do Not Retaliate. Never, never, never retaliate against someone that makes a complaint for wage and hour issues.
Develop strong policies on pay practices and employee hours. Make sure employees work those hours assigned and do not work off-the-clock. Above all, properly document the number of hours worked because just like in baseball where a tie goes to the runner - if the employer has not documented the hours worked by the employee - the benefit of the doubt will go to the employee.

Business Person's View on Lawyers

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 10 Dec 2009 10:40:02 -0600

An older post from Guy Kawasaki on the top lies from lawyers but worth reading. Kawasaki says at the end of the post that it wasn't his idea so lawyers shouldn't get upset with him. However, most lawyers could benefit from reading the post. An important take away is that if you say something, you had better follow through.

Of course every business person could probably heed that advice, not just lawyers.

Lesson in the Importance of Good Business Records

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 30 Nov 2009 10:43:14 -0600

An article in Barron's supports, in a big way, the importance of keeping good business records. The article details how the IRS disputed a $75,000 repayment of a loan for a business owner named Henry resulting instead in a $68,000 dividend, on which Henry owed tax.

Joseph Gelband, a tax attorney from Larchmont, New York, wrote the article. He provides some wise counsel for business owners:

[Henry's] story points to the importance-especially for a closely held corporation-of observing formal business practices, if for no other reason than to create a record. Minutes should be kept, and updated at least annually. Executive salaries, bonuses, and loan transactions should be reflected in those minutes, which should be reviewed by the company's accountant when statements are prepared. The existence of that kind of paper trail would have left Henry in a much stronger position.

Now is a great time to document those transactions before the end of the year.

Happy Thanksgiving!

rush.nigut@brickgentrylaw.com (Rush Nigut) — Tue, 24 Nov 2009 06:05:07 -0600

I want to take the time to thank my clients that have made 2009 such a special year. I am very fortunate to work with some of the best people I know. A big thank you to the regular readers of this blog. As I enter the 4th year for Rush on Business this coming March it's always nice to know that I have support from so many.

Have a great Thanksgiving holiday!

Small Business Blogs for the Soul

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 12 Nov 2009 07:41:55 -0600

The Franchise King has a great list of 20 small business blogs that have the right stuff. These blogs possess some of the best content on the Web when it comes to small business. Be sure to check them out!

Shareholder Agreement Gotcha Under Iowa Business Law?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 02 Nov 2009 06:00:00 -0600

Throughout this blog you will see posts that recommend business people enter into a shareholder agreement when they start a corporation with multiple shareholders. But did you know that unless your shareholder agreement states otherwise, your shareholder agreement may only be valid for 10 years pursuant to Iowa corporate law?

Chapter 490.732 of the Iowa Code seems to indicate exactly that (although I have never seen it applied in a case yet). I think this is something that maybe even some of the most experienced corporate attorneys may not realize. So don't be surprised. You should review your shareholder agreement. If it is more than 10 years old, it may no longer be valid and a new agreement may be necessary. If the agreement is less than 10 years old it may be a good idea to revise it so there is language indicating the agreement applies for more than 10 years.

What Employers Need to Know About H1N1

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 23 Oct 2009 06:00:00 -0600

In a recent interview I was asked about what employers need to know about the H1N1 virus as a follow up to my recent post on how employers need to be prepared for H1N1. I didn't have a lot of time to respond as the question came towards the end of the program and we ran out of time. As a follow up, I thought I would mention that Connecticut employment lawyer, Daniel Schwartz, has a great post on H1N1 and the workplace. Daniel lists some available resources and has several recommendations for employers to get ready for the flu season:

Update (or create) a Business Continuity Policy with specific provisions for H1N1 flu.
Encourage employees to get flu shots (both seasonal and H1N1) as soon as possible. To the extent that you offer health insurance to employees, determine if those shots are covered under the appropriate plans. And consider offering flu shot clinics if you have the resources.
Clarify what your absence and illness policies will be. Consider having flexibility in this situation if you can to encourage employees who are sick (who have someone that is sick in their household) to stay home.
Make sure your infrastructure can handle an increased telecommuting presence if need be.
Stay updated on the EEOC guidance.

I couldn't agree more that employers need to have flexibility in your policies. This is one time where it is likely okay to vary from your existing leave policies. However, it is imperative that if you do so, you treat all employees in a fair and consistent manner.

Education is a key to prevention. For more information please visit Flu.gov for helpful information on H1N1 including a business planning section.

Insight on Business Interview

rush.nigut@brickgentrylaw.com (Rush Nigut) — Thu, 22 Oct 2009 06:00:00 -0600

I had the pleasure of sitting down for an interview with Michael Libbie yesterday. We talked blogging, discrimination cases, franchising and other issues.

If you didn't catch it live you can watch the podcast here. (The interview begins at about the 30 minute mark).

If you haven't heard about Des Moines Local Live, you should check it out. It's an Internet radio station with 50 local radio hosts talking everything from business to sports. A real testament to Des Moines' Internet-blogging presence.

How to Catch the Business Investor's Eye

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 19 Oct 2009 20:25:14 -0600

Need capital for your business? Looking for an investor? If so, you should take the opportunity to attend a seminar from the Business Innovation Zone of Central Iowa (BIZ) on how to get your business into shape and attract an investor's eye.

Adam Claypool of DeWaay Investment Banking is the speaker. I have worked with Adam on several occasions so I know this will be a worthwhile opportunity to listen to one of central Iowa's more prominent investment bankers. The presentation is this Wednesday, October 21st at the Des Moines Partnership offices, 700 Locust Street, Suite 100, Des Moines, Iowa. It begins at 11:30 a.m.

Afterwards you can listen to me on the radio this Wednesday at 1:00 p.m. with Mike Libbie offering insights on business on Des Moines Local Live.

Negotiating Franchise Agreements

rush.nigut@brickgentrylaw.com (Rush Nigut) — Fri, 09 Oct 2009 06:00:00 -0600

Franchise attorney Charles Internicola busts the myth that franchise agreements are non-negotiable in his post, Myth: Is it Illegal for a Franchisor to Negotiate and Modify the Terms of its Franchise Agreement. This is one of the best posts on the subject that I have seen.

In addition to the fact that you should take your right to negotiate the franchise agreement seriously, I would encourage you to stay on the alert for other common red flags from franchisors (I have written about these previously but it bears repeating):

You don't need a lawyer to review the agreement.
I would prefer you don't talk with other franchisees. You should only talk with me.
Trust us, we can't (and won't) change the agreement but we won't really hold you to that provision anyway.

Like many people you may considering an investment of your retirement savings in a franchise. You absolutely owe it to yourself to do the best job possible investigating that franchise and performing the most due diligence possible. That includes hiring experienced franchise counsel to review the franchise agreement and disclosure document. You need to talk with as many franchisees as possible but be sure to visit with those in your area. The success of a franchisee in New York, for example, may differ significantly than the success of a franchisee of Iowa especially when franchises are more of a regional flavor.

Some franchisors won't negotiate the terms of the agreement but that can be okay. Hopefully the franchisor can explain their reasoning for not negotiating a provision rather than hiding behind a blanket statement that they cannot negotiate because it is illegal. You definitely want to deal with a franchisor that is willing to listen and consider your needs.

And never, I mean NEVER, believe the franchisor that tells you they won't hold you to the terms of their written agreement. You can be assured that the franchisor's lawyer in any lawsuit will never acknowledge that statement was ever made and most franchise agreements are written so that any such statement could not be used as evidence in court.

Social Networking Law Blog Sure to Be Busy

rush.nigut@brickgentrylaw.com (Rush Nigut) — Tue, 06 Oct 2009 06:00:00 -0600

Megan Erickson of the Dickinson Law Firm has started Erickson's Blog on Social Networking and the Law. Now that's a blog that will have a never ending flow of posts. She already has an interesting array of posts including one where a business owner got slapped with a $2 million libel lawsuit for Facebook and Twitter posts.

This is one blog I'll be sure to follow.

Does Anyone Form an S Corporation Anymore?

rush.nigut@brickgentrylaw.com (Rush Nigut) — Mon, 05 Oct 2009 06:00:00 -0600

The title of this post may be a little tongue-in-cheek, but I would say at this point I am forming perhaps 2-3 times as many LLCs as S corporations.

It still doesn't mean you should rule out the S corporation as your entity of choice. It could be the entity for your situation. Joe Kristan, an accountant with Roth and Company in Des Moines, explains in a recent post who can and should own a S corporation.

It's important to note that a decision to form an s corporation or LLC is often as much a tax driven question as it is a legal decision. That's why I encourage all new business owners to contact an accountant, in addition to a business lawyer, to determine which business entity to form.