General Business Issues

September 24, 2009

Avoiding Litigation – Part One

Litigation! The word has many connotations, most of which are pejorative. The “litigation happy” label is ubiquitous. In the business world, “litigation” has a much more pragmatic import. It remains a useful tool for San Diego business seeking legitimate recourse but simultaneously is the source of unease. While a full proof method of avoiding litigation may be impossible, there are six simple practices businesses of all sizes can follow to reduce the risk of litigation. The first three pre-conflict practices are set forth below. The remaining three post-conflict practices are set forth in Avoiding Litigation – Part Two of this article.

Get It In Writing. Ideally a contract attorney will assist with the drafting and negotiation of all contracts. However, this may not be practical for many businesses, especially for new and growing businesses or those that routinely contract with vendors and customers. If an attorney is cost prohibitive, drafting basic instruments yourself to memorialize your agreements is a pragmatic alternative. The internet provides a wealth of helpful instruction, sample contracts and anecdotal information from other business owners. The paramount concern is mutual understanding. Although you may not recognize all the legal complexities of contracting, a writing that memorializes your agreement at the very least reminds each side of the representations made. Be sure that everything discussed orally is in writing. Don’t take anything for granted. If the person you are contracting with is resistant to a detailed agreement, there is reason for concern (see “Use Common Sense” below). Faced with a written agreement, even the most difficult of parties will often concede critical points. Getting it in writing without the assistance of an attorney can be a pragmatic alternative which is better than no writing at all. However, consultation with a contract attorney remains the best way to ensure that an enforceable contract is in place to protect your business’ interests.

Use Common Sense. Learn to recognize repeat problem areas either with customers or vendors. If a vendor is repeatedly late with deliveries or a customer owes you money or either is constantly complaining, it’s generally a sign that those types of problems will continue. Don’t ignore obvious perils. When your gut tells you something is fishy, it’s probably not worth the frustration to go forward no matter how appealing a customer’s business or how economical a vendor’s products or services may be. These are the folks that are more likely to create conflict with you and others. If you offer a service or invite customers into your place of business, don’t be oblivious to hazards. No matter how busy you are, immediately address anything that might cause even the slightest mishap. There is no substitute for common sense. There is no rule book for you to follow. Your job is to be aware.

September 10, 2009

New and Growing San Diego Businesses – Hiring Employees Part Three

by Donald Oder

Parts One and Two of this article focused on the factors new and growing San Diego businesses weigh when considering whether or not to hire their first employees. Part Three focuses on the important task of developing an employee policy. Regardless of the stage any San Diego business finds itself in, ensuring that new and existing employees understand what is expected of them in any given situation is critical for effective management. A clear and unambiguous employee policy minimizes costly miscommunication and conflict between employees, management, vendors and customers.

Some argue that companies could or even should wait until the second or third employee before developing a written policy because new and growing businesses have other priorities and little time to spend on a formal employee handbook. This is a pragmatic view which undoubtedly appeals to many entrepreneurs. However, forward looking businesses will draft some sort of written employee policy for its very first employee.

Whether a handout a few pages long or a detailed handbook prepared by attorneys and a fully staffed human resource department, a good employee policy will contain a number of important features: it will be written in clear and unambiguous language (preferably at a 5th grade reading level with each policy set forth on a separate page); it will address key employment issues such as health, safety and other government regulations (State and Federal), employee theft, and company expectations regarding performance and conduct; it will address anticipated problem areas such as internet use, outside email contact, phone procedures, customer contact and media contact; it will set forth a disciplinary policy; it will hold all employees to the same standards; and lastly but by no means any less important, it will highlight company benefits and quality of life. Businesses should avoid a tedious written policy that creates an impression that the company will be stuffy and unyielding. The employee policy should articulate standards prospective employees can understand while simultaneously stressing the company’s appealing attributes.

September 2, 2009

The Internet Plays Important Customer Service Role for San Diego Business

by Donald Oder

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.

Customer Service_827556_sign.jpg 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.

August 28, 2009

Hiring Foreign Workers – Initial Considerations for San Diego Businesses

by Donald Oder

In many industries, the need for foreign workers and an intimate familiarity with United States immigration policy has existed for decades. Large corporations, particularly those in information technology, have in-house attorneys and human resource departments that have developed systems to handle the processing of foreign employees. For these corporations, the question whether or not to hire foreign workers is an easy one. It’s a “been there, done that” scenario. When a department head decides a qualified foreign employee exists for a position they have been unable to fill domestically, the corporate wheels are set in motion to sponsor that worker for a temporary working visa or for permanent employment in the United States. These companies are familiar with the steps necessary to sponsor foreign workers for the various U.S. Visas, including obtaining labor certification for permanent employees.

The decision is much more difficult for smaller businesses interested in hiring foreign workers. Often, new and growing businesses are presented with an unexpected opportunity to hire a foreign worker. Their first impulse is to shy away from the prospect no matter how appealing. Unfamiliarity with immigration policies, fear of excessive legal expense, government red tape and uncertainty overwhelm the small business owner. Business owners should take a pragmatic approach understanding first that United States policy is to admit foreign workers only where it does not come at the expense of U.S. citizens willing and able to take the same position at the prevailing wage. Thus, cheap labor shouldn’t be a consideration. Instead, businesses should weigh the need to fill a particular position with a foreign candidate against the costs associated with sponsoring that worker. Costs include attorney fees, filing fees, costs associated with advertising for qualified domestic workers to fill the position and delay in bringing the prospective employee on board. If the employer values the qualifications of the prospective employee enough (often a subjective consideration), paying an immigration attorney to start the process may be a cost effective option.

Consulting a San Diego immigration attorney is the best first step. An immigration attorney will walk the prospective employer through the process explaining the necessary steps, the time it will take to complete those steps, and the associated cost.

August 14, 2009

San Diego Start Ups Affected By Credit Companies’ Decisions

by Donald Oder

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.

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July 24, 2009

New and Growing San Diego Businesses – Hiring Employees Part Two

by Donald Oder

Part One of this article focused on making the decision to hire employees and the costs of doing so. Part Two provides a brief overview of the numerous Federal and California State laws and regulations governing employers. It is important that businesses become familiar with these laws as they contemplate hiring their first employees. Minimum wage, Social Security and Medicare, tax forms and withholdings, workers’ compensation, eligibility to work in the United States and other labor laws are all important considerations.

As businesses look to hiring employees, their first consideration is cost. Wage is of course the largest component of employment costs, and in California the minimum wage is $8.00 per hour. This is the minimum wage cost prospective employers face. In addition to the employee’s wage, the employer is responsible for paying an equal contribution to the employee’s Federal Social Security and Medicare payments. This is the same payment individual business owners pay as their self-employment tax. Currently, the combined tax is 15.3% of the employee’s wage (12.4% for Social Security and 2.9% for Medicare) of which the employer is responsible for half.

Once a decision is made to hire, businesses are required to ensure that the employees they hire are legally eligible to work in the United States. Each new employee is required complete a Form I-9, “Employment Eligibility Verification”, and present their Social Security card. It is recommended that employers take photo copies of the Social Security card for future reference and proof of documentation. If for any reason, a prospective employee doesn’t have a Social Security card, the employer should ask that they obtain one as soon as possible

Employers are also required to withhold taxes from the employee’s pay. The amount of tax withheld is determined by the employee’s W-4 form which is provided to the employee by the employer. The employee identifies his or her tax status and desired number of exemptions which the employer uses, along with state and federal tax withholding tables, to calculate withholdings. At the end of each year, the employer reports the employee’s income and total amount of withholdings to the IRS and the California State Franchise Tax Board via a W-2 form which is also provided to the employee for his personal tax return.

July 17, 2009

New and Growing San Diego Businesses – Hiring Employees Part One

by Donald Oder

Eventually the day comes when every new San Diego business owner asks the question “Is it time to hire my first employee?” The prospect is exciting and often serves as a catalyst for business growth. For some, the right time is when business operations begin to negatively affect personal life. Most business owners face a number of challenges requiring long hours and considerable energy eventually leaving little time for family and friends. For many business owners, living a healthy, active life style and spending quality time with family and friends is invaluable. For others, the sheer volume of day to day operations leaves them with no choice. Either bring one or more employees on board to assist with operations or suffer inefficiencies and loss of profit. Still others see the present high unemployment rate as a time for bargains. Whatever the reason, when the time comes to seriously entertain hiring employees, business owners must carefully consider numerous issues including compensation, employee benefits, hiring practices, compliance with state and federal law and development of a company employee policy.

Before hiring that first employee, a business must have adequate revenue in order to maintain solvency and respectable profit margins. Cash flow, not fixed cash, is a key factor in determining whether a business can hire that first employee. To make this determination, the business owner must first decide what constitutes a fair wage. What constitutes a fair wage takes into account both what the employer can afford and what is commensurate with the job requirements and expectations. The employer must also consider whether to provide employee benefits. Medical coverage, retirement plans, paid holidays and vacation policies all come at a cost to the employer, but also serve as an additional incentive to prospective employees. The cost of advertising for the position is an additional short term consideration. If the business doesn’t have the necessary “cash flow” to bring on a new employee, the business might consider other options like outsourcing important tasks. Accounting tasks for instance can be outsourced at a reasonable cost.

Finding the right candidates for the new position requires good strategy and a little common sense. Business owners must attract qualified employees. Salary, benefits, the business environment and other perks, the quality of the business itself and how the position is advertised for all have an impact on prospective employees. Newspaper advertisements, periodicals, websites like Monster.com and recruiting companies are all excellent tools. References from friends or industry colleagues are also effective ways to recruit employees. Before moving forward, the employer should put himself in the shoes of the prospective employee. A thoughtful consideration of what best enhances the business’ appeal to prospective candidates assists the employer in anticipating employee preferences. The goal is to attract the best and brightest candidates and to ultimately choose the right fit for your business. The first few employees play a major role in the growth and developmental of any new business, and help define a business’ relationship with clients and customers during its formative years.

June 10, 2009

What Is Self-Employment Tax and Why Do San Diego Businesses Have To Pay It?

by Donald Oder

When starting a new business, San Diego’s entrepreneurs are often confronted with a myriad of business and legal issues that they didn’t anticipate when originally formulating their business plan. As they consider overhead, business formation, taxes, the need for an attorney and accountant and other expenses, somewhere along the line they learn they have to pay a self-employment tax. While some business owners are familiar with the concept – others ask, “Why do I have to pay this?”

Self Employment Tax_1093369_business_shadow.jpg So what is the self-employment tax? The new business owner will be comforted to know that the self-employment tax is not a tax paid only by the self-employed. Rather, the self-employment tax is the social security and Medicare tax that everyone pays. Those employed by others see these taxes withheld from their paycheck and in most cases without realizing that their employer is also paying a portion. The self-employed individual, on the other hand, must pay the entire amount. Essentially, your employer alter ego is paying the portion of your social security and Medicare taxes that would otherwise be covered by your employer in the conventional employer/employee relationship.

In the United States, an individual is considered self-employed for tax purposes if that individual operates a business as a sole proprietor, a partner in a partnership (including general partners in LLCs), or an independent contractor. The social security and Medicare taxes (the self-employment taxes) typically withheld from most wage earners are the equivalent of the combined contributions of the employer and employee under the FICA (Federal Insurance Contributions Act) tax structure. Under the FICA tax structure, employees and employers make equal contributions to both Social Security and Medicare. As stated, the self-employed individual pays the entire amount to Social Security and Medicare. Currently, self-employment tax in the United States is 15.3%. This rate consists of two parts: 12.4% for social security (capped after the first $106,800) and 2.9% for Medicare.