Keeping the “Bromance” Alive By Cliff Ennico

cliff“My brother and I formed a small business several years ago and it has done very well.  We make enough to support ourselves and our families.

We have always been 50/50 owners of the business, and it has always worked out well.  We even have equal titles: I am President and he is Chairman. My concern is for the future.  We have been approached by a couple of investors, and while nobody has come up with an offer we are willing to accept, all of them have asked that one of us be the majority owner of the business so that decisions can be made if the two of us ever disagree.

Frankly, I don’t see that ever happening, and if it did I would place family over business.  But do you know any creative way we can make prospective investors happy on this point if and when the right offer comes along?”

First of all, congratulations on building a successful business with your brother without any friction – that is a very rare achievement in this day and age.

When small businesses are first launched, fights between the owners rarely happen.  This is because there is usually nothing much to fight about at that point.

As the business grows, however, the likelihood of disagreements between the owners multiplies exponentially because now there is something – usually a quite substantial something – to fight over.  Each of the owners looks at the other and says to himself or herself “I am the reason this business is successful, and this other person is getting 50% of the profits.  That’s not fair!”  Often that attitude is fueled by family members who were not present, or did not care much about the business, when it was first formed – spouses, boyfriends or girlfriends, children, in-laws.  Everyone thinks they know what’s best for a business once it’s proven itself, and these unsolicited “consultants” can wreak havoc with an organization that isn’t broken and doesn’t need fixing.

You are wise to place family first in a situation like this – your prospective investors should realize a big part of the business’ success is your ability to work well together.  But your investors are also wise to be cautious about a 50/50 ownership structure.  If you and your brother ever disagree, there’s a risk the business will be “deadlocked” and cannot move forward.

There are no easy solutions here, but there are a number of ways to get around this you should consider, without having to “flip a coin” to decide who gets the 51% and who the 49% of this business.  For example:

  • if the two of you are directors of the corporation or limited liability company (LLC) that runs the business, one of you could be given an extra vote “solely for the purpose of breaking any tie in a board vote”;
  •  you and your brother could sign a “mediation agreement” requiring any dispute between the two of you to be submitted to mediation by an acceptable third-party mediator (when I do these, I usually include the name of a person, and two alternates, who are “pre-approved” by the two of you – for example, your father, the company’s accountant, or a mutual friend the two of you both respect);
  • you and your brother could agree to add the investor as a third board member – the risk here, though, is that gives your investor a “swing vote” that would enable him to play each of you off against the other; or
  • you could enter into an agreement dissolving your company if the two of you disagree and can’t resolve the dispute within a reasonable time (for example, 90 days).

I personally prefer the last choice, because it puts real pressure on both of you to resolve any disputes without the involvement of third parties.  Neither of you will be willing to “kill the goose that’s laying the golden eggs” supporting your families, and you will be more willing to compromise to keep the company alive.  Also, this approach guarantees that both of you will be nagged to death by your spouses (if not your investors) not to be unreasonable.

Of course, your investors may not be comfortable with such a “ticking time bomb” provision in the company paperwork because they are afraid they will be left out in the cold.  One way to ease their concerns is to add a provision that if the “dissolution” provision is ever invoked the investor’s ownership stake would be converted into debt, allowing them to get their investment money back before you and your brother get any of the proceeds.

The most important thing for the two of you right now is to continue communicating closely on all management decisions the way you always have.  In the words of country/western songwriter Keith Whitley, “we disagree but in the end but there will never be two closer friends, and brotherly love is something we all need.”

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

Sourcing Merchandise for Sale on eBay By Cliff Ennico

Slowly but surely, eBay is making a big comeback.

I am privileged to be giving a talk at next week’s eBay Open conference in Las Vegas (www.ebayopen2016.com) on some of the legal and tax issues involved in sourcing the merchandise that you want to sell on eBay.

Here are some highlights from my talk:

You must source your merchandise legally.  A thief cannot pass good title to property of any kind.  Seriously, dude, don’t even THINK about doing any of the following:

  • stealing merchandise (until garbage is actually picked up by a trash hauler, it is still considered somebody’s property – resist the temptation to “dumpster dive” or “Blue Bin binge” on trash pickup day);
  • robbing somebody’s grave, even if it is a centuries-old burial ground you discovered while installing your backyard swimming pool;
  • shoplifting, even if it was during a riot or power blackout and, well, everybody was doing it;
  • selling stuff eBay says you can’t sell on the site (an alphabetical list of prohibited items can be found at http://pages.ebay.com/help/policies/index.html);
  • buying merchandise from dubious sources that you just know, or have strong reason to believe, is counterfeit or violates somebody’s trademark (in the immortal words of rock singer MeatLoaf®, “there’s ain’t no Coup deVille hiding at the bottom of a Crackerjack box”).

“Drop shipping” and consignment sales.  When you “drop ship” somebody else’s goods, you sell their stuff online, collect the money, take your cut, and remit whatever’s left over to the owner, who ships the order.  Make sure you include sales taxes in each state where the owner has a physical place of business, and make sure the owner warns you when it’s running low on inventory.

Consignment sales are the same as drop shipping except that the owner is usually an individual and not a company.  The same sales tax rules apply to consignment sales as apply to drop shipping.  Also, make sure either you take possession of the merchandise, or get the seller to agree not to sell or give the merchandise to anyone else until your eBay listing ends.

The tricks to “retail arbitrage”.  When you buy something and pay the full retail price, then resell that something on eBay for an even higher price, that’s called “retail arbitrage.”  You will have to pay sales tax when you buy the merchandise, and deduct it as part of your “cost of goods sold” when the item sells on eBay.  Also, if you resell the item to someone who lives in the same state you do, you will have to collect your state’s sales tax (yes, there is sometimes double sales tax in “retail arbitrage” transactions).

“Retail arbitrage” is all about maxing out your margins.  Don’t buy gift pens for $1 apiece and resell them for $2.  Look for the “clearance” merchandise that’s discounted 60% or more, then offer a 20% discount off the list price on eBay.  Don’t worry: the buyers will be there.  If it’s trademarked merchandise (think Coach® handbags or just about any brand of perfume), buy only from authorized sources and include a photo of the receipt in your eBay listing so you can demonstrate “provenance” in case somebody accuses you of selling bogus stuff.

Becoming somebody’s “exclusive online distributor”.  This is the best way to “lock in” a continuing source of supply for high-demand merchandise.  Approach a local manufacturer of really cool stuff and offer to be their “exclusive online distributor”.  Many companies don’t have the time or patience to build an online sales channel and will welcome the opportunity to work with you.  Make sure the agreement lasts for at least three years, and that the manufacturer agrees not to sell their stuff online with anyone but you during that time.

Selling “private label” merchandise.  When you buy generic merchandise overseas (usually from China or elsewhere in Asia), slap your trademark on it and resell it on eBay, that is called “private labeling.”  It can be a great way to build a brand if you truly are adding value to the merchandise in some way, but it can get you into a lot of legal trouble.

When you “private label,” you assume all legal liabilities of the manufacturer.  If the product is defective or harmful, that will become your problem.  You will need “products liability” insurance.  Make sure the merchandise is not counterfeit, and that the manufacturer isn’t selling the identical merchandise to other eBay sellers who may then (believe it or not) sue you for infringing their “private label” brand.

The secret to success when selling on eBay, or on any other online retail venue, is to find merchandise that is always in demand, with little competition, in quantities big enough that you can easily restock your inventory whenever necessary, at a low enough price that you can realize a decent profit on resale, in a “niche” that’s big enough to give you a living and help you build a recognizable “brand identity”.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

Finding your Customers’ Motivation By Cliff Ennico

cliffSometimes great business advice comes from the most unlikely source.

Now that summer’s here it’s time to think about beach reading.  I’m not a big fiction reader, but one novelist I always keep track of is Dave Eggers.  If you haven’t read any Dave Eggers, you need to – his books are extremely poignant observations of current world events and, while I disagree sometimes with his political positions, his stories will give you deeper insight into “what’s happening now” than most newspapers or TV news programs.  Past novels have dealt with the war in Iraq and Hurricane Katrina (“Zeitoun”), and the way digital technology, especially social media, is changing the way we look at other people and the world (“The Circle”).

When I heard that Hollywood was making a movie based on one of Eggers’ earlier novels, “A Hologram for the King,” I realized I hadn’t read that one so I went out and bought a copy.  The story, an offbeat and very funny commentary on the decline of American manufacturing and America’s resulting decline in influence on the world stage, centers on Alan Clay, an over-the-hill fifty-something salesperson (to be played in the movie by Tom Hanks – perfect choice) working as an independent contractor for a technology company that is looking to sell a state-of-the-art holographic telecommunications system to the Saudi Arabian government.

Clay’s interactions with Saudi government officials and other locals, foreign (mostly Chinese) competitors, other expatriates, his uncaring boss and unmotivated Millennial employees combine to form a perfect portrayal of an aging Baby Boomer’s mounting frustrations and sense of helplessness in a world growing more strange and alien by the day (a number of reviewers have compared Alan Clay to Willie Loman in Arthur Miller’s “Death of a Salesman”).

At some future time I may write about what “A Hologram for the King” can teach entrepreneurs and business owners.  But one passage in the novel deserves a column of its own.

Reminiscing about his start in sales as a door-to-door Fuller Brush salesperson in the 1970s, he recalled some advice he received from a mentor about what motivates people to buy things.  Specifically, about the four reasons people buy consumer goods.

The first is Money.  “Appeal to their thrift,” Clay is told.  “Fuller products will save them money by preserving their investments – their wood furniture, their fine china, their linoleum floors.”

The second is Romance.  “Here you sell the dream,” Clay’s mentor says.  “you put the Fuller products in among their aspirations.  Right there next to the vacations and yachts.”

The third is Self-Preservation:  “If they’re afraid to let you in, if they talk to you through the window or something, you go with this way.  These products will keep you healthy, safe from germs, diseases . . . “

Finally, there is Recognition.  “She wants to buy what everyone else is buying.  You pick the four or five names of the most respected neighbors, you tell her those folks already bought the products.”

It’s an interesting way to look at sales strategies, and I’m dying to know where Eggers picked this up.  It actually dovetails quite nicely with what I’ve been teaching for many years about customer motivation.

In my view, based on more than 35 years of working with entrepreneurs and small businesses, it all boils down to “fears” and “passions”.  People buy things either because they are excited or turned on by them (passions) – they “spark joy”, in the words of decluttering expert Marie Kondo — or because the things help them sleep better at nights (by reducing their fears).  To view my free 90-minute video on this approach (which I call “How to Sell Anything to Anybody”), go to Youtube.com and search either for “Cliff Ennico” or “how to sell”.

Eggers’ four sales motivators can, I think, easily be broken down into “fear” and “passion” responses.  Self-Preservation is clearly a “fear” sell, while Money ties in to a consumer’s fear of running out of money or the shame and embarrassment (known as “buyer’s remorse”) you eventually feel when spending needlessly or foolishly.

“Romance” is clearly a passion sell, based on the consumer’s love of beautiful things and a luxurious lifestyle (or perhaps the desire to outshine the neighbors, in this case quite literally).

“Recognition” is a bit of a hybrid.  Some people want to “keep up with the Joneses” because they want to be perceived as their equals or superiors – that’s a passion.  Others are afraid to stand out from the crowd by being perceived as “different”.

A good salesperson is able to tell – usually at a glance, or with a few well chosen words – whether a person is motivated by fear or passion in that particular moment of time.  That is the lesson Alan Clay learned as a young man.  To find out if that lesson still applies in our digitized, globalizing economy, read “A Hologram for the King.”

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

A Woodstock for Internet Retailers By Cliff Ennico

cliffEver since 2008, when eBay stopped doing its annual “eBay Live!” trade show, Internet retailers – people who sell merchandise either from their own websites or on one of the large online platforms such as eBay, Amazon and etsy – have been looking for its replacement:  an annual event, conveniently located, where retailers can learn about the latest marketing and management strategies, meet companies that provide goods and services to help Internet retailers become more profitable, and (hey) just have a heck of a good time meeting and schmoozing with other retailers from around the country.

For the past few years Internet Retailer magazine (www.internetretailer.com) has filled the void with its annual Internet Retailer Conference and Exposition (IRCE) in Chicago.  I was privileged to speak at this year’s IRCE conference last week, and my head is still spinning.  If you sell merchandise on eBay or Amazon, are serious about building your online business, and can attend only one major conference each year, this is the one (www.irce.com).

As always when I attend a trade show, I spend a fair amount of time wandering around the exhibition hall looking for small companies with unique or different solutions to the problems Internet retailers commonly face.

Here are some companies and solutions I learned about for the first time at the show:

Don’t you wish you could get more favorable reviews for your products on Amazon?  Heck, don’t you wish you could get ANY reviews on Amazon? Snagshout, a SellerLabs application (www.sellerlabs.com/snagshout), does it all for you: you list your products on Snagshout, shoppers purchase your product and test it, then write an honest review.  There’s no guarantee the review will be positive, but reviews generated through Snagshout stand a much better chance of being taken seriously as it’s clear nobody is trying to “game the system.”

Have you ever wondered what it is that makes consumers really want to buy anything?  For years I thought it was all about fears and passions (see my YouTube video on “How to Sell Just About Anything to Just About Anybody”), but it seems Meclabs, a service of Marketing Sherpa (www.meclabs.com) has come up with a mathematical algorithm that analyzes the statistical probability of someone buying something from your Web store.  Their formula is:

C – 4m + 3v = 2(i-f) – 2a

where “C” is the probability of conversion, “m” is the motivation of the user (when they will buy), “v” is the clarity of the value proposition (why they buy), “i” is the incentive to take action, “f” is the friction created by the sales process, and “a” is the consumer’s anxiety about entering the information.

Got it? Well, I didn’t get much beyond algebra myself, but their equation may just have solved one of the oldest riddles in all of business.

Need to send a package to Kazakhstan in a hurry?  Shiptor (www.shiptor.com) provides expedited shipping services to all of the former Soviet republics, as well as a lot of other places you can’t pronounce.  And no, the CEO’s name isn’t Borat.

Do you hate processing merchandise returns, and dealing with customers who refuse or are unable to follow your returns policy?  Returnly (http://returnly.com) takes all the hassles off your shoulders, helping you manage your time and avoid customer complaints.

Somebody is looking for something on your site but you don’t currently have it in stock.  NChannel (www.nchannel.com) will automatically search 75 Internet platforms and post other listings of the item on your site, enabling you to “drop ship” the item so you don’t lose the sale.

Do you want to create a dynamic Internet marketing strategy but you simply hate – hate – having to write ad copy?  BKA Content (www.bkacontent.com) is a copywriting service that specializes in Web retail campaigns.

Looking for “one stop shopping” in a digital marketing agency?  A company that can handle anything from content marketing to search engine optimization (SEO) to paid search to social media to lead generation to mobile to whatever is coming down the pike next?  With a team of 25 professional digital marketers, Web Talent Marketing (www.webtalentmarketing.com) is poised to take the traditional “Internet marketing” consulting services to the next level.

Are you thinking of sourcing merchandise in India but have no way of finding out if the goods are counterfeit?  Valley Point Technologies (www.valleypointtechnologies.com) can not only track down the manufacturer or distributor in India but will check the merchandise in person and give a “seal of approval” if the product is genuine.

Let’s say you have a website offering all kinds of shoes.  If a customer visits your site looking for sneakers, they don’t want to see all the dress shoes and stiletto heels offered on your home page.  Don’t you wish you could automatically change your home page based on the customer’s profile so it contained only listings of sneakers (and then snap back again when the customer leaves)?  Wait no more.  That technology now exists, and is offered by Retail Automata Analytics (www.retailautomata.com).

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

 

Understanding the Millennials By Cliff Ennico

cliffI was amused to read, in the Wall Street Journal last week, an article about a human resources consultant who has developed a popular (and apparently very lucrative) program for corporate HR executives on “understanding the Millennial generation.”

Apparently this has become a recognized and respectable field for consultants.  A quick Google search for “millennial consultant” (in quotes) comes up with 4,740 hits.

What makes this amusing (at least to me), is that hardly any of these people are themselves members of the Millennial generation.  The subject of the Journal article – by her own admission — is 41 years old and considers herself Gen X.

Personally, I think it’s pompous and pretentious for any generation to claim to crawl inside the mind of any other generation and tell you what goes on there.  Although I do understand the temptation:  it’s hard to find Millennials willing to talk about their generational quirks because, frankly, they don’t talk at all (maybe if you texted them?).  Also, I have to admit that when a person of the male persuasion reaches a certain age, there is nothing – and I mean nothing – more pleasurable, satisfying or just plain fun than cornering some young whippersnapper and boring the living crap out of him.

In my own case, as a professional speaker whose audiences are getting younger by the minute, I am forced sometimes to engage in cultural anthropology on 80 million of my fellow Americans so that I don’t come across as irrelevant or unsympathetic.

I subscribe to “Entertainment Weekly” magazine (the pop culture bible), and listen to Top 40 radio stations at least weekly.  I am almost – almost –at the point where I can tell Taylor Swift, Katy Perry, Selena Gomez, Meghan Trainor and Gwen Stefani apart without looking at the text ID scroll on my car radio.  (Adele is much easier to recognize because of her weird accent that turns “young” into “yehng” and “breakfast” into “brakefist”).

Based on my admittedly nonscientific research to date, I can report one interesting – and rather troubling – observation about Millennials:

The boys and the girls don’t seem to like each other very much.

My Exhibit A is Meghan Trainor’s current hit “My Name is No.”  It’s basically a cute EDM number about a girl resisting the unwanted advances of some bozo geek at a dance club, on the grounds that “if I want a man, then I’ma get a man, but it’s never my priority.”

Okay, so far so good – your typical basic female empowerment song about women taking more control over their lives.  Nothing new here – watch any recent Disney movie (men are either jerks or evil, so trust only your sistahs).  But listen carefully, especially towards the end, and there’s a subtle change in the lyrics: the singer, apparently to herself, starts repeating like a mantra “I’m feeling untouchable, untouchable” over and over again.

It seems that Ms. Trainor (she of the basso profundo) is saying something more than “dude, get lost” to a specific individual.  She maybe – just maybe — is rejecting the Y chromosome entirely, saying “I am impervious to male charms, period”.

Maybe I’m reading too much into that, but now comes Exhibit B – the male riposte to Ms. Trainor’s anthem – in the form of Justin Bieber’s new song “Love Yourself.”

(Did you ever think a column for entrepreneurs would shout out to a guy who relieves himself in mop buckets?)

No ambiguity at all in these lyrics:  this is a “put down” song of the first order, with the Biebs telling his former flame exactly what he (and his mother) think of her, culminating in the memorable refrain “if you like the way you look that much, oh baby, you should go and love yourself.”

Knowing what little I know about the boy who wants to bronze his you-know-what (does this kid EVER smile?), “love” probably wasn’t his first choice of lyric.

And these are not isolated samplings.  Seriously, listen to the Top 40.  In literally half of these songs, somebody is telling somebody else off, putting someone down, or asserting themselves in such a way as to put others in the background (a practice one of my Millennial contacts – clearly a traitor to his class — refers to as “throwing shade”).  The idea that romance may involve a degree of sentimentality – or require the object of someone’s affections to show humility or vulnerability in the face of a powerful human emotion – just doesn’t happen in the world of these songs.

One only hopes that Duke Ellington was right when he said “in music there is no mischief.”  If these songs are any indication of how Millennials really look at each other, the long-vaunted “battle between the sexes” may soon become a shooting war.

But maybe we don’t have to worry.  Here’s the headline from another recent Wall Street Journal article:  “scientists grow embryos for up to 13 days outside the uterus.”  Once again, where culture fails, science comes to the rescue.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

 

The Graduation Speech your Kids Really, Really Need to Hear By Cliff Ennico

cliffThis column, which originally appeared in May 2009, is one of the most requested and reprinted “Succeeding in Your Business” columns, especially during “graduation season.” 

Members of the Class of 2016:

I was sorry to hear that the reality TV star who was to have been your commencement speaker today had to bow out at the last minute.  I was delighted, however, when the Trustees called me an hour ago and asked me to fill in.

Now, I’ve never done this before, and I wasn’t given a whole lot of guidance, except to tell you to “follow your dreams” and “reach for the stars”. Apparently there’s a federal law requiring those statements to be included in all graduation speeches.

While I know some of you already have jobs and some (OK most of you) do not, I know that all of you are wondering today what your lives are going to be like.

I have two pieces of information for you.  They are not fun to talk about, but I feel you need to hear them, and no better time than today.  First, whatever dreams you hope to accomplish in your lives, you won’t be able to achieve them until you have first achieved financial security for yourself and your loved ones.  For most of you, unless you were born wealthy (and sometimes even then), finding and holding onto that financial security will be the primary, if not the only, thing you will spend time on for the next 50 years.

The second thing is that it has never been a more difficult time to make a decent living in America.  I’m not just talking about the current recession or the high unemployment rate.  I’m talking about some longer-lasting, structural changes in our economy.

For your grandparents, it was easy.  You signed up with a large corporation, worked your way up the corporate ladder, and retired at age 65 with a pension, Social Security and a gold watch.  You can forget about doing that today.

Years ago, when America dominated the world economy, corporations viewed employees as scarce assets to be cultivated.  In today’s brutally competitive global economy, they view employees as costs to be reduced or eliminated.  If you can buy technology to do the work employees are doing, you buy the computers and fire the employees.  If you must hire people to do a job, you hire the cheapest people you can in developing nations.  And if you really must hire Americans, you “outsource” them as independent contractors rather than employees.  That way you don’t have to pay them benefits.  If you work for a large corporation today, odds are you will be unemployed in a few years.

Social Security, Medicare and other government programs that helped your parents and grandparents probably won’t be there when you are ready for them, at least not in their current forms.

And if you think you can scale back your expectations and join the blue-collar workforce, there’s a massive wave of immigrants from Asia, Africa and Latin America who are only too willing to take these jobs for salaries you won’t want to accept.

Ladies and gentlemen, there is only one person you can rely on to help you build your future and success, and that is you.  One day, you will find that you are no longer employable, and you will have to build your own career or business.  That moment of realization may happen next year; it may not happen until you turn 50.  But it will happen someday, so start planning now to take control of your income and your life.  You will need to become an entrepreneur, whether you like it or not.

I know all of you want to do good for the world, and that’s admirable.  But charity requires money too – ask the President of this college why he spends so much of his time raising money from alumni/ae.

If you want to do good for the world, start a business.  Provide solutions to people’s problems they are willing to pay for, and hire people to help you.  Succeed, and your business will make the world a better place.  Guaranteed.  What is more, you will achieve the financial security you need, and whatever money you don’t need you can use to make the world an even better place.

I have had the pleasure of working with over 15,000 business owners in my career.   They come from all walks of life and backgrounds.  The beauty of this wonderful country of ours is that anyone – I mean anyone – can succeed in business with the right training, the right outlook on life, and the courage and determination to do what others are too squeamish or hesitant to accomplish.

So by all means reach for the stars and follow your dreams, for without faith, hope and passion you will never succeed, even if you’re as smart as Einstein.

Just whatever you do, don’t run out of money.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

 

Is Equity Crowdfunding Right for your Business? By Cliff Ennico

cliffLast week my new book, The Crowdfunding Handbook, was officially released (www.amazon.com/The-Crowdfunding-Handbook-Business-Start-Up/dp/081443360X).

Three years in the making, this book is the first of many you will be seeing about “equity crowdfunding” – how a business can raise capital online from its social media followers and fans using crowdfunding websites such as kickstarter.com.

On May 16, 2016, new federal regulations go into effect that will kick start (sorry, couldn’t resist that) a new wave of Web-based financing that promoters say will overwhelm the more traditional sources of startup funding, such as bank loans, wealthy “angels” and venture capital.

But will it really?

So far comments on the new rules have been mixed.  While many pundits view the new rules as revolutionary, just about as many say that the market for crowdfunded investments is years or even decades away.

The nay-sayers are not without some valid arguments.  The U.S. Securities and Exchange Commission (SEC) – the federal government agency that regulates offerings of securities among other things – hasn’t made it easy for companies to raise capital via crowdfunding.  The new rules impose fairly severe limitations on companies.  For example:

  • all such offerings must take place on a “funding portal” registered with the SEC and the federal banking authorities, subject to a gazillion regulations that will likely lead them to impose high fees on their startup clients;
  • companies looking to raise more than $100,000 via crowdfunding must include “reviewed” financial statements prepared by an independent accounting firm in their offering documents;
  • people who are not “accredited investors” (high net worth individuals for whom the restrictions don’t apply) can invest only small amounts of money in crowdfunded offerings; and
  • companies cannot advertise or promote their offerings outside of the funding portal except for a modest “tombstone ad” on the company website.
  • A number of securities law experts I’ve spoken to predict that advisers to startup companies will discourage their clients from taking advance of crowdfunding.  Among their reasons:
  • bringing in a lot of unsophisticated investors early on will discourage “angels,” venture capitalists and other more serious investors from participating in later rounds of financing; and
  • it will be difficult for most startup founders to handle a large, unruly group of crowdfunded investors who may make unreasonable demands on management time and resources.

Understandably, the SEC doesn’t want to allow unscrupulous promoters of bogus startups to take advantage of naïve, unsuspecting people.  But have the regulators gone too far the other way – imposing so many hurdles to crowdfunding that a healthy, thriving market will fail to develop?

A number of commentators say “yes,” but I disagree.

I do agree that most early stage technology companies will probably forego crowdfunding for the reasons discussed above.  The only exception, I think, will be so-called “concept companies” – startups that have little more than an idea for a new product, service or technology who need small amounts of money ($50,000 to $150,000) to do basic marketing research, develop a prototype and patent their invention.  Such companies are considered too risky for traditional venture financing and as such are likely candidates for crowdfunding.

But there are many other types of business, and two in particular would, I think, be excellent candidates for crowdfunding under the new rules.

Retail and Service Businesses With Huge Followings on Social Media.  Let’s say, for example, that a world-famous restaurant, such as Fraunces Tavern (www.frauncestavern.com) in New York City, is looking to raise money.  Restaurants, like most retail and service businesses, are low margin and unscalable, making them unattractive to venture investors.  Historically, they have had to rely on bank loans to raise the capital they need to grow, or sometimes just refurbish.  Bank loans are rigid and inflexible, because they must be repaid with interest.  Banks also require their borrowers to operate their businesses within a narrow range of “restrictive covenants” that often prevent them from taking necessary business risks.

But if a restaurant has a huge following on social media (Fraunces Tavern has hundreds of “likes” on Facebook and thousands of followers on Twitter), it might be able to raise the money it needs through crowdfunding.  Many people would want the “bragging rights” of being able to say they “own a piece” of Fraunces Tavern, and if the restaurant offers a discount coupon or a free entrée for larger investments, voila!

“Project” Businesses.  Businesses that have traditionally relied on project or limited partnership financing – such as real estate developments, oil and gas drilling, movie and Broadway theater productions – I think will benefit from crowdfunding, especially if investors receive something tangible (such as free tickets to the Broadway show or licensed merchandise) in addition to their shares.

My prediction:  the businesses most likely to benefit from equity crowdfunding are those that have traditionally relied on bank loans or project financing, have a large social media following (and perhaps a touch of glamour), and who can offer investors something other than a “piece of the action”.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

Getting your Nonprofit Approved by the IRS By Cliff Ennico

cliff“I am trying to start a nonprofit organization to raise money for a local institution that has lost its state funding due to budget cuts.

I formed a limited liability company (LLC), which went through without difficulty, but I am having trouble obtaining tax-exempt status from the IRS.  I filed the application (Form 1023) a while back, but they keep asking for more and more information which takes me a long time to pull together.

Can you please tell me what I’m doing wrong here, and why do they make it so hard for people to do good?”

Lately it seems like everybody’s forming nonprofit organizations, and the IRS is being overwhelmed with requests for certification as a “public charity” under Section 501(c)(3) of the Internal Revenue Code.  I understand they are receiving 20 to 30 applications a day at their processing office in Louisville, Kentucky, and the wait time for approval (even if your application is perfect) can be as long as six months.

The fact that you are getting requests for additional information means either that your application wasn’t complete when it was initially filed, or the IRS isn’t buying your charitable purpose and is “burying you in paperwork” so that you will eventually withdraw your application and save them the trouble of rejecting you.

Here are some of the most common reasons the IRS holds up your application.

They Prefer Corporations.  While legally there’s no reason a charitable organization can’t be formed as an LLC, the IRS does prefer that you be formed as a nonstock or not-for-profit corporation, quite simply because most applicants for tax-exempt status are corporations and they understand them better.  Every state has a detailed statute spelling out the rights and duties of board members, directors, officers and other key players in not-for-profit corporations, while the rules for nonprofit LLCs are still evolving.  Consider converting your LLC into a nonprofit corporation – a fairly easy procedure in most states.

Your Charity Might Not be “Public” Enough.  It sounds as if your organization may not be benefiting the general public, as is required for a Section 501(c)(3) charitable organization.  Section 501(c) allows tax exemption for over 30 different types of organizations, and you may want to review them with your attorney to see if another subsection might be a better “fit” (see Chapter 4 of IRS Publication 557, available online at www.irs.gov/publications/p557/ch04.html).  Keep in mind, however, that you will not be able to accept tax-deductible donations unless you are a “public” charity under Section 501(c)(3).

Your Activities Are Not Specific Enough.  The IRS is not comfortable with vague generalities.  Your Articles of Organization should specify clearly and in detail exactly what types of activities the organization will conduct to further its exempt purpose.  Since your principal purpose is raising funds for another (hopefully tax-exempt) organization, your application needs to spell out exactly what fund-raising activities you will conduct, who you will solicit for donations and government grants, and what specific activities you will fund.

If the organization you want to support is not a Section 501(c)(3) public charity, you may not be eligible for tax-exempt status at all.  Check the IRS’ “Exempt Organizations Select Check” database (www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check) and make sure the organization’s name appears there.

Your Organizational Documents are Incomplete.  Your LLC Articles of Organization need to contain specific language required by the IRS relating to:

  • the fact that all profits will be applied to fulfill the organization’s exempt purpose;
  • the fact that the organization cannot engage in political activity (with certain limited exceptions); and
  • how funds will be distributed when the organization ceases its activity.

If your organizations has been in existence for a while, the IRS may also want to see copies of all board resolutions you have adopted to date.

Your Financial Projections Don’t Go Far Enough into the Future.  Under a recent amendment to Form 1023, a startup charity must project income, expenses, assets and liabilities for the next three fiscal years (increased from two years).  Failing to provide the third year of projections can lead to time-consuming delays in the approval process.

You Forgot to Attach Your “Policy” Documents.  The IRS requires all 501(c)(3) exempt organizations to adopt two policies:

  • a “compensation policy” showing how the salaries of the organization’s officers and directors will be determined; and
  • a “conflict of interest policy” showing how the organization will handle financial transactions with its officers, directors and other related parties.

There are numerous sample policy documents available online (a typical compensation policy can be found at www.publiccounsel.org/tools/assets/files/CompPolicy.doc, while sample conflicts of interest policies can be found at www.nonprofitrisk.org/advice/samples/ConflictPolicy.doc).

To find out exactly why the IRS is giving you the runaround, you should retain an attorney to help you clean up the application and re-submit it to the IRS along with a “power of attorney” form (IRS Form 2848) so the IRS will contact your attorney directly if they have any further questions.

 Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

New Tools for Online Retailers By Cliff Ennico

cliffTwice a year I have the privilege of speaking at a leading conference and exhibition for people who sell merchandise online – the Seller’s Conference for Online Entrepreneurs, known as SCOE (www.scoe.biz).

Last week’s event in Philadelphia drew more than 100 Amazon “third party resellers” from around the country – some of the more than 1 million people in North America who make a full- or part-time living selling on the site.

Here are some news items from the conference:

Avalara (www.avalara.com) – a leading supplier of sales tax compliance software – has launched a new service to help sellers register for sales tax in all states where they may have “nexus” (a legal presence) – it’s called TrustFile (http://trustfile.com) and costs only $24 a month without any transaction limits.  This is a huge service, especially for Amazon sellers whose merchandise frequently is stored by Amazon at remote warehouse locations.

In a similar vein, Amazon now requires sellers who list merchandise on Amazon’s overseas websites (such as amazon.co in the United Kingdom or amazon.ca in Canada) to maintain a local address where customers can return their merchandise if they are not satisfied.  R R Donnelly, a leader in international mail and parcel delivery for over 100 years, has created a new service designed to help sellers comply with this requirement in Canada, Australia and the United Kingdom (see internationalservices.rrd.com).

Many Amazon sellers work out of their homes, so maintaining a professional image is often difficult.   20four7VA (www.20four7va.com) is a service that takes the traditional “virtual assistant” concept to a new level, offering three tiers of professional support:

  • an “administrative” level providing basic customer service, e-mail management and cold calling;
  • an “e-commerce” level with social media management, blog posting, research services (identifying products, competitors and manufacturers), auto-responder e-mail marketing and project management support; and
  • a “specialist” level providing full e-commerce website service (design, content creation, programming, shopping cart installation and affiliate program setup).

Prices range from $65 to $88 weekly (for 10 hours/week), $104 to $144 weekly (for 20 hours/week), and $173 to $240 weekly (for 40 hours/week).

If you are engaged in “retail arbitrage” – buying merchandise at retail and then reselling it online for an even higher price – one of the biggest challenges is figuring out beforehand what your margin will be.  Oaxray (www.oaxray.com) offers a database product that solves this problem – scan an item’s barcode, and the software searches Amazon, eBay and other sites and calculates your possible profit.

If you sell products on multiple platforms (such as Amazon, eBay, etsy.com and others), it is difficult to manage your inventory, orders, shipping and repricing using different software products.  Zoobilee (www.zoobilee.com) offers a comprehensive all-in-one management tool with no set-up fees or contracts.  Zoobilee’s founders also host “The Intentional Housewife,” an extremely funny podcast for stay-at-home-mompreneurs (www.intentionalhousewife.com).

Most of the buzz at SCOE centered on “private labelling” – buying generic, unbranded merchandise at wholesale and then reselling it on Amazon under your own trademark or brand name.  John Lawson, e-commerce expert and author of several books on Internet marketing (www.johnlawson.com), says that building a brand involves more than selling just one product under a private label:  “I don’t want to see you selling just a spatula; I want to see you selling the forks, spoons and other kitchen tools as well.  I want to see you looking like Williams-Sonoma.”

In my own presentation, I offered the following advice for would-be “private label” resellers:

  • make 100% sure the merchandise you buy for resell isn’t counterfeit, especially if you are importing it from China or elsewhere in Asia;
  • make sure the manufacturer covers you as an “additional insured” under their products liability insurance policy, and don’t do business with a manufacturer that doesn’t carry this insurance;
  • just slapping your company name on a product isn’t enough to be “private label” – you should also be enhancing or customizing the product in some way so it stands out from the dozens of other Web retailers offering similar products;
  • a trademark that isn’t registered with the U.S. Patent and Trademark Office is probably too weak to be viable as a brand name over the long term;
  • as a “private labeler,” you “stand in the shoes of the manufacturer” – you are responsible for complying with all federal, state and local laws (such as labeling requirements) that apply to U.S. manufacturers of your goods;
  • if you are selling products for children, you are required to have them safety tested by a nationally recognized laboratory before you sell them online;
  • always make sure you have the right to sell your “private label” business to someone else without having to get the manufacturer’s consent; and
  • never, ever negotiate a “private label” contract with a manufacturer without the assistance of a good e-commerce lawyer – there are no “boilerplate” contracts for these, and there are many “variables” that will have to be negotiated to make sure you and your business are adequately protected.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.

Nondisclosure Agreements (NDAs) are not “BOILERPLATE” By Cliff Ennico

cliff“I’m starting a consulting business and have been asked to sign a ‘confidentiality and nondisclosure agreement’ with my first client, a large multinational corporation.

The agreement seems straightforward enough, and it’s my understanding that these are pretty much ‘boilerplate’ agreements that you don’t want to spend a lot of time negotiating for fear of sending the wrong signals.

There is no noncompete clause in the agreement – which is good – but two sections of the agreement cause me concern:

  • a clause saying I cannot solicit business or employment from any of the client’s customers for a period of two years after our relationship terminates; and
  • a clause in which I assign to the client all ‘intellectual property rights’ to any work product I may create for them.

Should I sign this agreement ‘as is’ or attempt to negotiate it?”

First of all, there is no such thing as a “boilerplate” agreement.  In 35 years of practicing law, I have never – not even once – filled in the blank spaces on a preprinted form and handed it to a client as a finished product.  All agreements are unique and need to be tailored to the specific client or transaction to which they relate.

Having said that, most nondisclosure agreements (“NDAs” for short) are pretty benign.  Your client does have the right to prevent you from blabbing about their trade secrets at cocktail parties.

Some NDAs go much further than that.  You need to look closely at the definition of “confidential information” in the NDA and make sure it makes sense given the services you are providing.  If you are designing the company’s website, you should be obligated to keep their “marketing plans” confidential, but not their “computer software source code” as you will not have access to that.

Some companies want every possible type of information listed in the NDA for fear they might miss something.  The problem is that much of that information isn’t really confidential.

There are two ways to limit the scope of an NDA.  First, at the end of the laundry list of information they want you to keep confidential, add: “which information is not generally known to the public and either derives economic value, actual or potential, from not being generally known, or is of such a character that [name of client] has a legitimate interest in maintaining its secrecy” – this language limits the NDA to the client’s “trade secrets”.

Second, add language saying that “Confidential Information as used herein does not include any information which:

  • is or becomes generally available to the public other than as a result of a disclosure by me; or
  • becomes available to me on a non-confidential basis from a source other than [name of client], provided that such source has represented to me (and which I have no reason to disbelieve after due inquiry) that it is lawfully entitled to disclose the information; or
  • is developed by me independently without the use of or reliance upon Confidential Information as herein defined.”

That way if your next client asks you to work on a similar project, you will not be “haunted” by your obligation to your first client (unless, of course, you divulge your first client’s trade secrets to the second client which clearly would breach the agreement).

Now, let’s turn to that “assignment of work product” clause.  While seemingly harmless, this clause can cause a lot of problems when you are working for multiple clients on the same or similar types of projects.  If you are not creating any intellectual property (such as artwork, graphics, customized reports, inventions or computer software) for a client, you should resist signing such a clause.

If you are creating something for a client that has value as “intellectual property,” be sure to include language in the contract saying the definition of “work product” does NOT include any “forms, templates, tools and materials” you have developed independently and use to serve your clients generally.  If the client insists you can give them the “license” to use these, but not ownership.  Otherwise you might be precluded from using these materials for other clients.

Finally, let’s talk about that “nonsolicitation” clause.  While your client has the right to know you will not communicate with their customers behind their back, Murphy’s Law for consultants says that the minute you finish a project for Company A, one of Company A’s customers will call you out of the blue asking for similar work.  You don’t want to be prevented by contract from returning that call.

Rather than sign an agreement saying you won’t “solicit” customers, say instead that you will not “cause a customer of [name of client] to terminate its relationship with [name of client], or induce any such customer to breach or terminate any agreement in existence between such customer and [name of client].”

That way you can work for anybody you please as long as it doesn’t hurt your client.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2016 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.