San Francisco, CA, February 1, 2012 - Optimism is on the rise as small businesses prepare for growth in 2012, but business expansion has its own dangers. A new Rocket Lawyer survey shows that, along with a bright outlook for 2012, small business owners are mindful of the additional legal risks they will encounter as their businesses grow.
An overwhelming 85 percent of small business owners believe that 2012 will be a better year for business than the previous year. However, Rocket Lawyer's new survey also uncovered challenges that concern SMBs. When asked about the hardest part of running a small business, dealing with legal issues was the most common response (29 percent), which outranked other responses including managing profit (26 percent) and staying ahead of competition (19 percent).
In the past year a myriad of these issues impacted small businesses. The top five legal areas identified by small businesses in the survey included contract negotiations (15 percent), real estate transactions (13 percent), corporate compliance and debt collection (both at 12 percent), and incorporation for businesses (10 percent).
As SMBs enter into new business contracts, hire new employees, and upgrade to new office spaces, entrepreneurs face a wider range of legal issues, like signing contracts, staying compliant with HR laws, and signing commercial leases.
"As small business owners take bigger risks and start spending again to capitalize on new opportunities, staying on top of potential legal issues is more important than ever," said Charley Moore, founder and executive chairman of Rocket Lawyer. "Adapting from a mindset of preservation to one of growth means business owners have to be aware of their legal opportunities as well as risks, and it's always a good idea to talk to an attorney whenever you need extra confidence and guidance."
Rocket Lawyer offers three strategies to help small business owners make big moves in the New Year without putting themselves at unnecessary legal risk.
1. Avoiding IRS red flags can help small businesses steer clear of a tax audit.
Although most small business owners want to stand out from the crowd, the opposite is true when it comes to their dealings with the IRS. Even though relatively few small businesses were audited last year (1 percent of corporations with less than 10 million dollars were audited last year according to the IRS), the Rocket Lawyer survey found that a significant portion of small businesses (40 percent) say that they are more fearful of an IRS audit than any other legal issue.
But small businesses can do a lot to protect themselves from an audit. One key is to know how tax audits are triggered: each tax return is compared to other similar tax returns, and if one appears to significantly deviate from the norm, the IRS may look deeper to find out why. Other common red flags include misclassifying employees as independent contractors, or higher than average business related meal and entertainment expenses, among others. A small business's best defense is using good sense, and having a trusted accountant and a business attorney to help with the nuances of tax law. The Rocket Lawyer Tax Legal Center has more information about avoiding or handling a tax audit.
2. Learning contract negotiating skills is a must for small business owners.
Tax audits cause a significant amount of trepidation, but they aren't the most common legal issue faced by small business owners. According to the survey, out of the 52 percent of small business owners who faced legal complications in 2011, the most common legal problem concerned contract negotiations. In 2012, expect this to become even more important as companies grow and enter into new business relationships.
The right negotiation skills are one of a small business owner's most important tools. A good contract helps maximize profits and minimize risks, secures payment and avoids potentially expensive legal skirmishes down the road. Small business owners should start out by being proactive and asking for the terms they want, politely but firmly. Everything is negotiable. Even when the agreement has been settled verbally, there may be other terms in the contract that were not discussed, so it's essential to read and understand the document before signing. If something isn't right, revise the contract and send it back to the other party before signing. Part of the negotiation process is to work directly with the text of the business contract until both parties are in agreement. The negotiation process is the time to make everything crystal clear -- and it's important to realize that any leverage is lost after the contract is signed. When in doubt, a few minutes of an attorney's time can be invaluable.
3. Small business owners should create written proof to protect their dreams.
When small business owners were asked why they chose to start their own business, the most common response was to follow their passion or dream. While it's a great motivation, new entrepreneurs need to keep their feet firmly on the ground to protect themselves from the harsh reality that business is, after all, a risky venture. One basic habit small business owners can rely on is putting any and all agreements in writing. Whether it's employment agreements, independent contractor agreements, nondisclosure agreements, or corporate minutes. If there's any doubt, the agreement should be on paper with both parties' signatures. A verbal agreement is very hard to prove in a court of law, so having a written agreement is an inexpensive way for small business owners to avoid legal hassle and get back to making their dreams a reality.
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At Rocket Lawyer, we believe everyone deserves easy and affordable legal services. Since 2008 we've helped over 15 million families and small businesses find the best solutions to their legal matters -- so they can focus on what really matters. From free legal documents to discounted rates with outstanding attorneys, we're there to help every step of the way. For more information on Rocket Lawyer, please visit http://www.rocketlawyer.com and follow Rocket Lawyer on Twitter, Facebook and Google+.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.