Starting your own business can be both exciting and scary, and you are bound to make numerous mistakes along the way. But you'll often discover that some of your biggest mistakes will later become your greatest strengths.
This was exactly the case for my mentor, Ali Katz, who went from losing $1 million to running a company that earns over $5 million a year. Indeed, Ali was able to not only learn from her early missteps as a lawyer and businesswoman, but she capitalized on those lessons by creating New Law Business Model, which trains lawyers like me to help families and business owners not repeat the same expensive mistakes she made.
Here, we share four of the most important lessons Ali learned on her way to success, which have been adapted froma recent Grow By Acorns article Ali was featured in.
1. Be Open About What You Don't Know
As a new business owner, Ali didn't want her lack of financial knowledge to show. And because she was afraid to ask for help, she missed out on $50,000 in tax savings and was stuck with a surprise tax bill totaling more than $100,000, which she had to take out a loan to cover.
From that experience, Ali learned to share her income and expense projections for the year with her CPA no later than mid-November. Today, she asks her CPA for yearly projections of what she'll owe in taxes, along with at least three different tax-saving options, such as accelerating expenses, deferring income, or setting up retirement accounts, so she can implement tax planning strategies before the end of the year.
As part of our ongoing business counsel programs, we meet with our business-owner clients and their CPAs to support them with the implementation of tax-saving strategies on an annual basis.
2. Always Get Agreements In Writing
Even as a lawyer, in her early days Ali was often afraid to ask for agreements in writing, or she thought they weren't necessary because she was working with friends. However, this cost her big time after she hired a friend to create a website that helped parents name legal guardians for their kids online.
When Ali went to move the website to a different developer, her friend claimed the source code was his, and he said she'd have to pay him $25,000 on top of the $25,000 she'd already paid him because they didn't have an agreement containing a “work-for-hire” clause.
Now, whether she's never worked with someone before or they are close friends, Ali always requires a written agreement—and you should, too. In your business, you actually need two standard agreements at a minimum: one to use when you are the provider of services, and one to use when you are hiring service providers. In addition, if you have one or more partners or collaborators, it's your agreements that will protect your relationships and make success most likely.
Clear agreements protect your relationships because they require you to be as clear as possible about your expectations, and define the interests that are at stake for both parties right from the start. While it can be challenging to have the hard conversations that lead to clear agreements, as your trusted counsel, we can make it easier for you by identifying anywhere there is not documented clarity and initiating the conversations on your behalf.
3. Invest In Expert Help
After five years in business, Ali sold her law practice to another lawyer with 25 years of experience. But she did so without consulting with legal or financial advisors who specialize in the purchase and sale of law practices. Within six months, the buyer claimed the client flow had dried up, and he could no longer make his payments.
Looking over the books, Ali realized he had stopped implementing key drivers of the business like marketing campaigns that consistently brought in new clients. While this was an important aspect of the business, Ali hadn't communicated this as part of the buyer vetting process, and the do-it-yourself purchase agreement she had in place didn't protect her interests. Not wanting to leave anyone in a lurch, Ali ran the practice out of her own savings for six months, while transitioning her clients to other attorneys and helping her colleagues find new jobs.
Had Ali invested the money to hire the right advisors to assist her with the sale, it likely would have cost her between $15,000 to $25,000 to document the sale properly. But thinking she could save money by handling the legal and financial matters herself, she ended up paying $250,000 out of her own pocket instead.
4. Make Money Decisions From a Position of Strength
Starting out, many of Ali's money decisions were made from a place of scarcity and fear, as she tried to do everything on her own, even when she wasn't the best person for the job. But since then, Ali's discovered that “hiring the right legal and financial advisors is just as valuable as hiring someone to run my Facebook ads, design my website, handle my sales conversations, or even manage my calendar.”
When starting your business, be clear on the service you offer and the market that needs it, and be sure you know how to reach that market. From there, go all-in on the business side of your operation, and have the proper LIFT systems in place to support you. In the end, Ali offers this final tip, "My best advice is to spend the necessary time, energy, and money to learn about the LIFT aspects of running your business and hire the right people to be on your team. This is one of the most important investments you can make in the growth of your company.”
Get Your LIFT Systems In Place Today
With us, as your Family Business Lawyer™, we can ensure you have the foundational legal, insurance, financial, and tax (LIFT) systems in place, so you can avoid making the same mistakes Ali and so many other entrepreneurs make, and instead focus your time and energy on building a business you truly love. Call us today for an appointment.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.