Toronto Lawyer - 5 Ways a Lawyer Can Help You Grow Your Business

Whether you are starting or expanding a business, the law is an important tool you can use to benefit your bottom line. Almost every aspect of your business, from writing contracts, to choosing a business name, to collecting debt, involves the law. The best way to use the law to your advantage is to hire an entrepreneur-friendly lawyer who can help you arrange your business affairs to make and save money. Here are five ways a lawyer can help you grow your business.

1. Find the most profitable business structure for you.

Is your business more suited to be a sole proprietorship, partnership or corporation? There are advantages and disadvantages to each structure. Making the right choice will save you time and money.

While it costs anywhere from $500-$2,000 to incorporate in Ontario but cost alone shouldn’t be your deciding factor. Incorporation provides tax benefits and liability protection not available in other business structures. For example, the difference between the tax rates for sole proprietorships and corporations can be over 20% in Ontario. The tax savings alone could pay for your incorporation costs and more. But incorporation is not for everybody. You should speak to a lawyer to assess your individual needs.

I recently met a Toronto entrepreneur who started his own wallet-making company, working part time after he got home from his 9-5 job. Thinking he needed to get his business incorporated, he paid approximately $1,000 in filing and professional fees. However, he wasn’t making enough money to take advantage of the corporate tax benefits, and his business had very little liability to worry about. Now, instead of growing his business, he spends his weekends doing paperwork required to run a corporation properly. Had he remained a sole proprietor, he would have saved the money he spent to incorporate and had extra time to market his business.

2. Ensure your business partnership is a profitable one.

Do you have a business partner? If so, what happens if your partner leaves and starts a competing business down the street? Do you have something in writing to prevent this? No? Then read on.

It is often said “good paper makes good friends,” and nowhere is this saying more appropriate than with your business partner. A co-ownership agreement, also called a partnership or shareholders agreement, covers the legal bases between you and your partners and sets out the ground rules in case one of you leaves. A typical co-ownership agreement may grant you a right to buy out your partner at any time, prevent your partner from stealing your customers if you part ways, and protects your business if one of you die or become disabled. Business partners usually negotiate a co-ownership agreement shortly after the company is created. It adds to the start-up costs but it is a necessary short-term expense for long-term success as the following example shows.

A business owner once visited my office with the following cautionary tale. She started a business with her best friend selling specialized equipment for sports injuries. The market is very small but lucrative. They did not have a co-ownership agreement because they were best friends who always got along - or so she thought. Within a year, they began to argue and the friend left the business. Shortly after her departure, the friend started a competing business in the same city. The friend did very well - at the expense of the woman in my office. She lost over 20% of her clients within three months. This could have been avoided had they signed a co-ownership agreement preventing the friend from competing after she left the business.

3. Make the fine print of invoices and sales agreements work for you.

Do you really need a lawyer to draft a simple invoice or sales contract? Aren’t the payment terms already in your contract enough to protect your business? Unfortunately, this is a money-losing assumption. A properly drafted contract sets out the sale on your terms, saving you money and unnecessary headaches.

Invoices and sales agreements should deal with more than just payment terms. A well drafted invoice or sales agreement sets out each party’s rights and responsibilities, especially if things go wrong. For example, does your invoice allow you to charge an administration fee if your customer’s cheque bounces? Have you prevented your customers from returning inventory after they opened it? Have you protected yourself in case you fail to deliver a good or service in time? If these issues are not properly addressed in writing, you could lose money or spend all your time arguing over what your invoice really meant.

An associate of mine recently started a wedding photography business. He required a deposit of 10% of the total price. Every so often, a client cancelled the contract, having found a different photographer. However, his contract did not allow him to keep the deposit and the ex-clients always demanded it back. This was obviously a problem because he had to spend the deposit for supplies, and lost more money when he was unable to book the cancelled day with other clients. I inserted a simple clause allowing him to keep the deposit in case of cancellation. As a result, his cancellation rates are down and he can cut some of his losses in case of cancellation.

4. Implement cost-saving solutions with your potential landlord to help you make more money.

My clients often ask that I review lease agreements for space they hope to rent. The first thing I ask them is whether they have signed an offer to lease. Is this an important question? Yes. This question could save you thousands of dollars. Let me explain.

An offer to lease sets out the business terms such as rental payments and the right to renew the lease. The lease agreement, which you sign after the offer to lease, deals with how the business terms will be carried out, such as when the rent will be paid and when you are allowed to renew the lease. It is difficult to change the business terms once the offer to lease has been signed. Thus, it is important to structure the lease to suit your purposes before you sign the lease agreement.

For example, you are opening a retail store in Oakville selling kitchen supplies. Your offer to lease does not prevent your potential landlord from leasing space to a similar business. Before signing the offer to lease, a lawyer can negotiate a “non-compete” clause to prevent your landlord from renting the space next door to your competitors. How much do you think this clause is worth? How many customers would leave if your competitor set up shop next door? Take the time to call a lawyer before you think about leasing some space. It’s a money saving move.

5. Secure capital without giving your business away.

Do you want investor money for your business without losing control of your company? It can be done. A lawyer can help your company get the money you need without giving your business away.

When someone invests money into your business, he or she is investing in every part of your operation. Some businesses create one corporation for many different purposes. For example, a computer company may manufacture and distribute computer chips. If an investor wishes to invest in the manufacturing division, he or she is also investing in the distribution division of the company - even if the two divisions are administratively separate. Why? It’s because, legally, both divisions are viewed as one entity and investing in one division is investing in the other as well. This is a problem if you want to protect some of your assets. Talk to a lawyer, he or she has a solution for you.

For example, I recently spoke to a new media company that was in the process of securing overseas money in return for 30% of the company’s shares. Through discussing the business with the company’s president, I found out the company ran several different divisions, including a profitable product development line that the president wanted to keep for himself. But the investment was set up so that the investors would be buying into this lucrative division as part of the deal. I suggested that by “spinning off” the product line, he could obtain investor money while protecting this asset. A simple conversation saved him thousands of dollars and he was able to keep his product development line away from investors.

As this article shows, almost every part of your business has legal aspects to it. I do not suggest you consult a lawyer each and every time you have a business decision to make. However, you should seek legal advice when you think you might need it. Otherwise, you could end up losing money, time and clients. Your business is like a house. Don’t build it without a solid legal foundation. Contact an entrepreneur-friendly lawyer today to help you lay the groundwork for the business of your dreams.