Sunday, July 15, 2007

Help for Start-Up Business Wanting to Meet Governmental Requirements

This article was written by Bill Morland, SCORE Orange County Chairman

Many of the entrepreneurs that come to SCORE are looking to create startup businesses. Their questions are usually about required licenses, business structure, local regulations, etc. Here are some web sites that are designed to assist the small business owner in securing the proper information regarding governmental requirements. In addition you will find good information on successful business practices.

Last October the SBA and 21 other federal agencies re-launched the web site. You can now search for compliance assistance information across all Federal agencies by industry or business area. The site is

You can find zip code specific information about state and local requirements by type of business by going to Enter your business type and then select your county and city and you will be presented with a comprehensive list of local agencies that may have a say in the establishment and conduct of your business.

Great explanations of business legal issues and kits/forms for utilization are readily available at and If you want to find the average wages being paid by occupation in your metropolitan statistical area, go to, click on “wages, earnings, and benefits” then “Wages by area and occupation for 375metrpolitan statistical areas (MSAs)……” You will be able to secure specific wage data by occupation.

Then of course you can ask business questions of SCORE counselors across the country by going to Under the heading “Ask SCORE for business advice” enter your keywords and click submit. You can select a counselor, ask your question and receive an answer by email. Plus our Orange county SCORE web site,, is rich with information and web sites under our “Library” tab. Financing options and other information are readily available at the U.S. Small Business Administration’s web site at

These web sites are valuable sources of tools and information to help you be successful and that’s what you and SCORE are working toward. Try them out. I know that you will be pleased with the information.

Buy/Sell Insurance – Protecting Everyone

Life insurance on the partners in a business can be an effective way to ensure that the business survives the death of a partner, and provides funds to the beneficiaries of the deceased partner.

When a death of a partner (partner in this context could be a shareholder, or limited liability company member) occurs it can have devastating effect on the business and of course, the lives of the family. Life insurance can provide funds to purchase the deceased partner’s interest providing an answer to the oft times tragic event.

There are two approaches to who owns the policy which may have a substantial effect on the surviving partner/shareholder/member. In both approaches the effect on the beneficiaries of the purchase is the same. Capital gain accrues to the purchase of the interest in the business.

In the first approach, the Company would own the policy, and would then buy the deceased partner’s interest. There would be no negative tax consequence to the Company but there would be no increase in basis for the surviving partners either. Upon sale or dissolution, the partners would pay tax on any profit without the benefit of the increased basis.

In the second approach, the partners would own the policy, and they would buy the deceased partner’s interest directly from the beneficiaries. In this approach the partners’ ownership basis would be increased by the transfer price to the beneficiaries, and upon subsequent sale of their interest, their gain would be reduced accordingly.

Buy/Sell agreements are not simple agreements as they usually indicate how the business will be valued. Therefore it should be in written form, and the use of experienced attorneys is advised.

Last item before signing off, is that in neither approach is the insurance premium a deductible expense.

This article was written by Dick Ginnaty, CPA (if there is any area in accounting or tax that you think needs to be addressed in this newsletter please e-mail Dick at and if it is of general interest, he will address it in future articles).

Understanding Commercial Leases

A commercial lease is a major expenditure for most small businesses. Frequently these types of leases are of long duration and will affect the profitability of your business for many years to come. As a business owner it is important that you read and understand every term contained in the lease, it is an enforceable contract. Many times landlords will provide prospective tenant with their “standard lease”, a pre-printed form that may not suit your needs. A “standard lease” has been prepared by the landlord’s attorney and is normally drafted in a way that favors the landlord’s interests and protects that individual’s rights.

Many times pre-printed forms are used for their psychological effect: as a mechanism to prevent the other side from thinking they can negotiate more favorable terms, don’t fall into that trap. Of course, how much you can negotiate depends on the status of the commercial real estate rental market. Regardless, you should make sure that any verbal promises made by the landlord make their way into the lease. Most leases have an “integration clause”, it states that all prior unilaterally terminate a service that may have been one of the primary reasons you selected the property. For example, you may have chosen a property because it was clean and secure. The landlord provided a cleaning service and security patrols. If the lease does not include these terms the landlord has the right to discontinue these services and there is nothing you can do about it. If these services are included in the lease agreement, the landlord has a legal duty to provide the service.

Some terms which should be contained in commercial leases include: identification of the parties (names and addresses, where rental payments should go), identification of the premises being leased, the permitted use and occupants of the premises, the term of the lease including occupancy and commencement dates (they are different), amount and disposition of any security deposits, the amount of rent and frequency of payment, a description of the building services the landlord will provide (utilities are a big expense these days!), a list of what isn’t included (taxes, maintenance & repairs, insurance, etc.), signage rights, tenant improvements, options to purchase or expand, what happens in event of default, assignments and subleases, relocation, re-entry rights, parking, fixtures and zoning.

Terms to watch out for include paying for landlord expenses in connection with a sublease (beware of attorneys’ fees!), limits on advertising and/or competing with landlord for space available for sublease, clauses obligating the tenant to cover the landlord’s expenses for the cost of managing the property. Any of these provisions can cost your business dearly.

Article complements of Dawn D. Fleming, ESQ. of Pre-paid Legal Services at 714-606-3520 or visit

Business Insurance

The success of a business, whether it's a tiny enterprise run out of a room in your home or a large corporation, is largely dependent on hard work and ingenuity. However, no matter how industrious you are, one disaster can wipe out all your profits and even destroy your business. The key to making sure that all the effort and money you have invested in a business doesn't disappear when a disaster strikes is to protect it with the appropriate insurance.

It is not unusual for us to find that many small businesses we counsel are not insured and they do not include insurance costs when developing their small business venture. This is very risky practice as business insurance is necessary to protect your business in case of an unplanned financial liability. The reality is that lawsuits are filed against small businesses every day and owners are burdened with some very high costs to defend themselves and hefty payouts when they lose a case. A small business should acquire insurance from the beginning. A key issue is that some owners assume that because they form a corporation or an LLC for their business structure they are not liable for any lawsuits against their companies. That is just not true. Business owners, under certain circumstances, are still liable for their individual acts of negligence.

Some insurance coverage is elective and some is mandatory. Typically you start out buying liability and property insurance. Along with that you need to consider errors and omissions insurance, employment practices and product liability to name a few. You will pay unemployment insurance as mandated by law. In addition, you'll pay disability insurance in accordance with state regulations. Other types of insurance you may elect to purchase include: Health and Medical insurance, Disability insurance, Directors and Officers, Vehicle insurance, Business property insurance, Web site insurance and Life insurance for key persons.

If you have employees you are required to carry workers compensation insurance.

Home-based business should look into General Liability Insurance covered by a Business Umbrella Liability Policy. Depending on the type of homeowners insurance they have they may be able to increase their policy limits on business property by adding a simple endorsement to their homeowner policy. A business insurance agent will be able to advise the businessperson as to whether or not this endorsement is available and if your home business qualifies.

Learn about business insurance by talking to an insurance agent that specializes in business insurance and by visiting Internet web sites. The web site is a good place to start.

This article was written by Robin Noah, SCORE Orange County Management Counselor