May 7, 2010
First Get The Customers, Then Set Up The Business
First Get The Customers, Then Set Up The Business Cliff Ennico www.creators.com "For the past several years, I've been working for our state university. They have a toll-free 'hot line' where people can call with questions about their trees and shrubs, and I'm the person who gives the answers. We get tons of questions every day, and I'm thinking there's a business opportunity for someone to go out there and provide one-on-one consulting. I am worried, though, about how best to protect myself against lawsuits - is it better to take out liability insurance, or form a corporation or limited liability company (LLC) to run the business? Doing both seems a little like wearing both suspenders and a belt - you don't need both." Sounds like you're having trouble seeing the forest for the trees (sorry, I couldn't resist that). The first thing you need to do is find out if there's really a business here. Just because people are calling a toll-free line and getting free advice over the phone does not mean they will actually shell out their hard-earned cash for the same advice, no matter how good it may be. Before spending any money on setting up an LLC or taking out insurance, I would throw together a quick-and-dirty marketing brochure, get it out there, and see if homeowners really will bite. If they don't, then you won't have to spend any MORE money to shut down the LLC, close out the insurance policy, etc., etc. If the customers really are there, the next question you need to ask is: how much will I get paid for this? You are going to be spending considerable time visiting each customer, looking at their landscape layout, putting together a proposal, and so forth, and the hours are going to rack up quickly. I'm not sure most homeowners are willing to spend $100 or more an hour for advice on their shrubs - realistically, you are probably going to be charging something in the $20 to $30 range for an hourly fee. If it takes you 10 hours to advise a client, and you charge $200 for your services, that's only $20 an hour. Not bad, but you are going to need to have tons of customers at that rate before you earn a six-figure income from this business and quit your day job. Only when you know the customers will be there, and the economics make sense, do you start putting things like LLCs and insurance policies in place. How much protection you need, of course, depends on the real likelihood of your getting sued. If you are giving advice on chemical treatments, for example, you will need not only a belt and suspenders for this business, but a suit of armor as well - one sick kid (or pet), and you're toast. Even if you form a corporation or LLC for your business, I usually suggest that people carry liability insurance for the LLC's (and their own) "errors and omissions". If someone is injured because of your bad advice, and a nasty judge sympathizes with them and sees you have only $100 in the LLC checking account, he or she will be sorely tempted to "pierce the LLC veil" and give the plaintiff access to your personal assets. Having an insurance policy for the plaintiff to go after will make it easier for the judge to respect the limited liability your LLC offers. One more thing: make sure you check with the university and make sure you haven't signed anything that would prohibit you from doing consulting work on the side. I take it you are not quite ready to quit your day job at the university yet. Even if you haven't signed a formal noncompete agreement, I would run this by your immediate supervisor before taking any action. University people sometimes get prickly about their employees doing outside consulting work for real money (jealousy probably has something to do with that), and you're usually better off disclosing your plans up front than having them "catch" you doing it behind their backs. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest book is 'Small Business Survival Guide' (Adams Media, $12.95). 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 2006 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.

Posted by Staff at 1:48 AM