The 5 Biggest Legal Mistakes Studio Owners Make –
and what to do instead
Running your own business is one of the most exciting and rewarding things you will do in your life – congratulations! It can also be stressful and overwhelming at times. The last thing you want to worry about is some potential liability lurking around the corner. While you don’t need a lawyer for every little nook and cranny of your business, it’s important to be proactive and address the major legal issues that could impact your small business – especially in the health and wellness market, as one small misstep could have business-ending implications. (Believe us – we’ve seen it happen.)
Below we identify the 5 major legal missteps we see health and wellness entrepreneurs make on a regular basis – and we address ways to fix these mistakes and protect the long-term health and wellness of YOUR business.
Mistake #1: Over- or under-structuring your legal entity
Sometimes small businesses don’t set up an entity – or they choose the simplest choice without fully understanding its implications. Others over complicate the process in an attempt to anticipate any and all future events, yet not even the most well thought out plan can anticipate what the future holds.
So instead of over- or under-thinking your entity choice, what should a new entrepreneur do?
Get informed, yet stay flexible. Understand what entity works for your business NOW, yet keep the structure flexible enough if circumstances change like new investors or a new partner. Limited liability companies are often, but not always, the most desirable forms for small businesses, and each business situation is different. Choice of entity can have significant impact on liability, tax and future growth strategies.
Instead of wasting valuable time and money and draining your revenue, create a flexible business structure that reflects what you have today, and understand how you can modify the structure for future changes.
Mistake #2: Using online contracts or writing contracts without advice
An entrepreneur starts a business as an “expert” in their business, yet they are probably not an expert in legal language. If you want your clients to rely on you as an expert in your industry, you should also trust professionals in the legal drafting arena. The best example of this is a waiver or release document all fitness studios should have their customers sign in order to reduce the business’s liability. Many owners find one online, use one from another gym or studio, or draft one on their own. The risk here is using a document that is ultimately unenforceable. Different states have different laws that require specific information for the waiver to be enforceable. And, many owners don’t know how to draft a well written indemnification or severability provisions.
Moral of the story: for any important contract in a health and wellness business, don’t pull just any form off the internet, but instead have an expert that you trust be part of the drafting and/or negotiating process.
Mistake #3: Not properly reviewing a contract
This one is so common we gave it its own category! Failing to properly review a proposed contract – just like drafting a contract on your own or using an internet template – can result in serious consequences for the business. We have all done it – someone says “sign here” and you do it without reading the fine print and truly understanding what you are signing. But you should never bind your business to terms you don’t understand or that aren’t clear.
Here are a few major points you should look for when reading a proposed contract:
- Are the names of the parties to the contract clearly stated (is the proper entity signing or are you signing in your individual capacity)?
- Are the rights and duties for each party to the contract clearly stated (e.g. who is doing what and how much will it cost and when should that money be paid)?
- Are the next steps clear if those duties are not met?
- How does the contract end or terminate? What happens when it terminates?
These are just a few major issues, but reading the contract and understanding what it says is vital. Also – whenever possible – negotiate back. If needed, ask an attorney to review the terms to make sure your business’s interests are fully protected.
Mistake #4: Failing to Properly Classify Employees and Contractors
This is a sticky issue in the health and wellness industry. How to classify an instructor or therapist or front desk staff is a consistent question that comes up. Often times owners tend to look at what similar businesses are doing with their employees and contractors and copy that; or they run the numbers and make a classification decision on what is best for the bottom line. Don’t! Determining the correct classification is a multi-factor test that is different from state to state, as well as federally. And making the wrong decision could not only involve back pay but serious penalties. And while having agreements in place can only help, they are not determinative. Rather, how much control the owner has over the employee or contractor is typically the most determinative factor of the relationship. So, get informed about the laws and make an educated decision on how to classify. And if helpful, get contracts in place that support your classification.
Mistake #5: Failing to properly address customer concerns
Small businesses can never completely protect themselves from potential litigation or legal challenges, but by properly reacting to a customer complaint, businesses can mitigate this risk. Often the inclination is to ignore complaints that seem frivolous or insignificant.
When things go wrong, clients may explore their legal options.
By immediately facing the customer complaint, whether legitimate or not, a business may be able to avert a legal action by making the customer feel heard and rectified.
But, sometimes, not all complaints can be resolved, so you should carry the right insurance and be prepared for the worst case scenario by making sure all your ducks are in a row – ie, waivers, employee handbook, IC agreements, insurance policy, proper lease, etc.
Have questions? Concerned about your liability?
Don’t sweat! We have you covered. In response for the high demand of work needed to address these issues, we have created our Small Business Initiative,* which focuses on dealing with the above issues for a single flat fee. Check out our website to see the full package at http://kineticlegalllc.com/firm and then grab your free consultation with Sarah and Luke to determine whether the SBI package could help your business.
See you soon!
* Limited time offer. One package per client. Subject to the terms and conditions included in engagement letter provided by Kinetic Legal, LLC.