43: Rachel Brenke Livens Up the Legal Stuff

Rachel Brenke:             Going into business none of us every knows if we're going to make it, so oftentimes we have this apprehension to take these steps. So I wanted to try to convince you not as a lawyer but to show you as a fellow entrepreneur, as someone who also has a lot going on in her personal life as many of you guys do as well, that when you're doing business you think it's separate from your life. But when you start engaging in business activities, and if you haven't taken steps to insulate and separate out your personal from your business ... and this could be legal, this could be simple calendaring, this could just be down to sharing the counter space where you throw your laptop to working from home. You want to try to segment out everything you can as much as possible, and oftentimes though what you don't know parallelizes you, and that is, how can I separate it out so that everything is protected and separate from one another?

Like I said, I share this as someone not just a lawyer because I actually got into my entrepreneurial journey not as a lawyer, that came actually in the most recent, kind of in the end if you will. I was working other types of businesses. I actually started with a fashion apparel shop, which is totally funny because I'm not fashionable at all, it just intrigued me. I got into that and even then though ... and I share this to say guys, I had no idea what an LLC was at the time, so if you're listening as I'm talking don't freak out thinking, "Oh my gosh, I have to do it all right from the beginning." Or I've been trucking along and not doing it at all, now's the time you can take the steps.

So, get your pen and paper out because when you are going into business, you want to like we just said, separate everything out. Well there's multiple ways that you protect your personal stuff and protect your business and it's really easy. Three simple things. One, is business structure, might be in an LLC or a corporation, which we're going to dig really into. It's having proper contracts or services agreements all the way down to just simply website terms on your website. Things like that, that can really help protect you from liability. And one [inaudible 00:02:11] is having insurance, and under insurance can be a couple of things that can be like liability insurance, especially if you're offering services to people. Most of us are also going to need equipment insurance because we're using laptops, or cameras to take photographs for our marketing, or whatever it is that you're using equipment wise you want to have it insured because oftentimes that does not fall under home owner's insurance, renter or owners policies. Oftentimes business stuff is excluded, and you don't want to be stuck.

Amy:                                        Okay, so right there that is something I have never once thought of. Liability insurance I've thought of and I've actually discarded the idea of having that because I go into people's homes to do the interviews they do not come to me, and that may be something that you might be correcting me on that, so I always assume that I didn't need liability insurance, but I've never once thought about having the equipment insured. And you're right, if something happened and I lost my desktop and my laptop, and scanners, printers, I have a very big nice printer, I didn't even realize that you could have that kind of thing insured.

Rachel Brenke:             Yeah, and you know it's unfortunate because you may end up having a loss, which is unfortunate in itself, but then either being denied, or the insurance company may pay out on that equipment because they don't know that it was used for business, but maybe later it was discovered ... technically that if your policy excludes it, now I think that's something we need to be clear about, there are policies out there that are personal policies, homeowners or renter, that will cover business stuff. So, if yours does that's okay, but if it doesn't and you've claimed it and it's discovered that's considered fraud.

Amy:                                        Oh.

Rachel Brenke:             And you've violated a contractual agreement, it's just not good. That's one of the areas that I feel like you can focus in on the proper insurance and also having the proper savings, savings along the way so you don't have to necessarily rely on insurance 'cause the insurance isn't foolproof. And actually, these three things that I just mentioned for protecting a business isn't foolproof. Being an LLC it's not bulletproof. Having your proper services agreements when you're hired they're not, all of these are to work like layers. I always visualize that like on the movie Independence Day with Will Smith, when they're shooting the alien spaceship, and you see the force fields light up blue whenever the stuff hit, and that's how I imagined these three protection shields to be around my business, and around my personal stuff. So that is the goal for me is to protect the business.

And then obviously within that going back to what your initial question was, with your business entity structure that you choose of an LLC, or a corporation you can further protect yourself because then it separates out your personal stuff from your business stuff. And you guys will notice I didn't give the option of sole proprietor. As an attorney and maybe my CYA here should be always talk to your local attorney, but I have ... let me not misspeak on this, but I am fairly certain I have never ever, ever worked with a small business owner that I thought would be okay as a sole proprietor. Often times I'll hear people say ... it's so funny because I was actually just having this conversation with someone right before coming on here. They were like, "Oh well the LLC rate is so expensive for my state, I'm just going to be a sole proprietor and pay for liability insurance." The unfortunate thing about that is like we said, not all insurance policies cover everything, it's not foolproof. You want to have as many of those shields around you as possible.

Amy:                                        I'm going to interrupt there because I think probably there's a fair number of people who don't know the difference between sole proprietorship and LLC, so can you just kind of give a brief rundown of what each of those entails?

Rachel Brenke:             Yes, I jumped the gun on that, I got so excited. So when you guys are going out and setting yourself up like a business, maybe you've not taken any steps to do anything, you just put yourself out there to be in business. That means you're operating as what's called a sole proprietorship right now. I want you to visualize a sand bucket, and you're going to put in that one bucket, one bucket you're going to put your house, and your car, all your savings, all of your income, but then also add in all your business assets. And then what happens if a client or a customer comes along and kicks over that one bucket? Everything falls out. Everything is then being touched, or it can be picked up and carried off, however you want to visualize this. Sole proprietor there is no division between your personal assets and your business assets. And before I get into the LLC and corporation, which divide out into two buckets as I'm sure you guys saw that was coming, oftentimes people will say to me, "Well I don't have any personal assets, I just rent. I don't have a car," or whatever it is.

And I say to them, "Are you breathing? Yes. Are you living? Yes. Are you making money? Yes. Then you have assets." Because if you're making money that is a potential asset, that is an asset and where that could be potentially touched should there ever be a legal issue that arises. And I always say, you never have an issue until you have an issue. You could be in business 20 years, you could be in business a minute and you could just run into the wrong person, you can make a mistake, they could just be unhappy people, life just happens. So for me, I don't want you guys to be stuck with someone being able to pick up or knock over that one single bucket, which is what you are as a sole proprietor.

We are fortunate and as Amy was saying a little bit ago, we are fortunate there are places you can go to get this information about LLC's and corporations, and there's a reason for that because they're not as inaccessible I think as they're made out to be, or just because they're so foreign that us as entrepreneurs become so scared. Again, I was there, I was scared, I didn't know the differences, I wasn't a lawyer, I had to seek out this information on my own. So, sole proprietor let's take it off the table, we don't even want to deal with that because I don't want you guys to become personally liable for anything. I don't want it to be something happens, which I don't want anything to happen, but it's life. If something happens I want it to be in this context, and this works for LLC, which is limited liability company, or a corporation.

You have two buckets. One bucket you put all your personal stuff in, your second bucket you put all your business stuff in. And the goal is for only, well hopefully to have neither of them touched, but the goal is for the clients or the customer, whoever has an issue with you, legal issue that is, that they can only touch the business bucket.

Amy:                                        So just to restate this, if for some reason you get sued and you have an LLC or a corporation, which I don't think probably a corporation is going to apply to very many listeners, but if you do have ...

Rachel Brenke:             Yeah probably an LLC.

Amy:                                        Right. The only assets that they could touch that they could be awarded as damages would be coming from your business, and not your retirement savings account, not your house, not anything else that is part of your private bucket, correct?

Rachel Brenke:             Right. And this is talking about like regular business activities, you can't walk into someone's house Amy and punch them in the face and expect for your LLC to take the ...

Amy:                                        Okay.

Rachel Brenke:             Right. Maybe it was you missed a deadline on something or you just didn't deliver in the end, those sorts of activities. Yeah, the goal is for just that business bucket to be the one that's touched. Now, there is a way it's called piercing the corporate veil.