San Diego Business Lawyer Blog

At one time or another, every San Diego business owner questions how well their business is protected from risk, liabilities and infringement. Should they incorporate, form an LLC or partnership? Does the current business entity offer the best tax advantages? Are their personal assets protected? What are their rights and obligations under leases and contracts? Are key contracts enforceable should there be a dispute? Can existing contracts be improved? Are trademarks, logos and business names protected from infringement? Could they be infringing on others' trademarks? Is there any legal exposure to the company from its website and blog? Is insurance adequate? Do insurance policies meet regulatory requirements for the business or meet the minimum standards agreed to in a lease agreement? Is the company in compliance with government regulations pertaining to employees? Do they need to consult an attorney? The list is as long as businesses are prolific. For most new and growing businesses, addressing every potential legal issue is cost prohibitive. However, an attorney evaluation summarizing and assessing areas of concern is within reach for most businesses. Once an assessment is provided, business owners can better prioritize and plan for the future.

Virtually every car owner at one time or another has taken their car in for service. Most often, the service includes a check up of every major component of your car. Brakes, fluid levels, suspension, tires and electronics are all examined and in the end you are provided a list of recommended repairs and maintenance. Some of the suggested repairs stem from visual inspection and others are derived from manufacturers' mileage triggered recommendations. It's not uncommon for folks to prioritize perhaps electing to have the front brakes replaced and a tune up performed while putting off the replacement of shocks, hoses, and the water pump. Ultimately, whatever decision the consumer makes regarding actual repairs, the cost of the examination is relatively small and the examination alerts the owner of potential trouble spots.

A business lawyer can perform the same kind of affordable analysis for your business - they can evaluate your business profile from top to bottom, provide an assessment of the current state of affairs, highlight areas of risk and other areas requiring attention and make recommendations regarding priorities. This type of evaluation can generally be performed for a flat fee which would be determined by the size of your business. Once completed, the business owner (like the automobile owner above) can prioritize. Whatever decision the business owner makes, at the very least, he or she has been alerted to potential trouble spots and can plan to address those concerns as time and economics permit.

Most people don't think about zoning laws when they first decide to start a business out of their home, and most home-based businesses never hear from local governments about zoning violations even where they are clearly in violation of local zoning laws. The reason why is that most home-based businesses are stealthy. Modern technology allows entrepreneurs to conduct virtually all aspects of a business' operations (short of manufacturing and direct sales) without leaving the computer. Employees can work from their own homes, products can be delivered via on-line companies and services can be provided off site. So long as signs aren't posted, traffic isn't increased beyond what is normal for residential neighborhoods and excess noise isn't a factor, no one notices that a home-based business even exists. In fact, a neighbor's complaints are generally the only thing that ever puts a home-based business on a local government's radar.

So what's all the fuss about zoning laws? Although most home-based businesses are stealthy, some business owners are looking to more visible home-based options. The recession has encouraged many would be entrepreneurs to consider starting a business, and one of their first major cost decisions is location. For a small business requiring employees, product assembly and manufacturing, customer visits, vendor deliveries or any combination of the preceding, understanding local zoning ordinances is critical. Otherwise, they risk being shut down. 

Some localities forbid home based offices completely. Others allow home based offices for professionals such as lawyers, doctors and accountants. Even the most liberal of localities will allow home based businesses only under certain circumstances, and the zoning laws can vary greatly from municipality to municipality. Generally, they have the following in common: they require that the business be only incidental to the home as living quarters taking up less than a certain percentage of the home's overall space; they require that all employees of the business reside in the home; they require that increased vendor and customer traffic is not beyond what is normal for the residential neighborhood; they prohibit the use of equipment that creates a nuisance such as noise, vibration or fumes that are detectable outside of the home; they prohibit the use and storage of hazardous materials; they prohibit the warehousing of business inventory; and they prohibit any changes to the outside appearance of the home (including signage).

If you are considering a home based business that for any reason will be noticed by neighbors, it's important to know the zoning laws in your locality. The easiest way to check your local zoning laws is at the main branch of your public library. You can also contact your local Planning or Zoning office. However, it's probably better not to put yourself on their radar. It may be better to have a friend in the neighborhood call and check for you. You can also try contacting the city clerk's office or your local Chamber of Commerce, or check your city's home page online. If you live in or are considering moving to a planned community with a homeowner's association, the CC&Rs (covenants, conditions and restrictions) are likely even more restrictive than those set forth above.

Continue reading "What You Need To Know About Home-Based Businesses and Zoning Laws" »

In today's climate, San Diego businesses are loath to suffer any negative publicity.  Instead, they are looking for an edge wherever they can find it.  Whether businesses know it or not, the internet is filling an important customer service role.  Websites like Yelp.com and Amazon.com provide actual consumer reviews on a wide range of products and local services.  More and more, the average consumer turns to the internet first for information and first hand customer insight.  Whether looking for a car wash or an San Diego attorney, review sites on the internet are a powerful tool allowing consumers to look inside a company's windows before trying out its goods or services.  For instance, a modern consumer with car trouble today might do a search on Yelp.com for a trustworthy automotive repair shop in San Diego County.  He or she would find out rather quickly that Advantec Auto Repair comes highly recommended (reviewed by 98 customers with a perfect rating of 5 Stars out of 5 Stars by all 98 customers).  This is precisely the confidence builder that the savvy consumer is looking for before trusting their car to a mechanic.
 
If your business provides a service in San Diego, odds are there are already some reviews on Yelp.  You may be surprised (pleasantly or to your consternation) at what people have to say.  Either way, internet review sites are here to stay and managing this new facet of customer service must be part of any business' marketing arsenal.  "Managing" does not mean you get to go in and change the reviews.  It does mean that you will have to pay closer attention to customer service and customer satisfaction.  No business can afford to ignore negative publicity, especially during a recession.  If reviews are negative even in the slightest, a business owner needs to act immediately to cure whatever deficiencies might exist including making necessary changes to how he or she does business.  It's true that some reviews may be vindictive and unwarranted.  In such cases, business owners are allowed to post their own response.  However, this is a good idea only in unique cases because it most often appears defensive and disingenuous.  The better solution to an unwarranted negative review is to work toward an increase in the number of positive reviews which in turn increases the business' overall average rating on Yelp.  One negative review against 75 positive reviews carries little weight.  Encourage your customers to share pleasant experiences with others on Yelp.  

While restaurants, products and retailers remain the most critiqued of all categories, it is only a matter of time before every business is under the internet microscope, including doctors, lawyers, banks, investment companies, real estate agents, dentists, cell phone companies and individual professionals.  Go on line today and see what people are saying about your business.  If you don't find your company on Yelp, add your business.  This allows you to provide accurate information about your location, phone number, website, pricing and other facts such as whether you accept credit cards.  By adding an inbound link to your website, it also has a positive impact on your site's optimization.

In today's San Diego commercial leasing market, some business owners are taking advantage of increased bargaining power when negotiating lease terms. Others see an opportunity to purchase property as the commercial real estate market continues to decline in value. The primary advantage of buying commercial space over leasing is the generation of equity over time via market appreciation. There can be no doubt that there are some real bargains in San Diego today, and the potential for equity growth is strong. However, the decision to buy commercial property instead of leasing requires thoughtful consideration.

One of the most important considerations is the balancing of a growing business' cash flow against the 20% down payment generally required for the purchase of commercial property. If a down payment depletes needed cash flow from a new or growing business, it's likely not the time for a risky real estate investment. If a business has excess cash in its coffers for capital investment, there may never be a more obvious time than now to snap up a great value. Most businesses, however, are somewhere in the middle and will want to prepare a detailed evaluation of both options analyzing net present value cash flow (taking into account the anticipated appreciation of purchased property versus anticipated rental increases, interest rates, costs associated with lease expiration and other expenses over the term of the lease), the value of the respective locations to the business, growth considerations, cash flow needs and opportunity costs (potential economic gains from the alternative use of cash). Moreover, in many cases commercial properties have multiple units adding to the complexity of the decision. With multiple units comes the potential for additional income, but also additional responsibility and the risk of unleased space. These considerations are especially difficult for start up businesses which require greater flexibility. Start up businesses will want to attach greater weight to its cash flow needs.

The idea to purchase commercial property instead of lease is often an accident. Businesses stumble across property for sale as they search for suitable leasing space and see an opportunity they hadn't previously considered. Whatever the reason, the benefits of ownership are appealing. It allows for complete control over the property, equity growth (especially in the long term), long-term customer relationships and permanent visibility in the community. The benefits are even greater in today's real estate market where bargains are plentiful. Consult a commercial lease attorney and/or a commercial real estate professional for assistance.

Credit card companies' decisions to unilaterally lower credit limits can have a severe impact on start up San Diego businesses.  During recessions, high unemployment rates drive many to consider going out on their own.  As they contemplate the decision, young entrepreneurs often factor in their credit worthiness.  Start up costs and monthly expenses loom heavy.  In addition, the young business owner worries about personal expenses.  If possible, they set aside funding to help pay personal expenses six months out or more providing breathing room while the business has an opportunity to grow.  Credit worthiness provides comfort during these initial months and impacts a business' future ability to obtain company credit.

Today, many young entrepreneurs with a history of responsible financial planning and credit management are unexpectedly finding themselves with lower credit scores despite exceptional credit histories.  Credit companies are reevaluating credit reports and lowering credit limits based on high balances on other revolving debt despite the fact that their customers have stellar records with them.  The negative impact is twofold: first, needed credit lines disappear; second, credit scores are lowered making it more difficult to look elsewhere for alternative credit lines particularly in the midst of this current credit crunch.  For the entrepreneur, this can be devastating.  

While many argue the practice is legal, there can be little doubt that there is something inherently wrong with it.  There are alternative ways for credit card companies to reduce their risk profile - namely higher standards for new applicants.  Penalizing good customers is a tough model to stand behind while maintaining even a modicum of goodwill.  More importantly, credit customers rely on the good faith of the companies they decide to pay interest to.  They had other options at the time they selected which card to apply for and use.  They cannot go backward and elect a different company (one of the many credit card companies today that are not engaged in the practice of lowering limits).  And worse, their current options are limited because of the lower credit score.  Other creditors are raising interest rates instead.  While not very pleasant for customers, it is far less impacting than reducing lines of credit and lowering credit scores.
 

Continue reading "San Diego Start Ups Affected By Credit Companies' Decisions" »

San Diego businesses should be asking themselves how the "billable hour" law firm culture affects their bottom line. A recent article about a patent holder's defense of a patent infringement action focused on the business's desire not to cave into the demands of what it believed was a patent pirate despite the knowledge in advance that the legal fees would exceed the $400,000 licensing fee sought. Although the battle itself was inspiring, one can't help but be awed by the last paragraph telling the story of the corporation's victory and it's new battle to recover over one million dollars in attorneys' fees.

One million dollars in attorneys' fees! Presumably, this is independent of costs necessary to defend the case. A sole practitioner has to shake his head at the staggering amount. Even experienced litigators prosecuting or defending multimillion dollar cases involving multiple parties and hundreds of attorney hours have to wonder. Law firms will undoubtedly counter that their rates are competitive and that a patent infringement case can easily reach into the 1000 hour range or higher. This is is not unheard of.  Five weeks of deposition, five weeks in a document review, law and motion practice, other discovery and a six week trial can easily exceed 1000 hours.  A six week trial with multiple attorneys working on the case could alone involve more than 500 attorney hours.  Undoubtedly, the stakes are high and corporations are willing to pay big dollars for the right legal representation.  Some may feel there is no substitute for the big firm experience.  But one million dollars?

Each case is different of course and will have varying levels of complexity.  At the heart of this discussion rests two key components: efficiency and incentive.  The two components are interdependent.  Law firms typically hire young associates who are first and foremost expected to bill a minimum number of hours per year (billable hours).  The "billable hour" is the benchmark by which their performance is rated.  They are most often raw inexperienced  practitioners with little or no practical understanding of the complexities of the cases assigned to them, the procedural time lines important to litigation or the ultimate evidentiary effect of their decisions.  Combine this inexperience with the "billable hour" and you have a recipe for inefficiency.  Inexperience or not, minimizing attorneys' fees for the client and maximizing billable hours in the real world are mutually exclusive.
 

Continue reading "Billable Hours - San Diego Businesses Should Ask How Much Is Too Much?" »

Whether San Diego small business can survive the current credit crunch may depend more on each business's determination and grit than on the Obama administration's attempts to ease credit. Some established businesses with excellent credit may not feel the impact of the current credit crises, but new businesses, start-ups and other businesses struggling in this current recession have to find ways to stay in business. Typically, new and struggling businesses fund themselves through difficult times with loans and credit cards. When credit dries up, businesses are left to fend off failure by cutting costs in whatever creative ways they can dream up, including sometimes laying off employees.

Unfortunately, there doesn't appear to be any immediate relief in sight. President Obama's administration is struggling to ease the credit crunch as part of his recovery plan but so far with little practical effect. Recent announcements regarding TALF (the Term Asset-Backed Securities Loan Facility act) reflect a promise to cure some of the TARP deficiencies. TARP (the Troubled Asset Relief Program) was the centerpiece of President Bush's Emergency Economic Stabilization Act. However, it appears that most lending institutions cannot or are not participating in TALF, at least not so far.  This is not to say that President Obama's overall plan has failed or will fail. At this stage, it is simply too early to tell.  There are some promising signs for small business.  For instance, the Small Business Administration has temporarily raised its size requirements making more businesses eligible for small business loans (Reuters "U.S. makes more businesses eligible for loans").  The only thing certain for now is that credit to business remains tight.    

The solution for small business today - ride out the recession and credit crunch.  This is easier said than done of course particularly as struggling businesses typically turn to credit during recessions. Nonetheless, American entrepreneurs are resilient and often exhibit their greatest potential during tough times.  First, businesses shouldn't assume that the credit crunch means there are absolutely no loans.  Businesses should exhaust all potential sources before giving up.  The San Diego Daily Transcript, a good resource generally for small businesses in San Diego, offers some financing tips.  Small business owners can also use their personal credit card lines, and if necessary look to family and friends for short term loans.  More importantly, smart business owners will look for creative ways to cut costs and strive to maximize an efficient use of business resources. 

One powerful tool available to businesses during a recession is to lessen profit margins by discounting goods and services and then aggressively marketing these "good deals" to the ever increasingly cost conscious consumer.  Letting customers know that your business is sensitive to the hard times of others often sets businesses apart during recessions.  With grit and determination, creative business owners can ride out the current credit crunch while simultaneously building brand loyalty.  Whatever the methods of survival, keeping San Diego small businesses alive during these tough times is good for all San Diegans.