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How to Fail at Business Without Really Trying

By January 26, 2016August 3rd, 2021No Comments

I consider myself and the law firm to be forward-looking and optimistic. Hence, I believe this is the first time I used the word “fail” in any article about business in Lubbock, Amarillo, or anywhere else! That said, with but two weeks in the New Year, I have witnessed the same candidates for business failure meander into my law office. These individuals share many of the same traits which unfortunately point them and their ventures decidedly in the direction of failure in Lubbock, Amarillo, and West Texas. The most common attribute is that they have always cut corners and think that lawyers are a waste of time and money. In their view, any legal advice or documentation needed to start and maintain a business can be found on Wikipedia or Google. Unfortunately, many of these new businesses will not be around after the first year of operation.

In an effort to increase your odds of success as a new business in Lubbock or Amarillo, I have compiled the following list of key factors which contribute to business failure and loss of your investment.

1. Going to the Internet for Legal Advice to Start a Business in Lubbock or Amarillo.

Although many individuals go to the internet for medical advice, I have yet to find a person perform a medical procedure or operation based on “How it Works” or similar online advice. You would think the same admonition would apply to the legal profession, but oddly, it does not. There is plenty of free advice out there on every aspect of business law including an ample supply of forms and legal documents. Although there are certainly some legal gems out there, most of the information is inaccurate or tragically – outright wrong. Drafting a partnership agreement or LLC may seem as simple as a cut and paste function. However, if this was truly the case, there would be little reason to spend tens of thousands of dollars to complete law school and commence the arduous learning curve of a new attorney. The terms employed in a contract have precise meanings and require a thorough understanding of the legal principles involved. An incorrect word or even punctuation can lead to misunderstandings between business partners and easily result in litigation. Disagreements between partners, investors, and vendors based upon contractual errors are a leading cause of business failure during the first year. Consulting an experienced lawyer will provide you with the advice and experience to avoid this pitfall.

2. Starting your business life in Lubbock or Amarillo as a sole proprietorship.

This is a huge problem for new businesses and a very common cause of failure for businesses in Lubbock, Amarillo, or West Texas. Starting a business may seem as easy as putting your name out there and depositing checks in the bank. It is not. The choice as to whether to start your business life as a sole proprietorship or entity is the first key business decision owners need to make. A sole proprietorship is typically the worst choice because it exposes the owners to personal liability. A cost of doing business in today’s economy is that disputes often escalate to legal claims which can threaten your business. The simple decision to form an entity such as a limited liability company (LLC) can make all the difference in the world as you eliminate the possibility of liability with the stroke of the pen. This is huge! An experienced business lawyer will explain the differences between legal entities and what choice is best for you. Take advantage of that resource!

3. Registering your Lubbock or Amarillo business with the Texas Secretary of State is the same thing as a trademark.

This mistake has tragic consequences and takes down many unsuspecting businesses during their first year of operation. The simple fact is that registering the name of your Lubbock or Amarillo business in Texas does not result in a trademark under federal law. My usual real client example of a fatal result is a new business owner who registered the name of his business in Texas for the purpose of producing bottles of hot sauce. He came up with a clever name and went on to register the LLC with that name and then manufacture and print several thousand bottles. Ever eager to succeed, he convinced a major grocery chain to purchase most of the bottles on key store displays. On the eve of product rollout, he received a nasty letter from a law firm in NYC styled as a “Cease and Desist” warning him that a company in Manhattan owned the trademark to his hot sauce name. The law firm said that he did not have the legal right to use the name in commerce. Waving this letter in my face, the client wanted my assurance that this was not so. Unfortunately, the law firm was correct as a matter of law since their client owned the trademark which was obtained from the U.S. Patent Trademark Office in Washington. My advice to the client was to comply with the Cease and Desist and destroy the thousands of bottles of hot sauce. Needless to say, this client never signed up with the Moster Law Firm but I am 100% sure that it never engaged in the sale of hot sauce under its initial name! Recommendation – seek the advice of an experienced trademark or intellectual property attorney before proceeding!

4. Know the difference between an employee and an independent contractor.

This takes down many businesses in Lubbock and Amarillo which manage to survive the first year and still fail to get sound legal advice. It makes sense for a new business to bring on labor as independent contractors to save on payroll taxes. The problem is that under Texas law, most workers engaged in business are considered to be employees. The test is very easy to prove for the Texas Workforce Commission (TWC) which can put your new business in a world of hurt. If you are providing any instruction to new workers with regard to your business and/or set specific hours to report to the office/job site, the relationship is deemed to be an employer-employee relationship. This mistake can be fatal as the TWC has the legal right to audit your books and require you to pay benefits to current and former workers. Also – count on the TWC contacting their buddies at the IRS who will then assess past due payroll taxes. This mistake is heartbreaking and can easily put you out of business.

5. Hiring friends or family.

This is a leading cause of business failure and counter-intuitive. When clients hire friends or family they invariably fail to set forth with clarity the terms of employment. Same situation with respect to bringing on family or friends as business partners. Family and friendship ties make it difficult to explain the requirements of job performance or terms of the relationship. This can have disastrous consequences for your business, not to mention the family/friendship dynamic.

Bottom Line:

Try to avoid the top five leading causes of business failure and get experienced legal advice. This simple advice will substantially increase your odds of surviving the first years of business in Lubbock, Amarillo, or anywhere else!