The Business Fashion Tips Podcast 

Episode 12

 

There are so many different types of insurance that a business could need or is required to have that it will make your head spin. I am not an insurance agent, so I cannot tell you what type of insurance your particular business will need. What I can tell you is about the various types of insurance that I had to carry or still carry at some point during my professional career. So this podcast will give you some ideas as to what to expect for the types of insurance policies you will need.

One other thing to consider is that some policies cover more than one type of insurance. For instance, a general liability insurance policy may sometimes also cover product insurance. Each policy is different, so I highly advise you to find an insurance agent that you can trust and who will take the time to walk you through the best types of insurance for you. Keep in mind that some insurance companies claim that they will cover your insurance claims, which they do, no questions asked, and some say they will cover your bills, but when you file a claim, they fight it tooth and nail. So some insurance companies may cost more, but they will be there for you when you need them to be. Others may cost less, but when you have a claim, they are nowhere to be found or make it super difficult.

So let’s go through the insurance policies I needed at some point or another for my business.

GENERAL LIABILITY INSURANCE:
I would never be without general liability insurance. General liability insurance protects your company should someone hurt themselves while in your business. So let’s say someone falls down on the ice outside your store and sues your company for not getting rid of the ice by sprinkling salt and shoveling. It also covers property damage to someone else’s personal belongings. It also protects you from personal injury if someone tries to harm your reputation by making libelous or slanderous statements about you. I have never been without general liability insurance.

COMMERCIAL UMBRELLA INSURANCE:
If your general liability insurance only goes up to $1 million, but you would like to be extra careful and be covered up to $10 million, you will need an additional policy to cover the extra $9 million. This is called commercial umbrella insurance. Commercial umbrella insurance extends the coverage limits. If a claim exceeds the dollar limits on your policy, your umbrella insurance can help cover the difference.

PROFESSIONAL LIABILITY INSURANCE:
I mentioned, general liability insurance covers physical risks, such as bodily injuries and property damage. Professional liability insurance covers lawsuits that claim you made a mistake in the professional services you provided to your customers. In other words, it covers negligence when you make a mistake or don’t use a reasonable duty of care when performing your service. It is also known as errors and omissions (E&O) insurance and professional indemnity insurance. If you give someone bad advice but it turns out to be a disaster, that is when professional liability insurance can come in handy. If you unknowingly damage someone else’s reputation by defamation, libel, or slander and it causes emotional distress or mental anguish, you are covered by professional liability insurance. It covers copyright breaches when someone says you copied their idea. It also covers breach of confidentiality. So if you signed an NDA and accidentally told someone about the item in the NDA, you could be covered. I once had an accountant fax me another company’s tax returns. If this had been my company, I couldn’t tell you how angry I would have been.I immediately knew everything about this company by looking at the fax that was sent to me. That company could have sued that accountant, and the accountant should have professional liability insurance if he’s going to continue to do this.

COMMERCIAL PROPERTY INSURANCE:
Commercial property insurance protects the building you may own or rent, what’s inside it or on its premises, and the equipment you use to run your business. While I was renting a space for my business, my lease said I had to have commercial property insurance and name the landlord as another benefactor, which means they are also covered under my policy. It didn’t cost anymore to have them on the policy. Once I built my first building, the coverage was changed to cover my building, and my bank insisted I have commercial property insurance. It’s intended for tangible property, not monetary property.

BUSINESS CRIME INSURANCE:
Sometimes there is a gap between what your commercial property insurance will cover, so that is when you may want to look into business crime insurance.  Business crime insurance is another type of coverage specifically designed to protect businesses from theft and fraud. And it takes care of some of the incidentals that commercial property insurance may not cover.

BUILDERS’ RISK INSURANCE:
While I was building the building, I needed builders’ risk insurance. This is a policy that protects a building under construction against theft or vandalism. It also covers the tools and materials that are being used to build the building. 

CONTRACTORS GENERAL LIABILITY INSURANCE:
And I had to make sure my contractor had contractors’ general liability. This insurance protects the contractor’s workers and anyone else on my property during construction who could get hurt.

COMMERCIAL FLOOD INSURANCE:
If you build a building and it happens to be in a flood zone, regular commercial property insurance won’t cover you.  You need commercial flood insurance to cover damage from earthquakes or floods. 

BUSINESS INCOME INSURANCE:
If your property is damaged and that puts your business out of business temporarily because you are without a location, you may want to consider having business income insurance, also known as business interruption insurance. Business income insurance pays for ongoing expenses like a new place to rent, utility bills, and payroll during your shutdown. It basically replaces your lost income. 

BUSINESS EQUIPMENT INSURANCE:
You may also want to consider business equipment insurance. Business equipment insurance covers loss, theft, and damage to any equipment owned by your company. If you work out of a co-working space and your equipment is stolen while locked up in a shared space or someone takes your laptop, tools, or equipment, you’re covered. Keep in mind that if you go to a restaurant and leave your laptop to get a refill on a Pepsi or something and someone steals it, you are generally not covered because your insurance will consider this your fault for being irresponsible.

PUBLIC LIABILITY INSURANCE:
If your business puts you in the public eye, like an event coordinator, public liability insurance coverage may be something you’d like to consider. This covers those professionals who work in the public domain. If someone is injured because of something you did, or if you damage someone else’s property. Let’s say you walk by an artist’s booth that has glass in it, and you fall into and break one of their pieces. Public liability insurance could come in handy.  

PRODUCT LIABILITY INSURANCE:
If you manufacture your own products, you may want product liability insurance. This will protect you from design flaws, manufacturing and production defects, damages or injuries that are brought up from product malfunctions or during normal use of a product that was sold or a project that was completed, and it can protect you from inadequate warnings or instructions (in the book I have coming out in the near future, I go over some specifics of what needs to be on your product labels, so you may want to sign up for our newsletter so we can keep you informed when the book hits bookstores). 

Product liability insurance also protects you against financial claims for bodily harm or property damage if someone claims that your product injured them or contained a dangerous defect. Just  note: if a person altered your product and then was hurt, you would not be liable. That doesn’t mean someone can’t sue you. Someone can sue you over anything.

APPAREL INSURANCE:
For fashion designers there is apparel insurance and sometimes this includes general liability insurance or product liability insurance. Make sure you are not paying twice for different types of insurance when you don’t need to. It includes customer bodily damage (if a customer damages your merchandise), personal injury, and copyright infringement, and it generally covers what is covered under product liability insurance.

WORKERS COMPENSATION INSURANCE:
When it comes to your employees, you need workers’ compensation insurance. In my home state of Minnesota, all employers are required to provide workers’ compensation insurance coverage to all employees. Whether this is required or not varies from state to state, so check your state guidelines. If you don’t have your employees covered, you risk fines, penalties, and possibly criminal charges. And they must also provide coverage to non-US citizens and minors. This gives your employees benefits if they become sick or get hurt doing their job. It pays for their medical bills, replaces their lost wages, covers funeral costs and provides death benefits to the families of the employees who may have been killed on the job, and pays for ongoing care like physical therapy. Workers’ compensation also covers business owners who are considered employees of the company.

This type of insurance keeps going up in price for every claim that you have. However, I know businesses that have cut their workers’ compensation insurance in half. And I give out these tips in the book I have coming out, so I don’t want to give away what’s in the book. So if you find that you keep having workers’ compensation claims, you may want to read my book, which will be out soon.

Disability insurance is available to continue paying your salary if you become ill, have an accident, or are otherwise unable to work.

LIFE INSURANCE:
I had to get life insurance to cover my spouse when I took out a mortgage to build one of my buildings. I guess. This way the bank was assured that they would get paid should something happen to me.

DATA BREACH INSURANCE:
Data breach insurance, or cyber insurance, helps your business respond to a data breach if information you collected from your customers gets lost or stolen. The insurance will also help with the costs of notifying those customers who had their data stolen and creating a public relations campaign.

COMMERCIAL AUTO INSURANCE:
If your company has a commercial automobile, there is commercial auto insurance that protects you and your employees who drive the company-owned vehicles for business. The coverage helps cover property damage and bodily injury claims from an accident you, someone working for you, or you yourself cause. Note that if an employee drives a company car while on their personal time, and is no longer working, it may not be covered. Note that your personal car insurance policy won’t cover third-party claims in an accident that is caused by a business-owned vehicle.

MULTINATIONAL INSURANCE:
If you operate out of the country, multinational insurance should be looked in to.

HOME-BASED BUSINESS INSURANCE:
If you work out of your home, there is home-based business insurance that covers the costs of property and liability risks for businesses that operate out of the owner’s home. It also covers supplies, equipment, or other business property that you keep at your home or if you have customers stopping by.

How much is business insurance?
It depends on what type of coverage you need. Make sure to shop around. I never settle for the first insurance policy I find. Just make sure you are comparing apples to apples and read the insurance agencies’ reviews. If they won’t come through and cover you when you are in need, what’s the point of paying. I once had a house in the Bahamas, and a hurricane caused $50,000 worth of damage. Because they had so many claims at once, the Bahamas insurance agency I used would not cover it even though I had hurricane insurance. They used every excuse in the book. I asked what others on the island were doing, and many claimed they had the same issue in the past, and due to the limited number of insurance companies in the Bahamas, they all decided to self-insure (which means putting a little money away for damages each year and covering it themselves). I contacted my attorney, and he said that by the time we get through fighting them, it may cost $50,000, so you may be better off just paying it out of your pocket. I also had an insurance claim in the USA where the company said the agent didn’t cash the insurance payment check I made out to the agent until 2 days after an incident occurred. I took that insurance company to court, and we proved the day I met with the agent and gave him the check coincided with the date written on the check, and it was 3 days prior to the incident occurring. The court ruled in my favor, and they ended up having to pay for my attorney fees and the insurance claim. Due to this, I would never use either of these insurance agencies again. So do your due diligence before just trusting any agency.

HURRICANE INSURANCE
Hurricane insurance does not cover flooding nor fires.

FIRE INSURANCE
Fire insurance is not the same as hurricane nor flooding insurance.

FLOOD INSURANCE:

On the bright side, your insurance policies are considered an expense for your company on your tax documents. And money you receive as part of an insurance claim or settlement is typically not taxed. The IRS only requires you to pay tax on income, which is money received that results in you having more wealth than you did before.

It’s really mind-boggling how many different types of insurance policies there are, and I only touched on a few of them. One thing is certain, you will need a few different policies, so take the time to make sure you are covered and look into which agency is the best for you.

So that’s it for business insurance. If you’ve been listening to the top 10 steps needed to start your business, congratulations! You made it to the 10th step, so you can now be off and running to start up your business.

I should mention again that I’m coming out with a book that will continue to help you while in business. So make sure to sign up for our newsletter at businessfashiontips.com or DeBoraRachelle.com for future business and fashion tips.

As always, if you have any questions regarding business or fashion, go to anchor.fm/debora-rachelle to leave a message, and I’ll try to answer any question you have.

Have a great day!

The Business Fashion Tips Podcast 

Episode 11 – Step 9

 

Keeping your personal life separate from your business. Step 9 – episode 11

Step 9 in the 10 steps needed to open up a business is making sure you open up a separate bank account, credit card and expense account to use for your business only.

Why is it so important to open up separate accounts like a business bank account and a business credit card and a business expense account and there are many reasons for this. It’s hard when you are an entrepreneur and go into business because you and your business become one. Your business becomes an extension of your. It creates your identity and who you are. But you have to remember that your business is an independent entity. 

#1 – if you get audited by the IRS on your taxes, if everything it together you open up the IRS to examine both your personal and business accounts. So if they came just to see your business, you have to let them into your personal affairs as well. So you just opened up an entire new can of worms for the IRS to explore. 

That also takes up extra worry time because if you just kept it business, and they are only there to audit your business you don’t have to worry about providing them everything about you personally. Blurring the lines of what is your business and what it your personal account allows an IRS agent to look into both you and your businesses accounts.

#2 – It’s so much easier for accounting to keep the business aspects separate from your personal accounts. It is way easier track your businesses cash flow if you keep your records separate. At anytime you should be able to see how your business is doing. Is it profitable? What is bogging you down? It is easier to forecast your businesses future. As you can see in a quick view what expenses were higher one year from the next?  If you ever have a question on a missing check you never need to go through everything, just your business checking account.

#3 – Be professional and add brand identity. Customers and vendors should know they are dealing with a professional business, not some fly by night maybe it’s a business, maybe it’s a hobby fling. Keep it professional. If you want your customers to take you seriously show that you are a business that is in this to win it.

#4 – From a liability standpoint keeping your accounts separate is important.  If someone sues you and you have your business accounts mixed up with your personal accounts, they can go after your personal assets. You need to keep personal assets out of your business.

#5 save time which means saving $.  Time is money is a brilliant phrase that Benjamin Franklin came up with. There is a reason why he is on the $1 bill. 

#6 establish credit. Your business may need to take out a loan one day and if you can show it is making a profit and has it’s own assets you may be able to take out a loan for the business without your co-signature. That way if you business goes down, the vendors you owe money to cannot go after your personal assets. If you borrow funds try to borrow them against your business and not personally.

#7 if you ever try to sell your business the interested buyer will want to see 5 years of your business finances (not your personal finances). 

How to keep your business  & personal finances separate

*- An easy way to keep your books accurate is to invest in an accounting program like Quickbooks. Every time you make and expense or bill a customer it will go right into this program. You can even send invoices via email with your company logo on it from this program. It will allow you to keep separate accounts.

*- Open up a business credit card and only put business expenses on this card.

*- Keep all your receipts. Match up your receipts to your business credit card and scan them into your computer.

AND REMEMBER, Reduce your risks and don’t mingle your finances.

The Business Fashion Tips Podcast 

Episode 10

 

How to patent a product or an idea.

If you are going into business because you have an awesome idea or product concept, you’ll want to look into patenting it. There are three types of patents. The strongest is a utility patent and 90% of patents issued are for utility patents. This patent protects your entire invention and how it works. In order to apply it must be practical, operational, and beneficial. But just know that another inventor can come along and they only need to change a few things to get their own patent on a similar invention. So when you file the patent, think very broadly and come up with every idea you can think of that a person could change to make the idea their own. For instance, I have two utility patents my bed sheets and one utility patent on my duvet. Check them out at these links:……….. BEDSHEETS = https://youtu.be/TXMgv57Gjcs DUVET COVER = https://youtu.be/stUBkWjNF5I You can see the clever reasons why I was able to receive a patent. However, someone could just have the straps detachable and it would be an entirely new invention, so you really have to put something like this in the patent. Think of what someone could do to change the invention and include that in the filing. Your patent attorney or patent agent need to know all about your invention and they also try to think outside the box as how it could be changed. It helps to work together as two brain are better than one. So, try to come up with as many different ideas as you can. On my duvet I have a zipper on either side of the duvet, these could be replaced with velcro or buttons, so that needs to go into your patent. Try to be as broad as you can. The reason why I have two patents on my bedsheets is because when my patent agent first filed the patent they approved the patent but they did not approve one detail of the patent. So instead of just disputing the entire patent which could then be rejected entirely. My patent agent advised to take the first granted items on the patent and then go back and appeal for the other detail on the sheets. Eventually the USPTO office agreed so now I have two patents. Unfortunately that means I have to pay maintenance fees on two patents as well. My agent felt it was best to take what they were giving us and then appeal because they are known for turning down the entire patent.

How much does a patent cost?

Filing for a utility patent is $320 plus the agent fees. The filing fee differs for a small entity which is $160 and a micro entity which is $80. A small entity has 500 or fewer employees. To be named a micro entity, you must first quality for a small entity, have less than 4 patents under your belt and have an income less than $$212,352 from the previous year the fees were paid. Then the USPTO conducts an examination which costs roughly $800 for a utility ($400 for small entity and $200 for micro entity). The process takes roughly 2 years. Oddly enough my first patent on my sheets took 30 days. My duvet took 2 years. My patent agent told me I had the record for the fastest and longest time it took to receive a patent with him.

What patent pending means?

While you are waiting for your patent to pass, you are granted a status of “patent pending” which means you have filed a patent and are waiting to hear back from the USTPO patent office. If your patent is granted or someone else comes up with the same idea, you are still covered under the “patent pending” status. Once you are approved for the patent you have to pay an issuing fee of $1200 ($600 for a small entity and $300 fr a micro entity). Once you finally are granted your patent you are required to pay patent maintenance fees which are currently $2000 after the first 3.5 years (again small and micro entity fees are smaller), then $3,750 after 7.5 years, then $7,700 at the 11.5 year mark. As you can see, it gets quite expensive to own a patent. So it’s really only worth going after a patent if you are committed to making your patent work for you. Just getting a patent and sitting on it is not a reason to pursue one. I’ve known people to get a patent and hope that some big company out there will make an invention and then they can go after them for infringing their patent.

What is patent infringement?

Patent infringement is when someone tries to sell your patented invention. You can then hire an attorney and try to go after them. The problem with this is typically only the attorneys win. You pay your attorney thousands of dollars to defend you and the company infringing on your patent can just stop making it. If they choose to continue making the same product they can tell the courts how theirs differs. This can take years in court and you can go broke trying to protect your patent. On the other hand, if you don’t go after it and try to protect your patent, the courts will see this as you not thinking that their invention infringes on your patent. One example is when Apple filed a suit against Samsung in 2011 claiming that their products infringed on Apples patents. Apple sued Samsung for $2.75 billion in damages. Samsung filed a countersuit claiming Apple infringed on their patents. Apple won the suit hands down and were awarded $1.05 billion. Samsung appealed and it went back to court where a federal judge threw out more than 40% of the billion dollar verdict. Then another trial took place bringing the total damages awarded to Apple to $930 million. In the end both companies were found guilty of infringing on each others patents and ordered to pay damages. In the end Samsung had to pay Apple $199.6 million (a far cry from what they were first awarded) and Apple had to pay Samsung $158,400 for infringing on one of their patents. But wait, there’s more. Samsung failed another appeal and in 2018 Apple was awarded $539 million in damages. My point here is, image all the money they are spent on attorney fees fighting to have their patent upheld. Now what if you felt Samsung or Apple were infringing on your patent? Do you have the money to continue fight them? Another question would be, do you have the strength and stamina emotionally to continue a court case for 7 to 20 years? I know of inventors who have had nervous breakdowns in the process. Before you file you also want to have someone search other patents to make sure you are not wasting your time. I did this search myself for two reasons. 1) I wanted to personally see what was already out there so I could redesign my item if something was similar and 2) it was super easy to look up on USPTO.gov’s site they give complete listings of all the other patents out there. You simply search like you would on a search engine using keywords in your search. Google also has a patent search feature which I also used for backup. To hire someone to search for you ranges from $500 to $1500. The next patent is a design patent which is easier to get but it only protects how the product looks. These patents are easier to get and I would guess people get these types of patents just to put the words “patented” on their item because they were unable to secure a utility patent but want outsiders to think they are really patented? IDK to me design patents are not really worth having unless it’s just to say you have a patent. They do cost less. You can find their fee schedule on the USPTO.gov website and I’ll put a link on my podcast page at www.businessfashiontips.com: https://www.uspto.gov/learning-and-resources/fees-and-payment/uspto-fee-schedule Design patents are only good for 15 years from the date of the grant. The 3rd type of patent is a plant patent. And since I do not have a green thumb, I probably am not the person to go into detail on what a plant patent is, but what you need to know is a plant patent is for a plant a person can actually reproduce.

Which patent to use? Which patent do I need?

So just to recap: the three patents are 1- utility, 2- design 3- plant. A utility patent is used when you have something functional and beneficial. A design patent is used just on the look of the product and a plant patent is working with living plants.

Should I use a patent attorney or patent agent?

When I first started in business I was all about trying to do things myself to save money however, in the case of patents, I highly advise against doing this yourself unless you are very familiar with the patenting process. The reason being is patent offices always try to turn down your patent. I’ve applied for many and only once did they just gift me a utility patent. Every other time they would send my patent agent a rebuttal and he would have to argue with them as to why my patent was different. There are a lot of loopholes you have to go through to get a patent and a lot of forms, petitions and appeals that you have to know how to do. A patent attorney or a patent agent knows how to get through the process quicker and knows what the USPTO is looking for. If you’d like to save money I would suggest to go through a patent agent verses a patent attorney. They specialize in writing only patents. My patent agent actually used to work for a patent attorney, then went out on his own. So basically he did all the work for the patent attorney and the patent attorney doubled his bill from the patent agent and sent it onto the inventor. So where a patent attorney may charge $5,000 to $10,000 plus filling fees, a patent agent may charge $2500 to $5000 plus filing fees.

How do I find a patent agent?

When I was looking for a patent agent, I found mine on USPTO.gov. I found 3 agents that had won a lot of patents and then interviewed them and asked for pricing. USPTO.gov is also the site where your agent will file your patent and you can keep up to date on the patent status on this website. The one I chose is the one I felt most comfortable talking with. You’re going to be working with them for a long time (typically 2 years) so you may as well feel comfortable working with them. I cannot stress how much I appreciated my patent agent. I’ve learned that the USPTO wants to reject as many patents as they can, that’s their job. You need a strong patent agent to know their reasoning and bylaws for rejections, argue their points, and file the appeals. Believe me you don’t to spend thousands arguing your point just to have your application rejected. Your patent agent can also tell you if you’re wasting your money. They also can help find a person to do technical drawings of your product which typically range from $500-$1200. They need to work specifically with your patent agents filing and be in a specific digital image format. Something else you need to do is when you are going about making or planning your invention, keep detailed records of everything on a notebook that cannot have the pages taken out and replaced. The seam on the notebook should be glued rather than in a 3-ring notebook. Year ago they change the patent process from first to invent to first to patent. Which means if you have all your notes dated and could prove you invented this new patentable idea, you could claim ownership to the patent. Now you have to be the first person to patent the idea, so your notes are not as important but it’s just a good idea in case an employee or friend decides to go after the patent, notes on this hand can be crucial. One of my friends that has over 500 patents takes photos with everyone he meets and discusses his patents with. And inventor needs to discuss their ideas with other when they are trying to sell or license their ideas with other. Licensing is when you sell your idea and a company that licenses your idea sells your product and give you a % of each sale. This % is typically 5-8% of each sale. Which is a great % if you don’t have to do anything but collect a check. You’ll also want people like this to sign an NDA (non-disclosure agreement). This ensures in writing that they will not copy, duplicate, nor tell others about your idea. If you want to get your idea on record fast but don’t have all the details yet, you can apply for a provisional patent. Provisional patents last one year and cannot be extended. This will prevent anyone with the same idea from getting in front of you at the USPTO patent office. In other words, it holds your place in line. Keep in mind if you file a provisional patent the patent term is measured from the filing date of the provisional patent so instead of 20 years, you may only get 19 years if you waited all 12 months offered with the provisional patent.

When does patent protection begin? How long does a patent last?

Once a patent is approved it is good for 20 years so long as you keep paying your maintenance fees. You can keep track of them on the USPTO.gov website as it has an area to sign up and list all your patents and it tells you when your fees are due. If you took out a patent provision that is good for one year, you lose one year of your patent when it is issued.

Are patent costs tax deductible?

Patents are considered assets and they can be depreciated on your tax return.

The Business Fashion Tips Podcast 

Episode 9

 

How to find the best business location for your business. Location Location Location

Great to have you back. We are going though the top 10 steps needed to starting a business and what you need to know. 

I hope you’ve heard the words location, location, location. If not, it’s important you do get to know why marketing 101 starts with location, location, location.Where your business in located can really effect your bottom line in more ways than one. So in this episode I’m going to go over the top 10 factors that determine how to choose the perfect location for your business.

The worst mistakes a business can make is thinking they can open up a business in any old location.The location of your business is essential for its success. Every business differs in what the needed credentials are. 

1- The first thing you need to consider is zoning. A person can’t just say, “Hey this is a perfect business location and then open up their business right there.” You have to check with your city, county or state on its zoning ordinances. If you do decide to simply open up and business and it ends up being in a district that is not the properly zoned for your type of business, you could get fined and they can and probably will close you down.

Although I’ve found that the names of the zoning districts vary from state to state and even city to city, they basically all represent the same types. There are residential zoning districts strictly for residential homes, there are commercial districts which are typically for shopping malls, hotel office buildings nightclubs, restaurants, etc. There is agricultural zoning which obviously tends for the farm industry. There are historic zoning with buildings typically older than 50 years that are trying to be preserved, there are art districts catering to artists, Recreational zoning is reserved for parks, industrial zones are where you’d find manufacturers. then there is mixed -use where perhaps started out as residential housing but is leading more into businesses and bars. In our county these zones are then broken down in to sections for instance there is an r1 zone verses an r2 zone.

Every one of the zones has certain restrictions for instance, if you own a commercial lot most of the land in our town allowed a business to build right up to the lot line however, if you are in a residential section, you have to build 5-10 feet away from the lot line. With commercial properties, you need to allow space for water overflow, ascetics such as trees, and parking. So each zone has their own codes, conditions and restrictions to abide by and these vary from city to city.

So first, search online for your cities or counties zoning department. There they typically list a zoning map where you will know which areas you businesses qualify to be in.

2- The second thing you need to consider are your employees. Will they have to travel far to get to work. How will they get there. What transportation’s opportunities are available for them? How far are you from the bus line, that could effect how many people you get to apply. If people do not want to commute to get to your building, your price of labor will increase because typically increasing wages will increase the selection of applicants. It’s hard to get good workers you don’t want to limit your supply and demand.

Are you in a safe location? If you hire sewers are they going to want to be working the late shift and risk getting mugged when they get off of work.

Is there plenty of parking for your employees? No one want to walk a mile to get from their car to where they work. Will they have to pay for parking, if so are you going to want to compensate them for parking?

3- Third, how close are you to your suppliers or vendors?
If you have a supplier you rely on for necessary parts being close offers you easy access to them. It also helps to be able to get to know your suppliers better which could mean better terms. And there are less costs in having to have them ship you your necessary supplies. This in turn helps reduce availability problems, quality issues and it takes less time to get to you- and that means your company is able to give better service which in turn give you happier customers. There is an area in NY called the Garment District. Since NY was the largest storage site in the country for textiles, it only made sense fashion manufacturers moved into this area that typically had large open warehouse type buildings, perfect for setting up a factory line of sewing machines. It was also cheap because it started out as the ‘Tenderloin’ district. It was the district of ill-repute and gained it’s name because a police officer once said, he could afford tenderloin for dinner because he received so many bribes from the districts patrons. I guess even even prostitutes have their own business location. It was said back then probably in the 1800’s that , “No upperclassman would dare find themselves in a location such as the Tenderloin”. So this meant cheap land, cheap rent, and cheap buildings, perfect for the low costs needed to support factories.”

Just to note the garment district started to expand closer and closer to 5th avenue (where the elite upperclassman lived). So the city of NY rezoned 5th Avenue to only hold residential buildings. Therefore, stopping factories from expanding into where the large mansion presided. Currently 7th Avenue is considered the center of the garment district. 7th Avenue is often referred to as “Fashion Avenue”. They even put fashion avenue on the street signs because people started to recognize the name fashion avenue more than 7th avenue. Ralph Lauren was housed there for many years but most fashion designers are moving on to new locations. Jill Stuart, (Badge-lee mish-ca) Badgley Mischa and Morgan Lane are still there but many non-fashion related firms are moving in.

4 – Client access: So let’s say you found a spot where employees are happy to work for you and you’re next to your supplier. The next question is if your customer needs to come to you, are you located in a good place for them. I remember I was in a strip mall located to the side of a major mall. However, I found a lot for sale directly across from this same mall on the main freeway. Once I transferred over to the new location my sales immediately increased 20% just from the change of location. People automatically knew where I was because they had to pass my store to get to anyplace worth going to in this city. This really helped with my advertising budget.

5- Is there foot traffic? Can you be seen without having to spend quadrillions on advertising? Then again malls have a ton a foot traffic however, they charge for that which leads us into my next point budget.

6- Which leads me to the next reason budget. In order to survive in business all your expenses have to aline. Can you afford where you are at? Can you afford not to be where you are at? Just from simply changing my location my sales went up 20%. If I was located in the main mall, my sales may have been triple but would I have been able to afford paying 10 times the amount of rent?
Can you afford the rent? Taxes? Utilities. These are all factors, the larger the space, the longer you have to run the heat or air conditioning. Are there government incentives?

7- Competitors: your competition’s location should be analyzed. I’ve often heard to never locate next to a direct competitor, but I happen to disagree with this. Have you noticed how restaurants seem to congregate in the same places. You’ll often see an intersection with a gas station on each of its corners facing one another. Costco often builds right next to Walgreens. Sometimes it’s better to be right where your competitors because if a customer can hit two stores at once in the same area, they are likely to go there first. Or if they are looking for a restaurant, they will look in the restaurant area first. This is why huge malls were so successful all the stores congregated in one area. Remember we talked about the Tenderloin district of NYC where prostitutes hung out. People knew to go there for that type of activity. It later became the fashion district where most fashion businesses kept their factories.

I do understand why many experts feel being next to your competition will put you out of business but on the other hand, if you can strive to be better than your competition, perhaps you will put them out of business.

8- Should you be outsourcing instead. If you’re in need to large warehouse space for shipping, why not look into fulfillment centers. It may cost you less letting a shipping expert do their thing because they specialize in just that one thing, packing and shipping. Your company could then focus on things that are more important such as sales. Fulfillment centers have shipping and packing down to a science and they ship in bulk so your shipping costs could be less. If you only need an office for yourself or a small staff, perhaps checking out a virtual office should be something to consider. You can work from home yet for a nominal monthly fee, a virtual office will provide you with a commercial physical address, a trained secretary to answer your phone calls, your own phone number and rent by the hour technologically advanced conference rooms should you need a place to hold a meeting. They also offer physical office space if you just need a small place to work yet you still get the big office feel with the provided receptionist and conference areas.

9- Next you need to consider the building itself. Do you receive large shipments? If so, do you need a cargo door? Should you be on the first floor for sending and receiving packages? Is the building set up for
high speed internet or other technological advances? Does it have air conditioning so your employees won’t melt? Is there room for expansion?

10- Finally does the space fit your image or brand? Does it reflect how you want to portray your company? It’s pointless putting an art gallery in a meat packing district. Although zoning would probably qualify are and meat together.

So there you have it, the top 10 ways to find the perfect business location.
Let’s review:

• 1- Zoning – Make sure your in a business district.
• 2- Employees – Is your space convenient for your employees?
• 3- Vendors/suppliers – Are you close to your vendors or suppliers?
• 4- Customers – Is there appropriate customer access?
• 5- Foot traffic – Do you need foot traffic for exposure?
• 6- Budget – Can you afford it?
• 7- Competitors – Should you be near them or away from them what benefits you most?
• 8- Outsourcing – Should you be outsourcing instead?
• 9- The space – Does it work for your business?
• 10 Does it fit who you are, your brand, your image?

Episode 8 Step 6 in our series of How to start a business in 10 steps podcasts If you have listened to the last episode, you have the perfect name for your company. Another step or “must do” before you can go into business is to obtain a federal and state tax ID’s and apply for any necessary licenses or permits. So what are federal and state tax IDs? Federal and State Tax IDs are how our United States government keeps track of if you have paid your taxes. As you might have guessed, the government insists you have these so you can file your taxes properly. A federal ID is like your personal Social Security number. You know, you put it on all of your tax documents. It’s also known as (EIN) or Employer Identification Number so, you’ll have to use it when you pay your employees.
I won’t go into how to pay your employees in this episode but just note, when you do pay your employees, you have to also tuck some money away for them into their social security fund for their retirement, and the government also has you as the employer match some of these funds. I’ll go into more detail on this in my book which will be published in the near future. For now, we are only focusing on the 10 steps to open your business and so I’m just going to talk about how to get your tax ID numbers. You have to apply for an EIN, The federal tax identification number…before you open a bank account, before applying for any additional business licenses or permits you need or even before you hire your employees. The great thing is, it’s free and it’s easy to apply for a federal and state tax ID number. Once you registered your business, it’s the next step you need to take. The IRS or our government has made this super easy to apply. Simply go to https://irs-gov-ein-number.com/ and choose your entity type. If you missed that link, I’ll also type this link in my episode notes listed on my website businessfashiontips.com If you don’t know what type of entity you are, go back and listen to our podcast episode 6 and that will walk you through it. I’m going in order here people. If you are on this step number 6 and haven’t listened to steps 1-5 yet, you need to go back and start from the first episode. Once you are on this form, it will ask you some basic information like the name of your company, it’s address, and principal officers and the state you are registered with. They ask for your state for a reason because they tie your federal ID number tax account to your state tax account and at the end of the year when you file, they better match up with the dollar amounts owed, or you will hear from them. So, once you are finished filling in this short form, they send you your Federal ID (again it’s also called your EIN) and I remember those two different names confusing me when I first got my EIN 25 years ago. Just know that sometimes they call it your fed tax ID and sometimes they call it your EIN. Once you push submit application, you will receive your Tax ID typically within 24 hours. You don’t need to hire an attorney or tax accountant just to obtain your EIN or state tax ID. Why pay hundreds or thousands to a professional for something that will take you 5 minutes to complete? Now getting the state tax ID may be a little trickier because you have to go to your state’s websites to get this ID. So go to a search engine and type in “register for a state tax ID in Minnesota” (substitute your own state). Each state has their own way of doing this but they are basically the same. And it’s a short easy form they have you fill out. There are currently a few states that have no personal income taxes: So let me see if I can name them off the top of my head: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. How do I know this? Because I have looked into moving to these states. If you live there, I only have one thing to say to you, congratulations! It’s like winning a lottery not having to pay personal income tax. You not only save money but you have less paperwork that you’ll need to file. Lucky stinkers! A couple of those states like New Hampshire still tax on interest and dividends. However, please note, this also depends on your business’s structure as you may have to pay corporate income tax instead and as far as I know only Wyoming and South Dakota don’t charge corporate or personal income tax. Speaking of business structure, if you are a sole proprietor and have no employees and need no special permits you won’t have to file for a federal or state tax ID because you can report your business on your personal tax statement. However, sometimes sole proprietors want to apply for their state EIN as this can provide another layer of protection from identity theft. After you have your state and federal ID’s it’s time to apply for any special permits or licenses you may need. For instance, my state needs special permits if you sell alcohol, guns, live animals, explosives, hazardous waste, commercial fishing, mining and drilling, or operating oversize vehicles. If you. There are bonding requirements for instance if you are a building contractor you need special bonding permits. are putting up a sign in your front yard with your business logo on it, you also need a special permit. These permits may be a pain but there are reasons behind them. For instance, when I applied for my sign permit I was only allowed so many sq feet per how big my building was that the sign was located on. It also had to be at a certain height. And if it was freestanding there was landscaping requirements for under it. Can you imagine if we could put any size on the building instead of making your community look good, everything may look trashy and junky like graffiti and garbage. Because there would be so many signs and there would be no cohesiveness to them. There are licenses to make sure businesses have the proper competent people running them for example if you do manicures, you need to prove you had proper training in learning how to do nails. If just anyone did your nails, you wouldn’t be guaranteed that the person knows how to sterilize their equipment and if the nail technician accidentally cut someone with their nail clipper and left blood on that clipper, then used it on the next person, who knows what type of disease you would get. Permits also ensure people are responsible for the use of natural resources. So there are a number of reasons for obtaining permits and most of them are very logical. There is also one more necessary State ID you’ll need if you carry products that the state requires you to charge tax on and that is your sales tax ID. Some states use the Federal EIN numbers as their Sales tax ID but this varies by state. My home state of MN has a separate number you need to apply for and you use this number at the top of your form when you send in the sales tax you collected for the government. You’ll have to go back to your State’s website to see if you’ll need a separate sales tax ID number. Sometimes they call this a ‘resale certificate’, ‘sales tax exempt number’ or a ‘sellers permit’. Just keep searching your state’s website under any of these names to get to the proper page for applying for your sales tax ID. Yes, if you sell products chances are you will need to collect the governments sales taxes on these products and then report to the government and hand over that which you collected. All in all, it’s important that pay on time – what you collect for the government to the government. Because if you don’t the government can go right into your business bank account and take that which is owed to them. And sometimes they even go into your personal bank account. Therefore, keep your records accurate and up to date. I highly recommend investing in a proper computer program designed for your type of business. Once you get behind in taxes, the fines can really start to mount up and can overwhelm you. Take for instance, the company Cultural Brokerage Agency *1 (also known as Brother Vellies) that was formed by Designer Aurora James. You may remember she was made famous when Representative Alexandria Ocassio-Cortez (AOC for Short) wore her dress to the Met gala stating “Tax the Rich”. James’ company had 15+ tax warrants in NY state for not withholding income taxes from employees’ paychecks. Just a reminder, when you are an employer, if you forget or just don’t withhold income taxes from an employee, you then have to pay 100% of that which was not withheld out of your own pocket. The government expects the employer to withhold collects federal and state income tax from their employees, to pass onto the government. Some employers even take the income tax out of their employees paycheck, then forget to pay it to the government. In other words, they forgot that it was not theirs to keep, it was the employees wage and they need that put into their employee’s social security fund so that employee can collect social security upon their retirement. In 2018 and 2019, the IRS placed 6 federal liens on the Cultural Brokerage Agency totaling over $103,000. And this isn’t only for businesses in the USA, fashion designers Dolce and Gabbana were found guilty of evading taxes amounting to around $227 million dollars $200 million euro, they were sentenced to 1.5 years in jail however, they appealed and the verdict was overturned. Although they may have won their lawsuit, it tainted their name and reputation and they still lost having to pay exorbitant legal fees. One last lesson, pay your taxes on time so you are not penalized or prosecuted. So that ends this podcast. The next podcast we will touch on step number 7 in running your business and that is finding the perfect location for your business. ———— Cited: *1- https://nypost.com/2021/09/18/aocs-tax-the-rich-dress-designer-aurora-james-is-a-tax-deadbeat/?fbclid=IwAR3tl0HEnKu6rodIIp7lzIoNF6HmRu1L9VOASg-Y632JTfxx2br_fvKWN4w 2*- https://www.theguardian.com/world/2014/oct/25/italian-court-overturns-dolce-and-gabbana-tax-convictions

The Business Fashion Tips Podcast 

Episode 7 Your business name will be with you for a long time, so it’s very important to take the time and get the name of your company right. Sometimes the perfect name just comes to you and at other times, it can take months to find the right name. It plays a huge part in branding your company. And branding is how a customer feels about your product when they hear it’s name. For instance, take the company name Chanel? What do you think of when you hear the name Chanel? To me, when I hear the word Chanel I conjure up an image of high quality products that are expensive, and have a timeless look that I’d like to associate myself with. When I hear someone say the word Chanel, I instantly wake up and want to know what is being talked about because I love Chanel and all that the brand stands for. I can associate with the brand name of Chanel on a personal level because I love their quality and craftsmanship.
This is the reaction you want people to feel when they hear your business or brand name. You want them to see themselves with wearing or using your product. You want them to remember your company name and get that “feel good” feeling whenever they hear it. This, my friend, all leads to your company making money. It helps customers identify with your business which leads to profits. You’ve heard the saying, you never get a second chance to make a first impression. This is that time. Your brand name is the first impression you leave on people. It entices a person to buy your product or service. after all, isn’t that why you went into business? To sell your product? Like CoCo Chanel, many fashion designers use their own name when building their brand. CoCo Chanel’s real name was Gabrielle Chanel but people called her ‘CoCo’ before she ever started designing fashion, and the name stuck. For my fashion designs I used own birth name “DeBora Rachelle” and it became my company name. It was different enough from other designer names so it too stuck out. Sometimes your own name just doesn’t work. And you need to swallow your pride and simply find a name that works. Look at Ralph Lauren. Did you know Ralph Lauren’s real name is Ralph Lifshitz. Can you even imagine telling people, I’m wearing the Ralph Lifshitz brand? I don’t know about you but I highly doubt I would have ever bought a Ralph Lauren shirt if it was named Ralph Lifshitz. When I went into bed sheets, I never did come up with the perfect name for my bed sheets that stay on our bed, so I just stuck with the same DeBora Rachelle bed sheets name knowing people that purchased my dresses would recognize my brand name. However, when I thought up a duvet cover that was super easy to put on your duvet, I named it zip-zip-flip by DeBora Rachelle. It describes what the duvet does in an easy format and it a catchy quick name. The new travel products line I am introducing next year is going to be called ‘Packwrite by DeBora Rachelle’. It just seemed fitting to this new patent-pending suitcase that makes it unique and sets it apart from all the typical suitcases on the market. I’m not quite ready to launch the suitcase yet, so I don’t want to say much more however, you’ll have to do a web search on “Packwrite” in about a year once I have launched the product so you can see what I’m talking about. The name suits not only my new suitcase but is to be the entire “brand” name for my travel division. The first thing I did after I found this perfect name of ‘Packwrite by DeBora Rachelle’ was to search to see if I could purchase the domain name. This is first and foremost in today’s times. It’s important that you can register your brand name as a website. Because if you don’t have the means to the web name, you may be doing a ton of advertising for someone else’s company.

Another reason I like the word Packwrite is it has to do with the products I will be selling. My main item will be a suitcase, hence, the Pack in Packwrite. Thus, If the name has something to do with what your company does, that is always a bonus. Don’t pick a name that is limiting to one product so you cannot diversify. That’s why it’s ‘Packwrite by DeBora Rachelle’. Packwrite will represent my travel products, DeBora Rachelle represents all my products. The spelling of Packwrite is a play on words. It suggests you are packing right R-I-G-H-T when in fact I’m spelling it Pack W-R-I-T-E which has to do with using a pen and paper. Again, You’ll see the correlation once I launch the brand. Either way people can easily spell it. Can you even spell Ralph’s real name Lifshitz? Lauren was a much better choice all around. Look at the Ettore Boiardi. His last name was spelled E-t-t-o-r-e B-O-I-A-R-D-I. He made a wonderful unique pasta sauce however, everyone that saw his name on his label didn’t know how to pronounce it. So they really didn’t know what the product was to ask for. Being an Italian immigrant, Ettore Boiardi was very proud of his family name but realized sometimes you just have to swallow your pride and make sacrifices so that you get the brand name right for progress and profits. He changed his name to Chef Boy-ar-Dee spelled Boy-A-R-Dee (D-E-E) and the rest is history. Chef Boy-Ar-Dee. It was a play on words, Just the change of spelling caused Americans to be able to pronounce his name and associate themselves with it. To find the right name, you have to know who your customer is. Who is your target market? What values do they have? Look at the Deisel clothing line. They look at their customers as unconventional revolutionary rebels with radical ideas. They defined their customers as reckless youth who want to disrupt or shock others or shake things up with their clothing styles. They noted their customers greatest fear was being powerless. So the owner decided their company needed a powerful name. When you think of the word Deisel what comes to mind? I think of the biggest semi-truck barreling down the freeway. Semi-trucks are something I don’t want to mess with when I’m driving a smaller car in the lane next to it, so Deisel is a perfect name for a clothing line trying to reach this type of customer who wants to feel powerful. And an effective name to conjure up an image that their customer can relate to.  If you simply cannot figure out a name, use sites like: http://www.naminum.com, go daddy.com, https://www.behindthename.com, https://www.shopify.com/tools/business-name-generator#ToolContent, just put name generator in to a search engine and up should pop a bunch of sites that can help. If nothing else it may lead you to a new idea based on their findings. Don’t be afraid to put together a focus group of people who you look at as potential customers and run your company name by them to see their view point. Swallow your pride if you have to like Ettore Boiardi did for Chef Boy Ar Dee – if you have to. That’s not to say if you get it wrong you cannot change the company, you can but it’s like starting over again.  Changing a name comes at a great expense and you have to rebrand all over again like your starting from scratch.  Did you know Google was called “Backrub” when it first came out. It had to do with the analyzing a website’s back links. It’s kind of a tech nerd term and not one that would stick with the typical customer who uses Google. Why don’t you “backrub it” doesn’t have quite the same effect as why don’t you google it?  Does it? Google is a name that has nothing to do with anything. It’s just a made up word. Which can be good however just know, Made up words are harder to market so it takes more money to market them, but once you do, they have the ability to become generic brand names. Look at the brand name Kleenex, people refer to all facial tissue as simply Kleenex. If you can do that with your brand name, that’s above and beyond a miracle. Brands like Puffs had to spend millions to complete with Kleenex. Kleenex by far dominates the facial tissue market and probably always will because people simply refer to all facial tissue as Kleenex.  Pepsi-Cola was once called Brad’s drink. Not quite as catchy as Pepsi, is it? In 1898, Caleb Bradham a small town pharmacist from North Carolina, invented the cola and his customers simply named it Brad’s drink short for his last name Bradham but Bradham didn’t feel confident that “Brad’s drink” described his formula nor did it give his customer’s the healthy feel good feeling he wanted to portray. After all one of the reasons he created the beverage is because he felt it improved his customer health.  In August 1898, combining the names of two of the drink’s ingredients: pepsin, a digestive enzyme, and kola nut extract, he came up with Pepsi-Cola. However, He found a local competitor using  the name “Pep Kola”, So he offered to buy the name Pep Kola from his competitor and thus changed his drink name to Pepsi-Cola. Eventually he registered the trademark in 1903. Can you guess what the first cola beverage ever invented was?  I’ll give you a hint, it’s still called the same name today. Although in the 1950’s it did drop it’s period after the Doctor abbreviation because they wanted to disassociate themselves  from the early claims of medicinal effects, so the period was removed. The first cola invented was Dr. Pepper which was invented in 1885 in Waco Texas by Wade Morrison. Morrison named it Dr. Pepper after dr. Charles Pepper, a virginia doctor who was the father of a girl Morrison was once in love with. I have no clue why they Like Caleb Bradham did for Pepsi-cola, once you think you have everything right with the name, there is one more thing you need to do, make sure no one else is using it. First check the name with your State and register it if it’s available. Each State has some Name availability guidelines and you can run a search online on your states website to see if anyone else already has that name. In my state of MN, Once you see the name is available you have to file a form with the state, then run it in two consecutive issues of a legal newspaper so this will give other companies the right to contests you using the name before it’s granted for you to use. In the book I’m coming out with I write about how a company wanted to use one of my registered names and why I contested it so if you’d like to know more, you can read about it when my book comes out. Filing the State form is roughly $30-$50 and you can do this right on your states government website.  Simply find your secretary of state site (typically ends in .gov) then in their search box type “business name filing or business certification” and the form and instructions should pop up. You could also have an attorney do this for you but who want to pay thousands of dollars to an attorney when you can do it yourself in 10 minutes online. You can thank me for saving thousands by buying my book when it comes out – (chuckling). This book can also save you a lot of money on other business ventures as well, so it will be worth the read. You can learn from my mistakes and successes so you don’t have to make the same mistakes I did. If you are interested in taking your brand to the next level of becoming a major brand sometime in the future, I highly suggest to trademark the name. To trademark the name and take it national simply go to: USPTO.gov and follow their instructions. Or you can again hire an attorney for thousands. I filed my own trademark and made a couple errors in the process, so again you can read about these simple errors that were easily correctable in my book once it comes out. To be informed when the book hits bookstores, you can sign up for our newsletter at businessfashiontips.com or deborarachelle.com. The newsletter will also go into details about new DeBora Rachelle unique patented products as I introduce them and give you more business tips or fashion design tips.  Getting back to trademarks, I have a few trademarks. I mentioned Packwrite and I knew immediately I wanted this brand to go national, so I trademarked Packwrite as well. I initially went on Amazon with the DeBora Rachelle bed sheets that  I now have licensed. Amazon gives more notoriety to those companies who have trademarked their brand name, so after 20 years I finally trademarked “DeBora Rachelle” so Amazon would recognize it properly as a major brand. So yes, if you’re thinking about going on Amazon, take the time to trademark your brand name.  oSo I’ve mentioned the top 7 steps on how to chose a brand name. 1- Your business name needs to stick out. It needs to differentiate your company from that of all others. So don’t pick a name that is too similar to your competitor’s name. 2- Make sure you buy the domain name. 3- If the name has something to do with What your company does, that is always a bonus. Like Packwrite is for my new travel line. You can tell it’s a travel items because the word pack is in it. 4- Make sure it is easy to spell. Memorable but perhaps not overly unique. More simple. Like Chef-Boy-Ar-Dee. 5- Define who your customer is so you can make sure your customer can relate to your company or brand name. You need to make sure the name is consistent with your brand. 6-Make sure it’s available with your State or Country for taking it national. 7- Protect your name by trademarking it. The more you get these top 7 name suggestions right, the easier it will be to brand your name, image, company, product, or services and differentiate your company from others so it sticks out. It’s all about how your name makes your customers feel when they hear it spoken. It defines your companies image and who you are – so take the time and get your company name right.

The Business Fashion Tips Podcast 

Episode 6

We are making our way through the 10 steps in starting a business.  In episode 1 you learned how to find the perfect business for you to succeed. In episode 2 we talked about how to write a business plan and in episode 4 we talked about how to fund your idea or your project or your business was using vendors or manufacturers that you use to make your product. I was just thinking about Christian Dior. When he came out with his very first collection in 1947, it was an instant sensation. The world decided to call it the “New Look.” What most people do not realize is that it was backed by a wealthy textile financier named, Marcel Broussard. This was a great investment on Broussard’s part. He was smart to realize that Dior might have something, and he would be using his textiles in Dior’s collection. So he was not only making money on the financing of Dior, but he was also making money on the textiles Dior was using in his collection. This just goes to show you that you have to be creative when trying to come up with funding for your business. The answer may be right at your fingertips as it was literally with Dior as he was draping his fabric across a mannequin.This fabric was owned by his financier.

The 4th step in starting a business has to do with the legalities of running a business. You may think this sounds boring, and I would have to agree, it is! But, listen up because the consequences of setting up these legalities wrong can have crucial financial consequences. So you want to make sure you do it right.
Business owners need to determine the structure their business will take. This is a crucial step because it determines how much you will be paying in taxes and how liable you will be personally should something go wrong and if you set this up wrong you may loose a lot of money.

The 3 most common forms a business can be organized in are are that of a:

1. sole proprietor
2. Partnership
3. Corporation

A sole proprietor is when a single person owns the company. I could have been a sole proprietor because I owned 100% of my own company. It’s probably the easiest to set up and when you decide to dissolve a sole proprietorship, you can basically just walk away. It’s perfect for those that want no partners because you will alway have 100% control over how the company operates.  When you fill out your taxes, everything just goes right onto your own personal income tax. However, the reason why I didn’t choose this type of legal form for my company was for one very important reason. In a sole proprietor, the owner is 100% liable or responsible for anything that happens within your company and if somebody decides to sue you, they can come after everything you own. For instance, if I had an employee that was being sexually harassed by another employee, that employee could come after everything owned not only in the company but everything I owned personally.

Now I’m not pretending to be a lawyer, so for the most accurate facts on this I suggest you contact a lawyer, I’m just giving you my personal opinion.

If your company sold a product (whether it was something you invented or something you purchased from another company and resold it), and someone hurt themselves with that product. They can go after not only anything your company owns but anything you own personally.

In a sole proprietor, you also have no partners to rely on in other areas of expertise. This can be overwhelming for some people whereas, people like me thrive on having total control. Another disadvantage is that raising capital is harder with a sole proprietorship and expansion can be difficult. For some people, a sole proprietorship is a good way to start a business. You can always change to another business structure such as a partnership or corporation in the future.

This brings us to the second form of a business structure which is that of a partnership.  Partnerships are owned by two or more individuals and each is equally responsible or liable for what happens within the corporation and how it is run on a day-to-day basis. However, sometimes this is not good either because if you had a partner and they didn’t own anything personally, but you had many investments in your portfolio, someone who sues you for something your partner may have done can go after everything you both own (you and your partner).   So if your partner has nothing, they can go after your portfolio. Both of you are also responsible for any debt you may incur. So if your partner overspends within your company, that is on both of you as well. Like a sole proprietor, any profit is again recorded on your personal income taxes of both partners. One of the downfalls of a partnership is, disagreements often take place in partnerships so this can cause unwanted stress within the company.

To set up a partnership up you need a written contract called the “articles of a partnership.” This states who the partners are, the length of the partnership, how profit and losses are divided among the partners – and it determines who will be taxed for what, the intentions or purchase of the partnership, who is contributing what (someone may be the worker and the other person just gives money as a financier). It would talk about what the degree of management authority is for each partner, what their salaries are, how future affairs will be handled should one or more of the partners die or become disabled, or how you will add or eliminate partners in the future.

There is also a business structure called a limited partnership. If someone doesn’t want to have unlimited liability as in a regular partnership, they can choose only to be liable for what they invested in the corporation. Most of the time a limited partner doesn’t play an active role in the company, they leave that up to the general partners.

Some of the advantages of a partnership over a sole proprietor are that you have more resources or capital that can be combined. And also,  partners may specialize in different areas. Each may off their own area of expertise.

The third type is to incorporate.  Corporations are owned by stockholders. So like limited partnerships stockholders are only liable for the amount they paid for their shares of stock. And this is the reason why I incorporated my business. When you set up the corporation you issue stock.

Each stockholder has a vote based on the % of stock they own. And the company must have a board of directors. If you own 100% stock in the corporation, you can be the sole person on the board of directors or hire people to be on your board of directors. The board also hires the management in the corporation. Profit is paid to the stockholders as a dividend or more stock in the company which are then taxed as personal income. Corporations can be privately held (like my company is 100% privately held  as I own 100% of my company). Or they can be publicly held on the open market where stocks can be sold or purchased in an exchange (like the NY stock exchange or NASDAQ) and here at least some of the shares are owned by the general public who are not involved in the day-to-day operations of the company.

So let me give you an example of a fashion partnership that turned into a corporation. You may have heard of Esprit de Corp?  They were very popular in the 1980’s.  Here is how it started… In the 1960’s, A designer named Jane Tise proposed a business venture to her friend Susie Tompkins.  Together they formed a partnership and named their company, Plain Jane Dress company. Tise designed clothes while Tompkins sold them. After it was successful locally in California, a man named Allan Schwartz became a 3rd partner in the company who marketed the brand to NY department stores. Then later in the 1960’s Susie’s husband, Doug Tompkins joined Plain Jane as a 4th partner. At that time the Tompkins owned roughly 45% and Tise and Schwartz’s held 55%.

While Tise and Susie Tompkins designed the product and added new designs and labels to their popular line, Doug and Schwartz handled the marketing and sales responsibilities. In the 1970’s their sales exceeded $1m a year. They then incorporated the company and became Esprit de Corp in 1971.

Doug Tompkins decided he wanted to take over major decisions in the business and in 1976 Schwartz and Tise sold their shares to the Tompkins. It was an amicable buyout and Schwartz decided to leave. Tise remained as chief fashion designer for 3 more years. Because she no longer owned a stake in the company, she became distraught feeling the Tompkins were no longer listening to her ideas so she up and left and Susie was put in charge of the designs. At this time, the corporation was still privately held.

During the early 1980s Esprit swiftly expanded, distinguishing itself not only through its sales but the way in which it reflected tit’s fashions through the eclectic taste of Susie and Doug Tompkins.

From 1979 to 1985 the company’s sales grew from $120 million to over $700 million. As design director, Susie approved all drawings and fabrics, while Doug held the titles of President and “image director.” .  then they  borrowed nearly $75 million to open several retail stores and their core retail customers started to complain. The retail customer felt that they were partners with Esprit de Corp and by them opening up their own stores, they were in direct competition with their current store wholesale customers. This was the start of their demise.

In 1986 and 1987, Esprit experienced losses for the first time and earnings fell from $62 million to $10 million, representing an 83 percent downturn.  The Tompkins started disagreeing on things and Susie insisted they hire outside help to run the company. In 1988, Esprit was looking for an equity partner to add cash back into the organization. The new board that they hired recommended that Susie and Doug each remain 50-percent owners of Esprit but that they give up their operating control of the company. Doug’s duties at Esprit remained the same, Susie’s role at the company changed dramatically. No longer the chief fashion designer, she was effectively out of the business.. ON top of all of this early in 1989, Susie and Doug Tompkins filed for divorce in their personal life. In July of 1989, Esprit de Corp announced a new plan to refocus Esprit under one Tompkins. Doug was given the option to buy out Susie’s 50 percent within 120 days of the agreement. If he did not, both halves of the company would go up for sale at auction. It was rumored, that giant manufacturing companies such as Benetton and Reebok became interested in acquiring Esprit. When Doug never exercised his option to buy out Susie, only one day before the bidding on Esprit was to close, Doug and Susie worked out a deal, Esprit never went to auction.

Susie Tompkins returned to head Esprit. She had found a partner to help fund the buyout and he took a 25% stake in the company. His name was Bruce Katz. Doug retained ownership of Esprit’s southern European operations and some of its other international affiliates but otherwise, he was out. Under Susie’s ownership, she brought back her design team with which she had worked before leaving Esprit in 1988.

Soon thereafter, however, 1992 Susie Tompkins again stepped down, or perhaps she was forced out, as creative director of Esprit.

Forced to restructure its loans. Esprit saw a succession of CEOs moving in and out of the company and fashion failures. In 1993, Espirt was taken public.  Susie Tompkins and Bruce Katz had disagreements and Susie agreed to buy out his minority stake in the company. That’s when Katz resigned from Esprit’s board of directors. Finally, in 1996, a former vice-chairman at both Tommy Hilfiger and Liz Claiborne, came to the helm. His name was Jay Margolis and he was backed by Oaktree Capital of Los Angeles and Cerberus Partners of New York. He bought Esprit’s defaulted loans for $80 million dollars, severing ties with Susie Tomkins. For years after that, there were legal issues tied to tax indemnifications between Susie Tompkins and Esprit de Corp. Throughout all of this, Women’s Wear Daily took a poll and ranked Esprit as 28th in a list of 100 most recognized fashion brands,

Esprit de Corp is a great example to show a company that moved from a partnership to a private corporation, to a public corporation. And it also shows some of the downfalls and achievements a company has during its growth or demise.

Getting back to the example of Esprit de Corp, sets for business structure and how important it is… Once you loose control of your ownership your partners no longer have to listen to you. This is exactly what happened to Tise once she sold her shares in the company to the Tompkins. And remember this whole ideal of a fashion company was Tise’s idea in the first place. You saw how the Tompkins partnership broke up and how the company was threatened and almost broke down from their personal divorce. We also saw what happens when a company is taken public and gains new stakeholders and a new board of directors.

The corporations I’ve been talking about thus far are C-corporations. There is also an
S corporation and the S stands for Subchapter. My company, DeBora Rachelle Inc., an S-corporation and I did this for two reasons. The first reason I talked about before. I wanted to incorporate so I’m not personally liable. People cannot come after my personal assets, they can only come after the stock or what the company has/owns.The second reason has to do with taxes. So let’s talk about taxes.

When you are a sole proprietor, everything you make (all the profit or losses you take) is brought right to your personal income tax form. The same is true for partnerships. It goes right to your personal income tax form depending on how your partnership is structured and who gets what – as far as having to claim the profits. With a corporation, the corporation itself is charged tax on its profits and then that income is distributed as dividends to its shareholders. The shareholders then take the dividends and then they report it again as income on their personal income tax form. So, basically as a corporation, the income is double taxed. Once as a corporation, and once in the dividend to the stockholder on their tax form. An S-corporation is a little different. It still retains the fact that the legal obligations of the corporation cannot become the debt of the individual(s) associated with the business. Another advantage is you are not double taxed like a c-corporation. All the profits or losses are turned right over to the shareholders for their personal income tax return. I’ll be going into greater detail about this in the book that I have coming out in the near future. So let’s go over some of the advantages and disadvantages to each business structure.

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Advantages and disadvantages of a sole proprietor include:

Advantages

• It doesn’t require a lot of paperwork. So it’s the easiest to form of all of the business structures.
• The owner has total control over the company and how it is run on a day-to-day basis.
• It is easier to file taxes.
• If you want to close the business, you just cease operations.

Disadvantages

• The owner accepts all of the responsibility of the business losses and all of its liabilities.
• The owner is responsible for raising all the capital for the start-up costs.
• It’s harder to sell a sole proprietor business because the business is completely tied to the sole owner.

Advantages and disadvantages of a partnership include:

Advantages

• Each partner may bring their own areas of expertise.
• Raising capital is easier because you have two or more partners with different connections and resources.
• If you are in need of capital, you can bring in another partner to share the expenses.
• Having a partner creates a better balance between work and life experiences.

Disadvantages

• There will be times when you disagree with your partner(s) which can lead to major disagreements between the partners. (Listen to podcast for and example pertaining to Taco Bell).
• Both partners carry all the liabilities regardless of who incurred the debt. Unless you form a limited liability structure. Limited liability partnerships can also get tax deductions for business losses.

Advantages and disadvantages of a private corporation include:

Advantages

• You are not obligated to reveal financial results to the public.
• You are not prone to shareholder pressure for stock results.
• There is limited liability exposure for owners.

Disadvantages

• There are more stringent regulations than a partnership or sole proprietorship.
• There is less control of the business with more shareholders.

Here are some advantages and disadvantages of C- corporations:

Advantages

• The legal obligations/liabilities of the corporation cannot become the debt of any individual associated with the business.
• They can raise money by selling stock.
• You can transfer ownership easily. Shares are simply transferred to heirs or sold.

Disadvantages

• If you want to go public this can cost anywhere from $250,000 to $500,000.
• More extensive reporting, record-keeping and operational processes are required.
• Corporations are also taxed at a higher tax rates. They are double taxed.
• Still have to hold annual stockholders meeting even if you only have one stockholder – takes notes.
• The board can fire the founder of the business at any time.

Here are some advantages and disadvantages of S corporations:

Advantages

• Less liabilties.
• They get the benefits of incorporation while enjoying the tax-exempt privileges of a partnership.
• Some corporate penalties do not apply.
• Transferring ownership is simple.
• There is no double taxation.

Disadvantages

• They must meet certain requirements. Such as having few than 100 shareholders.
• They must allow all shareholders to vote on major decisions.
• They can only issue common stock, which could impact their ability to raise capital.
• Still have to hold annual stockholders meeting even if you only have one stockholder – takes notes.

If you want more information on business structures you can read my book (coming soon), it talks about how I lost thousands of dollars be structuring as the wrong type of company. Learn from my mistakes so you don’t have to make the same ones!