Why Entrepreneurs Need a Business Lawyer: Avoiding Common Legal Pitfalls | 118

Navigating the legal landscape is crucial for entrepreneurs regardless of the size of their businesses. In this episode of Don't Skip the Legal, Andrew Contiguglia, a seasoned business attorney in Denver, shares his insights on the importance of legal counsel for startups and established companies.

Andy addresses common legal mistakes entrepreneurs make, why hiring a business lawyer is vital from day one, and how proper legal advice can help protect your business from issues like intellectual property disputes and conflicts as it grows.

Listen in as Andy explains how legal counsel can be the key to building a legally sound business, tackling questions every entrepreneur should ask before bringing on a lawyer and offering tips on avoiding legal pitfalls as you scale. Plus, Andy covers what entrepreneurs need to know about buying a retiree’s business and much more!

This episode originally aired on the Your Wealth and Beyond Podcast with Andrew Rafal of Bayntree Wealth Advisors (www.bayntree.com/podcast), where Andy shared his valuable insights for entrepreneurs and business owners. Tune in for expert advice you won’t want to miss!

Don't Skip the Legal podcast brings you insightful conversations with successful entrepreneurs, providing real-world lessons on business growth, legal considerations, and much more. Subscribe now for more enriching episodes and practical insights for navigating the complexities of the business world.

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Disclaimer:

Please note that the legal information shared in this podcast is for general informational and entertainment purposes only. It is not a substitute for consulting with a licensed attorney for specific legal matters. Past performance does not indicate future results; every legal case is unique. Consult your own attorney for personalized legal advice.

Transcript

Hey, crew, welcome back to this recast of the Don't Skip the Legal podcast. I was just recently a guest on the Your Wealth and Beyond podcast with Andrew Rafal,
who is the president and founder of the Bain Tree Wealth Advisors in Scottsdale, Arizona. In this episode, we talk about common legal mistakes that entrepreneurs make in their businesses.
Why hiring a business lawyer for your business From the beginning is Paramount and other avenues that you need to take in order to protect your business. Now, it's a great wealth of information.
The episode almost runs about an hour or so, but I really, really hope you enjoy this recast for the Don't Skip the Legal Podcast. stories,
the real stakes, and the real legal lessons from real business owners just like you. These behind -the -door conversations about business are instrumental to your success. This is where the deals are made, negotiations are discussed,
and company problems are identified, leading you to overcoming the challenges we all face in our business. This podcast is your invitation to where the real business happens and also where the best ideas take place.
So let's get behind the doors in business and break down these legal lessons. And overall, remember, don't skip the legal. But when you start to break down and become lax and cut corners,
you make two more and you create more problems for yourself. So I think it's important that the business owners remain disciplined and really follow the rules and stay up to date and continue to communicate with one another and make sure that everybody stays in their own lane.
The moment one of the founders decides that they want to start doing everything, that's where you're going to get an identity crisis among your brand about what people are supposed to be doing and how they should be doing it.
So maintaining those lanes, I think, is probably the most important thing. Welcome to Your Wealth and Beyond, where Andrew Rafell, founder of Baintery Wealth Advisors,
uncovers the triumphs and transformative lessons of remarkable entrepreneurs. Get ready to be inspired, powered and equipped with the insights you need to shatter the status quo and reach unparalleled heights.
Join us as we unlock the secrets to success and go beyond the ordinary. - And we're back for a brand new episode of Your Wealth and Beyond.
I'm your host, Andrew Ruffel. And today we've got a special guest. I wanted to introduce you all to Andrew Contagulio, welcome to the podcast. How are we doing today?
Excellent. Thanks. I'm doing great. And you did an excellent, excellent job pronouncing my last name on the first shot. And we didn't even have to practice it that much at a time, which is even better. I practiced it all day yesterday.
It was so listeners and viewers, Andy Andrews, a seasoned business attorney, Helen from Denver. And we're going to go through today some of your expertise and Especially for entrepreneurs,
but just a lot of different things, mistakes that entrepreneurs make over your career, some of the things that you've seen to help, whether you've got a mature business, or you're just an entrepreneur starting out,
some of the things that we've got to look for, because that, unfortunately, sometimes our passion gets in the way and we forget about one of the most important facts, which is the legal side of things. So welcome to the show and thanks for joining us.
Oh And the legal side of things is like the most overlooked portion, I think of every business that I try to help navigate through these processes.
It's incredible why people think they don't need to make lawyers a part of their team, but they do. It's still flabbergast me that everybody is still afraid of lawyers, but hopefully today we can,
uh, change their mind about how they should be utilizing lawyers and the workings of their business from start to finish, because there's a ton of value that I think lawyers can bring to any business and any business opportunity.
Why do you think that it's like the last component of the business when it needs to be pushed forward to one of the first? What's your thoughts there? Yeah, that's a great question.
I think everybody has their own ways of navigating it. But I think that the attitude toward lawyers right now is very reactionary. There's very little proactivity in the way that people think they should use lawyers in their interactions in business.
And the way I see this is, I think people are afraid of the cost. I think they're afraid of the arrogance. I think they're afraid of the ego. And I think they believe that,
oh, well, nothing's going on in my business now, I've got no problems, and therefore, a lawyer is only useful to me if I'm having legal issues, rather than being proactive in the approach and saying,
"I would like to avoid legal problems. How about I engage a lawyer now that way I don't have these legal problems down the line?" That's really been the foundation of where I come from from a legal standpoint,
is I like to protect businesses on the front end so they don't take it in the back end, and that becomes a big piece of the way that I manage and help businesses grow and avoid crises as they grow.
And you as an entrepreneur yourself, you put your money where your mouth is as you're going through experiences. And before we jump into some of the items that I think will be very beneficial for the listeners, your background,
and I know we've got the book back there, Don't Skip the Legal, so you're an entrepreneur, an attorney, focusing on helping a lot of different areas in the legal field, but entrepreneurs, businesses, etc. You've got your own podcast,
so you're an entrepreneur at heart. Looking back when you were young, it was like, "I'm going to be an attorney and I'm going to have my own practice. How did you get to this point?" That's great. Let me give you a little bit of context and put where things are. I'm the owner and the founder of the Contagulli Law Firm in Denver,
Colorado. I like to bid myself as the corporate casual business attorney because nobody stuffy arrogant lawyers and I try to avoid that persona as much as I possibly can.
I've been a business lawyer and I've done transactional work litigation, complex litigation for almost 30 years now. I've been helping startups, entrepreneurs, and other established businesses navigate the legal landscape.
And as I said, I help them protect themselves on the front end so they don't take it on the back end. I'm passionate about helping companies avoid risk, avoid crises, and protecting their companies and helping them build strong and legally sound foundations for success.
So getting to your question, I kind of happened into business law by accident. When I went to law school originally, I wanted to be a prosecutor. I wanted to be a criminal prosecutor. And even during law school and right after graduation,
I did. I worked as a prosecutor at the U .S. Attorney's Office here in Colorado and in one of the local district attorney's offices. I was at a low -level line prosecutor doing traffic cases and things like that and doing a lot of brief writing and things like that.
That's where my heart really was when I went to law school. That's where I started. When I didn't get hired after I passed the bar by the DA's office, I said, "All right, that's the way you're going to be. I'm going to go switch and move to the defense side." I started doing defense work,
doing criminal defense work and really getting engaged and working in the courtroom. And that was where I built my foundation. But one thing that kept sort of being drawn back to me was watching my cousin,
who was at Fordham Law when I was in college at Columbia and both of us in New York City, was watching him go and do sort of the corporate law kind of thing. And I was like, that is really kind of cool.
I want to maybe go do that kind of thing. So I started getting engaged and trying to focus on the civil aspect of things working with businesses and things like that and literally right out of law school in 1995 and 96 I started my first law firm and I tried working at that and I just hated the administrative Components of being a lawyer and starting to run a business.
I hated billing clients. I hated collecting money from clients I think every entrepreneur and startup owner understands which is how do I get my money out of this and why am my, busting my brains and putting all of this together.
But that was sort of my induction into doing business lives, started doing some transactions, putting contracts together and really, really enjoyed doing that kind of thing. And it wasn't until I joined a law firm in Littleton,
Colorado, my old law firm in 1999 that I really started getting a taste of business transactional work and civil litigation. And that was really where I grew. I was with that firm from 99 to 2007.
And then in 2007, sort of had a difference of opinion about where I thought the practice of law and business was going to go. And if you probably remember, Andrew, 2007,
2008 was right at the beginning of sort of the financial crisis at that time, but we were really on the edge of this bubble of the dot -com burst. And I saw companies were growing and going online.
You really had the flourishing of Amazon and all of these online businesses. I said, that's where this industry is headed. And that's where I wanna focus the work that I do. The law firm I was with at that time wasn't interested in doing that.
They really enjoyed the brick and mortar types of businesses. And I decided at that point, I'm not gonna be staying around here. I'm gonna go and leave. So I started my own shop for a second time in 2007.
And here I am today, 17 years later, shrugging ahead. Loving every day, hopefully. Let's start from the beginning in entrepreneurs, business owners,
side business, et cetera. What's the biggest mistake that you see business owners make when they take their dream and they get things in motion and they maybe leave a corporate job,
they're going to start this new on the legal side, where are some of the mistakes that are made? - That's a great question. What I see is people cutting corners. And I have a saying that says,
if you cut a corner, you make two more. And I think it's important that any business owner build the foundation of their company in a real solid fashion.
I mean, you can't skip that process. Nowadays, you need to choose the right business structure, Whether you're going to be an LLC or a corporation or a partnership or maybe you want to stay as a sole proprietor,
maybe that's the right space for you. But navigating that area and really deciding what the right business structure for your business is, I think that is really a key stake here.
Because you need to evaluate your liability. You need to decide if you need to separate your actions from the actions of your company. You need to make sure you're properly insured, and also for tax planning purposes.
When money is coming in, whether you're going to be able to manage the tax areas properly to protect yourself in that respect. And so what I see people doing in terms of making mistakes,
they have a tendency to become their own business rather than identifying and recognizing that their business is something completely independent from themselves.
So Andrew, when you go and you decide you wanna open up your ice cream shop, even though it's called Andrew's Ice Cream Shop, it is a completely separate business endeavor and it is separate from you.
And I don't think that many business owners when they first start this understand that there are two, literally two legal people here. You've got yourself as an individual and your company as an individual and companies can buy real estate.
They can engage in contracts. They can do all of these things. And I think people have this tendency to sort of overlap their business lives and their personal lives and really not make a key division on that.
And the pitfalls there, I think really run into making sure you have your proper business accounts set up, so bank accounts, making sure those are separate and independent from any of your personal accounts that you have,
because the idea here is the moment you start commingling those, wrapping everything up, go into the grocery store and buying your own personal groceries with your business credit card,
you now start getting into this overlap of exposing yourself to liability as a business, Meaning, the whole reason you set up these independent business structures in LLC or a corporation is because you want to protect yourself from liability.
So if anybody ever has to come and sue you, you want them suing your company. You don't want them coming after you individually. And that's really the key here is making sure that you have that division. And the moment you start what we call co -mingling your business assets and your personal assets and you do those things together,
you end up losing that structure. Now, there's a whole checklist that people have to go through before they actually get to that point in a legal dispute, but do I even give anybody the opportunity to bring that up?
So, I think that is a key one, making sure you have your company and your personal stuff separated independently. I think registering trademarks, protecting your brand and your brand identity and avoiding anything when it comes to people stealing your intellectual property if you have it.
Nowadays, with people putting information out online, whether it's through a blog on Instagram, through their YouTubes, I'm sure every one of your videos here, I would hope, is copyrighted because the last thing you want is somebody to come in and steal your intellectual property.
This is something that you have created and you want to make sure that it remains yours. You don't want somebody coming in and stealing that. So I think protecting your intellectual property in that respect as well.
Also making sure that all of your essential agreements are in place, like your operating agreement for your LLC, partnership agreements, bylaws, articles of incorporation,
and basically anything that helps define the relationship between the parties in your business and the nature of the interaction that you have as a business with others,
whether it's with vendors or your customers or other service providers. So, there you go. Yeah, it's unpacked, there's a lot in there. So, you know, I think for most entrepreneurs,
business owners, the LLC seems to be the easiest route to go. It's one they hear the most about. Sometimes the C Corp does work. We don't need to get the weeds and all of that. But you hit it on the head,
which is that asset protection that so many times people don't realize, no matter what type of business that they're in that they are now subjecting themselves and if it's not done correctly and all of a sudden we've got personal assets or we've created a company and it's still in the name of our trust and thinking,
"Oh, I've got it protected because they don't realize that a trust doesn't normally do that type of thing." All of a sudden, they're putting themselves up all the other things that they have. So that asset protection side, doing an LLC,
whether we always recommend here at Bain Tree, work with a trusted attorney versus trying to do it on your own even though I know there's a lot of easier ways to do it than there had been.
In that end, we see a lot of times those articles of incorporation and the operating agreements are not done particularly well because they're so boilerplate. Yeah, I think that's a really good point. I mean, our objective, I think you in the financial planning space and mine in the legal space,
we're both trying to mitigate risk. The investments you work in are monetary in terms of securities and things like that, that people are putting their money into for growth. In my particular space,
people are investing their money into probably the biggest asset that they might own and that is their business. And so both of us are in this risk management and space to make sure that we remain compliant and that our assets,
me, my business, you, the stocks and the funds and stuff that you guys trade with are all protected properly and that we're not overexposing ourselves in that space. So building in the risk management component of this,
I think is a big piece of not only the legal planning, but also the financial planning and how you run your business and how I look at running mine as well. And then you touched on the intellectual property and trademarks and branding.
So I think this is an area where a lot of people just, "Hey, I've got this great name. This is what we're going to do. They don't even go on to the, you know, here in Arizona, the corporate commission to see, maybe it's not a huge company out there,
but can I even use this name? Right? So that's like the biggest thing we got to look at first is, okay, you've got this name. Great. Is it available and can it be used, especially as you get bigger?
And if you do get bigger and if it's not done correctly, you don't want five years from now, some big law firm coming at you because you did something outside of the accordance of their trademark.
There's a requirement under trademark law and that is if somebody owns a trademark in a particular brand, they have an obligation to protect it. And if they don't protect their brand,
they could lose that trademark protection. And so anything that comes close to running up against what another company has in terms of their trademark and their branding,
you can expect a cease and desist letter from somebody saying, "You're too closely related to us." There's always an exception to that because there's a long list of case law and factors that go into play to decide whether somebody is or isn't infringing on somebody else's trademark.
But you do want to think about trademark as your brand identity. And you get certain lanes, swim lanes that you get to take your trademark and brand yourself within that lane,
whether it's in the education space, whether it's in a product creation space. And then there's some categories of all of that as well. But getting back to the original question that you said,
which was people not even checking, it doesn't take a lot nowadays to throw something into Google and say, hey, check this out and see what pops up. I mean, I ran into it. I'm starting a new public relations and brain management and risk management company.
And I went through a bunch of different versions of the name that I was going to use. And I came up, I'm like, oh, this is such a great name. I love the way, nobody came up with this name. And you throw it into Google and you're like,
oh man, four other people have come up to this name and I don't even want to address that. One of the things that we have done and most intellectual property lawyers do is when you come to me and you say,
I want to start this company, here's the name that we're looking at. There are companies out there and you can pay, I don't know, 750 bucks to them and they will run a complete search. They'll check the copyright and trademark office,
they'll check the USPTO and they'll even do a complete Google search really in depth to see if there's anything that comes up that matches your name or is really close to the name that you want to use.
And then what we do is we take that information and we put together an opinion letter to our clients and we say, "Hey, it's unlikely that you're going to face somebody coming after you, but again, it all comes down to mitigating the risk." And just as you said,
you don't want to be two, three years into this, all of a sudden to have some company saying like, oh yeah, we've been around in Tennessee for the last 35 years and now that you're starting to do business in Tennessee,
you're interfering with us because where our industries are aligned. And now you've got to go, here you go, you spent three years building your brand and now you got to make changes to it. Or you reach a deal and you license and you work on ways of carving out some way that you guys can share that name,
but then again, that dilutes your brand brand and your brand recognition as well. - Yeah, and one of the things that I've done over the years, we trademarked Bain Tree Wealth Advice, but Bain Tree is it itself.
And then also our original tagline, you dream, we plan, we got that trademarked. And then we also have a, for us listeners, like our process, when somebody comes on board is the dream plan, retire. And so,
again, there's many connotations on how you go about getting that trademark and what lane you you have to stand. But now that is a process that has some value to us, but also now is protected from somebody going in and trying to take it.
Now, would I have an attorney, Andy, that kind of tracks it each year? And then I have to weigh the risk myself. Is this small company that may be using a terminology that's tied to us? Do I want to send a letter? What's that going to mean?
But still, it's just covering the basis that now we're in control of our destiny and we can get as aggressive as we need to be because we've got the protections in order, right? I don't know if you're familiar with Daniel Priestley's book,
The 24 Assets. Are you familiar with that book? No. It's a great book. I use it as sort of a foundation for helping companies as they build and grow because,
you know, his argument is basically, listen, there are 24 assets that your company needs to develop in order to be sound for growth and sound for building either a lifestyle brand or one that you want to sell later on down the line.
And so in looking at those assets, the way that you brand your company becomes an asset to you because lawyers are horrible about branding their firm names.
I mean, it's always last name, last name, and last name lawyer, attorneys at law and they're boring and they're stuffy and they're arrogant and that's sort of where they land. And what I'm noticing now among these new law firms that are popping up is they are coming up with these creative new names.
They're coming up with whatever 5280 law, let's just say, which is the Mile High City or Mile High Madness Law, whatever it is to create a brand identity that is unique and different from the people who are actually owning it and running it because if you have a three -named lawyer law firm That becomes a harder place to sell your company later on down the line or bring in people who want to be a piece of it about
a year ago, I looked at buying a law firm up in the Boulder area and it was lawyers name law firm LLC and I'm looking at this and he wanted 200 grand or so if I remember right for his company I'm like what do you have what do you have for me other than your clients and I'm like looking he didn't have a web presence He didn't have these assets that I was looking for that I wanted to buy That gave me something
of value that I could take that was tangible or intangible that I could use to help promote My brand and interact it and mesh it with what I wanted to do And I ended up passing on the deal ultimately because it wasn't there.
With your company, you've got Bainbridge and that is a unique name unto itself. I don't know necessarily the origin of where that came from, but that becomes something that people can get behind. It becomes the brand for what you want to create and it becomes something that's physical and viable for sale later on down the line.
If somebody wants to come in a group of financial planners want to come in and buy out down the line. You don't have to worry about whether it's you or whether it's Iris or whether it's John who's a piece of it.
The company creates its own identity. And that, I think, again, is your separation going back to the very first thing we talked about, about what you are or who you are and what your company is and the brand that your company identifies with.
So, right on there. And as companies do look to grow a lot of times businesses will start with just the one person, the one owner, and then what are some of the things that an entrepreneur should look at as they're trying to build in and you've got great employees trying to keep those employees as part of the long -term plan.
No, there's a lot of things, so the high level of the ESOP, but then all the way down to real partnership, phantom stock, those type of things are those things that you help your clients with too as you're trying to vision out where they want to be and trying to construct it from the beginning to enable them to have that flexibility that they can pivot when they need to.
Absolutely. When I engage with a business, I look at it from two different perspectives. The first one is, what is my client's objective? Do they want to grow or are they trying to avoid problems or are they in crisis mode?
And when we have to deal with an issue, are they being sued or is something coming up. The strategy for growth is a lot different than the strategy for managing crisis. And the growth strategy is you really need to decide what your exit plan is going to be.
And I don't think people really give enough credit to what does the end of this look like for me. Am I going to work until I die at my desk and my kids are gonna inherit it,
assuming my kids want it at the end of the day, am I gonna build it up to a multimillion dollar company and sell it and then take the money from that and right off into the sunset and in my retirement?
That's an option too. Those two strategies are both very, very different 'cause you've gotta build your company for sale versus building it to maintain and just provide a good lifestyle for yourself.
You know, here I am 30 years later from when I started practicing law. And for me, I enjoy the lifestyle that my company has been able to provide for me. I work, I collect fees from my clients and it provides for my sanity and for my family.
But who's gonna go buy the Contagulia Law from right now? Unless it's my son, but he's going into banking. So he doesn't wanna go into law. So nobody's gonna buy that. So I have to create these other assets that might be valuable to other people coming down if I'm gonna do that,
like my books, my web presence, the value of things that I put out there. But then again, it's still me. I am the brand and I am the identity of my company and it's not really something that I can pass on to somebody else.
I could take it with me and join another firm and it just sort of gets meshed in and integrated into what they do, but is that what my end game is. And I think anybody who's starting a business,
Andrew, really needs to evaluate, "What does this look like for me when I'm 65? What is my end game on this?" And if it's just like, "Listen, I'm going to work. I'm going to provide a nice income for myself,
and then I'm going to be done, and I'm going to close the doors, and I'm going to sell whatever assets I have, whether it's books, websites, articles, whatever it might be. I'm just going to sell them,
take whatever I can and ride off into the sunset. Great. Then be honest with yourself and understand exactly that's what your mode is between point A and point B. But then if it's not,
if it's something bigger and you have a larger vision for yourself and you really want to change the world and you want to create a company that is going to be viable for the future for everybody and others,
that is a different conversation. So you really need to sort of evaluate which of those lanes you want to get into, right? - And one's not better than the other. Lifestyle practices, they're perfect and there is some tangible value,
but still in that case, it's are we building just a book, a business, or are we building a brand, a real company with systems and processes, employees? All of that comes with potential reward,
but also a lot of headache, right? That's where we have to decide. And it doesn't mean you have to decide right way, because if you've got the structure set up, you could still pivot, but it's not a one -size -fits -all.
Right. And it's not. And I think it all comes down to what the individual owner wants to accomplish. Now, an interesting side discussion that we can have about that is, if you and I were to start a business together,
whatever it might be, we're going to sell widgets. Your vision of growth, and we want to sell our widget company to the greatest and biggest other widget company that's out there and we want to make a lot of money in exit and we want to do that in three years.
That's a different discussion than what I might want to do, which is I just want to sell widgets and make a good lifestyle and put my kids through college. So your objectives may be different than my objectives and we're not aligned.
Yeah, we both want to sell widgets. But in terms of what our end game is your end game is different than my end game. And I don't think that business owners when they decide they want to partner up with others really give that piece of it a lot of thought to decide what is going to be best for us in our relationship.
My business partner when I started my firm early on she and I were great together but ultimately the way that she wanted to go and the way that I wanted to go diverged from each other. And we figured at that point it wasn't best for us to maintain the relationship and she went her way and I went my way and I continued to grow and she wanted to just maintain in her lane which is excellent.
So those ideas change. People where they start don't necessarily end up where they want to be and I think it's important. I think the best thing that can come from all of that is that these founders from these companies have a really smart discussion and have really good communication between them to make sure that they're all on the same page.
And the same thing happens if you start bringing in investors and things like that, their vision may be different than your vision. And now you've got to answer to more people. Yeah. And having those tough conversations versus just putting it inside and then at some point of blowing up,
not in a good manner. I think a lot of people get afraid of confrontation, even with a potential partner that they've started a business with, then they diverge in their thoughts and opinions, and then it doesn't come to head until two years later,
and then sometimes it's too late to save it. - Yeah, absolutely. And I think that that's where disputes happen. That's where you get the founders becoming angry with one another,
and ultimately affects the other people. If you've hired employees at that point, they can see it, they can taste it. Everything is palpable in terms of the animosity or the lack of vision between the two of the founders,
that just becomes horrible. And I think that that's where you get people spinning off. Chipotle and QDoba started off as a partnership between those two guys. And their visions were different.
And Chipotle stayed, QDoba split, and that's where they went. They started similar restaurants ultimately, but their visions split in different ways. I think that's normal. I think you can reduce the fallout that comes from those types of disputes and I think it's just a matter of being able to plan properly and making sure that you have these discussions with the people you're in business with so everybody understands that
in the event we get to this point we know how we're gonna manage it the right way. Now let's talk a little bit about maintenance checkup things like that so let's say there is a business owner they do the right thing they bring in an attorney they create the structure the format whether it's the corporation LLC however it set up,
they file and they taxes as an S corp. They're doing everything correctly. And then they're like, you know what, I'm great. And then they start growing their business, getting in the weeds, and they forget to actually bring back the attorney or get a check -in.
And then all of a sudden, it's three, four years later, and they've created a whole mess. So how can we get the business owners under the mindset that it's not a set it and forget it, that it's got to be a proactive ongoing, just like else,
your health, your wealth, et cetera. Absolutely. And I think what needs to happen in those situations is in your hypothetical, they've done everything right up to this point. So there are a set of contracts, there are a set of rules and bylaws that have been put into place that help govern the way the company is supposed to manage.
And I do see frequently that the co -founders of companies or anybody else who have been brought in, they sort of diverge from where they came from and they're not following the operating agreement.
They're coming into areas and they like to do things a little bit differently or they've been lax in terms of the way that they're managing their money. Everybody thinks that they can just use the company's money for whatever they want. I had one case where one of the founders was using the money from the company's own little personal playground and buying expensive cars and motor vehicles and running off to Vegas and
without the other owner knowing about it. So these things happen and now here we are a few years later trying to unwind everything that happened. And not to mention the legal implications or the tax implications of one of the owners taking a draw and the other one not,
you now have capital issues and things like that. But that's a really good example of founders not abiding by the rules that they set up together when they started the company in the first place.
And I think it takes a lot of discipline. And one thing I've also noticed is that, you know, when you start to break down and become lacks and cut corners,
you make two more and you create more problems for yourself. So I think it's important that the business owners remain disciplined and really follow the rules and stay up to date and continue to communicate with one another and make sure that Everybody stays in their own lane.
If you have a CEO, the CEO stays at the top of the pyramid and is responsible for the vision of the company and the direction of the company. The CFO should not be engaging in those. CFO's job is to make sure that the money is coming in,
that the money is spent right, and that they remain financially viable. The CMO is in charge of marketing, make sure that they bring in their customers through their marketing efforts. Chief of operations, same kind of thing.
You manage the people who are working for this company. Everybody's got to stay in their own lane. The moment one of the founders decides that they want to start doing everything, that's when you're going to get an identity crisis among your brand about what people are supposed to be doing and how they should be doing it.
So maintaining those lanes, I think, is probably the most important thing. And again, Andrew, it just takes a significant amount of discipline in doing that. - Are you a proponent if you create a company,
and you've got partners, or you've got some key employees, or you have a proponent of key man agreements and making sure, again, mitigating that risk that if one of the, maybe they're not even a partner, but somebody who's an integral part of the firm,
dies. And all of a sudden, we're screwed. Yeah. I'm a big fan of the key man insurance. And I have friends who are in the life insurance industry,
and they sell those products. And it's something I always bring up to my founders when we discuss the next steps because your hope is that your company is going to grow and that you're going to become incredibly successful and that the company is going to be worth millions and millions of dollars.
When you own 50 % of a $10 million company and I own 50 % of a $10 million company, when one of us dies and the company is in the position of having to buy out the other person's shares.
Most of the time, even though your company may have that kind of value, they don't have that kind of cash. And that creates its own problem. So life insurance policy in that respect, the key person policy would be able to provide cash to the company to buy out the interest of the deceased shareholder or member.
That is its own issue. But the other thing that comes up quite a bit is Andrew, you and I are great friends. We work well with each other, but you hate my wife.
And if I die and she takes over my interest, you may say, hey, I love to work in with Andy, but I don't not want to work with his wife. I can't stand that woman. And she's actually pretty cool.
You know, that scenario comes up quite a bit. And in the business sales that I've been working on recently, there has been the spousal consent form that has always come up. So in buying into a business or selling a business,
the company that's either buying or selling is going to make sure that the people coming in, their spouses are signing these spousal consent forms, meaning that in the event you ever, that the shareholder dies or you get divorced,
you are not entitled to an ownership interest in the company. You're only entitled to the value of the ownership interest in the company. So if I die, you're not working with my wife,
but you are paying her off for my shares because they're my shares I get to keep them. They are my personal property. So now you got to buy me out rather than having somebody come in You wouldn't want my son doing that right now He's 26 who would know what he would be doing with all those shares if something like that were to happen So those the key policies that I think helps manage that situation and really keep
the close, which is what your objective is. Yeah, I know you hit on a great point there because even if you own the majority or 6040, things can be set up that we're taking care of the family,
the spouse, and they have no way of jumping in and taking majority interest and then running the company into the ground because they don't know what they're doing. Exactly. And I think you see that a lot. Oh,
my God. That reminds me of another story. I'm involved right now with a company where You have a father who died and all the interest was going to his children. So you've got five different children now,
each with 20 % of this company all fighting over about how the company should be operating and things like that, and it's creating its own set of problems. But I mean, it's a good company, but they all have different directions in terms of what they want to do and how they want to move it forward.
So that creates good opportunities, but it also creates a lot of problems, Especially when you have people who are not aligned in the vision or the future of what the business is.
Yeah. I think any business owner should make sure they watch Succession, obviously, at a high level there. But that's just a one -on -one of all the things that can happen. Exactly.
And that's what that whole show was about, was who's going to come into this Murdoch -esque company down the line. But there's a lot of truth in that show. - So one quick advice for individuals that may have done really good things on the personal side,
they got the revocable trust. Now they've done the right thing and they created the LLCs correctly. Where do you see some of the issues where they're not aligning together, where the, you know, if they've already done the trust,
the trust is that they haven't assigned the LLC to the trust. What type of things should people be thinking about that they thought they had things covered, but now because of certain things that may have to go through a probate process just because they didn't have a simple assignment of the LLC.
I don't want to get too much into the estate planning component of this. There's a million different ways that you could do it. You could put it into a trust as you had mentioned. There are ways that you can do it internally because usually with your trust,
you're looking at giving your company over to other family members, but you don't always have family members involved in companies. You have, you know, people who met in college who decided to start a business with each other,
who have completely different families. You may have, you may build a company and be taking investment from venture capital or from angel investors, all of whom are going to have their own interests in the company.
And as a result of that, now you've got to manage that space. So, you know, putting everything into a trust for your own personal assets might be acceptable. But again, you have to see if you're operating agreement or your bylaws or your shareholder agreements are even going to allow that kind of thing.
Because many of these agreements, these founders agreements, shareholder agreements, operating agreements, those types of things, put restrictions on what you can and cannot do with your interests in the company. One of the restrictions might be that you can't put it into a trust.
It may be there. So you have to evaluate that. Now, arguably, putting it into a trust doesn't affect the interest. It shouldn't. And most business owners and in that scenario would allow for it to happen.
You could do it that way. You might start a holding company. If you own more than one or more companies, you might want to create a holding company that becomes your foothold in each of those little individual sub -companies.
So there's a bunch of different ways that you could organize that. Assuming you've done all of that together, what are the next things? I think in terms of succession planning, you're probably okay at that point. I think then it really becomes a matter of operations and making sure that everybody is aligned to make the business as successful as possible.
- Awesome. So I wanna pivot as we wind down, but there's a lot of small businesses out there and they're getting close to retirement. A lot of baby boomers have small businesses. They make up the big component of our economic sector here.
A lot of them have a viable business. It may not be worth $20 million, but it might be worth $1 million and generates $250 ,000. We have a lot of these businesses being sold. A lot of these small businesses that have a local footprint.
What should somebody do who's an aspiring entrepreneur that wants to look at buying a viable business, what are some of the tips that they should look at? I know we can't give legal advice per se,
but what are some of the things, you know, when you're buying an asset versus, how do I protect myself from buying the skeletons in that company, even though it does have good cash flow and things like that? - Absolutely, and that's a really good question.
And I'll caveat this entire discussion with every opportunity like that is gonna be different. And to navigate it appropriately, really depends on the number of different factors. So there's no one right answer.
That being said, you've got two options when it comes to buying a business. You have an asset purchase, meaning you're buying the assets of that company and then you have a stock purchase. Each of those carries different tax implications,
which I think are too big for us to get into right now. So I'm not really gonna discuss it, but understand that a stock sale versus an asset sale or an asset purchase, those are going to be completely different ways of doing it.
The tax implications are gonna be different. So definitely speak with your tax advisor before venturing on that. You know, when you buy your company's assets, you literally are, that's what you're buying. You're buying the 24 assets that I talked about,
Daniel Priestley's book at the beginning, you're buying those things. You're buying the personnel. You're buying the branding. You're buying the goodwill, you're buying any equipment, furniture,
fixtures, that kind of thing. Maybe if they own a building, you're buying the building as well. But you're buying all of these things and the assets of the company. The nice thing about an asset purchase that you are not getting are the debts and obligations of the company.
That is what happens when you buy the stock of a company. When you buy and do a stock sale, you are buying an interest in that company and that company never changes. So you are buying an interest in it and you are buying it with everything that it has.
You have all the assets in it, but you also have the debts and the liabilities. And there are some ways to do it. You might want to do an asset purchase versus a stock purchase,
depending on what your goals are. A lot of people want to just come in and buy the assets because their objective is they want to then sell those assets. So why do they need to really own the company when they just want to buy the assets of the company.
You might want to see that in purchasing a company, where does it fit into your current business strategy? I represent and have represented over the years various marketing companies and they look at smaller marketing companies and what they do.
And they may say, "I really need a content creation component of my marketing company." And so I'm going to go buy just a you know, somebody who just does content creation,
or I need somebody who does Google AdWords. I'm gonna go buy a small Google AdWord company and literally just buy their customer lists, buy the person who's working, you know, for that company and everything that they've developed,
their processes and their procedures and things like that to build that out because that tucks into my company real nicely because that's where my company is lacking. That's different than somebody who might wanna start a and say,
I want to jump in on this one and I'm going to come in. You see stock sales a lot when you're looking at companies wanting to or people wanting to buy into a company and just continue to do what it is.
It's literally a turnkey operation and you just come in. You don't have to rebrand it. You don't have to do anything. It's a company that's already viable. It's already moving. It's already going. So again, it really depends on what your objectives are and how you want to move that forward in terms of what your business objectives want to be and what your goals are.
Yeah, and the biggest takeaway there are listeners, don't do it on your own. Get trusted help. I always ask, "All right, so why do you want to do it this way?" Oh, well, blah, blah,
blah, blah, blah, blah. I'm like, "All right, well, yeah." I thought you talked video, and it totally did that way, right? The whole process, Andrew, involves due diligence. And for the people who aren't familiar with that term due diligence is basically my investigation of your company.
If I'm buying your company, I want to make sure that my risk, again, back to risk mitigation is as minimal as possible. Right now, I'm in the process of selling one of my clients' companies and we had to put together a due diligence list of everything.
I mean, he's provided financials over the last five years, he's provided all his contracts and everything. I mean, it's not a huge deal, it's a couple million dollars, but still it's the biggest thing in his life and something that he built.
He built this company in under four years and now he's selling it for seven figures, which is excellent for him. But the due diligence list that we had to provide is just insane,
making sure that we have everything we're claiming that we own, we really own, more he owns. That becomes, I think, really important too, making sure that the due diligence list and everything that you need to know about the company you are buying is done.
Because if you don't do that, you may end up with a liability that is really going to screw you over. Last thing you want to do is buy a business and figure out that, oh my god,
you mean you haven't paid the taxes for your employees for the last six months, and now I'm going to buy a stock, I'm going to buy your company, and now I'm going to owe that.
And so you have to be careful for those things. So you've got to look under the rocks. And then the privacy laws, GDPR, CCPA, you know, the stuff we're seeing over in Europe and coming over here now,
like, what do we really have to be concerned about right now as a business owner with the digital communication? You know, I know we could probably spend a whole podcast on that, but like, can we talk real high level on that of what we should be thinking about?
Yeah, I've managed, I think, to boil it down to the necessities here, and that is, when you are engaging with people online and you are gathering information from them,
only take as much information as you need. Example, you want to sign up for my newsletter? Andrew? Great. I don't need anything more than your email address for that.
Maybe your name. All right, if I want to personalize the emails to you. It would be silly for me to take a credit card number down. It would be silly for me to take a social security number down. It would be silly for me to take anything that has some type of finances or anything associated with that as it comes to that.
I don't need that information for what I am looking to do. People who are operating at a higher level and might need that information, banks, financial planning companies, maybe who are gathering that kind of information,
you need to make sure that you manage and protect and store that information so it can't be stolen. I mean, you've probably heard about the couple billion dollars, not billion dollars, but billion documents,
you know, hack of social security numbers and stuff that just happened a couple weeks back. I'm sure everybody out there is like, "Oh my God, was my information part of that?" You know, those companies have an obligation now under these disclosure rules to make sure everybody is aware of it and tell people what they're doing to protect it.
But overall, I think you need to be able to give people the opportunity to opt in because it does have to be an opt in, it can't be an automatic opt in to certain things. So it's an automatic opt out and I have to actually click the box to put my check mark in to make sure that I want to opt into it and that you're only collecting the amount of information that you really need for what you're providing to me
me in that process. And you hit on it too, the opt -out is the key too. If you're starting to marketing to these people that opted in, you have to make sure you have a visible way to have them opt -out.
And we see-- I'm sure you do too, all the emails we get every day. Some of them, they may be there, but they're hidden. You can't read it. And so don't skirt the law. Is there allowed to be easy? They're not going to be your client anyway.
So just cover all the bases there. That's right. And it's cheaper to just follow the rules. Never a dull moment in your industry. It's definitely keeps it's recession proof, I assume on that end.
Yeah. We could go on and on because there's there's so much here, but you know, listeners, a lot of good pieces of info that Andy went through today. I think if we break it down, it's before you do anything,
think through on really what you want the company to be now and in the future, and make sure that you bring in trusted team, including an attorney to lay out all of that.
And very easy to see company you're building. Can I do it? Can I use that brand name? Can I use those type of things? Important because you don't want to get your legs cut out from you four years from now when you've created the brand.
You've got the domain. You've got all the social media. It's going to be a lot more expensive to rebrand at that point than spending the money in an attorney to get things in check and in place. And it builds a value too.
Your company now is more valuable when you can improve that. Just as you said, all the due diligence, well, that's part of it. - The processes and the procedure, those become assets of your company. If you have a repeatable procedure,
that is even more important. - And then be proactive. Don't just set it and forget it. Continue working in your business, but don't put the blinders on because then you'll get And then that's going to be good.
Any last bits of wisdom for the audience that you could share with us? This has been great. I really appreciate the opportunity to sit down with you and chat about this. And as always, I'll make myself available.
If there's anything that comes up from this that people want follow up on, I'm happy to sit down and crush this again on anything updated. And then people are always welcome to reach out to me too if they have any questions.
And then show notes will have your website, your social media, your podcast, how to get a copy of your book. Don't skip the legal. Your YouTube channel, all the ways in which you're positioning good information out there to the people.
And sounds like always there's a resource, whether they become a client or not. I am. I enjoy helping people. Keep on keeping on. We appreciate the time. Hope your Broncos have a decent season,
but that's all just decent. - I guess it could be worse than it has been, right? - That's true. - This has been fantastic. Andy, we really appreciate it. And listeners, make sure to tune in later this month for a brand new episode of Your Wealth and Beyond.
If you'd enjoyed this podcast, make sure you like and subscribe to it on all the channels, all the formats so we can get the good information out to you. Happy planning, everybody. We'll talk real soon. - Awesome.
Thanks, guys. - Bye. - Thank you for joining investment advisor.
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