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05/07/2010
IconCompeting With A Franchise, Before You Even Sign Up By Cliff Ennico www.creators.com #147;I am thinking about buying a franchise in a particular industry. There are three franchises currently operating in this industry, and I would like to buy one of their existing franchises rather than start one up myself from scratch. I have contacted all three franchises and asked them to send me their Uniform Franchise Offering Circulars (UFOCs). Two of the three have asked me to sign a nondisclosure agreement (NDA) before they will send me anything, but the third franchise wants me to sign a noncompete agreement saying I won#146;t work anywhere in this industry for two years after they give me #145;confidential information#146; about their operations. Can they legally do that? If I sign the noncompete with this third franchise, am I prohibited from buying a franchise from one of the other two?#148; One of the biggest fears any franchise has is that someone will show an interest in the franchise, #147;kick the tires#148; for several months, learn everything there is to know about running the business (most franchises deal with very basic retail and service business models, which are fairly easy to learn), then blow them off and set up in business on their own. Technically, a UFOC is not #147;confidential information#148; in any meaningful sense, because it is publicly available and on file with the Federal Trade Commission (www.ftc.gov). You can get a copy of any franchise#146;s UFOC from franchise oriented websites such as www.ufocs.com , www.ufochelp.com , www.frandata.com and www.franchisehelp.com , and in many cases from the franchise#146;s own website. If you can#146;t find it anywhere else, you can contact the franchise and they#146;ll send it to you #150; free. Once you have the UFOC, though, you have a list of all of the franchise#146;s present and former franchisees, and can call and visit them to find out whether they#146;ve had a good experience with the franchise or not. That#146;s where the franchise#146;s concern about confidential information kicks in, because the franchise can#146;t control what their franchisees tell you. Some franchisees are more #147;loose lipped#148; and candid than others when talking about the franchise and their relationship with it. Franchises are terrified you will gain access to detailed information about their operations and #147;trade secrets#148; that isn#146;t available in the UFOC #150; that#146;s why you are almost always asked to sign a nondisclosure agreement when you talk to a franchise. But a noncompete? As the Wizard of Oz would say, that#146;s a #147;horse of a different color#148;. Unlike a nondisclosure agreement, which requires you to keep information you learn about a franchise secret, a noncompete agreement bars you from buying a competing franchise, or even working in the same industry. I#146;m pretty sure that in most states this practice #150; asking you to sign a noncompete agreement as a condition to talking to you about the franchise #150; would be viewed as an #147;unfair trade practice#148; whose sole purpose is to prevent you from choosing among competing franchises. The good news is that if you violate the noncompete and the franchise sues you, you probably will win. The bad news is that you will have to spend years of your life, and thousands of dollars in legal fees, to win that court case. And you will probably be under a court #147;injunction#148; not to work for a competing company until the court makes up its mind whether the noncompete is an #147;unfair trade practice#148; or not. That could take years. I suspect what may have happened here is that you #147;tipped your hand#148; to the third franchise that you were looking to buy one of their existing franchise outlets, rather than start one up on your own in a new territory. Franchises are all about growth, and expanding into new territories. While franchises are happy to work with someone who wants to buy out an existing franchisee #150; it helps the franchise dispose of an unhappy franchisee in a very positive, #147;win win#148; way #150; it doesn#146;t add any new revenue to the franchise#146;s bottom line (other than a relatively small, one time #147;transfer fee#148; to pay for your franchise training). A franchise isn#146;t going to risk divulging its #147;trade secrets#148; to someone who isn#146;t helping them grow. In order to buy an existing franchise, you will have to ask their existing franchisee lots of detailed questions about the franchise#146;s operations, earnings, and so forth #150; precisely the sort of information the franchise doesn#146;t want #147;floating around the industry#148;. So I understand why they asked you to sign a noncompete agreement #150; although they should have talked to their lawyers before doing so. The bottom line: don#146;t sign any noncompetes with a franchise before you commit to the franchise and sign their legally binding Franchise Agreement. If you do, you will be #147;giving them a sword#148; to use against you should you decide to buy a franchise from one of their competitors. I would focus my attention on the other two franchises, and, when talking to Franchise A#146;s franchisees, keep your mouth shut about what Franchise B#146;s franchisees may or may not be doing. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconTen Questions To Ask Before Buying A Franchise [Part 2] By Cliff Ennico www.creators.com Here are five more questions to ask when reviewing a franchise's Uniform Franchise Offering Circular (UFOC): 6.Is the Management Team Seasoned and Well Experienced? Don't gloss over the management biographies in the back of the UFOC; take out a magnifying glass and pay close attention to them. How long have these individuals been with the franchise? If the entire management team has been with the franchise less than five years, watch out - high turnover could indicate a fundamental problem with the franchise model. Also, look for relevant industry experience - a former marketing director for a consumer products company may not be the best "fit" for a fast food restaurant franchise. 7.How Good Is the Franchise's Real Estate Team? Successful retail franchises are all about location, location, location. Meet with the franchise executives who will help you find a location for your franchised business. If you don't like these folks, don't buy the franchise. Period. Ask tough, hard questions. Will these people fly to your area and help you scout out locations? Will these people roll up their sleeves and help you negotiate with a difficult landlord? Beware of real estate professionals who have spent their entire careers in only one part of the country. 8.Are The Franchise's Startup Cost Projections Realistic? Many franchises start up in areas of the country where real estate and labor costs are relatively cheap. These franchises often get into trouble when they branch out to the East and West coasts and urban areas, where everything's more expensive. Always talk to local real estate brokers, insurance brokers, construction contractors and - especially - the franchise's other franchisees in the area to "reality check" the startup cost projections in the UFOC, which are often based on national or regional average costs. 9.Are There Any New Technologies or Business Models That Are Threatening the Franchise's Business Model? Many traditional retail and service businesses are facing serious challenges from new technologies, business models, and changes in consumer attitudes. Ask anyone who was in the publishing business 10 or 15 years ago what the Internet has done to their industry (and their career), and you will get an earful. Some franchise models are a bit like those characters in bad horror movies who've have their heads cut off but don't quite realize they are dead yet. You will have to ask the tough questions, and deal with the fact that often the franchise's executives haven't given serious thought to these challenges themselves. Some examples: if you are looking at an after-school tutoring franchise, ask the executives how "e-learning" and online Webinars are impacting their business model. if you are looking at a check cashing franchise, how will the evolution of a "cashless society" based on online payment systems impact that business? Will laws making it easier for illegal immigrants to become U.S. citizens and qualify for bank accounts have a serious impact on the franchise model? if you are looking at an eBay "consignment shop" franchise (where people bring things to you and you sell them online), how will recent eBay system changes favoring high-volume sellers over occasional "Mom and Pop" vendors impact their operation? 10.What if the Franchise Owners Sell Out? When starting any business, the founders give serious thought to their "exit strategy" - how will they cash out of the business and recoup their investment once it's become successful? Franchises are no different. For most large franchise operations, the most common exit strategy is to sell out to someone else - sometimes another franchise, sometimes a large corporation in the same industry. When buying any franchise, you have to consider that at some point the franchise will buy, or be bought by, someone else, and you will be required to make changes, sometimes radical ones, to the way you do business. Ask any UPS Store owner who formerly ran a MailBoxes Etc. franchise how easy it was to make that transition, and you will get an earful. Here are some tough questions: looking at other franchises in the industry, who would be the most likely merger partner for this franchise? are there any large non-franchised businesses in the industry who would possibly buy this franchise and require franchisees to sell only its products? if this franchise were to merge with another franchise, would this franchise be the acquirer (and therefore more likely to impose its model on the acquired franchise) or the acquiree (and therefore more likely to adopt the other company's model)? what rights will you have if the franchise merges with another franchise and the other franchise has a competing franchisee in your territory? Will you be forced out of business if your franchise agreement expires before the other guy's does? Most franchises will tell you they have "no immediate plans" to merge with another company, but if they tell you they've never thought about it or would never consider selling out, don't believe it. It's on their minds, and it should be on yours as well. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconTen Questions To Ask Before Buying A Franchise By Cliff Ennico www.creators.com "I was recently laid off from a corporate job, and have decided not to return to corporate America. I'm thinking about buying a franchise, but their Uniform Franchise Offering Circular (UFOC) is over 100 pages long, and I really don't know where to begin. Do you have any tips for reviewing UFOCs, and the questions I should be asking these folks?" Here are ten things you should look for when reviewing a franchise's UFOC (the disclosure document franchises are required by law to deliver to prospective franchisees): 1.How Many Other Franchisees Are There, and How Long Have They Been in Business? The first place to look is the number of franchisees. If there are relatively few, and the franchise has been in business only a few years, then this is an "early stage" franchise. There's good news and bad news there. The "good news" is that you might be able to buy "area development rights" to an entire state or region of the United States. This means you are the "master franchisor" for your state or region, and can sell franchises to the local folks who will actually grill the hamburgers, dry clean the shirts, or whatever. You can get filthy rich that way - all you have to do is collect the royalty checks from your franchisees, deduct your fee, and remit the balance to the franchise headquarters. Not a bad way to make a living, no? The "bad news" is that this franchise's model hasn't been tested yet. There's a good chance this franchise will fail, and you will lose your investment. Unless your appetite for risk is unusually high, what you want to see is a fairly large number of franchisees who bought into the franchise at consistent intervals (in other words, the number of new franchisees is fairly consistent from year to year). Be careful before buying into a franchise if (1) all of the franchisees have bought into the system within the last three years, or (2) all of the franchisees have been in place for more than three years and there are no "newbies". 2.Where Are the Franchisees Located? Are They All Over the Country, or Concentrated in Certain Places? Many franchises are "regional" in nature - they work well in some parts of the country, but not so well in others. For example, a franchise that serves "smoothies" and other healthy food products is bound to do well in California and college campus towns. Will it do as well in cold-climate states, or rural areas? A franchise that originates in the Midwest and South - where real estate prices and labor costs are relatively low - may well have problems when it expands to the East Coast and West Coast. 3.How Many Franchisees Have Left the System in the Past Few Years? A franchise is required to tell you the names, addresses and telephone numbers of franchisees who have left the system for one reason or another. The better ones disclose that information in their UFOCs; the rest will tell you, but only if you ask. Call these folks and find out why the franchise didn't work for them. Most of them will have an "axe to grind," of course, but by listening carefully you should be able to determine if the problem was the franchise, or if these people simply weren't a "good fit" for the franchised business. 4.Typically, How Long Does It Take For a Franchisee to Recoup the Initial Upfront Investment? This information probably won't be in the UFOC, but by calling lots of franchisees (I always recommend talking to at least 10), you should be able to get a sense of roughly how long it will take for you to recover your upfront investment in the franchise. If it's less than three years, great! If it's more than five years on average, I would ask the franchise lots of tough questions. 5.Has the Franchise Sued Any of its Franchisees, or Vice Versa? If So, What Are These Lawsuits About? The "litigation" section of the UFOC is probably the most valuable in the whole document, and is often overlooked by prospective franchisees because "only a lawyer can understand this stuff". Bad mistake! A franchise that sues its franchisees over relatively minor infractions of its rules is not a franchise you want to be involved with. If a franchise is more than five years old, and there are more than one or two lawsuits with franchisees, you need to ask some questions. If the franchisees were clearly in default and the franchise had to sue to recover its royalties and boot the "bad apples" out of the system, that's one thing. If, however, the claims are for antitrust law violations and were brought by state attorneys general, that may indicate a fundamental problem with the franchise's business model. Ask your attorney to review this section of the UFOC (most will not charge more than an hour's time for this) and explain the contents in "plain English". More next week . . . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
Icon"Wikis" and the Law By Cliff Ennico www.creators.com "I'm widely considered an expert in a particular field, and am thinking of contributing an article to Wikipedia - the online encyclopedia - as a way of promoting my consulting practice. What are the legal ramifications of contributing to a 'Wiki,' and how do I protect myself against liability?" For those who don't know, a "Wiki" is a collaborative Website where anyone can contribute content, and edit other people's content. Probably the best known "Wiki" is www.wikipedia.org , an online encyclopedia with more than 2,500,000 entries in English. Here's how it works: you write an article (if one hasn't already been done) and post it on Wikipedia. By so doing, you agree to Wikipedia's "Free Documentation License", essentially waiving your rights under the copyright laws. If other people see your article and feel they have something to add, correct or contribute, they can "edit" your content, so that over time the article will become longer, more thorough, more fair and balanced, and more up to date than any article by a single author could possibly be. Likewise, if you feel someone has edited your content incorrectly, you can "re-edit" your content and send e-mails to other contributors explaining why you are doing what you're doing, and so forth. Posting an article on Wikipedia can be a terrific way to get exposure for your business. Wikipedia has done an amazingly good job of search engine optimization - search for any relevant topic on your favorite search engine, and a Wikipedia article is likely to be in the first 10 listings. But there's a catch: because "wikis" are democratic by nature, you don't have to establish your credentials as an expert to post an article on Wikipedia. Indeed, anyone can post content on a "wiki", whether they know anything about the subject matter or not. And there's the rub. To quote from the Wikipedia article on "Wikipedia": "Users should be aware that not all articles are of encyclopedic quality from the start, and may contain false or debatable information. Indeed, many articles start their lives as partisan, and after a long process of discussion, debate and argument, they gradually take on a neutral point of view reached through consensus. . . . However, eventually additional editors expand and contribute to articles and strive to achieve balance and comprehensive coverage." Wikipedia, and other "wikis", have adopted policies and procedures to guard against editors whose goal is to distort the truth - called "vandals". Most wikis have an online dispute resolution mechanism for conflicting editors, and will bar repeated "vandals" from editing content on the site. But what if it's too late? What if someone edits your article on Wikipedia and does something bad that upsets someone so much that they sue you? Some examples: someone edits your article and posts false and misleading information about another person - a celebrity, a politician, or just an average person - with the goal of ruining that person's reputation (see the Wikipedia article on "Defamation"); someone edits your article and posts embarrassing - but entirely true - information about someone that invades their privacy (see the Wikipedia article on "Privacy Laws in the United States"); someone edits your article by "cutting and pasting" someone else's content into your article ver batim (see the Wikipedia article on "Copyright Infringement"); you have enemies, and they deliberately change your content by inserting incorrect or damaging information that makes you look like a fool (see the Wikipedia article on "Personality Rights"). When contributing content to a Wiki, or editing someone else's content, the word "partnership" should pop up in your head. Wikis are by nature collaborative - each article has several or more authors and "editors" - and collaborators usually are viewed as "partners" when it comes to legal liability. That's not a good thing, because partners have "joint and several" liability for their acts and omissions - if one partner gets sued, all partners are liable, regardless of the person who actually was at fault (see the Wikipedia articles on "Partnership" and "Joint and Several Liability"). So if someone sues the authors of a Wiki article because of a false or misleading statement made by only one of the authors, all contributors to that article are subject to the lawsuit. Of course, the "innocent" authors of the article will have recourse against the "guilty" author. This is called "contribution and indemnification" - see the Wikipedia article on "Contribution Claim (Legal)". But if the bad author doesn't have much money, has filed for bankruptcy, has given Wikipedia false data about his or her identity, or is otherwise "judgment proof", then the innocent authors, including you, will be left holding the bag. When contributing content to a "wiki", do your homework well - make your article as comprehensive, fair and balanced as possible to keep the number of "editors" at a minimum, and check your "wiki" contribution at least once each week so that you can catch and correct any wayward "edits" before they get you into legal hot water. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconCollecting Your Overdue Bills "From A Distance" By Cliff Ennico www.creators.com "Your recent columns on collecting from deadbeat clients were truly inspiring. I am an electrical contractor who is owed $3,000 from a customer located way on the other side of the state. His business is selling a product, made by others, and installed by electrical contractors such as myself. He has no business assets, works from home, and has no job site work (he may be on a site for 1-2 hours). He is, however, incorporated. I won a small claims court judgment against his corporation, but the courts will not enforce the judgment because of the great distance, and I have spent approximately $2,300 for my attorney to get the judgment. Collection agencies will not help either. I am at wit's end. Are there any options I may have overlooked?" First of all, here are a couple of tips about suing in small claims court. Generally, courts are required to enforce judgments rendered by other courts elsewhere in your state - this principle (known as "comity") is enshrined in your state constitution. But there's a catch. A court is obligated to enforce another court's judgment only if the case was fully litigated - the other side showed up on the court date, both of you argued your case before the judge, and the judge rendered a decision based on all the facts presented to him. If (as I suspect) what you got was a "default judgment" - the other side simply didn't show up in court because of the great distance involved - his local court may refuse to enforce your judgment on the grounds that a local citizen didn't have his "day in court". Whenever you sue someone in small claims court, and that person lives remotely from you, you always, always, always bring the action in the court where he is located or has his place of business - not the place where you are located. Yes, it's inconvenient for you, but at least you will know that if you win the other court will always enforce its own judgment against the deadbeat (even a "default" judgment). Also, if your case is a really strong one, you may (no guarantee here) be able to persuade the court to reimburse you for travel, lodging and other out of pocket expenses you incurred in getting the judgment. Secondly, I always advise against hiring an attorney to represent you in small claims court. Some judges don't like to deal with attorneys, and it takes just as much time for an attorney to prepare for a small case as it does a much bigger one. This is one situation where you are better off representing yourself, as it doesn't make sense to spend $2,300 and countless hours and days of your life to collect a $3,000 judgment. Lastly, you are assuming that your customer was the one-person corporation and not the individual himself. People are allowed to form corporations and limited liability companies (LLCs) for the sole purpose of avoiding personal liability to creditors. But if you can prove that you dealt with the individual directly, and not his corporation, you may be able to enforce your judgment against the individual's personal assets, such as his house, automobiles, and his salary from his day job. Look at the invoices you sent him - were they addressed to the individual, or to his corporation? If you treated his corporation as your customer, then there's little you can do to reach his personal assets. You will have to prove in court that he treated his corporation as a "personal piggy bank" and otherwise treated his corporation with so little respect that it should be disregarded (this is called "piercing the corporate veil"). This will be very difficult for you to do. If, however, your bills were addressed to him individually and he wrote checks to you from his personal bank account, you may have a case for pursuing him individually, which is much more likely to get you paid. Going forward, you should have your attorney prepare a short (one to two pages maximum) retainer agreement which your customers will sign before you begin working for them. Make sure the agreement contains the following clause: "My agreement is to perform services for the person or persons signing this agreement in their individual capacities, and I will look to them personally for the payment of my fees and expenses. While I may accept payment from a corporation, limited liability company, or other legal or business entity that is related to you, I will not be obligated to rely on such entity for the payment of my fees and expenses unless I expressly agree in writing to do so." That language could have saved you a ton of time and frustration here. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconMaking Money, And Paying Taxes, One Click At A Time By Cliff Ennico www.creators.com "Do you have any thoughts on the legal and tax aspects of 'affiliate marketing' - when you use your website to sell other people's products through Clickbank or other affiliate sites? This system creates a link on your website where the customer doesn't actually see content on your site but goes through it directly to Clickbank's site and you are paid a portion of the sale for the link to Clickbank's website." There's nothing new about affiliate marketing - it's been around as long as the Web itself. Basically, by becoming an "affiliate" of another website, you become a "sales representative" of that website - you help that website sell their stuff and if they make any money from a customer who clicks on the "affiliate link" on your website, they pay you a commission. Websites like Clickbank take this process to a different level. Think of Clickbank as an intermediary between websites that are looking for affiliates to help sell their stuff (usually digital information products such as e-books), and people who want to be affiliates. For example, if I had a digital e-book (I don't, at least not yet), I could become a "Clickbank publisher" and allow Clickbank to sell my e-book, either directly or through its affiliates. Now, let's say you fall in love with my e-book and want to sell my book on your website. You would set up a Clickbank account, tell them you want to sell my book, and create a link to the Clickbank website. If someone clicked on the "Cliff's book" link on your website, Clickbank would process the order, collect payment from the customer, pay you your commission, pay me the rest (less Clickbank's fee, currently 7.5%), handle refunds, issue IRS Form 1099 at the end of each year, and provide other services. With Clickbank and other similar sites you can offer a whole bunch of other people's stuff to your customers and get sales commissions without having to lift a finger. Pretty cool, huh? But there's a catch (isn't there always?). When doing business with Clickbank or any other affiliate site, the words "drop shipper" should pop up in your head immediately. Whenever you are selling someone else's stuff but don't actually take possession of it, and that someone else handles all of the order fulfillment tasks (the shipping, handling, packaging and so forth), you are a "drop shipper" for legal and tax purposes. Full disclosure: I'm not a Clickbank scholar, and I haven't studied their website in detail. But a quick look at their operation leaves me with the following questions, which you should ask if you're planning to become a Clickbank "affiliate". Sales Taxes . By becoming a "Clickbank affiliate" for one of Clickbank's "publishers", you are creating a three way business relationship between you, the information publisher, and Clickbank itself. This means someone will have to collect sales taxes whenever any of the following people click on your "affiliate" link and order from Clickbank: people who live in the same state you do; people who live in the same state the information publisher is located; and people who live in Idaho (where Clickbank has its headquarters), Colorado (where Clickbank has an office), and any other state where Clickbank has a physical location or "nexus" for tax purposes. Will Clickbank keep track of this, by charging the customer sales tax and remitting it to the appropriate state tax authority? Or is that your responsibility (or the publisher's)? Legal Claims . Let's say someone clicks on your "affiliate" link, downloads my e-book from Clickbank's website, and discovers to his horror that I've invaded his privacy by disclosing all the lurid details of his private sex life. Clearly, as the publisher of this e-book I am legally responsible for its content, and will have to indemnify Clickbank (defend the lawsuit at my own expense, and pay the judgment if the customer wins) in case the offended reader sues them. But where do you, the poor "affiliate", stand in all this? Since the reader ordered the book from your website, you are in the "chain of sale" and may well be sued along with the rest of us. Is anyone indemnifying YOU if that happens? "Pyramid" Schemes . Clickbank allows its "affiliates" to set up their own "affiliate" programs where other websites (let's call them "sub-affiliates") can create a link to the affiliate's website which automatically links to Clickbank's website (getting dizzy yet?), with everyone in the upstream affiliate "chain" getting a piece of the purchase price each time something is sold. If these programs aren't set up properly, there's a risk that you will be creating an illegal "pyramid" scheme where people get commissions for bringing on board sub-affiliates who aren't actually selling anything. Make sure a good lawyer helps you set up your "Sub-Affiliate Agreement" to make sure you're not caught between a rock (angry sub-affiliates) and a hard place (Clickbank and its legal team). Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconDoing Business When You Can't Stay Put By Cliff Ennico www.creators.com "I'm an Army wife looking to start up a home-based graphics and web design business. I know I need to set things up legally -- and desperately want to, but my problem is our upcoming out of state move. My husband's been given orders to become a recruiter which means he'll be shipped off to Recruiter School soon and upon graduation in the middle of next year we'll be moving to a new location. We won't learn where we're moving until early February. As my husband has at least another eight years in the Army, this kind of thing is bound to happen at least three more times. How do I even begin to set up a business? Do I work as a sole proprietor until we're relocated? Or do I set up something more structured now? " Until your situation changes and you get more settled, you are probably better off operating as a sole proprietor, as you will be able to "move" that from one location to another a lot easier than you can a corporation or limited liability company (LLC). LLCs and corporations are "state specific" - each time you move you will have to shut down the old one and set up a new one, which can be very expensive and time consuming. By operating as a sole proprietorship, you will be able to use the same federal tax ID number whatever state you are in. As you move into a new state, you will register with that state's tax authority and obtain a state tax ID number. If you move from one state to another in the middle of a calendar year, you will have to file two state tax returns for that year only - one in the "old" state for the time you spent there, the other in the "new" state for the time you spent there. Of course, if you're in a business with a high risk of legal liability, you will be sacrificing the protection from personal liability that a corporation or LLC affords. But since you're doing Web design work, it's highly unlikely you will be sued - if a client is unhappy with your work, they will refuse to pay you, or you will give them some of their money back to keep them happy. Still, just to be safe, I would take out a basic "errors and omissions" insurance policy so that if you ever are sued, the aggrieved customer will go after the policy and not your house or other personal assets. "I need a federal tax ID number because I am opening a new business here in the United States. I am originally from Sao Paulo, Brazil and don't have a Social Security Number. The IRS says that I cannot get a federal tax ID number unless I have a Social Security Number (SSN). There's part of me that thinks I don't really need a tax ID number at all - do I need a tax ID number to invoice my clients?" You will need to retain an accountant to help you with these matters. Tax ID numbers can get very tricky and do not want to do this without professional help. You will need to check your immigration status. If the visa allowing you to live legally in the United States does not allow you to operate a business, then there's nothing you can do about that -- you cannot operate an illegal business here. If your visa status allows you to operate a business here, then you should consider getting an ITIN (Individual Taxpayer ID Number) from the IRS -- it's like an SSN for people like yourself who do not qualify for an SSN (for details, go to www.irs.gov and check out IRS Publication 1915). Once you get the ITIN, you can use that to get a federal tax ID number for your business (perhaps -- the rules are very complicated, which is why you need an accountant). As for invoicing your clients, it depends on the type of business. If you are selling goods at retail or wholesale, you normally do not put your tax ID number on the invoices you send to your customers. If you are in a service business, however, and you perform more than $600 worth of services for a customer during a calendar year, that customer is required to send you a Form 1099, with a carbon copy to the IRS. They will send you IRS Form W-9 requesting your federal ID number, and you sure as heck better have one by that time! I always put my federal tax ID number on every invoice I send to law clients. That way if they wish to send me a Form 1099 they don't have to send me Form W-9 - they just look at their latest bill and there's my number. Otherwise I would have to spend an hour a day each January fielding telephone calls and e-mail messages from people asking for my federal tax ID number. Life's too short. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconTen New Year's Resolutions For 2008, Part Two By Cliff Ennico www.creators.com Here are six more New Year's Resolutions for business owners. Find Three New Sources of Saleable Product. If your business is selling stuff online, one of your biggest challenges is finding high quality stuff to sell at a profit. If you're not currently taking consignments, you're out of your mind. Take out an ad in your local newspaper saying "I Take Consignments!" with a toll-free telephone number. Trust me, you will get calls. Let the local senior citizen community know you are available to help them clean out their houses and apartments when they move into an assisted living facility. Finally, make 2008 the year you cut out the middlepeople in your life -- go to www.worldwidebrands.com and www.globalsourcedirect.com and find out where you can buy the stuff you're currently selling directly from the manufacturers in Asia. Get Your Taxes Right. If you have been selling things online and haven't been paying taxes, now is the time to get into compliance with the tax laws. The IRS is losing patience with people who don't know they are in business when they're selling online, and it's only a matter of time before they require PayPal and other online payment systems to send you 1099s (with a copy to the IRS) making your activities public. Get a copy of my new book "The eBay Seller's Tax and Legal Answer Book," and read it cover to cover - it's the best twenty bucks you will ever spend. Renew Your Web Address. If your business is dependent on the Internet, make sure you check Network Solutions ( www.networksolutions.com ) at least once each year to make sure your Web address hasn't expired. They do send you renewal notices, but often these get picked up as "spam" by your antispam software, so you never see them, your Web address expires and gets grabbed by someone else. Pick a date that's easy to remember - like your birthday - and renew each of your important Web addresses on that day. Update Your Software Twice a Year. Just about every software program gets updated at least once or twice a year, but not every software developer sends you an e-mail announcing the latest updates. Make it a point to visit the Website "home page" of each software company whose products you license, and look for a button that says "check for updates" or something like that. It just may save your PC. Sheath Your Cell Phone. Make 2008 the year you stop being a "cell phone slave". Make some rules about when you will use your cell phone, and when you won't, and stick to them. Among those I highly recommend: do not use your cell phone while driving a motor vehicle; use your cell phone only for outgoing business calls; do not use your cell phone in public places where your conversation may be overhead by total strangers with evil on their minds. Get Control of Your Bookkeeping. If your bookkeeping system consists of a shoebox, you have absolutely no idea what's going on in your business. Sign up for your local community college's evening class on QuickBooks Proreg; and learn to do it the right way. If you use "live" bookkeepers, meet with them at least 3 or 4 times every year, review your chart of accounts and other operating statements with them, and get their opinions on things you are doing right and things you need to improve. Because they are not "in the trenches" with you every day, they are likely to see patterns and trends you are too busy to notice. Start Escrowing for Estimated Taxes. If you pay estimated taxes to the federal and state governments four times a year, and find yourself occasionally without enough cash on hand to make the tax payments, you need to start "escrowing" for these taxes. Take your gross sales each month, withdraw 40% of that amount from your business checking account, and deposit it in an interest-bearing savings account. Do this every month, and learn to operate your business on the remaining 60% of revenue. This way you will be sure to have enough cash on hand to make your tax payments when they come due. Get Involved in the Election Process. This is an election year, and with all the talk about the war in Iraq, universal health insurance coverage, and other policy issues, so far none of the Presidential candidates has said anything about what they will do to help small business owners. Go to their Websites, participate in their periodic "town meetings," and ask them. If your Congressperson or Senator is running for re-election this year, call up her campaign director and volunteer to be an advisor on small business issues. Whatever you do, don't be silent. If you don't make yourself heard, then you won't have any right to complain when your business gets clobbered with high taxes and crazy government regulations in 2009. A happy, prosperous and successful New Year to all of my readers. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconTen New Year's Resolutions For 2008, Part One By Cliff Ennico www.creators.com When you stop to think about it, New Year's Resolutions are all about habits. Breaking some bad ones (smoking, drinking excessively, binging on fast food when you've had a bad day), and starting new ones (working out, eating more Brussels sprouts). Businesses, like individuals, develop bad habits over time that need correction, while success in business over the long run usually means adopting good management habits and sticking with them year after year. So, without further ado, here are my 2008 New Year's Resolutions for business owners. Do an Annual "Legal Review" . It isn't enough to hire a good lawyer and pray you don't get sued. Every business has laws and regulations you need to know about, and it's your responsibility to learn about them so you can prevent lawsuits before they happen. Take your lawyer to lunch sometime in January, tell him or her everything your business did last year and is planning to do this year, and get some education on how to do things better. If you are a corporation or limited liability company (LLC), have your attorney draft some resolutions for you and your partners "ratifying" the big decisions you made last year - these will save you a lot of heartache if you are ever sued, or audited by a government agency. Sign 'Em Up; Nail 'Em Down . You've got a part-time salesperson or administrative assistant working in your business one or two days a week. While they're there, you tell them what to do, when to do it, and how to do it. You believe this person is an "independent contractor", so you don't withhold money from their paycheck each week. Bad idea! The IRS is very likely to look at this person as a part-time employee, and they will come down on you like Thor's hammer if they find out. Now's the time to have this person sign a one-page employment agreement "effective January 1, 2008" (your attorney can draft this for a couple of hundred dollars), and add them to your payroll. What should the agreement say? At the very least, it should clearly state (1) that the employee serves "at will" and can be terminated at any time, with or without a reason, (2) that the employee cannot work for a competing company while they're on your payroll, and (3) that the employee will not hire your employees or solicit business from your customers for one year after the employment relationship is terminated for any reason. If the part-timer is your first employee, don't forget to have your accountant sign you up for payroll taxes (IRS Forms 940 and 941), and for your state's unemployment compensation system. You may also have to look into worker's compensation insurance; your insurance agent can help you with that. Loosen Up Your Vocal Cords . One of the best ways to distinguish yourself from your competition, especially if you are a consultant, is to become the local expert in your field. Volunteer to speak at local business luncheon meetings. Teach a course at your local community college. If you run a butcher shop, call your local cable TV news show and volunteer to do a segment on "how to carve your holiday turkey" - people love that stuff, and news reporters love it when you make their life easier by suggesting story ideas. However you do it, get out in front of your marketplace and let them see you. Not only will you build your self-confidence as a public speaker, you will get tons of free publicity for your business. Finally, have a local musician record your presentation, break it down into segments by topic, and put them up on your Website as downloadable "Podcasts". Update Your Web Presence . Look at your business Website, and make at least five (5) changes that will make it more attractive, fun and "cool" to prospective customers. Post some content-rich articles answering commonly-asked questions about what you do. Put some videos on your Website (and post the videos on YouTube) demonstrating in an entertaining way how to do (or not to do) something. Start a "blog" where your customers can talk to each other about the stuff you do, with you as the all-knowing "moderator". Most importantly, hire a search engine optimization (SEO) consultant and learn what you can do to get your Website higher in the Google search rankings. At the same time, delete things from your Website that are boring, difficult to access, or that do nothing to address your customers' fears and passions. If you are a lawyer or accountant, nobody cares what you look like or where you went to school, so get rid of the Website photo and biography. Put up your fee schedule instead, because clients DO care about how much you are going to charge them for your services! More next week . . . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconWhen You Drop Off eBay's Screen By Cliff Ennico www.creators.com #147;I am a small book store owner. I have been doing business online through Half.com (owned by eBay) for the last 15 months or so. My business through Half.com has steadily increased and I was very happy to gross over $100,000 in the last year. About two months ago, I was notified by Half.com customer service that I was in violation of eBay regulations for #145;category gouging#146; and that my account was suspended. Then, I was told to remove any and all online inventory that was in violation of this policy. Promptly, I made the corrections and requested reinstatement of my account. However, Half.com still refuses reinstatement of my account, stating that I am still in violation. Can you please advise what I should do to get my account reinstated? Is there anyone I can get in touch with and file a complaint? I have lost thousands of dollars as the result of the suspension, and am happy to do whatever is necessary to get back into eBay#146;s good graces.#148; When you start selling on eBay, you agree to be bound by the terms of eBay#146;s #147;user agreement#148;. This document #150; a contract like any in the #147;brick and mortar#148; world #150; can be reached via a link at the bottom of every page on the eBay site. As part of this contract, you agree to be bound by a number of eBay #147;policies#148; #150; in effect, eBay#146;s private legal system for ensuring that buyers have a decent experience on the site. Finding these isn#146;t always easy, but if you click on the #147;Help#148; tab from any page on the eBay site, then click on #147;A to Z Index#148;, you will find most of eBay#146;s policies listed under #147;L#148; (for #147;Listing Policies#148;) and #147;P#148; (for #147;Policies#148;). Just as in the offline world, #147;ignorance of the law is no excuse#148;. While eBay offers a number of services to help its sellers do more and better on the site, it is not responsible for teaching you how to comply with its policies. It is up to you to learn what eBay#146;s policies are and ask questions before you violate them. #147;Category gouging#148; is not defined as an eBay offense, but I suspect what you did here was violate eBay#146;s #147;categorization#148; policy (for details, see pages.ebay.com/help/policies/listing-categorization.html). Basically, you are supposed to list your stuff in the proper category #150; you don#146;t list Hummel figurines in the #147;toys and games#148; category, for example. eBay gives the following examples of #147;categorization#148; violations that specifically relate to books: #147;a cookbook should be listed in the books category, not in sports memorabilia#148;; #147;a book about Royal Worcester china should not be listed in the category for Royal Worcester china#148;. The first one makes good common sense, but I can sympathize with a lot of eBay sellers who foul up on the second one. If you#146;re selling a collector#146;s guide to antique mechanical banks, why shouldn#146;t you be able to list it in the #147;mechanical banks#148; category, as many inexperienced collectors might not even be aware there is a guide to their hobby they can find in the #147;books#148; category? Still, it#146;s eBay#146;s rule, and you gotta play the game their way. The fact that you#146;re not getting a response from eBay#146;s customer service team means one of three things: they#146;re still not satisfied that you understand the #147;categorization#148; policy; you are violating other eBay policies in your listings (for example, you are listing adult-themed books in the #147;books#148; category instead of the #147;Everything Else: Mature Audiences#148; category) and they don#146;t have the time or inclination to tell you what you#146;re doing wrong; or you haven#146;t tried hard enough to make contact with a human being at eBay who can solve your problem. You can call eBay#146;s customer support team at 1-800-717-EBAY from 6am - 9pm, Pacific Time, 7 days a week. You can also contact eBay via e-mail, by clicking on the #147;Live Help#148; link on the eBay homepage and then clicking on #147;Account Suspension#148; (in your case), but I wouldn#146;t use e-mail. Clearly, in the words of the immortal late Steve McQueen, #147;what we have here is a failure to communicate#148; #150; you need to get hold of a human being that speaks English and let them know how important this issue is to you. And do a little soul searching: if you sold over $100,000 last year on eBay, they made a ton of money in fees off of you. eBay is a very rational business, and I strongly doubt they would kick you off the site, blow off your phone calls, and cut off that revenue stream without a really good reason. Might you, just possibly, have been doing other icky things on the eBay site that got them really angry? Just a thought . . . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

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