growing your business

Starting and Growing your Business

Sponsored By

About the Sponsors

© 2012 The Chicago Bar Association | Young Lawyers Section | SBAC Designed by Gasman Design, Inc. – www.gasmandesign.com

The Young Lawyers Section (YLS)The Young Lawyers Section (YLS), founded in 1971, was created to address the needs

and interests of newly admitted attorneys. To satisfy these needs the YLS offers sub-

stantive practice committees as well as public service committees and projects. The di-

versity of committees and projects affords a wide variety of ways for attorneys to

participate in the YLS. What began as a small group of fifty young lawyers hosting con-

tinuing legal education programs covering a handful of substantive law areas has grown

into a dynamic and diverse group of more than 9,000 lawyers and law student members.

The YLS offers over 30 substantive committees and annually implements over 50 mem-

ber and public service projects in addition to seminars and networking events. Whether

you are law student or young attorney, the YLS is a valuable resource for your personal

and professional development. Consider attending a committee meeting or seminar, a so-

cial or volunteer with a member or public service project to enhance your career and

professional network.

Small Business Advocay CouncilThe SBAC was formed by a group of business owners and professionals who became

convinced that the only way to be heard was to organize and pool their resources together.

The SBAC is a powerful and cohesive advocacy group that:

• Promotes/supports leaders that prioritize the needs of council

members and understand the urgent issues facing small businesses.

• Supports legislation and governmental action favorable to

small businesses.

• Supports our members through referrals providing the

public with incentives for doing business with their local

members keeping money and jobs in our local communities.

• Counts 450 businesses since its inception in March 2010.

• Find us online at www.sbacil.org

Preface 3

Chapter 1: Business Plans 4-5Michael Bromiley and Mark Zanders, Gentry Venture Partners

Chapter 2: Office Space 6-7Mike Lombardo. Blue Star Properties

Chapter 3: Serviced and Virtual Office Solutions 8-9Angela Doemel, ServCorp Executive Suites and Virtual Offices

Chapter 4: Business to Business Equipment Lease Financing 10-11Anthony Roscoe, Equity Building Financial

Chapter 5: Legal Structures for Business 12-15Sean L. Robertson, Robertson Law Group, LLC

Chapter 6: Registering Your Business 16-17Trenton Bavaro, Corporate Creations Chicago, LLC

Chapter 7: Accounting and Record Keeping 18-19James Scordo, Jr., McGovern & Greene LLP

Chapter 8: Legal Steps in Hiring, Firing and Maintaining Employees 20-21Ethan Zelizer, DLA Piper LLP

Chapter 9: Estate Planning for the Closely Held Business 22-23Brian Jones, Harrison & Held, LLP

Chapter 10: Networking for Lawyers 26-27Mason Cole, Cole Sadkin, LLC

Chapter 11: Online Marketing and Web Presence: 28-2910 Steps to Creating an Effective Online Marketing CampaignAmy Masters, AM Creative, LLC

Chapter 12: Growing Your Practice Through Referrals 30-31James E. Thompson, JD, Midwest Consulting Group, Inc.

STARTING AND GROWING YOUR BUSINESS 1

Contents Pages

Small business is the driving force behind today’s recovering economy. Due in no small part to the recent economic decline, the number of small businesses has grown substantially overrecent years. Indeed, the number of small businesses providing business services more than

doubled between 2007 and 2010 from 2.97 million to 6.03 million. Despite both growth in the num-ber of small businesses and the small business industry in aggregate, these businesses continue toface significant challenges from the fallout of the recession and the failure rate for small businessesincreased by more than 40% between 2007 and 2010. Many small businesses simply cannot affordthe legal and professional services necessary to navigate the difficulties posed by the current business environment.

The Chicago Bar Association Young Lawyers Section (“YLS”) and the Small Business AdvocacyCouncil (“SBAC”) partnered to create this flipbook to provide small business owners with generalinformation in a number of areas. Lawyers and business professionals have lent their knowledge andexperience to provide insights into various issues that small business owners must address in starting and growing their businesses. This 12-part booklet includes advice on: writing a businessplan; physical office space; virtual and shared office space; business to business equipment lease financing; legal structure; registering your business and state, local and federal taxes, permits, licenses; accounting and record keeping; legal steps in hiring, firing and maintaining employees; developing a marketing plan and networking; web and online marketing/presence; and successionplanning for small business owners.

While this book cannot and does not provide legal advice, it is intended to educate small business owners about many of the legal and business issues that small businesses face. By its verynature and breadth, this book cannot address every situation a small business might encounter. However, the following provides small business owners with the general framework for under-standing how start or grow their businesses. For particular legal or professional questions, the YLSand SBAC encourage readers to seek advice from professionals who can tailor their advice to yourparticular situation.

We hope that you find this flipbook helpful and we wish you much success in your future endeavors.

Justin Lee HeatherYLS Chair, 2011-2012Member, SBAC Board of Directors


Preface

Dunn & Bradstreet, “The State of Small Businesses Post Great Recession,” which may be found at http://www.dnbgov.com/pdf/DNB_SMB_Report_May2011.pdf.

Everyone at one time or anotherhas either had a great idea for abusiness, or has been approached

by a family member or friend with agreat idea. Whether it is as informal as“Mom, you should open a restaurantand serve these meatballs” to a moreformally presented idea, these ideas areall around us. Many components sepa-rate an idea heard first around the din-ing table or on the golf course from anidea that results in a functioning busi-ness. A key component in that transfor-mation is a business plan.

Why is a business plan so crucial toa business? Planning is imperative forall businesses. The saying, “If you failto plan, you plan to fail,” appropriatelycaptures the compelling necessity ofplanning. No one puts up capital to starta business planning to fail. An entrepre-neur does not engage in business without a clear direction. In fact, thebusiness plan bears it all; it outlineswhat the entrepreneur should do.

It should be noted that before one cancome up with a plan, one must be fullyaware of the current realities of the busi-ness environment. The question, “Whereare we and the market now?” must beanswered. Once this is done, it is onlythen that one can come up with relevantand appropriate plans.

Communication in the broadest senseis imperative throughout the life of thebusiness. The ability to communicate,and communicate well, is one of thebiggest factors in any businesses success.You could have the best product or serv-ice in the world, but if you’re unable topromote your product and communicateeffectively with clients and colleagues,your potential is limited.

Another characteristic of a successfulbusiness is collaboration. Very few people can operate a business alone.Whether you are going to have a formalpartner or partners, one or more em-ployees, vendors to supply componentsor product, and hopefully many, many,customers, you need to be able to con-

vey your view to others so collaborationis possible.

A business plan will help everyoneinvolved with your endeavor get on thesame page.

Businesses need a roadmap to definecompany values, create a singular vi-sion and chart a direction for growth.The process begins with crafting a mis-sion and vision statement, definingcompany objectives, and performing ananalysis of company strengths, weak-nesses, opportunities and possiblethreats. This process is called a SWOTanalysis and can be compared to a com-pass. A business plan can be comparedto a road map. You would never get in acar and start driving, hoping to findwhat you are looking for. You plan aroute either mentally based on previousexperiences, or sit down with a map.(Remember in 2004 when nobody had aGPS in the car?) Now imagine thateveryone in your company got into theirrespective cars and just started driving.What are the chances you would all endup in the same spot? A business planhelps you see where you want to go andlets you avoid problems in the futurethat might not be apparent today.

Identifying needs, both now and inthe future, is another benefit of a busi-ness plan. How much product, capital,expertise, and employees are you goingto need? When are you going to needthem? Regularly review company objectives, goals, implementation plansand operational results. Without periodicreview of these factors, the work per-formed in developing strategic goalswill be wasted. Be realistic. Many busi-nesses fail due to insufficient capital-ization. Is the same person who makesthe widget going to be able to market,sell, and support the product, and makesure every employee is paid, as well aspaying the electric bill? Is that personable to accomplish all those taskstoday? What about it in 2 years? Theseare all decisions that a start up needs toconsider and that a growing businesswill need to confront.

Realistic assumptions at every stageare critical. Nothing distorts resource allocation worse than unrealistic assumptions. While too optimistic assumptions can lead business owner totake on projects they can’t complete oroverhead they can’t pay for, too pes-simistic assumptions can leave a busi-ness unable to take advantage ofopportunities that may present them-selves in the future. Nobody has a crystalball, but do your best to utilize an honestassessment. That assessment will pro-vide you and everyone associated withyour business the best framework togrow your business over the long haul.

Creating a business plan isn’t a one-time task. As your company grows andmatures, a business plan needs to be up-dated in order to reflect the current re-alities of the company. Updating yourbusiness plan is the perfect time to talkto your employees on how to improvethe company. As companies grow andmature, the frequency of updates is reduced. Make sure your business planis currently applicable to your business.

How will your business address theseneeds? Will you have time, as the

STARTING AND GROWING YOUR BUSINESS4

MICHAEL BROMILEY AND MARK ZANDERS, GENTRY VENTURE PARTNERS

Business Plans

“In ten years of venture

capital, I haveheard maybe one bad idea.

Ideas are cheap.”Ray Lane, Managing Director Kleiner Perkins, April 2004

founder of a company, topay bills, keep the books,hire and manage employ-ees, setup and maintain acomputer network? Do youcontract out or hire anotheremployee for functions suchas IT, accounting, and HR?Having a process in place todeal with such decisions isessential to ensure that youreach the most cost effectivesolution. These processesand procedures shall serveas a standard by which per-formance must be evaluatedagainst such that, if youachieve or, better yet, surpass the estab-lished targets, then the business shallhave succeeded. Otherwise, it hasfailed. In other words, they serve asbenchmarks or key success indicators.Since, goals and objectives are vital inthe definition of business success, aword of caution is therefore necessary.Objectives must be clear, measurable,realistic, attainable and time-bound. Ifwe are to compare actual performancewith it, then it has to be concretelyquantifiable.

Every business owner assumes thatconsumers CAN’T live without theirproduct. Otherwise the owner wouldn’tbe in the business. But it takes time andresources to educate and expose con-sumers to your great product. How willthe product be marketed? Do you needemployees for this? Who will train theemployees? You should have some ofthese answers or, at least, a process toget the answers in order to effectivelymarket your product.

What will be your target market? Resources are always scarce. What isthe most cost effective group to marketyour product to? Sometimes businessesare so excited to make a sale that theydon’t consider the full cost of what theyare doing. Since a plan establishes thebusiness's directions and thrusts, it eas-ily helps us determine which strategies

and programs should be prioritized interms of financial allocations as well ashuman resource allocations. One mustunderstand that due to the dynamism ofthe business environment, an organiza-tion needs to respond to any change inthe current picture. These developmentsand changes may pertain to competi-tion, demographics, technology ad-vancement, legal environment, social,or cultural. Most often, responses to theenvironment entails cost and other re-source spending. They might sell prod-uct at too low a price compared with thecosts of servicing the client, or wastetime selling to an inferior market whenthere are better markets available.

What does a good client look for inyour company? Are there clients thatare too small to be cost effective foryour business to service? If clients aretoo small, they divert resources fromclients that have better margins. Arethere clients that are too large for ourbusiness at present? Too large a clientcan be just as detrimental. Would grow-ing your business to service a largeclient put the sustainability of your busi-ness at risk if the client leaves? If youcan’t provide the service or goods thatthey desire, a company can develop abad reputation in an industry. As always, it is good to know your abilityand restrictions. Pairing with another

company in the industry todeal with clients that don’tfit your size preference is agood way to extract benefitfrom potential clients thatdon’t fit your business atpresent time. A companymight be very grateful for aclient that is too large foryour company and in turnprovide clients that are toosmall for them. These situ-ations can lead to somevery mutually beneficialrelationships.

Many problems can’t beforeseen, but this is even

more reason to have a business plan.Setting up a frame work to solve prob-lems that arise is essential. This allowspartners and employees to react in auniform manner to different situations.A business plan also should set bound-aries. What decisions can an employeemake independently? Who should theyseek advice from and when should theyseek it? Needing management to handleevery little problem can be just as prob-lematic as employees acting too inde-pendently.

Starting and running a successful business is never easy. It takes hard work,determination, capital, and a bit of luck.While the vast majority of new businesses fail, not having a businessplan leaves very little chance for successand growth. It is virtually impossible toanticipate every twist and turn a businesswill take, just like in life. A plan can makeit easier to navigate the turns. ★


Gentry Venture PartnersGentry Venture Partners is a specialized ven-

ture that leads or co-invests with some of theworlds’ premiere venture capital groups in midand late-stage financing for pre-IPO companies.GVP is active in a broad spectrum of investmentsectors with a primary focus on cleantech, en-ergy and information technology. Mike can bereached at [email protected]

C H A P T E R 1

Many factors come into playwhen it comes to choosing theright office space for your law

firm. These factors include, but are notlimited to, the location of the office,aesthetic of the building or space, leaseconcessions offered by the landlord,and, of course, lease cost. Some ques-tions law firms typically ask themselvesare: Do you need to be in close proximityto the courts? Do you or your employ-ees come in on the Metra or the CTA?How much money in your budget hasbeen allocated to lease cost? How muchof a tenant improvement allowance willbe needed to build out your ideal officespace? Do you need private offices,open space or a mix of both? Howmany square feet should be allocatedper employee? Does this square footagenumber change depending on whetherthe employee is a partner, associate orstaff? What are the current market con-ditions in the Chicago commercial realestate market and, more importantly,what should you be paying in rent?

These are all questions that one mustask when entering into a commerciallease transaction for a law firm. A lot oftimes, attorneys will attempt to findspace on their own and enter into leasenegotiations by themselves. However,engaging the services of a licensedcommercial real estate broker that spe-cializes in tenant representation hasmany advantages and should be seri-ously considered. Commercial real es-tate brokers vigorously represent thebest interests of law firms in their leasenegotiations with landlords and assistthem in making the right decision fortheir firm moving forward. Sure, an at-torney may know the ins and outs of acommercial lease. They may even be areal estate attorney themselves, but acommercial real estate broker’s expert-ise lies in establishing relationships withthe landlords in the city, knowing wherethe best available spaces are and creat-ing leverage by creating a scenario

where the various landlords are com-peting with and bidding against eachother for your law firm’s tenancy. Leasepayments are typically the second mostexpensive cost to any law firm behindsalaries. Signing a long term lease is anextremely important decision for anysize law firm, big or small. It is the jobof the broker to get these costs down aslow as possible and ensure that the ten-ant knows every aspect of their lease sothat there are no surprises. It is reasonslike these that the largest and most established law firms in the city all engage the services of a commercialreal estate broker.

There are also a lot of issues thatmust be considered in any lease negoti-ation that the average tenant may not atfirst realize. Is the lease net or gross? Anet lease does not include taxes or com-mon area maintenance (also known asoperating expenses). Thus, a prospec-tive tenant will need to inquire as to

what the most recent year’s estimatedtax and operating expenses are in orderto fully understand the full lease costs.If it is a gross lease, is it modified grossor full service gross? A modified grosslease will have a ‘Base Year’. In this in-stance, the tenant will be responsible forits proportionate share of taxes and op-erating expenses above the base year.For example, if a tenant has 5,000square feet in a 50,000 square footbuilding, the tenant has a 10% propor-tionate share of the building, so theywill be responsible for their share of theexcess tax and operating expense costwhen they are reconciled by the land-lord at the end of the year. If it is a fullservice gross lease, all of the real estatetaxes and operating expenses are in-cluded in the lease and there are nobase years or reconciliations at the endof the year.

In addition to these concerns, a ten-ant should also know what expenses are


Office Space MIKE LOMBARDO. BLUE STAR PROPERTIES

included in the base rent and what areextra costs, such as janitorial servicesand utilities. Is the building run on acentral cooling system and boiler for airand heat or does each unit have an indi-vidual package unit controlled by, andseparately metered to, the tenant. If theHVAC is on a central system, does theLandlord charge an extra fee to run itduring nights and weekends? If so, howmuch is this cost? Is the landlord offer-ing rent abatement? If so, how much arethey offering? A general rule of thumbin downtown Chicago is that a tenantshould receive one month of free rentfor every year of their lease. If a tenantsigns a five year lease, they should re-ceive 5 months of free rent. If a tenantsigns a ten year lease, they should re-ceive ten months of free rent, and so on.Another very important concession thata landlord will give is a “Tenant Im-provement Allowance” in order for thetenant to build out its new space. Ten-ant Improvement Allowances can rangeanywhere from $5.00 to $10.00 persquare foot for a space that is in rela-tively good condition and only needsminor adjustments in order to be habit-able, to upwards of $50.00 or $60.00per square foot for a raw space that isgoing to be built from scratch. A com-mercial real estate broker can help in-troduce a tenant to various architects tointerview for the job of creating the bestspace, as well as help a tenant to inter-view general contractors to actuallybuild the space.

Another extremely important issue ismarket conditions. A tenant needs tohave in-depth market knowledge of theChicago commercial real estate marketand every building in that market. Howmuch is the building asking in rent?How much is a similar building acrossthe street asking? A tenant who does hisor her homework and understands theasking prices of competitive buildingscan leverage these buildings againsteach other to drive the price down. A

tenant who is well educated on currentmarket conditions knows the intricaciesof each building in and out, builds a re-lationship with the leasing agents ateach building, and can effectivelyachieve the best possible outcome fortheir firm.

Another important aspect is timing.Commercial lease transactions taketime. First, you must search the city andfind out which buildings have space inyour desired size range. Then you haveto take the time to schedule tours ofeach building. When the options areshortlisted, proposals are sent back andforth between tenant and landlord untildeal terms are struck. At this point, a let-ter of intent is drafted and signed byboth parties. It is only at this point thata lease will be drafted. Then the leasewill be negotiated for a couple weeksbetween both parties’ attorneys. Finally,after the lease is signed, permitting andconstruction can begin on your newspace, which usually requires at least 90days from lease signing to completion.All told, the process of looking for newoffice space for a law firm can take any-where from a month, for a small firm ifthey are moving into a space that is al-ready built, to 9 months to a year for alarge law firm that is building its new

space from scratch. One of the mostcommon mistakes made by tenants whohave an upcoming lease expiration isthat they wait until there is one monthleft on the lease, at which point it is toolate. If a tenant stays in their currentspace past their lease expiration date,they will be considered in holdover andwill have to pay a penalty equal to150% to 200% of their rent. It is imper-ative that a tenant give themselvesample time to start the search well inadvance of their lease expiration, some-times at least a year in advance if thelaw firm is of substantial size, to ensurethat they find a new space with enoughtime to meet their deadlines. Anotherreason to stay on top of this processwell in advance if you are a tenant withan existing office space is because yourcurrent lease will most likely have im-portant notice dates such as renewal, ex-pansion, and termination options inwhich it is the responsibility of the ten-ant to notify the landlord of their inten-tions well before the actual terminationdate of the lease.

As you can see, entering into a com-mercial lease is a lot more complicatedthan most people initially imagine.Whether you are a large law firm look-ing for your next move or an individuallooking to start your own firm, these de-cisions should not be taken lightly. Startyour search early or engage the assis-tance of a commercial real estate brokeras early as possible in order to ensureyou find the best deal possible for your-self and your firm. Again, the secondmost expensive cost to any law firm be-hind salaries is real estate costs. Make sureyou keep this cost as low as possible. ★


C H A P T E R 2

Michael Lombardo Michael is a broker with Blue Star Properties.

Blue Star Properties is focused on restorationand reorientation of commercial propertythroughout the Chicagoland area. Mike can bereached at [email protected]

A general rule of thumb indowntown Chicago is that a tenant should receive one month of free rent

for every year of their lease.If a tenant signs a five year lease, they should

receive 5 months of free rent.

Changing times and economicconditions have brought about ashift in the way business is done

in the world today. No longer is the tra-ditional desk job in a large firm consid-ered the only way to run a successfulpractice. The rise of the home-basedbusiness and the mobile worker has cre-ated an unprecedented demand for flex-ible workspace solutions. Serviced andvirtual offices are redefining the worldof work and offer businesses of all sizesflexible, innovative cost effective solutions.

In the following article, we will ex-plore the benefits of a serviced office orvirtual office. We’ll bust some mythsaround this sometimes misunderstoodconcept and give some tips on how tofind the best provider for your needs.

What are the Benefits of a Servicedor Virtual Office for small law firms?

The advent of internet shopping hasintensified the need for visibility on-line. Today’s consumer is shopping theinternet for services and making a deci-sion before even speaking with you. Areyou marketable online? Start up lawfirms need a smart efficient solution thatwill not only give their business a pro-fessional image and competitive edge,but also eliminate the huge upfrontcosts and obligation that a typical officelease entails. The concept of servicedand virtual offices is fast becoming theideal solution that start ups have beensearching for.

A serviced office has all the benefitsof an office space which gives a smalllaw firm a fully-furnished office, com-plete with an already set up IT system,receptionist, and secretarial supportstaff to take care of the day to day du-ties, while enjoying an unbranded busi-ness space which they can present astheir own. A prestigious commercial ad-dress on your business card and a re-ceptionist as the face and voice of yourcompany can be organized within min-utes. The idea is quite simple: sharing

the costs of the day to day running of anoffice will give you an infrastructure,staff, and fit out, that will make yourbusiness more successful and profitable.

For start-ups, setting up an office cantake months, plus there’s the costs ofhiring staff, finding furniture and thatcomplicated task of trying to work outthe nuances of setting up the internet,telephone and other technology. Not tomention the task and cost of training thenew staff. A serviced office can elimi-nate all these headaches and you can lit-erally be ready within minutes to focuson making your business a success.

Now a virtual office is exactly that;you can be in two places at the sametime. You can have a virtual office in theLoop, while you run your practice fromthe comfort of your Evanston home.You can have a recognizable Chicagoaddress and phone number, all for afraction of the cost of traditional officespace. A virtual office blends home andwork while maintaining a professionalimage of a traditional, high-end lawfirm, while also avoiding the daily com-mute. Growth and expansion can beeasy with the added bonus of no longterm commitments or contracts.

Having the right IT set up is integralin ensuring your business is equippedwith the right technology to support itin today’s market. Serviced and virtualoffice clients can manage their businesswhile on the go from any location in theworld. Clients can easily book a boardroom in LA from their Chicagooffice or any other location, and areready to go as soon as they arrive. Theaccessibility of running a business online and having the technology support is what can be the definingfactor that helps a business stand outfrom the competition.

There are many myths revolvingaround the virtual office or serviced of-fice environment. What is fact and whatis fiction? Here, we bust some myths togive you the whole story.

MYTH ONE It’s not as reliable! Many businesses feel that ‘looking’

like a real business means they needdedicated full-time office space. Theythink that by having this solid base, theyhave a reliable base for their business togrow. This is not necessarily true –being tied to a long term office leaseand the bills associated with such acommitment can actually hold yourpractice back. It can even reduce thespeed that your firm grows as you’ll betied to a specific location and be limitedon space. A serviced office and virtualoffice gives you the freedom to movearound and grow your business. Youwill be able to conduct meetings in ahigh-end office setting and will not havethe bills and hassle that go hand-in-handwith a full-time space. In effect, you areactually cutting your costs and freeingup your time in order for you to growfaster and work more efficiently.

MYTH TWO It will look unprofessional if youdon’t have your own office.

What looks unprofessional is havingan office in a bad location, with no up-to-date furnishings, computer equip-ment and no receptionist. With aserviced or virtual office you can con-duct your meetings in a professional,well-polished location. You can have allof your mail and marketing materialmade up with your address so that thosebusiness associates who don’t ever needto visit your office in person can still seethat you’re centrally located. Those thatdo need to come and see you in an ac-tual office space can see you in an ex-tremely professional and impressiveenvironment. Even those that solely callyou over the phone will be greeted by aprofessional receptionist.

MYTH THREEIt’s too expensive!

This is the biggest myth of all. A


Serviced and Virtual Office Solutions

ANGELA DOEMEL, SERVCORP EXECUTIVE SUITES

AND VIRTUAL OFFICES

serviced office space is a shared expenseand a virtual office is a fraction of the cost.The only thing expensive in the early daysof business is paying for an office spaceyou don’t use and bills you don’t need,only to be conducting all of your work out-side of this space anyway.

MYTH FOURIt is operated from a call centre.

Some Virtual Offices are operatedfrom a call center, but not all Virtual Of-fices were created equal. It’s importantto do your research. In many offices thereceptionist operates from the locationin which you have an office in. Whenyour clients call to speak to you, theyspeak to a fully trained receptionist whoknows you and your business.

Whether or not a serviced or virtualoffice is the right fit for you, is up toyou. Now that you know there are op-tions to consider, how do you evaluateand choose the best service provider?Why does it matter?

The opportunities with the right serv-iced or virtual office provider are whatcan set your business apart from therest. A poorly run service provider candirectly affect your own business. Ex-amples of quality issues include lost ordelayed messages from callers, mis-placed mail or deliveries, shoddy facil-ities and machines in disrepair,unprofessional or overburdened recep-tionists and staff, and billing errors, toname just a few.

Here are some factors to evaluatewhen deciding on which Virtual Office orServiced office provider to sign up with:1) The business address:

Location, location, location! Just likeresidential real estate, your office loca-tion says something about your com-pany. Is the actual office building in adesirable or prestigious area or on awell-known street? If so, you should seethat occupancy is high which means alot of business is being transacted theredaily. There should also be high profile

tenants in the building which gives youa competitive edge. 2) How is the interior decorated?

Is the reception area well appointed,nicely furnished and flooring or carpetsoverall looking new, clean, invitingtasteful and makes a good impression?Pay attention to the little things becausewhile your clients are waiting for you inthe reception area, they will be evaluat-ing you based on the look of your office. 3) Employees’ appearance and dress:

The first impression needs to be best,for your new clients visiting your officefor the first time, and each time after-ward. The staff at your office is a directreflection of you. What impression doyou give clients?4) Signage:

Is there signage advertising the officeprovider’s name placed everywhere? Ifso, this is misleading and is confusingyour visitors. Whose office is it really?5) How do their employees greet you,greet your visitors, and answer thephone?

Has the service provider’s reception-ist been well trained and instructed onhow to be pleasant, speak effectively,and handle issues professionally? Youcan request to interview the team andsee them in action. Ask if you can trialthe services to ensure you know whatyou are getting. 6) Overloaded responsibility:

Some serviced office providers cutback the number of employees to savemoney, and overburden those remain-ing with multiple tasks, leaving littletime for your needs individually. Whatkind of service guarantee do they offer?Does the service provider increase thenumber of employees as the number ofclient’s increases? You don’t want yourclients waiting on hold due to an over-burdened receptionist. 7) IT Infrastructure:

Does the office provider offer busi-ness tools and resources that will makeyour life easier? IT is one of the largest

expenditures in business today. In orderto be competitive and profitable, youneed resources that can support you.Things like voicemail to email, elec-tronic fax, VOIP phone technology, andonline management of your account andphone settings will give you the kind ofadvantage you need to compete with thebig guys on a modest budget. 8) Testimonials:

Do a quick search on Google for re-views. Are there numerous negative ex-periences reported online about theservice provider? Some Virtual Officeproviders maintain just a few locationsin a few cities regionally. Others mayhave a presence in many US states, andsome are large multinational services.Just because a provider may be thelargest, doesn’t mean it’s the best. Re-search, visit, chat with employees andread reviews to get the best overall eval-uation of a Serviced Office or VirtualOffice service.

The concept of a serviced or virtual of-fice is not new; however, as a new andenthusiastic entrepreneur you may not betoo familiar with this type of service. In-stead of paying out large sums of cash torent an office, hiring staff, purchasing fur-niture and equipment, and entering into along-term lease agreement; you shouldconsider looking into a serviced office orvirtual office solution. ★


C H A P T E R 3

Angela Doemel, ServCorp.Servcorp offers the world's finest Serviced

and Virtual Offices solutions. Founded in 1978,Servcorp operates an international network ofprime CBD locations throughout Australia, NewZealand, Japan, China, South-East Asia, India,Europe, the Middle East, United Kingdom, andUnited States. Servcorp’s office and IT solutionsenable companies of any size to operate with thecorporate presence, IT, infrastructure and sup-port of a multinational organization, withouthaving the associated overheads normally re-quired to do so. Angela can be reached [email protected]

What is Equipment Leasing?Obtaining the use of machinery, ve-

hicles or other equipment on a rentalbasis. This avoids the need to investcapital in equipment. Ownership restsin the hands of the financial institutionor leasing company while the businesshas actual use of product.

Early LeasingEquipment leasing could be consid-

ered one of the oldest professions. Claytablets discovered in The City of Ur pre-date 2000BC and are considered “hardevidence” that leasing was a form of fi-nancing for agricultural tools, land andwater rights. There is also record ofBabylonian leasing law, by King Ham-murabi, dating back to 1700BC (Codeof Hammurabi).

The Railroad EraWith the onset of the Industrial Rev-

olution in the UK and the United Statescame more opportunities for leasing,particularly for the railroads. Investorsprovided financing for locomotives andrailcars through equipment trusts, rep-resenting the right to receive a return onprincipal and interest on invested fundswere sold to investors. There weremany variations of the equipment trust,but the most recognized type of railroadfinancing was the Philadelphia Plan.This type of financing allowed thetransfer of ownership to the end-userupon completion of an initial term. ThePhiladelphia Plan became the forerun-ner of today’s conditional sales con-tracts and money-over-money leases.

Independent Leasing CompaniesIn the early 1900’s, many railroad

leasing companies recognized that long-term control and ownership was not al-ways desired by the customer.Short-term contracts began to fill thatrequest and those leases, at the expira-tion of the term, would be returned tothe leasing company; this type of lease

financing was the beginning of the trueor operating leases, which are still com-mon today.

In other areas of leasing growth, thedesire of manufacturers to provide fi-nancing for their products led to the cre-ation of vendor leasing. Manufacturersor vendors felt they would be able tosell more products if they were able tooffer an affordable payment plan alongwith the needed equipment. Some man-ufacturers saw further benefit and theability to retain control of their propri-etary equipment by creating “captive”finance arms of their business whereleasing was the only option for the cus-tomer. Eventually, this monopoly likemodel came to rest with the enforce-ment of the federal antitrust legislationthat required manufacturers to offertheir equipment for sale as well. Appar-ently, those early manufacturers wereright, as vendor and captive leasing con-tinues as a significant force in the equip-ment leasing industry today.

Equipment Leasing TodayDue to the benefits of obsolescence

avoidance, off balance sheet financing,tax advantages, 100% cost coverageand flexibility, leasing remains the sin-gle most widely used method of exter-nal finance in the United States.According to the 2011 Survey of Equip-ment Activity (SEFA), released by theEquipment Leasing and Finance Asso-

ciation, 80% of U.S. businesses acquireequipment through leasing. The SEFA,which is based on responses from 108ELFA member companies, covers keystatistical, financial and operations in-formation for the $521 billion equip-ment finance industry (http://www.m o n i t o r d a i l y. c o m / e l f a - s u r v e y-equipment-finance-activity-grew-2010). Businesses today are leasing im-portant equipment – from officefurniture, telephones, computer hard-ware and software, postage meters, copiersand high tech medical equipment to trucksand construction equipment in order tofree up capital and ensure that they areusing the most up-to-date technologies.

The Mechanics of LeasingA lease is a financial agreement (con-

tract) in which a customer (lessee), paysa monthly, quarterly, semi-annual, an-nual rent or customized repaymentstructure, to an owner (lessor) for theright to use the equipment for a specificperiod of time.

The type of equipment a companycan lease is unlimited, as is the amount,since the focus is applied to the creditfirst and the collateral second. Comput-ers, telephone systems, office furniture,manufacturing equipment, constructionequipment and automobile repair equip-ment are but a few of the many types ofcapital goods typically leased. In additionto the cost of the equipment, “soft costs”such as training, design, installation andshipping costs can also be funded.

Why Lease?• Ownership vs. Use- The only time

ownership of an asset earns profit iswhen the asset appreciates over time. Ifit appreciates, it makes sense to own it.If it does not appreciate in value overtime, then consider using the asset onlyas long as you need it.

• 100% financing- Normally, nodown payment is required. Since pay-ment is made in advance, typically the


Business to Business Equipment Lease Financing

ANTHONY ROSCOE, EQUITY BUILDING FINANCIAL

only upfront cash required by the Lesseeis the first & last payment plus a nomi-nal doc fee.

• Conserves cash and credit lines –Preserves working capital for use whereit produces the best return. Normallybank lines should be used for workingcapital needs.

• Bypasses budget restrictions – Byfunding the equipment on a lease, thepayments can be made from a depart-ment’s expense budget rather than cap-ital budget.

• End of Term Options – Dependingon lease structure, there are several op-tions available to the Lessee at termina-tion: Automatic title transfer, return ofthe equipment, purchase the equipmentor re-lease.

• UCC filed on leased equipmentonly - Lessor files a UCC-1 only on theleased equipment. No additional collat-eral requirements beyond the leaseditem(s).

• Long term fixed rate payments -Once the lease is consummated, therate is fixed for the duration of thelease. This removes the risk of ratefluctuation.

• Customized Solutions – A variety ofleasing products are available, whichallow the lessee to tailor a program to fitcash flow requirements. These can includeskip payments, ramping of payments upor down to match cyclical fluctuations.

What are the Types of Leases andHow Do They Work?

Lease types are structured to matchequipment needs, business goals andcash flow requirements. The most com-mon types of leases are operating leasesand finance or capital leases. These aretypes of leases used primarily by “forprofit” entities. Another type of lease isthe Municipal Lease offered to govern-ment bodies that receive tax revenues.

Operating Lease An operating lease is particularly at-

tractive to companies that continuallyupdate or replace equipment and wantto use equipment without ownership,but also want to return equipment atlease-end and avoid technological ob-solescence. An operating lease usuallyresults in the lowest payment of any fi-nancing alternative and is an excellentstrategy for bypassing capital budgetingrestraints. It typically qualifies for off-balance sheet treatment and can resultin improved Return on Asset (ROA)due to a lower asset base. It can also re-sult in higher reported earnings in theearly years of the lease.

Finance or Capital LeaseA finance lease is a full-payout, non-

cancelable agreement. Finance leasesare most attractive in cases where thelessee wants the tax benefits of owner-ship or expects the equipment's residualvalue to be high. These leases are struc-tured as equipment financing agree-ments with end of term buyouts of$1.00 or 10 percent of initial equipmentcost. The lessee purchases the equip-ment upon lease termination at a pre-agreed amount. The term of a financelease tends to be longer, nearly cover-ing the useful life of the equipment.

Municipal LeaseA Municipal Lease is a conditional

sale contract or Capital Lease purchaseagreement to a municipality (taxing dis-trict) which obligates the governmentaluser to make principal and interest pay-ments toward the purchase price of theleased equipment over a period of time.Since the interest is tax exempt for thelessor, the payments are less than pay-ments under a Capital Lease. The endof lease option is a $1.00 buyout by law.

Municipalities are identified as anagency, department or institution of anystate, city, county, public school. Thesewould include police departments, firedepartments and highway departmentsto name a few. Federal government

agencies are not eligible for MunicipalLeases.

The major benefits to the municipal-ity who uses a municipal lease to pur-chase needed equipment, rather thanissuing a bond, are as follows:

1. Voter approval is not needed formunicipal leases

2. Overall costs to issue a bond under$1MM are much higher.

3. Municipal leases allow agencies topurchase needed and essential equip-ment now rather than wait for the nextyear’s budget.

4. Financing can be completed in arelatively short period, so equipment ispurchased at current prices.

In SummaryBusiness-to-Business Equipment Lease

Financing is an alternative and afford-able method of equipment acquisitionfor commercial, municipal and not-for-profit end users. New and pre-ownedequipment from any manufacturer orvendor can be leased.

Moreover, equipment vendors look-ing for additional sales tools to assistthem close further business benefit froman affordable method of financing fortheir customers. Removing potentialprice objections at the front of the salescycle allow the vendor to concentrateon the myriad benefits their product candeliver. ★


C H A P T E R 4

Anthony RoscoeAnthony is Vice President of Equity Building

Financial Equity Building Financial provides B2Bequipment lease financing to the commercial,municipal, not-for-profit and school markets fornew and pre-owned equipment from as low as$4,000.00 to $5 Million. They also provide thisservice as a sales tool to the vendors providingproduct as a way to make the acquisition more affordable for their prospects and customers. He canbe reached at [email protected].

There are several different types ofbusiness entities when discussinglegal structures for a business.

There are five (5) different types ofbusiness structures that will be dis-cussed in this article. These five (5)business structures are the following:

• C Corporation• S Corporation• Professional Corporation (PC)• Limited Liability Corporation (LLC)• Limited Liability Partnership (LLP)

C CORPORATIONA C corporation is a fictional entity

that is created under state law to be sep-arate and distinct from the businessowner(s). Each State has separate lawswhich govern the creation of Corpora-tions in their state. There are two (2)characteristics that describe a C corpo-ration. Simply put, a C corporation is abusiness entity that does not elect to betreated as a small business. There willbe a quick overview of a C corporationbecause it is not commonly used bysmall businesses.

1. Limited Liability ProtectionA C corporation has limited liability

protection, which means that its’ own-ers and the C corporation are separatefrom one another. Generally, a C corpo-ration is only liable for the debts that itincurs and the owners of the C corpora-tion may not be sued for the debts of theC corporation. As an experienced attor-ney, there are many exceptions to thegeneral rule: if one does not maintainsufficient capital, operate their businesslike a business, and follow the formali-ties as established under the BusinessCorporation Act of 1983, 805 ILCS 5/.

2. TaxationOne disadvantage of a C corporation

is double taxation, which means that thebusiness entity is taxed on its’ businessincome and its’ shareholders are taxedon any distributions made to them.

These shareholder distributions aretaxed as dividends or capital gains.Most small businesses do not operate asa C corporation because of double tax-ation. Generally, small business ownersmay want to consider a C corporation ifthey want to offer a generous healthcareplan and want a business deduction. Inmost cases, small business owners willelect to be treated as an S corporation.

S CORPORATIONAccording to the Internal Revenue

Service (IRS), S corporations are cor-porations that elect to pass income,losses, and deductions down to the in-dividual shareholders on their personaltax returns and to be taxed at their indi-vidual income tax rates. Simply put,small business owners use S corpora-tions to avoid the double taxation of Ccorporations. There are special rulesthat govern the election of an S corpo-ration. Generally, an S corporation mustbe a U.S. Citizen or Resident of the U.S;have no more than one hundred (100)shareholders; have one class of stock;and not be an ineligible corporationsuch as certain financial institutions, in-surance companies, and domestic inter-national sales corporations.

Generally, an S corporation must beowned by a U.S. citizen or a Resident ofthe United States. Thus, if your client isnot a resident or U.S. citizen, an S cor-poration is inapplicable to them. Second,an S corporation may not have greaterthan 100 individual shareholders. Third,an S corporation must only have oneclass of stock. For instance, owners ofthe S corporation may not have votingand non-voting stock. Thus, all of theshares of the S corporation must be vot-ing shares of stock. Fourth, there aresome corporations that are highly regu-lated and are not allowed to be an S cor-poration. To qualify for S corporationelection, a Form 2553 “Election by aSmall Business Corporation” must befilled out and signed by all shareholders.

1. Limited Liability ProtectionSimilar to a C corporation, an S cor-

poration has limited liability protectionfor its owners, which is separate anddistinct from them. Again, one must follow proper corporate procedures to be eligible for limited liability protection such as maintaining goodcorporate records, no commingling of personal and business funds, andadequate capitalization.

2. TaxationAn S corporation is considered a

“pass through entity”, which means thatits’ individual shareholders pay federaland state taxes based upon their profits,losses, and deductions and their partic-ular tax scenario. Simply put, thismeans that the S corporation will notpay tax. Instead, the S corporation willonly provide an informational returnand the individual shareholders will as-sume the tax liability as individuals.Unlike a C Corporation, an S corpora-tion does not pay taxes at the shareholderand employee level. Most small businessowners generally are S corporations orLimited Liability Corporations.

3. Formal Corporate StructureOne of the requirements of an S cor-

poration is only one class of stock. Oneof the drawbacks of an S corporation isthe rigidity of its requirements. In con-trasts, a Limited Liability Corporationis a hybrid between a partnership and aCorporation. The formality of the struc-ture becomes a big deal when a businessowner desires to have multiple ownersand investors. In business, shareholdersand business entities have differentgoals and obstacles and, sometimes, therigid structure of an S corporation doesnot allow for the S corporation to favoror customize its structure to the partic-ular goals or circumstances of its share-holders. For example, John, Adam, andSue start up a shoe business and Suewill only be investing $35,000 into the


Legal Structures for Business

SEAN L. ROBERTSON, ROBERTSON LAW GROUP, LLC

business while John and Adam will beworking full-time in the business. Inthis scenario, an LLC would allow Sueto be treated as a non-voting mem-ber/shareholder and get first priority inre-payment of her loan. With an S cor-poration, John, Adam, and Sue all mustbe voting shareholders. For an S corpo-ration, your profits, losses, and deduc-tions must be proportioned according toyour ownership of shares. For example,if John, Adam, and Sue are one-third(33 percent) partners, each must shareprofits, losses, and deductions in pro-portion to their one-third ownership.With an LLC, John, Adam, and Suecould elect to share profits, losses, anddeductions in whatever percentage theychoose, as long as it is for a legitimatebusiness purpose. In the above-exam-

ple, Sue may desire to share fifty (50)percent of the profits of the LLC for thefirst two years due to her risk of invest-ing $35,000. Thus, an LLC allowsshareholders and owners to structuretheir investments based upon real lifeconcerns.

4. Run by Board of DirectorsAn S corporation is run by Board of

Directors, which are appointed by theirshareholders. For example, sharehold-ers in Illinois elect the President, Treas-urer, and Secretary or any other officersof the S corporation. In contrasts, anLLC may be run by its’ members (own-ers) or managers (similar to board of di-rectors).

Simply put, an S corporation is apopular business entity because it is less

costly and generally costs $175 to in-corporate in Illinois. In contrasts, anLLC generally costs $500 to incorpo-rate in Illinois.

Professional Corporation (PC)The State of Illinois has authorized

professional service corporations underthe Professional Service CorporationAct. 805 ILCS 10/. This Act enables in-dividuals and partners to work togetherunder a corporation that share the sameprofessional license, such as a law li-cense, to conduct their business under acorporation. A Professional Corporationmay be a C Corporation or an S Corpo-ration as explained above.


C H A P T E R 5

>>> Continuted on next page

LIMITED LIABILITY CORPORATIONS (LLCs)A Limited Liability Corporation is a

mixture between a partnership and acorporation. One of the complaintsabout a corporation is its’ rigid corpo-rate structure. In contrast, a partnershiphas no limited liability protection, buthas a lot of flexibility where the busi-ness owners may adopt a flexible oper-ating structure.

1. Limited Liability Similar to an S corporation and a C

corporation, an LLC has limited liabil-ity protection separate and distinct fromits owners. The Limited Liability Com-pany Act, 820 ILCS 180/, governs thecreation and operation of LLCs in thestate of Illinois. Owners of an LLC arecalled “members” and there are two (2)types of management structures ofLLCS in Illinois. These two (2) struc-tures are “member-managed” and“manager-managed” LLCs. A member-managed LLC is run by the owners ofthe LLC. In contrast, a manager-man-aged LLC is similar to a Corporationbecause the member(s) elect officers toconduct the day to day affairs of theLLC.

2. FlexibilityLLCs are a great business entity be-

cause they allow owners to customizetheir business operations according totheir goals and objectives. For example,a law firm can have one (1) managingpartner and two (2) junior partners andallow the managing partner and juniorpartners to form an LLC together. Themanaging partner likely wants to main-tain all or most of the voting control ofthe LLC while giving the junior part-ners an incentive to work hard. With anLLC, the managing partner could be theonly voting member where as the jun-ior partners could be non-voting mem-bers. The benefit of this flexible

structure is several purposes. The firstpurpose is to allow the managing part-ner to run the day to day affairs of theLLC where he or she has significant ex-perience. In contrast, the non-votingmembers generally have greater liabil-ity protection because they are likeshareholders in a public owned com-pany. Essentially, the junior partners areinvestors with limited voting rights andlessened liability concerns. Non-votingmembers may not run the day to day af-fairs of a business but generally are em-ployees that want to be incentivized tocontribute to the law firm. Furthermore,this structure would also enable themanaging partner to set up an easy tran-sition system in case one partner wantsto leave the law firm’s business. Gener-ally, a non-voting member may partici-pate in the profits of an LLC. If onejunior partner left at the end of the firstquarter, their wages and profits are lim-ited to their salary and percentage ofprofits for the first quarter. There is nobuy-out of the junior partner’s interests.Another example of this flexibilitywould be a law partner that has workedhard to establish the law firm for fiveyears and wants to add his new associ-

ate(s) as partners in the near future. Thenew associates/partners understand thatthe managing partner should benefit forhis or her hard work, but the businessreality is that to keep the new associ-ates/partners they may have to get agreater percentage of the law firm busi-ness. For instance, Sue, John, andBecky enter into a law firm business to-gether as an LLC and Sue is the man-aging partner while John and Becky arethe new associates that will be electedto junior partners. To reward Sue for herhard work with the law firm, Sue getsseventy-five (75) percent of the profitsof the law firm for the first three yearsand, after this, Sue’s share of the profitsdrops to fifty-one (51) percent. Withan LLC, its’ flexibility can account forthe business realities that business andpartners face.

3. TaxationAn LLC is a disregarded entity for

federal tax purposes, which means thatone acts like the LLC did not exists.Thus, members pay federal and statetaxes as though they were not incorpo-rated and acted as a sole proprietorshipor partnership. An LLC is considered a


C H A P T E R 5

Continuted from page 13

“pass-through” entity because its’ ownerspay federal and state taxes on their taxreturn. The IRS allows an LLC to betaxed as a Corporation or a Partnership.If no election is chosen, it is assumedthat the LLC is taxed as a Partnership.

LIMITED LIABILITY PARTNERSHIP(LLP)

The Illinois legislature created theUniform Partnership Act, 805 ILCS206, to regulate the affairs of partner-ships. The Uniform Partnership Act de-fines a “Partnership” as an associationof two (2) or more persons to carry onas co-owners of a business for profitformed under Section 202 of this Act,predecessor law, or comparable law ofanother jurisdiction. 805 ILCS206/100(f). A Partnership may elect tobe incorporated as a “LLP”. 805 ILCS206/100. Limited Liability Partnership(LLP) is similar to an LLC because itoffers a lot of flexibility but has severaldistinct differences from an LLC.

A. Managing Partner has No Liabil-ity Protection

A LLP is comprised of a generalpartner and limited partners. A general

partner is personally liable for the busi-ness debts of the LLP. This weaknessmay be easily fixed by incorporating thegeneral partner has an S corporation orLLC. In contrast, a limited partner’s li-ability is generally limited to their initialinvestment. The general partner is re-sponsible for managing the day to dayaffairs of the LLP and, generally, thelimited partners may not participate inthe management of the LLP. The maindifference between an LLC and LLP isthat an LLC is not comprised of a gen-eral partner and limited partners. AnLLC has the flexibility to make arrange-ments such as this, but there is no re-quirement of having a general partnerand limited partner.

B. FlexibilitySimilarly to an LLC, a LLP has a

great deal of flexibility. The best featureof a LLP or partnership is its’ flexibil-ity. This flexibility means that the LLPenables different voting and non-votingownership interests. The flexibility fea-ture is important because often times apartnership or a law practice has differ-ent goals that the flexibility trait allowsthe LLP to meet.

C. TaxationAn LLP is taxed as a partnership and

each partner is taxed based upon theirindividual tax traits. Each partner re-ports their portion of the company’s in-come or loss on IRS Form 1065,Schedule K. A general partner’s incomeis subject to income and self-employ-ment tax while a limited partner’s in-come is passive income or loss. Passiveincome or loss is not subject to self-em-ployment tax. Unlike an LLC, an LLPmust pick its tax classification as “Part-nership”. An LLC may choose to betaxed as a corporation or partnership,but it is assumed that its tax classifica-tion is a partnership.

CONCLUSIONPicking the correct business structure

is essential to business protection andgrowth purposes. A qualified attorneyshould advise you on your different op-tions based upon your particular goals.As a general rule, S corporations aregreat business entities for one (1) per-son businesses that have no desire forpartners or investments. In contrasts,LLCs and LLPs are advantageous whenone or more persons desire greatergrowth potential and have more com-plex business arrangements. Costs andtax structure are also important criteriawhen determining the correct businessstructure. ★


Sean L. RobertsonSean is Managing Partner of Robertson Law

Group, LLC which concentrates in asset protection, corporate law, estate planning, andcommercial litigation. He has significant corpo-rate, litigation, and asset protection niche, whichcaters to closely-held business owners, physi-cians, and individuals that are concerned aboutlitigation risks. Sean can be reached [email protected]

C H A P T E R 5

The foundation of the legal exis-tence of your new business iscreating the legal entity under

which you will operate. Even when thebusiness plan is written, office space is secured, and prospective clients are atyour finger tips there are still phonecalls, paperwork, and filings to be com-pleted just for your company to belegally recognized. Once your legal existence is created there are ancillaryregistrations to be completed. Everybusiness will be subject to different requirements but the following registra-tion checklist can be used as a generaloverview of the steps needed to operatein accordance with law.

• Forming your legal entity (Corporation, LLC, LLP, etc.)

• Registering your legal entity with the Secretary of State’s office in the state you are transacting business in,if different then the state of formation

• Obtaining a federal tax id number from the IRS

• Registering with the Department of Revenue

• Registering your law firm with the Illinois Supreme Court

• Obtain city and/or county business license(s), if required

• Determine if your specific line of business requires additional licensesor permits from the city, county, state, or federal governments

• Maintain legal compliance with annual renewal obligations

After deciding on the legal structureyou want your business to take, you areready to create the legal existence ofyour company. A legal entity is created

when the appropriate formation docu-ments are filed with the office of theSecretary of State. A corporation filesArticles of Incorporation and other legalstructures such as a Limited LiabilityCompany will file Articles of Organiza-tion, although some states refer to thesefilings by other names. Whether or notyou will have a physical presence orconduct business in a state does not pre-clude you from filing your formationdocuments there. The only requirementsare choosing a company name distin-guishable than any on record and theappointment of a registered agent lo-cated in the state to accept governmentdocuments and legal papers on yourcompany’s behalf. The decision to formyour legal entity in a state will dictatewhich statutes will govern filing fees,taxes, officer/director disclosure re-quirements, internal procedures, andother rules of operation. These regula-tions and laws vary from state to stateso the best way to make an informed de-cision on which state to create your newlegal entity in is to research the control-ling statutes or speak with an experi-enced individual.

No matter which state you decide toform your business, every state hasstatutes requiring registration with the

office of the Secretary of State if a com-pany will be transacting business withinits borders. If you have decided to cre-ate your legal existence in a state out-side of where you will be transactingbusiness you will need to perform fil-ings with the office of the Secretary ofState in each state. In addition to multi-ple filings your company will also berequired to maintain registered agentsin both states and will have additionalannual compliance requirements. In Illi-nois for example, all legal entities arerequired to file an annual report onceper year to remain in good standing.The report is due by the first day of theanniversary month in which you wereregistered and the fee is dependent on thetype of structure you have chosen. Failureto file an annual report can lead to addi-tional penalties and eventual administra-tive dissolution of your legal existence.

Many businesses decide it is best toform their legal entity in the state theyintend on doing business in. In Illinois,many small business owners formunder the laws of their home state. Thiseliminates the potential for multiple fil-ings, fees, and additional disclosures forregistering your company in otherstates. If the company begins to expandand starts to transact business in other


Registering Your Business TRENTON BAVARO, CORPORATE CREATIONS CHICAGO, LLC

states, only then will the need to per-form additional registrations arise.

Once your company is registeredwith the Secretary of State’s office inthe state you will be transacting busi-ness in, either by forming in a differentstate and registering to transact businesshere or by forming in your home state,the next step is to obtain your FederalEmployer Identification Number (FEIN)from the IRS. Much akin to a social se-curity number identifying an individualthe FEIN is used to identify your busi-ness. The IRS requires the completionof Form SS-4 to obtain this number. Ifyour company is electing to receive spe-cial tax treatment, such as electing to bean S chapter corporation, now is the timeto file these forms as well. To elect betaxed as an S-Corp, your company willneed to submit IRS Form 2253 within 75days after forming your business. Thisform can be submitted to the IRS afteryou first obtain your FEIN.

With your formation documents andFEIN you are now in a position to openup a bank account in the name of yourbusiness. Most banks require a copy ofthe formation documents, your newlyassigned FEIN, and a state id to openthe account. It is possible you may needadditional proof that the individual at-tempting to open an account on behalfof the business actually has authority todo so. This can be proven easily if theirname is in the formation documents. Ifa third party incorporator was used, asigned consent form indicating the in-corporator has transferred power to aparticular individual will suffice.

After your company is formed andyour FEIN is obtained, your companywill need to register for state taxes withthe Department of Revenue within thestate you are transacting business in. Ifyou are in Illinois, you will need to con-tact the Illinois Department of Revenue.You may apply online, by mail, or inperson by completing form REG-1 toregister with the state and obtain your

Illinois Department of Revenue number(IDOR #), formerly known as your Illi-nois Business Tax number (IBT #). Theform will require your Secretary ofState file number and FEIN along withother business and officer information.

If your company is planning on hav-ing employees you will also need to filewith the Illinois Department of Em-ployment Security. Every newly createdcompany that will have employees hasto file Form UI-1 within 30 days fromwhen it commences business. Filing theform is mandatory although it does notnecessarily mean your company will beliable for payments under the Unem-ployment Insurance Act.

Attorneys forming their own busi-ness to practice law in Illinois are sub-ject to an additional filing requirementwith the Illinois Supreme Court. AnyProfessional Corporation, ProfessionalAssociation, Limited Liability Com-pany or Registered Limited LiabilityPartnership must file an Application forCertificate of Registration to engage inthe practice of law along with a $50 fil-ing fee. Each individual that has anownership interest in the business mustbe a member of the bar of each juris-diction they engage in the practice oflaw and have no pending disciplinaryproceedings against them. The new lawpractice can elect to apply underSupreme Court Rule 721 which pro-vides for joint and several liability orunder Supreme Court Rule 722 whichprovides the business with the ability toavoid joint and several liability. To qual-ify under Rule 722 the firm must main-tain minimum insurance or proof offinancial responsibility according toSupreme Court Rule 722(b)(1). TheRule is available online and a thoroughreading will offer a more detailed ex-planation of the requirements. The sameapplication must be submitted annuallyfor renewal along with $40 on or beforeJanuary 31st of each year.

Regardless of what city your busi-

ness is located in it will be necessary tocheck with the governing body to de-termine if your company has to applyfor a business license. In Chicago, forexample, new businesses will need tosubmit a Business Information Sheet withthe City of Chicago Department of Busi-ness Affairs & Consumer Protection(BACP). This pre-application can be filedonline, in-person, or by mail and will beused to determine what type of licensesyour business will need and additional fil-ings that may be required.

Every business that operates as its ownlegal entity will need to perform multipleregistrations and filings just to be legallyrecognized. Filings with the Secretary ofState’s office, the IRS and the Departmentof Revenue will be mandatory. Depend-ing on the type of business there may beadditional registration and filing require-ments. To be certain your business is op-erating legally check with your local andstate government agencies or talk with anexperienced professional. It is importantto take the time to reach out to variousgovernment agencies so that no filings areforgotten. After your business has met allregistration requirements and obtained thenecessary licenses and approvals it isequally important to keep filed copies inyour company’s records and be consciousof renewal filings. Forgetting to file a re-newal can be just as harmful as forgettingto register in the first place. For your newcompany to be legally recognized to op-erate it is necessary to file the properregistrations. ★


Trenton Bavaro Trent is an Illinois licensed attorney and Vice

President of Corporate Creations Chicago. Abackground in business and law fuels his pas-sion to help others understand complex conceptsand make comprehensive decisions regardingthe registration of their businesses and subse-quent compliance filings. He can be reached [email protected]

C H A P T E R 6

Cash versus Accrual AccountingThere are two commonly used meth-

ods of accounting for your transactions:Cash and Accrual. The Cash Methodrecords transactions when the cash is re-ceived or paid out. For example, youprovide service to your client on De-cember 30th. They don’t pay you untilJanuary 5th of the following year. Onthe cash basis you would record incomeon January 5th. Similarly, if you receiveoffice supplies on December 30th anddon’t pay for them until January 5th,you would record the expense on Janu-ary 5th. The Cash Method is the simplerform of accounting.

The Accrual Method says that youshould record transactions when theyhappen, regardless of when the cashcomes in or goes out. The Cash Methodmay be simpler, but the Accrual Methodis more accurate. Going with the aboveexamples, you performed the service inDecember, so you should record feesearned in December. You received theoffice supplies in December, so yourecord the expense in December. Con-cepts like “Accounts Payable” and “Ac-counts Receivable” are accrual conceptsand not used at all in the Cash Method.If your company produces or sells mer-chandise, you must keep an inventoryand use the accrual method.

Which should you use? Both meth-ods are valid for filing your income taxreturn. If you think you’ll need to get fi-nancing for your business, or if you’ll berequired to have an audit or review, youshould use the Accrual Method. If yourbusiness is simple and you won’t need togo to the bank, the Cash Method is easier.If you want your financial statements togive you the most accurate picture abouthow your business is doing, use the Ac-crual Method. If all you care about is howmuch cash you are generating, go withthe Cash Method.

Recording Business Transactions A good recordkeeping system includes

a summary of your business transac-tions in journals and ledgers. Theseused to be kept in books, but most busi-ness use accounting software programs,such as Intuit’s QuickBooks™, which canbe configured specifically for your busi-ness to streamline the process of record-ing your business transactions. Whilemost accounting software programs areuser friendly, unless you or your em-ployee have extensive experience in thisarea, hiring a professional to create achart of accounts and train you and/oryour employee(s) how to record trans-actions properly will save time andmoney in the long run. Professionalsmay be certified in bookkeeping and/orspecific accounting software programs,which you may consider when hiringsomeone to perform these services.

The types of journals and ledgers youkeep will depend on the type of businessyou are operating. With properly config-ured accounting software, many of thejournals and reports you need can easilybe printed out directly from the system.

• Business checkbook. • Daily summary of cash receipts. • Check disbursements journal. • Employee compensation record/

payroll journal. The business checkbook is typically

the most important ledger for a smallbusiness. The business checking ac-count should be used for business trans-actions only and should be reconciledon a monthly basis. If all of the transac-tions of the business checking accountare recorded properly, the other journalsand ledgers will largely fall into placeand be created automatically throughthe accounting software program.

In the case of attorneys and othersproviding professional services, thereare programs that specifically track andrecord your time spent by date andclient. Many of these programs gener-ate invoices and integrate directly intoyour accounting software program. Usingthese programs can save a significant

amount of time that would be spent man-ually creating invoices and separatelyrecording the associated transactions.

RecordkeepingIt is important for all businesses to

keep accurate and timely records. Goodrecordkeeping will help you measurethe progress of your business. It is im-portant to understand how your recordswill be used and what you will need forproper recordkeeping.

Uses of RecordsYour records are used to prepare your

business’ financial statements and taxreturns. That means that the documentsare only as good as the records used tocreate them, so make sure your recordsare complete and accurate. The twomain financial statements are the In-come (a/k/a Profit and Loss) Statementand the Balance Sheet.

• An Income Statement shows the income and expenses of the business fora given period of time.

• A Balance Sheet shows the assets,liabilities, and your equity in the busi-ness on a given date.

Your financial statements generallyserve two functions: 1) they let you seehow well your business is performing;and 2) they let outsiders, such as yourbanker or other creditors, see how wellyou are performing. The more reliableand complete the underlying records,the more relevant and reliable the fi-nancial statements.

The other financial document based onyour records is your income tax return.Your records must support all of the itemsreported on the tax return including in-come, expenses, and credits. The recordsused in the preparation must be kept in theevent the IRS conducts an examination ofyour tax return. Your records should iden-tify the sources of any money you receiveso that you can properly distinguish be-tween business versus non-business receipts and taxable versus nontaxable in-


Accounting and Record Keeping JAMES SCORDO, JR., MCGOVERN & GREENE LLP

come. Deductible expenses should berecorded when they occur, as it is easy toforget them later on.

Types of Records to KeepThere is not one standard record-

keeping system that applies to all busi-nesses. You may use any system thatclearly shows your income and ex-penses. Your recordkeeping systemshould include a summary of your busi-ness transactions. This summary is typ-ically made in your “books” whichinclude items such as general ledgersand accounting journals. Your gross in-come as well as your deductions andcredits must be recorded. While thebusiness checkbook is the main sourceof entries for most small businesses, thecheckbook can be maintained and rec-onciled within your accounting soft-ware. Supporting documents mustalways be kept. All records and sup-porting documents may be kept elec-tronically, however it is important thatsecure copies be kept in separate loca-tions in the event of a computer failure,a fire, or some other catastrophe.

Supporting Documents Sales, purchases, payroll, and other

transactions that define your businessgenerate supporting documents. Theseinclude sales slips, paid bills, invoices,receipts, deposit slips, and canceledchecks. These documents contain infor-mation you need to record in yourbooks. It is important to keep these doc-uments because they support the entriesin your books and on your tax return.

Gross receipts. Gross receipts arethe total amounts your business re-ceived without subtracting costs or ex-penses. You should keep supportingdocuments that show the amounts andsources of your gross receipts. Support-ing documents for gross receipts in-clude the following:

• Bank or online deposit slips • Receipt books • Invoices • Credit card charge slips • Forms 1099-MISC

Purchases. Purchases are the itemsyou buy and resell to customers. Pur-chases are what will determine thevalue of your inventory at the end ofany given year. If you are a manufac-turer or producer, this includes the costof all raw materials or parts purchasedfor manufacture into finished products.Your supporting documents shouldshow the amount paid and that theamount was for purchases. Supportingdocuments for purchases include thefollowing:

• Canceled checks • Credit card slips • Invoices Expenses. Expenses are costs (other

than purchases) necessary to run andmaintain your business. Your support-ing documents should show the amountpaid and that the amount was for a busi-ness expense. Supporting documentsfor expenses include the following:

• Canceled checks • Account statements• Credit card slips• Invoices• Petty cash slips for small cash payments There are additional, specific record-

keeping rules that apply to Travel, Trans-portation, Entertainment, and GiftExpenses, as well as Employment Taxes.

For example, if you choose to ex-pense business mileage, you shouldmaintain a log of all miles driven, in-cluding date, starting and endingodometer readings, starting and endinglocations, and the purpose of the drive.You would do this for ALL mileage, notjust business miles, even though youonly expense the business miles. With-out this type of documentation, the IRSwill disallow your mileage expenses.

Assets. Assets are the property, suchas machinery and furniture you own anduse in your business. You need recordsto determine the annual depreciationand the gain or loss when you sell theassets. Typically a list of assets is keptin a spreadsheet including the followinginformation:

• Description of the asset• Expected life span of the asset

• When and how you acquired the asset• Purchase price• Cost of any improvements • Section 179 deduction taken• Deductions taken for depreciation • How you used the asset• When and how you disposed of the asset• Selling price• Expenses of saleThe supporting documents where this

information can often be found include:• Purchase and sales invoices• Real estate closing statements• Canceled checks

Fraud ConsiderationsOne of the main ways to prevent

fraud from occurring in your business isto segregate duties. This is especiallychallenging for small companies, be-cause sometimes there are just notenough employees to properly segre-gate all of the functions. As the businessowner, taking the following actionscould greatly reduce the likelihood of achecking account-based fraud occurringor continuing for an extended period:

• Review all checks along with theirsupporting invoices.

• Personally sign all checks, put thechecks in their respective envelopes andseal them, and put the envelopes in themail. At no point should any of thesetasks be delegated or the documentsgiven back to the employee in charge ofthe accounting function.

• Receive monthly bank statementsdirectly (unopened), review the transac-tions and copies of canceled (cleared)checks, and promptly reconcile the ac-count. ★


James Scordo, Jr. CFE, CSAR is a managerat McGovern & Greene LLP

James has consulted on a multitude of bothinternal and external fraud examinations for realestate, manufacturing, hospitality, construction,gaming, retail and non-profit entities specializ-ing primarily in data analysis and forensic ac-counting procedures. He can be reached [email protected]

C H A P T E R 7

Part IRecruitment of employees is a multi-

faceted process which can involve printand online advertisements in nationaland local newspapers or trade press, list-ings with government employment serv-ices, private personnel agencies,professional recruitment services (headhunters), on-line job and resume listingservices, internal and external network-ing systems across companies and indus-try sectors, and good old-fashioned wordof mouth communications. The methodsand manner of employer recruitment isgenerally free from restriction and regu-lation, with the one notable exception thatemployers must avoid unlawful discrim-ination in the selection of employees.

Employment contracts are the excep-tion rather than the rule, with the vast ma-jority of employment relationships beingconsidered ‘employment at-will.’ Theemployment at-will doctrine means thatemployment is presumed to be voluntaryand indefinite for both employees andemployers. An at-will employee underthe doctrine may quit his/her job when-ever and for whatever reason they want,usually without consequence. In turn, at-will employers may terminate employ-ment whenever and for whatever reasonthey want, usually without consequence.Either party may end the relationshipwithout prior notice, but neither partymay breach contracts, either individual orcollectively bargained.

Employers cannot violate state orfederal laws, and generally cannot right-fully terminate employees who refuse todo something that is contrary to publicpolicy and sound morality, such as break-ing the law. But with these few excep-tions aside, either party may terminate theemployment relationship 'for a good rea-son, a bad reason or no reason at all.

The payment of compensation to em-ployees in the United States is subjectto protections at the federal, state andlocal government levels. Most notably,these include minimum wage and over-

time protections for 'non-exempt' em-ployees (i.e. employees other than man-agers and supervisors). Potentially, anyperson hired to perform labor or serv-ices for pay is an employee. Any per-sons, including a corporation or otherentity and its agents, who hire an indi-vidual to perform labor or services forpay, are employers.

Vetting and screeningEmployers must take care to avoid

discrimination on the bases reviewedabove in hiring employees. However,because of the concepts of negligenthiring and respondeat superior, theyalso must be careful to assure that theemployees who will represent them tothe public are qualified to do so and donot have histories indicating that they willpresent threats to the health and safety ofother employees or the public. Accord-ingly, the process of vetting and screeningnew hires is of great importance.

Offers of employment are oftenmade subject to the following:• Evidence of identity and right to work inthe US;• Background checks, including obtainingsatisfactory references; and• Where appropriate, criminal record checks.

Applications and InterviewsOn the job application form and dur-

ing interviews, tailor your questions sothey are job related. Ask all applicantsthe same basic questions. Be aware thatfederal and state laws place numerousrestrictions on the types of questionsthat may be asked. For example, an em-ployer cannot discriminate based oncertain characteristics such as age, race,color, gender, religion, disability, mari-tal status or national origin, so inquiriesin the interview process must avoidthese subjects. Sexual orientation is alsoprotected under Illinois law.

Even casual questions about pro-tected characteristics can potentiallycreate liability. Further, if an applicant

volunteers such information, the em-ployer who uses the information to dis-criminate can be held liable. It isimportant that all those involved in theinterview process understand these lim-itations, since the actions of employeescan create liability for the business. Donot make any promises during the in-terview process. Employers should notbind themselves to conditions regardingdischarge, benefits or policies and pro-cedures. In Illinois, the general rule isthat employees serve at the will of theemployer, although numerous judicialdecisions have created exceptions tothis doctrine. Any promises could cre-ate an implied contract or a legal prom-ise known as promissory estoppel thatcould bind the employer to the promise.

Criminal convictionsThe use of a criminal conviction pol-

icy can not only help an employer betterprotect itself and the public from some-one with criminal tendencies, but alsomay protect an employer from potentialnegligent hiring lawsuits. Be sure tofocus on convictions, not arrests. Arrestsmay not be a legitimate, non-discrimina-tory reason for excluding an applicant.

Instead of flatly refusing to hire anyapplicant with a criminal convictionrecord, an employer should determinewhether its criminal conviction policymeasures the minimum qualificationsnecessary for successful performance ofthe job in question. The relevant ques-tion becomes, 'What kind of crimeswould prevent a job applicant, if con-victed, from being qualified for a par-ticular position?' Where the convictionrelates directly to the primary job func-tions and where public safety might rea-sonably be compromised, courts havebeen supportive of employer hiring bans.

ReferencesIt is usual for prospective employers

to ask job applicants for references fromprior employers. An employer is not ob-


Legal Steps in Hiring, Firing and Maintaining Employees ETHAN ZELIZER, DLA PIPER LLP

ligated to provide a reference and an in-dividual employer’s willingness to do sois often determined by the character ofthe prior employment relationship. How-ever, because some courts have alloweddefamation suits by former employees fornegative references, some employershave adopted policies limiting the infor-mation they will reveal in referencechecks. For example, a typical policymight be to verify only such routine per-sonnel information as name, social secu-rity number, dates of employment, andposition title, with additional informationbeing provided only if authorized in writ-ing by the former employee.

Part II: Employee Discipline BestPractices

While disciplining or terminating em-ployees is never an easy task, it is a taskthat all organizations must be prepared tocarry out. Good habits for discipline ortermination begin far in advance of theactual decision, and revolve around threebasic principles: 1) honesty; 2) consis-tency; and 3) documentation.

HonestyAlthough it is a simple mantra, it is

worth repeating: always be honest andtruthful when dealing with your employ-ees. Dishonesty or delay heightens therisk of litigation. An employee who is nottold why he or she is being disciplined orterminated is likely to assume the deci-sion is illegal. It is easy to approach dis-cipline or termination decisions with thebelief that criticism will demoralize theemployee. Avoid this sympathetic ten-dency, because it later becomes difficultto explain contradictory disciplinary ac-tions. Commit to providing honest per-formance appraisals and encouragesupervisors to conduct corrective actionin a timely fashion.

ConsistencyApplying consistent principles to the

discipline of employees will provide asound basis for the defense of mostpost-termination lawsuits. Most em-ployment related lawsuits arise fromdiscipline or termination decisions. In-deed, it is difficult, if not impossible, to

maintain a cause of action under TitleVII without the employee having beensubject to discipline, termination, orsome other adverse employment action.

While managers have the right to ex-ercise independent judgment as to themerits of an employee’s performance,employers can decrease the probability ofbeing sued by utilizing standards that areclear, objective, fair, and consistently ap-plied. To meet this goal, ensure that thefollowing objects are implemented acrossall areas of the organization: • Duties: develop a job description thatdefines the essential functions of theemployee’s job and also states the stan-dards by which the employee’s per-formance will be measured.• Notice: put the basic elements of thedisciplinary program in writing so thatemployees are aware of the conse-quences of their failure to adhere towritten policies. Written procedures ensure consistency and reduce the riskthat different supervisors will give var-ied interpretations and explanations ofa particular policy. Written procedures arealso an effective way to communicate auniversal message to all employees.

DocumentationWhile virtually every employer rec-

ognizes the need for written documen-tation supporting any employmentdecisions, most employers do not con-sider the legal consequences of inade-quate documentation. Managers mustrealize that their organization may haveto explain a disciplinary action or otherdecision several years after it occurs,and documentation is key when memo-ries are weak or individuals involved inthe decision are no longer employed.

To this end, all disciplinary or termi-nation documentation should include thefollowing: the date of the event; the nameof the person conducting the disciplinaryor termination procedure; the subject ofthe corrective action should be describedin detail, including when, how, where,and why the corrective action occurred;all individuals participating in the correc-tive action should be identified; the em-ployee should sign the document or thedocument should reflect that the employee

was offered the opportunity to sign, butdeclined; and to the extent possible, keepall information confidential.

PART III: TerminationWhat an Employer Should do Prior

to Terminating an Employee• Give honest performance appraisals. • Document and discuss poor perform-ance with an employee and give him or hera chance to correct his/her deficiencies. • Make sure that other employees,guilty of the same infraction, were similarly disciplined. • Identify who will conduct termination interview and who will be a witness. • The manager responsible for conductingthe interview should be given a script ofwhat to say and what not to say. • Consider timing of termination meet-ing. Do not meet prior to birthdays, holidays or the like. • Determine how an employee will collect his or her personal effects following the termination meeting.

Termination Meeting • Keep the meeting brief (10-15 min-utes); employers should make the firinga statement of fact, not open to discus-sion. Allow the employee an opportu-nity to respond. • Collect employee’s keys and security cards.• Barring legitimate security concerns,employee should be permitted to leavethe building on his or her own (as op-posed to being escorted from the build-ing by security). • Consider providing employee out-placement services; if such services aregoing to be provided, have the out-placement consultant on-site on the dayof the termination meeting. • Provide balanced but truthful job references to prospective employers. ★• Consider providing severance pay;


Ethan G. ZelizerEthan is a lawyer in DLA Piper’s Labor and

Employment Practice, based in Chicago. He rep-resents and advises employers in all aspects ofemployment law, including discrimination, wageand hour, Sarbanes-Oxley actions, employmentmobility issues, and regulatory complance. Hecan be reached at [email protected]

C H A P T E R 8

Estate Planning for the Closely HeldBusiness

This chapter is intended as a broadoverview of some of the things a busi-ness owner might consider as a businessgrows and its owner’s net worth and ageadvance. In rough chronology of a businessowner’s life cycle, below are some tech-niques a business owner may want todiscuss with a trusted advisor. Many ofthe topics which would initially beraised by an estate planning attorney,such as business entity selection, regis-tration and corporate formalities, have al-ready been touched on in other chapters.

Core Estate Planning DocumentsWhile not specific to business owners,

it is the author’s opinion that everyone,regardless of wealth, should have thefollowing core estate planning docu-ments in order:

Powers of Attorney – These docu-ments are statutory in nature and requireminimal creativity, time or expense. Theconsequences, however, of not havingthem in place could be disastrous (anexample being the recent case of TerriSchiavo). A power of attorney forhealthcare allows the principal to desig-nate an agent to make healthcare deci-sions on their behalf, in the eventthey’re unable to communicate theirown wishes. It also gives the option ofexpressing a preference on organ dona-tion and end of life decisions (e.g. yourviews on feeding tubes, respirators,etc.). A power of attorney for property al-lows the principal to designate an agent tomake financial decisions on their behalfin the event they’re unable to communi-cate their own wishes. This may also in-clude limited powers to make decisionsrelating to the closely-held business.

Revocable (“Living”) Trust –While a Will is a document that, upondeath, outlines your final wishes in re-gards to your assets and personal prop-

erty, a trust, on the other hand, can becreated for asset management both dur-ing your life and continuing after yourdeath (a revocable trust is created dur-ing your lifetime and becomes effectiveimmediately). You can be the trustee ofyour trust while living, and (upon yourmental incapacity or death) your suc-cessor trustee(s) can step into yourshoes immediately and start handlingyour financial affairs without a courtorder. This immediate succession is es-sential for a business owner.

Pour-over Will – A pour-over will isused in conjunction with a revocabletrust. Under this type of plan, the onlybeneficiary of the will is your Trust. Apour-over will serves as the “catch all”in case an asset is held in decedent’sname and “pours it over” to the trustafter death (additionally, the pour-over

will is where guardians for minor chil-dren are appointed).

StartupsAs a business owner and member of

the local business community, you maybe presented with an option to invest ina new business venture. Perhaps theeasiest layup in the advanced estate taxplanning game is the equity dispersionfor a startup company, a startup fund, orany new equity investment.

Using Trusts as Equity Investors inStartups

For gift tax purposes, the value of agift is its fair market value. The Regu-lations speak in terms of a hypotheticalwilling buyer and a hypothetical willingseller and provide that the “fair marketvalue is the price at which the propertywould change hands between a willing


Estate Planning for the Closely Held Business BRIAN JONES, HARRISON & HELD, LLP

buyer and a willing seller, neither beingunder any compulsion to buy or to selland both having reasonable knowledgeof relevant facts” (emphasis supplied).If the value of an interest is zero at in-ception, one interpretation of the will-ing buyer test would posit the gift taxvalue is zero, or close thereto. There-fore, having a trust for the benefit of thechildren be an equity holder at incep-tion, as to 25%, 50 %, or some otherfraction, has minimal gift tax concerns,and has substantial equity upside.

Now consider use of a credit sheltertrust so that the upside can be enjoyedby the grantor while still avoiding nastyestate tax results (recall the 55% taxesnoted above). It is safest to use a non-beneficiary Independent Trustee to becertain the property will be excludedfrom both spouses’ estates, while stillallowing access to the funds if need be.

Further, in a straight gifting situationin which the grantor gifts property equalto or in excess of the exemption equiv-alent ($5,120,000 per decedent in 2012,but scheduled to decrease to $1,000,000in 2013), a gift to a grantor trust ispreferable to a gift outright. If the gift isof appreciated assets, the donees will re-alize the capital gain in the future whenthe assets are sold. However, if the giftis to a grantor trust in which the grantorretains no interest other than that neces-sary to make it a grantor trust, then fu-ture capital gains will be paid by thegrantor instead of the trust. In addition,ordinary income and other taxable in-come incurred annually can be alloca-ble to the grantor of the trust. This hasthe effect of increasing the estate-tax-free property in the hands of the doneeswhile decreasing the estate-includibleproperty in the hands of the donor.

Succession PlanningIf the business owner does not plan

in advance how his interest passes uponsale or death, he is missing an opportu-nity and, worse yet, may be creating aterrible mess to be sorted out by his es-tate, the business and perhaps thecourts. Below are some techniques usedto provide structure to what otherwisemay be turbulent situations.

Buy/Sell AgreementsAll closely-held businesses should

have a formal plan to ensure the preser-vation of the business upon an owner’sdeath. A buy/sell agreement is an agree-ment among owners of a company re-garding issues such as the sale of thebusiness in the event of the death, dis-ability or divorce of an owner, and theproper value of the business if oneowner wishes to sell their interest in thecompany to another. For many businessowners, the value of their business in-terests is by far their largest asset. Sincethis asset is often times illiquid, a pre-mature death or disability might provedisastrous. For example, the deceasedowner’s estate, depending upon itsvalue and the exemption levels at dateof death, may need to pay a substantialfederal and state estate tax within ninemonths of the owner’s death. These taxrates can be in the range of 55%. If there isinsufficient cash to pay the tax, the estatewill need to either sell the deceasedowner’s interest in the business at a steeplydiscounted price, or pay the tax late withsubstantial penalties and interest.

Tax issues aside, without planning, anowner’s unexpected death may create asituation where the remaining owner isnow a business partner with the deceasedowner’s surviving spouse or childrenwho may have had little or no previousinvolvement in the business.

A fundamental component of anybuy/sell agreement is a mechanism to


C H A P T E R 9

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provide for the disposition of anowner’s business interest upon death. Acommon method for a two partner busi-ness would be to purchase life insurance(on each other’s life) in a “cross-pur-chase” arrangement, with a death bene-fit equal to at least the value of eachowner’s interest in the business. Withthis type of arrangement, each owner iscontractually obligated to purchase fromthe deceased owner’s estate the deceasedowner’s interest in the business.

A “redemption agreement” is prefer-able to the cross-purchase agreement ina business of three or more owners. Inthis agreement, the business entity (thecorporation, LLC, etc.) is the owner ofthe insurance policies insuring the livesof each owner. Upon the death of anowner, the entity uses the life insuranceon the deceased owner’s life to purchasefrom his or her estate the deceasedowner’s business interest.

A third alternative is a hybrid or“wait and see” approach where the entityhas the first option to purchase a deceased shareholder’s stock. If the corporation does not exercise the option, then the remaining owners willhave the option to purchase the deceasedowner’s interest. If the remaining ownersdo not exercise their option, typicallythe corporation will be required to pur-chase the interest.

InsuranceThere are numerous articles, chapters

and books that have been dedicated toinsurance coverage, types of insurance,whether you need it and how much isenough. In addition to the life insuranceoutlined above, the business ownerwould be wise to meet with a knowl-edgeable insurance broker to discuss:(a) liability coverage (professional, per-sonal and property); (b) a personal um-brella policy; and, depending uponother assets, (c) long-term disability

coverage. The same broker may be ableto assist you with setting up a benefitsprogram for your office staff. You won’thave trouble finding an insurance rephappy to meet with you and offer youcoverage options.

Exit StrategiesAt some point, your business may

have “real” value, and perhaps you’reable to find a willing buyer or wouldlike to transfer ownership to your chil-dren. Here are a few ideas to discusswith your counsel that may help youavoid losing your hard earned gains.

Grantor Retained Annuity Trusts(“GRATs”)

The creation of a GRAT, when usedproperly, can transfer part or all of anowner’s business to the next generation,and, more importantly, in a way thatdoes not subject the transfer to estate

and gift taxation. A GRAT with a busi-ness interest is created when a grantortransfers a portion of his or her interestinto an irrevocable trust while retainingthe right to an annuity interest, “a qual-ified interest”, for a fixed term of years.When the fixed term of years ends, anyassets remaining in the trust pass to theremainder beneficiaries initially namedby the grantor.

In order to achieve the greatest gifttax efficiency, the value of the qualifiedinterest must equal the value of whatwas transferred. Therefore, the businessinterest must be valued and the plannermust do an actuarial calculation thatsets the annuity amount multiplied bythe term of years, at the required inter-est rate, equal to the valuation.

Example 1: Grantor G transfers a10% interest in his S corporation, val-ued at $1,000,000, to a GRAT. Under


C H A P T E R 9

Continuted from page 23

the terms of the trust, G retains the rightto $261,350, payable annually, for a pe-riod of 4 years. Any value remaining be-yond the fourth annual annuitypayment, if any, will pass to G’s chil-dren. The gift tax value of the transferis $0.32, calculated assuming a section7520 rate of 1.8%.

All income and appreciation in ex-cess of the required annuity accumu-lates for the benefit of the remainderbeneficiaries; generally the businessowner’s children. Consequently, it maybe possible to transfer assets to the ben-eficiaries when the retained interest pe-riod terminates with values that farexceed their original values when trans-ferred into the trust and, more importantly,that far exceed the gift tax value of thetransferred assets. In zeroed-out GRATs,the gift tax value is near zero, so anyamount that remains after the retained in-terest term has effectively been transferredgift tax free. In the world of estate plan-ning, for those S corporations that gener-ate sufficient cash flow, the GRAT will bethe strategy of choice to transfer valuedown to the next generation without in-curring any estate or gift tax costs.

Example 2: Same facts as Example 1above, but at the end of the 4-yearGRAT term, the S corporation is worth$3,000,000. The value in excess of therequired annuity ($261,350 in our ex-ample) would pass to the children freeof gift and estate taxes.

Sale to an Intentionally DefectiveGrantor Trusts

Consider the sale of a closely heldcompany, or the possible IPO of thatsame company. Prior to the sale, thevalue is $X. Typically, an exit strategywill result in the value going to 2 timesthe original value. The estate planner’sgoal is to consider the appropriate for-mat to take advantage of this increase.

Generally speaking, the sale-to-a-grantor trust achieves the same objec-tives of a GRAT in transferring theappreciation and rate of return in excessof the used discount rate, for valuationpurposes, to the remainder beneficiar-ies. The tremendous flexibility in struc-turing a sale to a grantor trustdifferentiates it from a GRAT. A GRATmust follow the strict structuring andpayment regime set forth in the Code

and accompanying regulations. The sale toa grantor trust, in contrast, is not governedby these types of stringent requirements.

Pre-Sale Charitable Remainder TrustThis is another technique designed to

take advantage of the valuation discountsavailable before a sale of business. Thekey features of this technique include (a)an irrevocable transfer of assets to a char-itable remainder trust; (b) the Donor re-tains an income interest for a fixed termof years or life; (c) assets pass to charityat end of trust term; and (d) the Donor re-ceives a current income tax deductionbased on the fair market value of the as-sets contributed. Some key benefits ofthis technique include (a) assets trans-ferred to the trust can be sold without in-curring income tax ; (b) the Donor canreceive income for life; and (c) assets andappreciation are not subject to estate taxat the Donor’s death.

ConclusionFailing to plan is a planning to fail.

Regardless of what stage of life and ca-reer you find yourself in, great attentionshould be paid as to how your affairs arestructured; both personally and profes-sionally. Experienced counsel shouldadvise you on your different optionsbased upon your particular goals. As ageneral rule, your core estate planningdocuments should be in place and up-to-date before venturing into the morecomplex strategies outlined above. ★


Brian K. Jones Brian is Partner at Harrison & Held, LLP. His

practice is centered on estate planning and ad-ministration, which includes business succes-sion planning. He has attained an AV PeerReview Rating from Martindale-Hubbell, thehighest rating attainable for ethical standardsand legal ability, and for the past two years hasbeen recognized by Super Lawyer and Chicagomagazine as an Illinois Rising Star. He can bereached at [email protected]

C H A P T E R 9

Why won’t sharks attack lawyers?Professional courtesy.Every new lawyer has heard jokes de-

meaning the legal profession. These at-tacks revolve around confusingexplanations of the law, inability to reachyour lawyer by phone, and the ever-no-torious billable hour. Why do lawyers notshare the same societal respect achievedby medical and religious professionals?

Doctors are highly regarded as scrupu-lous stewards of their patients. Clergy ofall faiths are renowned for their commit-ment to confidentiality and service totheir parishioners. Lawyers share thesame duty of confidentiality and trust; weall are bound to a higher standard of care.

The legal profession as a communityneeds to promote a discussion regardinghow we can reform and uphold the in-tegrity of our craft. Sir Philip Sydney, fa-mous sixteenth century poet, depicted theintricacies of the legal profession: “Lawsare not made like lime-twigs or nets, tocatch everything that toucheth them; butrather like sea-marks, to guide from ship-wreck the ignorant passenger.”

Great lawyers, regardless of theirbreadth of experience, must:1. Build a legal reputation;2. Hone their presentation skills;3. Effectively manage their time; and4. Make money and pay the bills.

Active, engaging, assertive network-ing can propel an attorney’s career by ex-panding a client base and building acredible reputation.

Whom Do You Want to Meet? Build-ing a Legal Reputation.

When I first started my practice, I fo-cused on getting paid. In order to do so, Ionly met with direct clients who neededmy services immediately. I failed to seethe need of connecting with other attor-neys, thinking they would steal my busi-ness. I saw no reason to connect withother colleagues, past clients, or compet-ing attorneys. Unfortunately, that attitude

prevented me from building a solid net-working foundation or from learningfrom my colleagues and competitors.

Ancillary ColleaguesI am a small business attorney with an

intellectual property background. Ac-countants may never hire me directly, butthey are my top source of business refer-rals. When I incorporate businesses, Ineed an accountant to explain the multi-farious tax implications to my clients.Similarly, accountants need an effectiveattorney to assist their business clientswith common legal pitfalls. Developingpower partnerships with ancillary serv-ices expands your own sales force.

Who can assist you in finding clients?Are event planners helpful in making in-troductions at corporate events? Do web-site designers have special relationshipswith desirable technology companies?Learn who the power partners are foryour potential clients. By offering tomake introductions within the industry,you add value to your own portfolio.

Attorneys within Alternate PracticesI continuously develop partnerships

with attorneys in other areas of law topass referrals. Most laypeople do not un-derstand the need or reason for special-ization among attorneys. I receive callsdaily asking for help writing a trust, as-sistance with a criminal matter, or whatto do after receiving a personal injury.Cultivating relationships with attorneysin other practice areas builds my ownreputation as a connector. It also en-hances my value as a referral partner forthese attorneys, and they reciprocate.

Attorneys within Similar PracticesAdditionally, attorneys within my own

field help me to hone my own practice.Connecting with an attorney who haspracticed your particular area of law forforty years lends insight into how to im-prove your technique. Experienced attor-neys are typically financially successful,and may be another source of solid refer-

rals (when they don’t have time for thenew client). We have all wanted to com-pare notes and bounce ideas with an at-torney in our field. By developing sincererelationships, you develop a reputation asa team player.

Competing AttorneysFinally, make friends with your direct

competitors. Benjamin Franklin ex-pounded upon how to change a competi-tor’s judgment: “How do you changesomeone’s opinion of you? Ask them todo you a favor.” When we do a person afavor, we like them more as a result. Apositive relationship leads to amicable re-sults for clients on both sides of the aisle.The legal world is comically small. Oneday you will need an extension on yourdiscovery deadlines, help contacting acourt clerk, or assistance with smoothingover a disgruntled judge. Take advantageof opportunities to build bridges withcolleagues.

Selfish Selflessness—Benefits of Help-ing Others

Most importantly, prioritize helpingyour colleagues over helping yourself.Does your small business client need anaccountant for tax season? Does yourpersonal injury plaintiff need an experi-enced chiropractor for her back injury?Assisting your colleagues is the easiestand most efficient way to build your rep-utation. Well-respected lawyers receivewell-respected paychecks.

As standard practice, I recommendproviding two referrals for every col-league you encounter. This may initiallyappear to be a daunting task, but considerhow many colleagues and the variety ofindustries you encounter in a given week.Ask your colleagues how they obtainclients and who is their preferred refer-ral source. Learn about the struggleswithin their industry. Directly inquirehow you can assist with introductions inyour network. Most importantly: followthrough. Become a benefit to clients'


Networking for Lawyers MASON COLE, COLE SADKIN, LLC

occupations and enhance your value asa needed resource.

Confidence Breeds Success: Presenta-tion Skills for Lawyers

Confidence and honesty creates astronger bond of client trust than a well-researched treatise ever will, so be sure tofocus on presentation.

Whether presenting to a large group orintroducing yourself to a single stranger,look your audience directly in the eye.Hold their gaze and smile. You want youraudience to feel warm and welcome.When someone walks into the room, donot be tempted to shift your focus. Yourlistener needs to believe he or she hasearned your time.

Most important, of course, is the initialhandshake. We have all encountered aweak handshake, or, even worse, the bonecrushing hold. Both convey a lack of con-fidence and immediately alter our opinionof the person connected to that shake.

Judie Knoerle of Red Cup Presenta-tions is a renowned public speaker andChicago presentation coach. Knoerle clar-ifies the most common mistakes she wit-nesses among uncomfortable speakers:

Most presenters are completely un-aware of their gestures, body language,voice projection, or eye contact and don’tconsider how those elements either inter-fere or enhance their message.

An effective presentation is well pre-pared, well choreographed, and well re-hearsed. You must maintain open bodylanguage and make good solid eye con-tact around the room. If speaking to onlyone person, look them in the eye, projectyour voice, and smile. Remember, peo-ple like doing business with people withwhom they feel comfortable.

Attorneys frequently are so concernedwith the content of their presentation thatthey forget to hone their delivery. Speak-ing quickly does not equate to speakingsuccinctly. Prime Minister WinstonChurchill is famous for meticulouslypracticing and memorizing his WorldWar II speeches. Churchill understoodthat the British population craved confi-dence. He took great care to manage the

message’s presentation as much as it’ssubject matter.

President Lincoln once claimed that itis “better to remain silent and be thoughta fool than to speak and remove alldoubt.” Our sixteenth president clearlydid not charge on an hourly basis.

Managing Your TimeThe average lawyer bills between

1800-2200 hours per year. Some lawyersbill less hours and earn large salaries.Some bill more and can barely keep foodon the table. You cannot invent morehours in the week. But you can step backfrom the pressing phone calls and moun-tain of paper to consciously assess yourefficiency.

Time management separates mediocrelawyers from fantastic lawyers. Individ-ual, personal referrals will always be yourprimary source of business. Attentive,caring client interaction will be remem-bered. In a potential client’s eyes, you areonly as good as your last case. Make sureyou take the time necessary to scrutinizethe details, prioritize your client, andbuild respect with opposing counsel.

It is tempting to lose the forest for thetrees, to dive into each matter immedi-ately upon receipt. But handling everyphone call or email the moment our smartphone beeps or blinks does not necessar-ily lead to more productivity. I recom-mend itemizing and prioritizing clienttasks and priorities on a weekly or evendaily basis if possible. Certain require-ments, especially court deadlines, mustbe chronicled and completed. By main-taining a bird’s eye view of your practice,you remain in control of your ownagenda.

Making MoneyJay Foonberg wrote an excellent hands-

on tutorial for managing a client’s expec-tations and cultivating a client base, aptlytitled How to Build and Expand a Suc-cessful Law Practice. Foonberg, a widelysuccessful attorney and writer with a Cal-ifornia practice, explains foundationaltenets that remain relevant to all attorneysregardless of practice type or tenure.

Many attorneys feel pressure to drivedown prices to retain clients and remainmarketplace competitive. Be wary of aclient’s lowered expectations accompa-nying reduced prices. Clients subcon-sciously place a financial value on yourservices, and when you offer a discount,clients reduce their perceived value ofyour work, as opposed to appreciatingyour generosity. Further, when billing aclient, be sure to itemize and clarify eachiota of work so that the client knows thefastidious and extensive nature of yourwork. If you performed $10,000 worth ofwork but charged only $5,000, be sureyour client knows the amount of effortyou extended.

One frequent source of lawyer anxietyis determining when to provide discountsto colleagues, friends, and clients. In myopinion, discounts are never considereda “quick favor” or “one-time opportu-nity.” On the contrary, discounts deni-grate the perceived value of your timeand effort. If you believe that loweringyour prices may bring clients in the door(the “Groupon mentality”), then considerit a viable option. However, I find thatprompt, honest, (and) quality service al-ways trumps lower prices.

Applying Networking PracticesYou have control over your reputation

and the reputation of the profession.Money follows integrity. Always be con-scious of how you can be an asset to yourclients and colleagues. ★


Mason Cole Mason is the managing partner of Cole Sad-

kin, LLC. Prior to Cole Sadkin, he extrerned forUnited States Magistrate Judge Diane K. Vescovoat the United States District Court for the West-ern District of Tennessee. He then worked for thelobbying arm of the BT Group, impacting pas-sage of President Obama’s National BroadbandPlan. He has lectured at Loyola University and isa frequent writer and speaker. The firm’s prac-tice focuses on small business incorporation,labor law, intellectual property, and commercialand residential real estate. He can be reached [email protected]

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10 Steps to Creating an EffectiveOnline Marketing Campaign

An online marketing campaign doesn’tjust promote your web site and business, ithelps you to cultivate relationships,demonstrate your expertise and buildyour reputation. If you are able to com-mit the time to nurture your web pres-ence, you can increase web traffic andsales without financing an expensiveadvertising campaign by followingthese 10 steps.

1. Define Your Audience: Like anyother marketing initiative, it’s impera-tive to define your audience beforelaunching an online marketing plan. Asyou start identifying your audience,think of the individuals or companiesyou want to buy your products or serv-ices, along with the people and groupswho help facilitate those transactionsand relationships. Consider demo-graphics such as income, geographic lo-cation and education that may furtherdefine your audience, along withlifestyle attributes like values, hobbiesand interests. Also, check out your com-petition’s web sites to identify their tar-geted audience, and note any groupsthey ignore. You may find that the au-diences overlooked by your competitioncould be your perfect niche. And re-member that you can’t be everything toeveryone. Once you start to define youraudience, confirm the group is neithertoo broad nor too narrow and make surethey are accessible online.

2. Identify Keywords: Once youraudience is defined, consider their con-cerns and challenges and think about thewords they would use to describe yourproducts or services. These are the wordsyour potential customers will enter insearch engines to find businesses likeyours. Make sure to incorporate thosekeywords in your web site pages, espe-cially in page titles, headings, first para-graphs and meta-tags. The inclusion of

keywords will assist search engines tofind your site and rank it higher when po-tential clients conduct a search.

3. Select a Memorable DomainName: While many domain nameshave already been registered, this justmeans a little more creativity is requiredin the selection process. You need aname that is simple, short and easily re-membered. If your firm name is long,consider using only the first one or twonames or an acronym that is easy to say,spell and type. If your name is commonand already registered, consider a namethat is more concept-based using thekeywords you identified. While thereare many options from .com to .info to.biz, it’s best to select a .com suffix asthe general public correlates .com firstand foremost with the Internet and youcan expect it to be used in searches foryour site. Whatever name you select,run it by some trusted colleagues andclients for their input. After securingyour .com domain name, you may alsowant to register the name with othersuffixes (.net, .info, etc) to ensure noone can register those domains.

4. Avoid Unnecessary Delays: Toooften, business owners think all thebells and whistles are necessary whendesigning a web site or expect every pageto be absolutely perfect. While an elabo-rate web site can seem impressive, its de-velopment can take a great deal of time,delaying your online marketing efforts andrelated financial gains. When launchingyour web site, your focus should be on thecontent and you can always improve thedesign at a later date.

5. Focus on Content: As you developweb site content, think about the an-swers and solutions your customersseek to address the challenges they face.Make sure your content addresses theseissues, instead of concentrating on salesalone. In fact, you may want to give

away some information that makes youstand out from the competition. Considerwriting an eBook on an industry topicthat your customers can download forfree in exchange for user contact infor-mation. In addition to growing your con-tact list, giving away useful informationto potential customers will help demon-strate your expertise, instill greater trustand encourage repeat site visits and salesof products and services down the road.

6. Incorporate Web Information inEmails: It’s surprising how oftenfriends and family can forget what it isyou do, resulting in lost referral oppor-tunities. A simple but sometimes over-looked way to promote your companyand web site is through your email in-teractions. Once your domain name isestablished, trade in your Gmail, Hot-mail or other webmail service accountfor an email address with your domainname. Not only is this more profes-sional, it’s a continuous reminder tothose you email about your web site andbusiness. And when you inform yournetwork about the address change, it’sanother promotional opportunity foryour business. Also don’t forget to cre-ate an email signature including yourcompany name, web site, contact infor-mation and social media links that isauto-inserted in all your emails.

7. Start a Blog: Add a blog to yourweb site to show off your knowledgeand expertise in your field. You canwrite short articles about successfulprojects your company led, challengesyour customers face, and solutions yourcompany implemented. Ask your em-ployees and even clients to contribute tocontent ideas and writing. Make sure topost regular updates to your blog, evenif it’s only once a week. And don’t stopthere. Inquire if other associations youare a member of have blogs andnewsletters and would like guest sub-missions. Make sure your name, com-


Online Marketing and Web Presence AMY MASTERS, AM CREATIVE, LLC

pany and web site link are included witheach published article. Also seek outother blogs that cover similar topicswhere you can join the conversation andbuild relationships by sharing yourknowledge in reader comments. Notonly will these posts and communica-tions help to demonstrate your author-ity and build your reputation, establishingexternal web site links back to your sitewill improve search engine optimiza-tion and will move your site higher inpage ranking.

8. Start an Email Marketing Cam-paign: Before you can begin an emailmarketing campaign, you need an emailcontact list. Start with your Outlookcontacts and business card collection.You may also have access to email listsof persons in your target audiencethrough member associations or previ-ous projects in which you participated.After you create your contact list, you’llwant to establish a system to regularlyupdate the list as you build your net-work and acquire new clients. Next,sign up for an online email marketingsoftware program like MailChimp orConstant Contact. Software is free orlow-cost while your contact list is smalland the subscription rate will increaseas your contact list grows. Your firstcontact with your list and all subsequentnew members should be a welcomeemail providing information about yourbusiness, outlining newsletter content,and noting how often emails will besent. Remember that your contentshould focus on providing informationand solutions to customers. Encourageyour contacts to share your email withothers, and also make sure to include anopt-out link. Keep in mind your audi-ence has a short attention span; articlesshould be relatively brief, calls to actionshould be clear and links to your website should be easily accessed. Aftereach email is sent, review software re-ports to learn how often emails wereopened and forwarded, links were clicked,and persons opted-out to determine the ef-fectiveness of your newsletter. Continuallyreview these reports every time you send

an email. Evaluate what is effective andwhat isn’t and implement changes accord-ingly in future emails.

9. Engage Your Audience throughSocial Media: Social media offerssmall business owners a unique plat-form to build relationships and trust withyour target audience without requiring alarge advertising budget. If you’re will-ing to commit the necessary time, socialmedia allows you to directly access yourpotential customers, establish your ex-pertise and build your reputation – ulti-mately driving customers to your website and increasing sales. While there area number of social media channels avail-able, LinkedIn, Twitter and Facebook allprovide you with excellent opportunitiesto engage your audience.

LinkedIn: LinkedIn provides a for-mat for users to showcase their educa-tion and work experience and build aprofessional network. When creatingyour LinkedIn profile, make sure tocomplete all sections, including biogra-phical summary, specialties, education,work experience, resume and web site.You should also make your profile pub-lic and customize the public profileURL with your name to improve yourranking in online searches. Work onbuilding your reputation by posting rec-ommendations about the work of yourcolleagues and ask others to do the samefor you. Groups allow you to connect di-rectly with your target audience and sharecontent and feedback, allowing you to es-tablish your expertise. Identify groupsthat attract members of your target audi-ence and join the conversation.

Twitter: Twitter is an excellent plat-form to share news, information and re-sources. You can build your targetedaudience of followers while also fol-lowing and learning from leaders andexperts in your field and beyond. Usethe search feature to identify and followpeople who work in the same industryor share the same interests. The searchfeature is also effective in identifyingconversations related to your field pro-viding you with opportunities to offeradvice and solutions. You’ll find that

when you start participating in the con-versation – re-tweeting others’ posts ofrelevance to your followers, sharinglinks to useful content, responding totweets, and acknowledging re-tweetsand follows – that your followers willgrow. Twitter limits your posts to 140characters, and you’ll want to makeyour posts even shorter when possibleto encourage others to re-tweet them.

Facebook: With Facebook businesspages, you have the opportunity to adda little more fun and personality to thesocial media mix. In addition to postingimages, videos and links to engage yourfans, ask questions, conduct surveysand even run silly contests. Encourageusers to interact with your page, such asliking or commenting on a post, an-swering questions, or adding their ownposts. Make sure that your content is al-ways interesting and fresh, includingcontent that isn’t always directly relatedto your business.

10. Track Your Results: The onlyway to know your online marketingstrategy is working is to regularly re-view web site metrics. You can use freeweb software, like Google Analytics, tomeasure sales and conversions, learnhow visitors use your site, and identifyweb sites that drive customers yourway. Review key information like pagevisits, top landing pages, top referringsites and bounce rates to determine theeffectiveness of your web site, individ-ual web pages, and social media cam-paigns. Just like your email marketingcampaigns, continually review statisticsto evaluate what is working and whatisn’t and make changes as necessary toimprove your site content. ★


C H A P T E R 1 1

Amy Masters Amy is a seasoned communications strate-

gist with 20 years of experience in the public, pri-vate and not-for-profit sectors, Amy establishedAM Creative, a graphic design and marketingfirm in 2002, utilizing her communication andpublic affairs skills to serve political candidates,organizations, non-for-profit groups and smallbusinesses. She can be reached at [email protected]

Iwas originally going to write an ar-ticle on growing your practicethrough referrals, but a conversation

with a young lawyer looking for em-ployment changed my mind. He hadbeen seeking employment for almost ayear and he wanted my thoughts onstarting his own firm and how he couldgo about getting clients.

As I was talking with him about grow-ing his practice through referrals, he saidto me: “That’s great, but I really don’tknow anyone that could refer me”.

That statement stopped me in mytracks and I set about sharing with himjust where he could find people thatcould refer him and what he needed todo to build his referral base.

Before I go any further, let me sayfrom the start that there is NO magicbullet I can share with you. It is going totake work on your part, but if you wantto grow your practice, you are going tohave to work at it.

The first thing I told him was that heneeded to tell everyone he knew that hewas a lawyer and he was starting hispractice. This included all of his rela-tives, friends, high school and collegeclassmates as well as his Law Schoolclassmates (Law School classmatesneeded to be reminded as they might bein a position to refer clients to him). Italked to him about ways he could dothis but since space is limited here, Iwill simply say that if you would likesome hints email me at the addressbelow and I would be glad to sharesome of these ways with you.

We then talked about NETWORK-ING. I saw from the expression on hisface that he had heard about NET-WORKING but his expression con-firmed this was not for him. Probablymany of you reading this have a nega-tive reaction or feeling about NET-WORKING and this is because youtruly do not understand what NET-WORKING really is and more impor-tantly what it is not.

What NETWORKING is not! Therewas a time that networking was aboutentering a large crowded room of peo-ple you did not know, all dressed instuffy business attire and your goal wasto walk away with as many businesscards as possible, exchanging themfrantically and saying something like:“Let’s do lunch” as you went on to thenext person to give and get a card andsay the same thing. Then you were sup-posed to follow up and close the deal -in this case get a new client.

Quite frankly, as I wrote that, NET-WORKING sounded pretty horrible,sleazy and not a way I would want tospend 2 plus hours, but NETWORK-ING has changed.

Today, NETWORKING is all aboutbuilding relationships and the rest ofthis Article will be devoted to relation-ship building. Again, because of lengthI will just be scratching the surface butit is my hope that you will start to seehow important the building of relation-ships is to getting clients.

I attend quite a number of network-

ing events each week and invariablythere will only be one or maybe twoLawyers there, if that. Since there are sofew Lawyers attending these events, ifyou want to jump way ahead of otherLawyers this is a great way to do it andyou can do it quite inexpensively. Afterall, many young lawyers I know areshort on cash but have a lot of time ontheir hands, so now is the time to makethat extra time pay off.

While this may seem rudimentary,the first thing I want you to do is to getyourself some very professional busi-ness cards. Spend some extra money onthese because this is a representation ofyou and how you see yourself. Whileyou might not be successful yet, youcan at least look the part.

Next you need to think about theNetworking events you will attend.There are so many events these daysbut, to be honest, the events you will at-tend or that will work for you will mostlikely be found by trial and error. Myrule of thumb is to go to an event at leasttwice before you decide whether to


Growing Your Practice Through Referrals JAMES E. THOMPSON, JD, MIDWEST CONSULTING GROUP, INC.

C H A P T E R 1 2

keep going back. As you do more andmore events you will get a feel as towhat is right for you. The key here is togo to as many events as possible to getthe feel for what you are looking for.

Now, speaking of what you are look-ing for, when I am talking with attor-neys who have been in practice for awhile they have an idea of the type ofclient they should be looking for – no-tice I said should be – but many justtake any client that comes along. I couldwrite another Article on that, but that isfor another day.

When you go to a Networking eventyou need to be able to give a 15-30 sec-ond “audio logo”. This used to be calledan elevator speech, but you need tothink of this as your “audio logo”. Youneed to be able to tell a group what it isyou do and the type of client you arelooking for. I know, being new you maynot know the type of client so, for now,simply say something like: “I justopened my new Law Office and I amlooking for people who need legalhelp.” I do not like this and the sooner

you can be more specific the better, butthis will have to do if you are not sure ofthe type of client you are looking for. Ifyou do have a particular area of practiceright now send me an email and I willgive you some thoughts on what youcan say.

Another Rule I want you to remem-ber is the 80/20 rule: let the person youare talking with talk 80% of the time.You will learn a lot about the personyou are talking with and, quite frankly,people like to talk about themselves. Solet them do the talking. As lawyers youshould be good at asking questions, buthere are two questions I like to ask:Where are you from originally? (youwill be surprised at how many timesthere is some connection there) andwhat do you like to do when you are notworking on your business? (again manytimes you will find common groundwhich you can talk about). I like to callthese “feel good questions” becausethey make for light conversation and,when a person is talking about them-selves, it makes them feel good. There

are many other questions I like to askand if you would like more informationon this please send me an email.

After you have talked with someone,ask them for a card, do not give themyour card unless they ask for it.

So the event comes to an end andwhen you get home you have say 10cards, now comes the real work, theFOLLOW-UP. This is perhaps the mostimportant phase of NETWORKINGand quite frankly the one most oftenneglected. Follow up with a hand writ-ten note. Notice, I said a hand writtennote. Again I do not have the space toexplain the importance of this but sendme an email and I will let you in on alittle known secret that will have youstanding out. If you don’t know what tosay, simply say: “It was a pleasuremeeting you and I look forward to see-ing you again soon.” Very simple, butnot many people do this so if you dothis you will be way ahead of otherLawyers.

In the limited space I have had I hopethat it was enough to whet your appetitefor learning how to NETWORK andstart to build your REFERRAL base.Before I conclude I would like to rec-ommend what I believe is one of thebest books on Networking and gettingReferrals and that is Bob Burg’s “End-less Referrals.” This costs about $13.00from Amazon and it could be the bestinvestment you could make in buildingyour practice. ★


C H A P T E R 1 2

James E. (Jim) ThompsonJim is a retired attorney and President of

Lawyers Marketing Resource. At Lawyers Market-ing their mission to help lawyers and other pro-fessionals get more clients and grow theirpractice by teaching them how to use “RelationshipMarketing.” His programs use the EAA method.EDUCATION, ACTION and ACCOUNTABILITY. He can be reached at [email protected].

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