I was recently asked, “What are some of the worst business practices you’ve seen?” by an entrepreneur. While entrepreneurs typically seek legal advice pertaining to a particular issue, she wanted to know what mistakes she should avoid while growing her start-up. It’s a good question and one that entrepreneurs and businesses should ask more often. Take this article as an alarm or warning about what not to do.
What are some of the worst business practices you’ve seen?
Here are a few common legal mistakes that every business should avoid.
#1 Start a company without a business license
Entrepreneurs will sometimes get a great idea and just go for it – set up a website, start their social media accounts, and start selling products or services without a business license. This is especially common with contractors and service providers who decide to do jobs on the side or branch out on their own. When this happens, the entrepreneur is operating without the legal protections a business provides and may also be in violation of local laws.
#2 Launch a partnership without the proper agreements
Business partnerships are like a marriage. They start out with both partners thinking it will last forever, but there’s a chance that it will eventually dissolve. A partnership agreement creates a framework to operate from and, in the event that the partnership doesn’t work out, it clearly states what the rights of each partner is. Without a proper agreement, the fight for who gets to keep the water cooler (and the clients) is more likely to end up in court.
#3 Operate on a handshake
Handshakes are great (at least they were pre-COVID) but operating on a handshake is dangerous for your business. Here’s why – if you sell a product or service to a client they may have one understanding of what they are buying, and you may have another. There could also be misunderstandings regarding the price, payment terms, how long the relationship will last and what happens if one of you wants to end the relationship. Even simple agreements require a contract to spell everything out to ensure that you and your clients are on the same page. Plus, if you don’t have a contract, you aren’t protected in the event that a client doesn’t pay or walks away from the deal.
#4 Discriminating against employees and/or customers
Most businesses don’t set out to discriminate against people, but it happens. To make sure that it doesn’t it’s important to have HR policies and procedures in place that are systematic and applied equally to everyone. When possible, we recommend taking a systematic approach to working with customers as well. Policies and procedures that are clear and easily followed help to prevent employees from acting with intentional or inherent biases.
#5 Trying to do it all
It’s common for entrepreneurs to try and do it all – sell, market, fulfil orders, hire, train and handle the legal and financial affairs of the business. You can’t do it all and do it well. Focus on what you can do that no one else can and hire professionals for the areas where you aren’t an expert. That’s a faster way to grow a company because it leverages the strengths of its owners. It’s also a safer way to grow the company because a business lawyer can put legal protections in place and a CPA can ensure that the business is compliant with local and federal tax codes.
These are some of the worst business practices we’ve seen, but there’s a lot more. To make sure that your business is protected from common legal mistakes, schedule an appointment to speak with a business lawyer at Quinn.