What constitutes a small business can vary greatly. In general, a small business is privately owned and operated with less than five hundred employees. They may also be defined by a relatively low volume of sales. Small business standards in the United States vary by state, as well as by industry. Because of their relative ease of operation, and certain tax deductions being made available, small businesses are becoming more popular.
Some other examples of why small businesses are gaining popularity include, but are not limited to:
- The amount of creative flexibility owners are allowed;
- The amount of control over work-life balance;
- Financial independence; and/or
- Starting incentives, such as financing options.
Small businesses typically take the form of a corporation, partnership, or sole proprietorship. Another commonly used term is “startup.” This refers to a business that has recently started operating, and is essentially on a smaller scale until they have earned enough revenue to move forward.
A startup may remain a small business, or they may progress past the criteria for defining small businesses. For manufacturing industries, small businesses are to employ less than five hundred employees; for non-manufacturing industries, the criteria is typically less than $7 million in annual income.
What Things should I Keep in Mind when Starting My Small Business?
There are several advantages to starting your own business, as was previously discussed. However, there are also several things to keep in mind when starting a small business. Some examples include but may not be limited to:
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- Research: It is imperative to do your research before starting a small business. This could include things like researching your competition and finding the best suppliers for materials. However, you should also research ways to finance your business, what your state laws are regarding small businesses, and whether you would like to partner with someone or remain independent;
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- Licensing: As part of your research, you will likely discover that you need a variety of licenses, permits, and/or registrations in order to conduct your business legally. You should check with your jurisdiction in order to determine what license is required by your state. This step is especially important because failure to meet legal requirements for small businesses could result in penalties, such as fines, jail time, or having your operating privileges revoked. Additionally, licensing requirements can be categorized into federal, state, and local requirements;
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- Formation: This refers to what form of business organization your business takes. The most common form is an “LLC,” or limited liability company. The state in which you wish to form your business may also dictate what form that business takes, as well as tax incentives and implications associated with particular forms; and
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- Teams and Marketing: You should identify those who will be able to get your business started. This is your team, and they will help you grow your business if you cannot do it alone. Related to your team is your marketing strategy. Solid marketing is what will help your business grow and expand. Your business plan should include a strong marketing plan in order to let people know about your business.
What Are Common Small Business Disputes?
Small businesses are unique from large businesses in numerous ways. Employment issues, financial issues, liability, formation, and other business elements are all different for small businesses than for other types of companies.
Another way in which small businesses differ from their larger counterparts is in the types of disputes they face. Disputes for any business can arise between customers, clients, vendors, contractors, partners, landlords, and more. But, most often among small businesses, partners face issues over succession plans and disagreements among partners and owners.
Here's how small business disputes can impact a business, how to avoid them, and how to resolve them when they arise.
What Are Frequent Small Business Disputes?
The fact is, disputes are generally inevitable. At some point in the life of a business, a customer, partner, vendor, client, or other party is going to raise a dispute with the business. The key to handling disputes is to be proactive.
As mentioned, some of the most common kinds of business disputes that small businesses face are contentions over succession plans and among the partners.
A small business succession plan is an agreed-upon plan for the business if one of the owners dies or becomes permanently disabled. An owner of a sole proprietorship especially may face difficulty without a succession plan. The business will likely be forced to terminate, which may not have been the intention of the business owner. It could also be that the owner wanted an heir to inherit the business. But, without proper planning, the business may suffer significant losses or ultimately be terminated.
Similarly, businesses with multiple owners may face serious challenges when an owner dies or becomes permanently disabled. It is usually best practice to provide a succession plan in the business entity formation documents. This means that when the business is first formed, whether as a partnership, limited liability company, an S-Corporation, or any other business entity, there is usually a document that details how the business is going to be governed.
That governance should also include how an owner's death or permanent disability will impact the business. The owners can choose for the deceased or disabled owner's share to be distributed among the remaining owners or allow the deceased or disabled owner's share to pass to that owner's heirs. There are a few exceptions, such as ownership in a law firm because non-lawyers cannot own an interest in a law firm. But, generally, the options are the same for most businesses.
Agreeing in advance on how to handle this type of situation can save the business and the owners' significant strife down the road when the unexpected happens.
Just like careful planning in the formation of a business can help keep the business running smoothly if one of the partners or owners dies or becomes disabled, planning can also mitigate the risk of disagreements among the partners related to any and all other matters.
No matter how well-intentioned partners are, people and circumstances change when they start a business. Sometimes an owner may also engage in behavior that harms the business. A clear understanding of the rules that govern the business will help mitigate the risk that any serious disagreements will negatively impact the business.
How are Bills Collected in Small Claims Court?
Small claims court is cost-effective for collecting unpaid bills. It eliminates the need for bill collectors and lawyers. Bill collectors and lawyers often keep up to half of what they collect as a fee.
Cases in small claims court are primarily filed by businesses. A substantial percentage of those claims are uncontested by the defendant who owes money. Because defendants rarely show up, little preparation or court time is needed. Many defendants who don't want their credit rating to be damaged pay debts voluntarily after receiving a final demand letter.
Small claims court is not biased in favor of allowing small businesses to collect debts, so solid evidence that a debt is owed must be presented. When defendants have a good defense and fight back, they have a substantial chance of winning and paying back less than the plaintiff claims. Around 20% of the time, the defendant wins outright. In another 20% of cases, the defendant pays substantially less than the plaintiff originally demanded.
How Do I Resolve Small Business Disputes?
The best way to resolve small business disputes is to communicate expectations upfront carefully. The clearer all the parties can be in their communication, the less likely there will be any serious issue later on.
When expectations have not been clearly established or communication stalls, business owners must find another way to resolve their conflicts.
Remedies can range from going to counseling with a business partner in order to develop better communication skills with each other to the more extreme option of taking a partner to court to settle disputes. There may be other options such as mediation or alternative dispute resolution that can help business owners resolve their differences in the middle.
Problems with parties outside of the organization, such as with clients, contractors, vendors, and the like, can also be resolved through similar means. Going to court is usually the last resort. Litigation is expensive and takes considerable time.
By proactively developing quality agreements in advance that specify how disputes will be handled, such as going to arbitration, small businesses can avoid many more problems down the road.
Contractual disputes between two small businesses or a business and a customer are commonly handled in small claims court. Oftentimes, a customer argues that goods or services were of poor quality, provided late, or not provided at all.
If the two parties cannot negotiate their own solution or arrive at one through mediation, each party will have a chance to present their side of the story to a small claims court judge. In small claims court, it's important to utilize a succinct, well-organized presentation. The side with the most convincing written evidence often has the edge.
Written contracts or other documents showing that a contract existed or a letter from an expert in the field stating that the work met industry standards will place a party in an excellent position.
After both parties present their case, it will be up to the judge to decide who wins. Instead of waiting around for a decision, as may happen in a regular court, judges in small claims court can announce a decision on the spot or mail out a decision within a few days. Either way, both parties will know where they stand quickly and return to business as usual.
How Do I Finance My Small Business?
Small business financing can take on many forms, and is largely influenced by the type of business being started. According to statistics provided in 2018 by the Office of Advocacy for the United State Small Business Administration, personal and family savings account for the most common source of financing for small businesses. Other common ways of funding and financing small businesses include:
- Obtaining commercial loans;
- Partnering with investors;
- Business credit cards from banks;
- Applying for government programs for small businesses; and
- Crowdsourcing funds, such as through online fundraising platforms.
Government lending programs operate at both the state and federal levels. Such programs intend to reflect the important role small businesses play in strengthening the American economy. Additionally, they are provided to promote the start of new businesses as well as promote the growth of existing small businesses.
What Type of Lawyer Do You Need to Start a Business?
There are several different types of attorneys that could be beneficial in starting a business. Examples include general business attorneys, contract attorneys, and tax attorneys. Local attorneys will be aware of what laws apply to which industries, and what specific licensure you will need to obtain to start your own business.
In terms of the type of attorney most beneficial for starting a business, a business attorney may prove to be the best fit. This is because they are knowledgeable in a variety of topics that will likely apply to your small business. They can help those who are looking to start their own business, or are facing disputes involving their current small business. The attorney can also assist in the following ways:
- Finding applicable tax breaks for your small business;
- Identifying special financing for your specific business;
- Applying for a tax identification number;
- Providing guidance regarding structuring your business in a way that limits your liability; and
- Protecting your intellectual property.
