Insights from some of the area's leading business attorneys.
by Michael Puente
How can a small business handle delinquent customers?
What are the pitfalls of obtaining legal advice online?
What issues are overlooked by entrepreneurs when starting a new business?
These are some of these questions on the minds of Northwest Indiana business owners.
Each year, Northwest Indiana Business Quarterly turns to the experts for answers to some commonly asked questions. In this issue, we've tapped some of the brightest and most experienced legal minds in Northwest Indiana.
Does my small business need confidentiality and/or non-compete agreements?
For most small businesses, the answer is a resounding “yes.” There are many reasons a small business may need confidentiality/non-compete agreements, and these stem from the fact that confidential business information and customer relationships are often some of a small business's most valuable assets.
If a key employee walked out the door with your company's most sensitive business information and customer relationships, would your company be in a position to protect itself and its value?
Whether as a shield against unfair competition or to enhance your business' value for possible future sale, confidentiality and non-compete agreements are critical to protect your company's assets and value.
Confidentiality agreements require employees to keep your company's business information secret. Confidentiality agreements can extend for as long as the information is valuable and treated confidentially by your company.
Businesses should also use confidentiality agreements with any third party, including vendors, financial institutions and individuals who tour production facilities.
Non-compete agreements can prevent certain employees from competing against your business for a defined period of time. Non-compete agreements are governed by state law and must be reasonable and appropriately tailored in order to be enforceable.
A business's practices concerning sensitive information can be just as important as agreements in writing.
Confidentiality or non-compete agreement protections, as well as protection of trade secret laws, can be jeopardized if a company does not take steps to maintain secrecy by implementing confidentiality policies and procedures, password protections, secure storage and marking sensitive documents as “confidential.”
While confidentiality and non-compete agreements may seem overly formal and legalistic — or even too costly — binding and enforceable agreements are indispensable to protect the information and relationships that make up the value of your business.
–Alison G. Fox of the South Bend office of Baker & Daniels focuses her practice on employment. Before joining Baker & Daniels, Fox was a law clerk to Chief Judge Robert L. Miller of the U.S. District Court for the Northern District of Indiana in South Bend and practiced employment law in Chicago.
In these tough economic times, what is the best way to deal with delinquent customers?
It is unlikely that any business which extends credit to its customers has not seen an increase in customer delinquencies over the past few years. In some instances, insolvency or bankruptcy makes collection very difficult, if not impossible. In other instances there are some simple steps a business can take to maximize the collection of its debts.
Make good credit decisions from the start. An outstanding invoice normally means you're carrying someone else's financial obligation, so be selective. To the extent practical, know your customers. There is nothing wrong with asking other businesses about the payment history of a potential customer. If the potential customer has failed to pay other businesses, that may be a warning sign.
If engaged in a large or lengthy project, make sure to receive regular progress payments and be willing to stop work upon nonpayment. Many business owners often look back on a particular bad transaction and lament that they “knew” the customer would be a problem. Although most businesses are hungry for work, potentially the best decision you can make is to pass on a project if you suspect payment will be a problem.
Whether it is a longtime customer or a new client, it is critical that any extension of credit be in writing and clearly outline the terms of payment. Although it would be nice to rely on a handshake or verbal understanding, a customer's recollection of events may be selective.
Along those lines, a written agreement should provide provisions about interest on the outstanding debt; reimbursement of collection/attorneys' fees; and the process for collection (mediation, arbitration and/or litigation).
The amount of time for a customer to pay an invoice can vary, so once a customer exceeds 30 to 45 days, steps should be considered. The simplest and most effective is a phone call. If the customer did not pay the first two invoices, it's unlikely a third or fourth mailing will get different results. A direct conversation allows you to assess the situation: Is the customer experiencing financial problems? Was the customer unhappy with your product/services? Was the payment lost in the mail?
All customers will not be truthful, but before accelerating the collection effort, reach out to your customer. Although an occasional customer looks to scam the system, most customers want to pay their bills. If you determine nonpayment is the result of legitimate financial problems for your customer, the best route is quick resolution.
This could mean waiving interest and/or accepting a reduced lump sum payment. Rarely should it mean extending more credit. Although no business wants the reputation of being “too easy” in collection matters, it is often more efficient to collect something than spend months trying to collect and winding up with nothing more than a large attorney bill.
Whether you use an attorney, collection agency or handle matters yourself, once you determine pleasant telephone calls and reasonable settlement offers will not help, move the matter into your formal collection process.
–Patrick Lyp, a partner with the law firm of Blachly, Tabor, Bozik & Hartman LLC in Valparaiso, concentrates on business, municipal, real estate and bankruptcy issues. He is also an adjunct professor of law at Valparaiso University School of Law, where he teaches business drafting.
What should business owners be mindful of when seeking legal advice online? Is this a growing trend?
Occasionally, I am enlisted by clients to undo a problem caused or complicated by a form they found through what I'll call “online legal self help.” Be advised: Those easily downloadable PDFs of leases, forms, corporate resolutions and the like have not been drafted with your business needs in mind, nor have they necessarily been designed to comply with Indiana law.
My advice is to proceed with caution. Business owners need to know that the forms they find online are not tailored to their industry or jurisdiction. A suitable commercial lease for a California landlord is not going to cut it for an Indiana landlord. Nor is the advice posted by a New York or Chicago legal blogger going to be applicable or even helpful to an Indiana business.
Googling terms related to a business difficulty and then relying on a myriad of downloadable PDF forms, legal blogs and articles may be tempting, but this quick attempt at legal self help typically results in a bigger headache (and more legal fees) later.
Once a business owner has consulted an attorney and understands the legal issues he or she faces, some Web surfing and research can serve to facilitate discussion. In that scenario, a little background reading by the client can go a long way in making an attorney-client meeting more productive and informative.
My advice for business owners engaging in online legal self help: Consider the source. Is this blogger or author a local licensed attorney? Is the author accessible by providing current contact information? With these considerations and proper legal consultation, business owners can utilize Internet resources more effectively.
–Ann Marie Woolwine is an associate in the business and personal services group of the Merrillville law firm of Burke, Costanza & Carberry LLP. She attended Indiana University in Bloomington, where she graduated cum laude with a bachelor of arts in journalism. Woolwine attended Valparaiso University School of Law.
What are the most common issues that new entrepreneurs fail to consider when STARTING a business?
The two most common are under-capitalization and not having a satisfactory business plan. Those are the most significant risks entrepreneurs face when starting a business. Often times, the two go together. If the business doesn't have a comprehensive business plan for unplanned expenses, it won't have the resources to overcome that.
A third concern relates to an entrepreneur's ability to seek good counsel. Such counsel may include an accountant or insurance agent.
Also important is considering the time that the endeavor will take. The one thing we tell entrepreneurs is that starting a business is not just an investment of money, but of time. It can be all-consuming. An entrepreneur can be plagued by guilt when she has to work too much, only to also feel guilty when she isn't working. Some people thrive in this kind of environment, others wilt.
Another major need is the advice of a banker. In Northwest Indiana, there are many exceptionally good small-business bankers who can be critical members of an entrepreneur's team. They can look at a business plan and point out its shortcomings. Capital is crucial. The banker is the best person to discuss capital needs and availability.
–Jim Jorgensen is a partner in the Valparaiso office of Hoeppner Wagner & Evans LLC. He specializes in the areas of labor, employment, banking and business law.
When selling your business, what do you need to know?
You only sell once. Do it right. Selling a business is an art, not a science.
It's not just the price. In fact, price may not be the most important thing. Other issues include what happens to your employees after the sale, non-compete issues, indemnification provisions and other key matters, etc.
The most important first step is to get advisors who are experienced in selling businesses. Your advisors need to carefully listen to your goals and objectives. After understanding what you want, let your advisors do the negotiating. I believe I am an excellent negotiator – except I'm not quite as good when I negotiate for myself. When negotiating for yourself, you become emotionally involved, and it's much more difficult to be objective.
Small business owners often fail to consider what happens after the sale. What happens to your business post-closing is partially beyond your control, but some issues can be dealt with in the sale process.
Issues that can be negotiated include the owner's role after the sale. Will the owner remain employed and/or become a consultant? What will happen to the employees? Will the business stay in the same location?
These issues can and should be discussed and negotiated as part of the sale. Also, the selling business owner must have a plan on what to do after the sale. This takes careful thought and planning and is a very key issue in the sale process.
–Brian J. Lake is a partner in the corporate department in the South Bend office of Barnes & Thornburg LLP. He has more than 30 years of experience.
What steps does a business have to take when terminating an employee so a claim (i.e. discrimination, age, race) isn't filed against the employer later on?
The best steps are those taken in the ordinary course of business, long before termination ever occurs. An employer should communicate clear, objective performance standards; document employee misconduct and poor performance as it happens; give an employee an opportunity to correct deficiencies; provide a written, dated warning to an employee who fails to meet established standards that a failure to improve will result in termination; and work with legal counsel to ensure that termination procedures and decisions to terminate are consistent with company policies/practices and applicable law, and follow established procedures consistently, so an employee cannot later show that he/she was inappropriately singled out.
In addition, employers should offer an employee an opportunity to resign, if appropriate. This may benefit the employee and improve his/her chances of finding another job quickly.
Employers also should consider using a binding release agreement; be professional and respectful during a termination because an employee who feels humiliated will more likely challenge the company's decision; share information about an employee's termination only with those who need to know; be consistent in all post-termination statements (e.g., to the terminated employee, prospective employers, or state agencies); and comply with applicable law when paying final wages (e.g., rules about paying vacation/sick time and deducting from wages, and timeframes for distributing an employee's final paycheck).
Costly litigation often results because former employees feel they were treated unfairly. By following the practices above, an employer will minimize claims of discrimination and be better prepared to defend itself should they arise.
–Carrie Flores is a member of Krieg DeVault's employment law, employee benefits and executive compensation, and litigation practice groups. She concentrates her practice in the areas of employment law and litigation, representing employers of all sizes and industries.
