Common legal mistakes entrepreneurs make

Starting a business is exciting and for many, means the first time they were not working for someone else. Those who have decided that working for themselves is the best alternative should be aware of the common legal mistakes that entrepreneurs make. Entrepreneurs with a solid plan to move forward can often find great levels of success and gratification from owning their own business.

Structuring a business

Many entrepreneurs start a business without any formal business structure. Some select a trade name (e.g., doing business as (DBA)) while others may form a sub-chapter S corporation. Unfortunately, as too many entrepreneurs discover later, neither of these business types offer any type of personal liability exemption.  This common mistake can be devastating if a business owner is sued - it can put personal property at risk.

It is also worth noting that the structuring of a business entity does have an impact on tax filings. Entrepreneurs should review both state and federal taxes for businesses before they decide which business structure works best for their needs. For example, not all states recognize a limited liability corporation for tax purposes which could create tax problems that can easily turn into legal problems.

Giving up too much control

Depending on the business, an entrepreneur may decide to being in one or more partners. This decision can be very good for a business, depending on how the agreement with partners has been established. Entrepreneurs should always structure agreements with fellow business partners in a way that allows them to maintain control over the business. Those who bring on two additional partners and give up 25 percent of their business to each may find they lose control over the direction or mission of the business. Entrepreneurs should try to maintain majority control over their business as much as feasible.

Many entrepreneurs who need financing to launch their business will offer equity in return for funding. While this is a good method for securing financing, it can be problematic making long-term decision for the business. Carefully consider all options when exchanging equity for services or financing. The wrong decision could have far-reaching consequences that may impact hiring, purchasing new equipment or growing a small business.

How to distinguish between an employee and an independent contractor

For tax purposes classification matters

The Internal Revenue Service has laid down specific guidelines that explain how to distinguish between an employee and an independent contractor. At times, these guidelines still do cause some consternation, for both employers and for employees.

While some will tell you that the "terms" employee and employer do not necessarily govern the relationship, you should consider having your contracts reviewed by a tax accountant or lawyer before sending them to your freelance clients. Why run the risk?

The Internal Revenue Service website states the following ruling: "Independent Contractor: The general rule is that an individual is an independent contractor if (the person for whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result."

"People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case."

Your only true competitive advantage is your customer relationships

Competitiveness is the hallmark of business. In today's global marketplace, business owners need to determine how best to compete. Not only are business owners competing with businesses in their own towns, they are now competing on a global level. In some cases, they are competing with businesses who only have an online presence making customer retention even more challenging.

New Ways to Compete

Historically, businesses competed by offering better products, lower prices and convenience. Today, this is nearly impossible to accomplish and keep a competitive edge. Building brand loyalty is not nearly as easy as it once was, in large part because of the internet. People tend to look for the products they need online. During this search, customers are more likely to ask friends via social media, shop for the best price on a product and are as interested in convenience as they are in a brand. Therefore, business owners and decision-makers in a business need to find the best way to attract and retain customers.

Do Not Bypass Tried-and-True Methods

One thing to keep in mind is that there are still some tried and true methods that you cannot change while working on attracting and retaining customers. Your business must still offer a high-quality product, stay current with trends that occur in your industry and provide value to the consumer. These are the basic building blocks of a good relationship between you and your customer. But, you cannot stop there. Today's consumer demands more.

Communication is the True Building Block of Loyalty

Communicating with your customer base is the true key to developing customer loyalty. If your customers only hear from you when you are trying to promote a new product, they may soon turn to other similar products that will meet their needs. Developing strong relationships with customers involves time and effort on your part, but, in the long run, it will pay off with a more loyal customer base.

Communicate More Than Sales

Consider the last time you offered a loyalty discount, reached out to your customer base to acknowledge a birthday or holiday or offered some special incentive that was not open to the public. These are great ways to build loyalty through customer relationships and you should attempt to do this type of outreach at least on a quarterly basis. Remember, you do not want to be a nuisance but you do want your customers to remember you the next time they are searching for the product or service you are offering.

Customer Service: Get More for Your Dollar

Communicating between sales is only one step in developing customer loyalty through strong relationships. The best way to ensure your competitors cannot poach your customers is to ensure you have superior customer service. This is the one way that your competition cannot match if you are doing things the right way. Customer service must be proactive and not always reactive. Naturally, if a customer has a complaint you want to be as reactive as possible but if you are proactive, you can stop a lot of problems. Be sure your customer service team is all on the same page with one goal in mind: keeping a happy customer.

Social Media, Telephone and Email

Being available to your customers in as many ways as possible can help you develop the best relationships. Your online presence can help you stop problems from developing before they harm your reputation with other customers. Keep in mind, a happy customer may only offer your information to others if they are asked. An unhappy customer will tell whoever will listen. Keeping the lines of communication open and being responsive to inquiries, complaints and suggestions are all great methods of developing customer loyalty.