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Spa Marketing Made Easy | Spa Business Growth
SMME #415 Legal Considerations in the New Year with Keren de Zwart of Not Your Father’s Lawyer
00:51:55
Legal Considerations in the New Year with Keren de Zwart of Not Your Father’s Lawyer
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- [00:00]
Daniela Warner
Have you heard about this month's masterclass getting started with medically Assisted Weight loss? We are talking about the business side of things with this high profit service for medical spas and aesthetic practices from pricing to marketing.
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Karen
We'll show you the A to Z of launching or relaunching this service in your Spa.
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Daniela Warner
Go to Adoesthetics.com and click on the Virtual Events tab to learn more and get signed up.
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Unknown
Foreign.
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Welcome to Spa Marketing Made Easy, a podcast for spa owners who want to step up their leadership and business skills and step into the role as Spa CEO. I'm your host Daniela Warner, CEO of Atto Aesthetics and founder of the Growth Factor Framework program where we teach, coach and guide spa owners in scaling their spots to the next level of growth and unlocking freedom in their life and their business. I'm so glad you're here. Now let's dive into the show.
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Karen
Happy 2025 my dears and thank you so much for tuning in for the very first episode of the year. I hope that you had an incredible holiday season and you're still filled with that energy and excitement that only the new year can bring. Just like a brand new planner and a set of gel colored pens. Now I don't know about you, but for me some of the heaviest parts of business are the legal and administrative aspects and sometimes those are the most important. So things like changing your business structure that can save you thousands in taxes, but there is only a certain window that you can make those elections. So I wanted to make sure to kick off 2025 with an episode with with a good friend of mine, Karen. She's been hosting the legal calls inside of our Growth Factor program for the past few years. Now, I am not an attorney and I'm very comfortable stepping aside when things are not in my scope. So I brought Karen on to fill those gaps and today she is going to go over the big things that we need to know from a legal perspective at the beginning of the year. Now also make sure that you save the date mark your calendars for January 28th. Just a couple weeks from now at the at noon Eastern time we are hosting an educational no pitch webinar with Karen where she's going to present the differences between employees and contractors and what you need to know as a spa owner to ensure that you are compliant with the laws of your state. Now while this webinar is absolutely free to attend live for anyone in our ATTO community, the recording will will be housed inside of the ATTO Professional Association. So if you're not an APA member and you want to hear the content in this webinar, you've got to attend live. If you're already an APA member, attend live and you'll also have access to the recording in the APA members area. You can, of course, learn more about being an APA member in the Show Notes section of this episode. All right, so let me do a quick read of Karen's bio and then we will jump right in. Not yout Father's Lawyer was born from a desire to fill the legal gap for entrepreneurs and small businesses by replacing the outdated billable hour model with flat fee pricing. With 15 years of experience in corporate transactions, Karen has worked with every type of business from side hustlers to raising millions of dollars and taking companies public. Today, she helps small business owners get the legal aspects of their businesses in check through her law form. Not your father's Lawyer and offers legal contract templates tailored specifically to small niches. She resides in Orange County, California with her husband and two children. All right, Karen's incredible. She obviously from being in Growth Factor, knows a ton about our industry and I hope that you enjoy this interview.
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Daniela Warner
All right, Karen, welcome to the Spot Marketing Made Easy podcast. I'm so excited to have you on here and get into really what is one of the most important foundational topics in operating a business. Maybe not the most fun, but oh my gosh, so, so important. So thanks for being here.
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Unknown
Thank you so much for having me.
- [04:26]
Daniela Warner
So I think we should start with you're an attorney. We have to put all the disclaimers. You are not providing legal advice. But it is an important topic to have someone that is an expert in this kind of subject matter of what are the things that we should be looking at in the new year for our business. So often these little administrative tasks that are not actually little, they're very, very important in your business. I know for me they just like drain me. It is the, it is the thing that I procrastinate on. It is the last thing that I want to do. But if you don't do them, there can be major consequences. So we're going to get into those things today. So where do you want to start? What do you think is like the first thing people need to look at as they're kind of reviewing their businesses from a legal standpoint this year?
- [05:25]
Unknown
Yeah, it's a great question. I think that there are a lot of different elements and we can kind of talk high level about all of them. But the first thing I always tell people is don't freak out, don't feel like I don't know, I don't know what I don't know, I don't know where to start, I don't know what to do. It's just take one step at a time and kind of where you're operating often leads to the right questions. So a lot of people come to me with those examples, like I'm, you know, I have an llc, somebody told me I should have it taxed as an S corp. What do I do or how do I know? Or you know, do the, have the laws changed and do they impact my operations? And so those types of questions that you often will come up with in your own day to day operations are a great jumping off point. But in the new year, it's a great time to kind of take stock of everything, legally speaking and where you're at, and not just legally speaking, but, you know, operationally and make those changes or at least confirm that everything you're doing, you know, today is still legal. And that's especially important at the new year because a lot of laws change and are effective January 1st. So that's a great time to kind of say, is everything working out? So, you know, on that point, one of the most common changes that impact small business owners is, you know, labor laws. So wage and hour laws, a lot of minimum wage laws go up in the minimum wage.
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Daniela Warner
We're also seeing a lot of required sick pay or required vacation pay or different. And these are all dependent on your state.
- [07:19]
Unknown
So they're not just dependent on your state, but dependent on really where the worker lives. So most people, if you have a spa, for example, you're, you know, and it's in Indiana, you're probably operating in Indiana and all your employees are in Indiana. But if you have, you know, multiple locations across state lines, it doesn't matter if your business is an Indiana business, if you have a business in Kentucky, the Kentucky laws are going to impact where those workers are. So that's maybe not as impactful for these types of businesses. But if you do have, maybe you have a social media manager and they live in California, then all of those, the states where the worker is. The California laws here in California were very specific, but the state where the worker is, is what governs the wage and hour and labor laws. So that will include like we're talking about minimum wage, meal and rest breaks, overtime laws, paid sick leave. This is very, very big. A lot of states are moving to either requiring or increasing Paid sick leave. California, for example, was three days of paid, you know, minimum of three days of paid sick leave for all workers. And they increased it last year to five days. A lot of other states are moving to those models of requiring paid sick leave. And these are important to check because a lot of people are like, well, I'm a small business, does it still impact me? I only have three employees. All my employees are part time. So it's really important that you look at the state rules because a lot of them do differentiate small businesses versus larger businesses. But they usually have requirements in both part time employees are usually still covered. So people are trying to understand, is it three days of my workers four hour shift or is it three eight hour days, like a total of 24 hours, which really gives them, you know, whatever, six days of paid sick leave if they work four hour shifts. And understanding what your state says about that is really important.
- [09:28]
Daniela Warner
Yeah. And I've got a list of topics, but I want to stay on this one right now because I think this is an important piece also as we're doing our budgeting and projections and setting goals and everything, which realistically, we like to do those in October, November to have an understanding. But hey, if it's January and you haven't done that yet, it's okay, you can do it at any point. But I know we have a SPA that we work with that is in Michigan and Michigan just recently had a lot of changes and it was going to impact her payroll percentage by several thousand dollars. And so when we're trying to budget and operate our businesses using profit first and staying within a certain percentage, when all of a sudden your payroll gets bumped up significantly, you have to, you know, how are you going to deal with that? You know, and small business owners right now we're dealing with compliance. We're dealing with a lot of kind of in the economic and political climate, there's going to be a lot of shifts and changes that business owners need to be aware of. Whether it's with supply chain, additional taxes, you know, there's, there's a lot of things to look into as you're doing your budgeting and your forecasting to make sure that you are prepared and, and don't just get like, oh my gosh, I had no idea that, you know, this was going to happen or that was going to happen. So for you, as far as next steps, I know something that we've done with you specifically is had you review our employee handbook. We are employers in multiple states. I know the example that you said with the spa. Yes. Most spas are operating within one state, but if you are like, I live in the D.C. area, there's, you know, you can be in three different, you know, two states and one district in like a very short period of time. You might be employers in all three of those places. And the laws are different in all three of those places.
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Unknown
Right, Zach?
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Daniela Warner
Having an attorney review and make sure that your wages and all laws to be in compliance are, you know, accurate.
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Unknown
Yeah. And I think that these are, you know, every business owner can start with the, you know, going to the employment department website of your state and trying to get resources. They do. Most states do a really good job of trying to provide, like, easy to understand information for business owners. But if you get there and it's not clear and you're like, you know, I'm not totally sure. The D.C. area is a great example. If you say, well, my worker lives in Maryland, but they drive into the D.C. area to work or to Virginia or whatever, you know, which laws apply to me. And that's a good time to say exactly what we talked about at the beginning.
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Daniela Warner
Right.
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Unknown
That's a great question to ask. And sometimes the information is available to you through the state's website or through industry organizations. And sometimes you say, this is important enough to inquire with an attorney in my area that's going to know the answer and be able to provide me guidance about whatever I need to do. Because the fallout is potential, you know, liability, financial and otherwise, to, to put that on your business is not typically far outweighed. You know, whatever cost you'd pay up front to know correctly is typically, is. Is a better investment than finding out on the back end that you did it incorrectly. And going through the, and not just the financial costs that it can cost to, you know, find an attorney and hire them and pay them to deal with it. And any potential monetary liability that you have. But what I see even more in, in small business owners is like, the stress that dealing with any sort of legal issue causes and you have enough on your plate. And listen, no matter what you do, I always tell people, like, there's no silver bullet. There's no guarantee. Even if you work with a lawyer at every step of your business, there's no guarantee that you will never have a legal issue. But being, you know, prepared and doing the due diligence up front and having the information is usually going to be less costly and it's going to provide you with better protections going into a conflict than if you kind of go in blind and hope for the best.
- [14:32]
Daniela Warner
So let's kind of keep stay on this topic around non compete. So in the past year there's been a lot. Was it the Federal Reserve that put the ruling out? But it's supposed to be like a state issue that, you know, I'm obviously not an attorney but I know there was like some people said no, you can't have non competes. And then the states were fighting it and going back and forth. So where do we stand right now with non compete?
- [15:00]
Unknown
So it was the ftc, the Federal Trade Commission, okay, that did this kind of blanket federal ban on non competes. The concept is it's public policy, right? It's worker movement allowing, allowing employees to kind of move in the economy to do what's best for them. California has had an effective ban on almost, almost near ban on non competes for many years. So I'm a great, I'm based in California and so I'm like, I've seen this in many local clients and we've seen this play out. Where we are at right now is that then it was ruled unconstitutional. You know, it's going through, it's, it's going through the court systems. It's going to take time like you said, with there's political changes coming up with an administration that is probably less likely to enforce or want to enforce a ban on non compete. And so it's very much in flux. And this is a tricky part about running a business, especially in the 21st century where you know, the business changes very quickly and technology changes and laws are notoriously slow to catch up. So it's often the laws are trying to play catch up and like business is way out in front. And so part of it is just trying to stay on top of it. But I always tell people, regardless of where, whether you're in a state that allows non competes or not, whether the there's a federal ban on non competes or not, one important thing for a business owner to know is there are still ways to protect your business. Your intellectual property, your proprietary information, your trade secrets. None of that has gone away. It's just the concept of being able to restrict a worker from, you know, quitting and going to the spa down the street and taking all their clients there. So a few things that are important for a business owner to make sure they have. This is in your employee handbook, this is in your offer letter or your, or your agreement with your employees to first of all have like a confidentiality, non disclosure and proprietary information assignment. Agreement. So basically everything that they have access to at the business that's proprietary is owned by the business. Anything that they create as a worker in the business. So maybe they help create a system or methodology or whatever. Something that is owned by the business, it's assigned to the business and that they can't take it or compete with it or use it when they go somewhere else, they can't sell it, they can't, you know, whatever. So if even if you can't stop your employee from going to the spa down the street, and you can't almost, almost never, you almost never can stop. You know, if I leave your Spa and my 12 clients call me and they're like, oh, where are you? I'm like, I'm not there anymore, I'm over here. And they say, oh, can I want to come book over there? You can't stop because the customer can go wherever they want to go. And as long as I'm not soliciting.
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Daniela Warner
Soliciting them.
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Unknown
Right, exactly.
- [18:09]
Daniela Warner
So it's a kind of you own the ip, having that in there and then also having a non solicitation.
- [18:18]
Unknown
And so if I take your email list and I blast all of your email lists saying, hey, I'm at this new spa, come see me, you know, 50% off special, I am violating more. That, that's not a non compete issue. That's a violation of all these other things, the confidentiality, the proprietary, the trade secrets, the non solicitation. And those still exist.
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Daniela Warner
And if you're a medical spa, it can even be hipaa, right?
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Unknown
Yeah, it can be a HIPAA violation if, because they've consented to texting them.
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Daniela Warner
And doing, you know, Exactly.
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Unknown
So I think that that's the first thing I always tell people because they freak out and say, I mean California, like I said, it's been like this for years. But people came and they said, what do I do? How do I protect my business? And that's only one way to protect your business. And so can you pursue action against a former employee who not just leaves and goes and compete whether they're starting their own spa or working for somebody else? Maybe not. That's in legal flux right now on a national level. All the states have always had their take on it. Can you still pursue action against somebody who takes proprietary information and uses it? Absolutely. So if they're taking all your like intake forms or, you know, your standing orders or anything like that, that's all proprietary to the company and they can't take it or use it or Disclose it or anything like that. Can people always find out? You know, no. If they're being discreet about it, nobody knows. And maybe they'll never find out. But the way that these play out often, at least with people who come to me is like, you know, my employee left and they started their own business and then they, you know, emailed all of our clients and said that they're, they'll offer a 20 discount, you know, to come over to me. What can I do? And so having all those policies written in your handbook, in your offer letter.
- [20:27]
Daniela Warner
Having a, you know, and then they're signing it also.
- [20:30]
Unknown
Exactly, they sign. So with the employee handbook, everybody should get a copy. But there should be like an acknowledgment page that basically when you onboard a customer, I'm sorry, an employee, they sign it that they received it, they read it, everybody knows they probably didn't, but they're signing that they did and that's legally binding. And then they get a copy and you get the original. Right? So they get a copy. Here you go. I have proof that you said that you signed this and you read it. I keep the original in your file here. And so you have proof that they did that. Same thing with. If you sign a lot of. When I do like an offer letter for employees, we do like a, what I said, a confidentiality, non disclosure and proprietary inventions assignment agreement. And they sign the offer letter but they also sign that separately and of course they get a copy of it to keep themselves. And so that's important. One thing that is rare but California is like this, that California has really strict laws where if you put something into an agreement with an employee that is no, no, you can actually invalidate the whole agreement. So in most states it's like, well if there's a non compete and you know, you know that that's not allowed in that piece might be invalidated. But you can actually invalidate an entire agreement in some states by putting in something that is not the case. Now I don't want people to freak out and say, oh my gosh, well what if these non competes are not valid? And I had a non compete. That is not the case. But when this law first came into effect, when they did this ban before it got stopped in the courts, one of the requirements was an affirmative requirement for an employer to notify present and former employees that were bound by a non compete to let them know that they're not bound anymore. Because the idea from a public policy standpoint was well, even if it's not legal anymore. Lots of people aren't going to know that. And so you as the employer have to go out there and tell all your former employees that. That non competitive.
- [22:35]
Daniela Warner
Yeah.
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Unknown
So that's again, that's all on hold as of now. It's going through the court system. We'll see where it lands. I think that with the next administration that this is going to be left to the states and not be a blanket ban. That's what I believe. But that's just an opinion, not a legal, that's not a legal, no legal advice.
- [23:02]
Daniela Warner
So let's, let's kind of transition. We've talked a lot about compliance. You know, we talked about compliance as far as what we need to have according to states in the handbook. There's also a separate compliance issue. I think if you're in medical spas and understanding scope of practice, that's kind of a whole other conversation and thing. But it's also good to review if any of your scope of practice laws have changed, which in esthetics there's, I mean it changes all of the time of what you're able to do, who's able to do what. And so it's a great time as you're going through compliance on Am I in accordance with all of the laws, the employment laws also am I in accordance with the laws of the state for you know what scope of practice is so good time to do both of those things. Let's transition into kind of your entity elections because this was something for me that actually saved me a ton of money tax wise and that is making an ESCORP election. So I am a single member LLC. My CPA let me know that hey, between January 1st and February 15th, if you fill out this for. I don't know what I had to do, it was several years ago, but I had to do something that created an escorp election. Can you talk about kind of what that actually means and when and why someone would do that?
- [24:51]
Unknown
Yes, it's a great question. So I will start with the thing that I have so many people that are confused on which is an S Corp, an S corporation is not a legal entity itself. Just like you said, you have an LLC is your legal entity and it's taxed as an S Corp. So an LLC or a corporation as a legal entity can choose to be taxed as an S Corp, which is just a tax election under IRS subchapter S. That's why it's called that. And it's effectively this small business election that allows you to be treated differently for tax purposes, which can be tax advantageous. So a few things. One is that any entity can choose the selection within the first 75 days of formation. So you can do it when you form or in the first 75 days of any tax year. So for most people who are a December 31st tax year, that's March 15th. So March 15th is your deadline and that would be for electing it for that year and going forward. So for somebody in January of 2025 saying, oh, you know, my taxes were more than I expected. Now my accountants suggesting this, if you elect it here, you know, January through March 15th, it will be for the 2025 tax year. And going forward, some accountants will back back, they'll kind of elect it backwards. It's an accountant specific thing. I personally have worked with accountants who do that and are able to kind of absorb some of the benefits going backwards. But it's not the, you know, all I can give you is the official legal rules, which is that the deadline. But if you're like a June 30, for whatever reason, if you're like a June 30 fiscal year, it would be the first 75 days. So whatever that is from July 1 to September 15 or whatever. So the easiest way to explain the S election is that you would instead of, if you're a single member llc, then by default your taxation is as a disregarded entity, which means all the income from your entity just flows through to your personal tax return on a schedule C and you just pay taxes on it regularly and you pay self employment tax on all that money up to whatever.
- [27:07]
Daniela Warner
Let's give an easy example and say at the end of the year you have 100,000 leftover as your net profit.
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Unknown
Exactly.
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Daniela Warner
Then that net profit is going to go over onto your personal, personal tax return in addition to anything else that you had paid yourself throughout the year. So if you were, am I correct in that if you're an llc. Yeah.
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Unknown
So if you were paying yourself, you know, some like a consulting fee or whatever, management fee or anything like that, so it, all of it goes together. The difference is if you take that $100,000 and instead you hire yourself as a W2 employee of your business. So now let's say, and, and this is where it's really important to work with an accountant because of course the IRS doesn't give us clear rules. You have to. It's whatever's considered reasonable. So what's considered reasonable for like a graphic designer versus a physician versus a lawyer versus a spa owner. Everything's different. But let's say you and your accountant say, okay, we're going to pay you $3,000 a month as your W2 pay so that you're now you're getting a PayCheck, you're a W2 employee of your business, so it takes out payroll taxes and let's say whatever your net Pay is like 24, 72 and 32 cents and that goes in to your personal, you know, checking account just like if you were working for somebody else. Now that other $64,000 of profit is not subject to payroll taxes and it's not subject to self employment taxes. It's taken as a distribution, as an ownership distribution. Of course it's still subject to income tax, but you can save yourself a considerable amount because if you're saving that effectively 15% or whatever of the payroll, you know, the employer and employee side payroll taxes, that it can be a significant tax savings. So the additional cost is associated with running payroll. Now technically speaking, you can run payroll like manually and old school and it costs very little. Like you write yourself a check and you do all the deductions or whatever. I don't really recommend that. I don't know any accountants that would. Most people will use a platform like Augusto or another adp. Some platform.
- [29:18]
Daniela Warner
Yeah. So I want to just make sure this is crystal, crystal clear because I think we were on the same page. But I want to. This took me a little bit myself to grasp. So if I am a single member llc, I have not made an S Corp election and throughout the year I've paid myself $50,000 and at the end of the year I have a net profit of 100. That means 150,000 is going to go onto my personal income taxes.
- [29:53]
Unknown
Correct.
- [29:54]
Daniela Warner
If you're in partnership, then it's your, it's your household income. So if you're filing your taxes with a spouse or partner then, and they make 150,000, then you're in whatever tax bracket is the 300,000 tax bracket. If instead I say, hey, I'm going to be an S corp and I'm going to pay myself a reasonable salary of 44,000 a year. And my CPA has always told me what a reasonable salary that they expect is. And also as the business has grown, they've said, I think that you should increase your reasonable salary to this amount. And so that becomes, you know, we're not paying any of the whatever taxes and then everything else is considered distribution. So. Yes, exactly. I think that part is super clear. But I just wanted to really show the difference between the two of how it gets over. And I think this is also the reason why people get confused of if they're paying their quarterlies through their business account or if they're paying their quarterlies through their personal account. So always make sure that you're talking to your CPA and make sure that you understand how and where you're paying taxes from as well.
- [31:15]
Unknown
And I will say a little plug for CPAs all over the world is that I say if you had to pick, I feel I am a lawyer, I'm a business lawyer. And I think if you had to only pick a lawyer or an accountant as a small business owner at the beginning, start with the accountant because, I mean, I don't think you should start with only one. But I always say if you're backed into a corner and you have to pick because the tax code is complicated small businesses. And a lot of it is that it's going to save you a lot of money. Very rare that you're going to spend more on your accountant than they're going to save you from. You know, all of the little nuances, and that's a perfect example, is that you can operate for years, and then one day your accountant's like, you know what? It's going to make sense to make an election. And I will say I have worked with, in my 15 years of practice, I've worked with literally hundreds of accountants. And everybody has a different opinion. So some accountants, every single llc they set up or that get set up, you know, for their client, they say elect that s. Take the selection. No matter why. It doesn't matter if you make $12,000 a year. Some of them are like 100, 200, 300,000. If I had to aggregate all the opinions of the accountants that I've spoken to, around a $50,000 in net profit is where it. For sure, for sure. Like the costs are outweighed by the benefits. And. But again, I really always recommend people speak to their own accountant because, you know, what is. If you have a spouse or partner, what are their. What does their income look like? So what does it look like altogether? You know, do you have other sources of income that impact it? And so it's never, you know, there's never an ability to give people just a blanket advice like, if you make this much money, this is. You should do this. It's all very depending on your personal financial picture and the financial picture of your own business. But if I had to Give like a general aggregated number. That would kind of be it.
- [33:17]
Daniela Warner
And I love that you focused on profit because that's such an important piece. You can have $1 million business with 50,000 profit and you can have a $200,000 business with 50,000 profit. And so those are two very different businesses. But profit is the same. And so when we're looking, and this is why I love having kind of an internal advisory team. I look at, you know, your attorney, your financial advisor, your cpa, you want to have these people that understand your entire financial health because the recommendations that they're going to make for you are, it's very personalized based how old you are, if you have children, when do you want to retire? Are you going to be exiting? I know you know, certain people, we don't see this very much in spas, but I have a lot of friends that are doing startups and, and they're saying, well you automatically would go for a C Corp because of the capital gains when you sell. Right? So that's, you know, not really a small business like spa thing that we're dealing with but it could be as private equity is coming into our industry so much more and we're going to do that.
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Unknown
One thing about the S election is an S corp has to meet certain criteria which most small businesses easily meet. They can't have more than 100 shareholders, which obviously none of these do. But it also the end the owners have to be US individuals so it can't be entities. So this happens a lot where you know, maybe two people are in business together and for you know, convenience or whatever they decided. It's like their LLCs each become members of the LLC, the SPA. And you cannot select at the spa level if you have LLCs or corporations as members. So you know, you can elect LLC that For each individual's LLCs, the S Corp and it all flows through and it still works. But those are things same thing. If you are like, well I have this plan to scale and franchise or grow or whatever and I'm going to bring in investors. Well, venture capital is never, well not never say never, but almost never going to invest in an LLC nor an S Corp obviously because it wouldn't qualify but it needs to be a C Corp. And so this is again where I tell people, don't freak out because you can convert entities from one thing to another or you can form a new C Corp and merge it in. There's lots of opportunity if and when you get to that bridge. But it's important to understand these things because if you were like, oh, you know, I got it, message received, you know, select. But then you're also talking to, like, a group of angel investors to invest in the business this year. Well, you have to understand these various kind of moving parts and how they impact your business. And this is exactly what you're saying is having a kind of a lawyer on speed dial, an accountant on speed dial, a financial advisor on speed dial. Those are fantastic to have because if we're. And I love when people are like, can we get on a call with my cpa? I'm like, yes, let's do it. Like, I do every.
- [36:29]
Daniela Warner
I ask them every year, like, when we're doing our planning is, can we all be on the call together? Because then I'm not having to. And yes, it's expensive, but it's so worth it.
- [36:42]
Unknown
And playing telephone between everybody, sometimes the message gets warped and it's not the correct information one way or the other. And typically it's probably not going to be something so wild that, like, so wildly wrong that it fundamentally changes, you know, the, the advice that's given from one professional to another. But I do think that it is a worthwhile thing. And when people say, you know, like, I don't have legal accounting in my budget, and it was like, well, redo your budget because if you want to run a small business and grow, it's important that you, that you invest in those pieces so that you're not again, spending exponentially more trying to unwind a mistake down the road.
- [37:30]
Daniela Warner
So true. Okay, so we talked about compliance. We talked about the, you know, your tax entity elections. Let's talk about some of the other, like, little things. When your business license is due. That's also kind of like a state thing. I always, you know, like, do you have a registered agent or is, is your attorney someone that's handling that for you? Is that something that, you know, put these things on your calendar, right. That when you have to have them do. And if you're listening to this in January, you likely. I mean, there's sometime in the past year just do a, an audit. Mine's always due in December. So I, you know, feel like, oh, it's, you know, fresh in my mind. But I realize that maybe other people's probably is not due in December. It can be anytime throughout the year. What are some of these additional things? And then I want to talk a little bit about BOI compliance and, and kind of what that means, because that's been a big Thing that my attorneys have been emailing me about this year and making sure that we're all on track and all of that.
- [38:40]
Unknown
Yes. So this is my favorite. I talk about this a lot at the end of the year and a lot again at the beginning of the year, which is when you're taking time to make plans or make a budget or kind of regroup. It's a great time to put these things on your calendar. As an attorney, this is some of the things I see the most. So every state has different rules, but many of them have either an annual report of some sort or annual franchise tax. States like Nevada have an annual business license and report. And if you don't, you know, file them when they're due, your entity can become suspended or even terminated by the state. Usually takes some time. But the reason you don't want that is because it can invalidate contracts that were signed during, when a business wasn't in compliance, like was inactive or suspended. It can create, most importantly, it can open the door to personal liability, which obviously we don't want. And so taking a time to say when what is due for my business and when is it due? And then putting it on your calendar. Because I do have a lot of people that come and they go, oh, I thought my accountant filed my annual report. You're like, did you have a conversation with them? Because, you know, maybe they didn't. So most states have some sort of annual report and, or franchise tax. And it's funny that they call. I don't know where the term comes from because when we think like franchise. But it's just usually a fee. It's either a flat fee or it's a fee based on, you know, profits or whatever. It's different in every state. Some states have a state level business license. I gave the example of Nevada. But a lot of business license are actually local to your county or if you're in a big city, even into, in the city. So for example, the city of Los Angeles, which is obviously a huge city, has its own business license and permit requirements. But then all the things in Los Angeles county but outside of the city of Los Angeles answer to the county. And so a lot of. And it's similar even in like I'm based in Orange County, California, which is kind of more spaced out than Los Angeles. And then each city, so Irvine has certain license requirements. And I think there's a few important things. Most people who have a SPA are fairly familiar with them because you need these in order to open and get your you know, certificate of occupancy. So most people at least did it once and they know what they needed. Sometimes it kind of flies out the other ear and then we don't remember. And most of those are renewed annually. So make sure you're getting those renewals on the off chance that. Yep, go ahead.
- [41:23]
Daniela Warner
I was just saying, I know for me, being a military spouse and moving so many times, if you're in. If that's a part of your lifestyle that, you know, you're moving and then you're setting up shop again and, you know, figuring that out every single. At one point, I lived in Fairfax county when I was living in Virginia, and Fairfax county has, like, specific county, and now I'm in Montgomery County. Montgomery county has specific laws that are different than the state, that are different than federal. So, like, everywhere you go, and also, like being an employer in multiple states, the workman's comp is different, not called workman's comp in certain states, it's called something different. You know, so really having an understanding of these little. They're little laws that can cause big problems if you don't know what they are. And that's why, you know, I've used you as an attorney several times. I also have attorneys that are based in the DMV area that know specifically all the laws in this area. You know, so think about that as well. If you're someone who lives, you know, close to state borders or close to where you can have kind of moving from counties and states and all that.
- [42:46]
Unknown
Yeah. And not to throw, like, another wrench in it, but another big issue. A lot of spa owners, they might have one or maybe a few, but they're all in one state. And it's easier to kind of think about compliance. But then they have E Commerce and they sell across state lines. And do you owe sales tax in those other states? And how do you collect it? How do you do it? So there are a lot of complications. And again, it's not to scare people or to overwhelm people. There's a lot of information out there. And again, having professionals on, you know, speed dial to be able to have that answer or to get that answer for you and just to not freak everybody out. Most states, if you, like, live in one state and you sell to people in other states, there are nexus laws, which are basically. And of course, they're different in every state, but it's basically like, what is the trigger that is considered? You know, now you are operating in that state, and so usually they're fairly high thresholds, like many tens of thousands of dollars of revenue into that, like directly from that state. But a lot of people are like, oh, I have a niche in California. You know, I work in New York, But I sell $100,000 of product in California. Or if you end up with, you know, a. Most people are, it's more like drop shipped or shipped directly from, you know, manufacturer, whatever. But if you have a warehouse space of some sort in another state, you have to foreign register your entity in that state stuff. So there's a lot of moving parts. And this is just why it goes back to kind of asking yourself like, how am I operating? What states am I operating in, what counties or cities am I operating in? And then trying to go reverse engineer that way. So, you know, what do I need to know? Where are my employees located? Where's my business located? What are the rules here? And so the business license, the franchise tax workers comp. You talked about those insurance coverage. You know, those are all really good things to look at at the beginning of the year and make sure that you have the coverage you need. That's another thing that you kind of touched on at the beginning that I was thinking about is with med spas and licensure coverage is your insurance coverage. And also that it's your, as the business owner, it's your obligation to make sure that those licensed professionals that you are maintaining, you have a copy of their license. You know, that they're maintaining their licensure, their continuing education, any additional training that is required of them, that you are on top of making sure that they are getting that proper training. Because the liability ultimately can be on the business owner if they are, you know, in default on any of that.
- [45:29]
Daniela Warner
So let's wrap this up with BOI compliance.
- [45:33]
Unknown
That is what is it? Yes, yes. So the BOI stands for Beneficial Ownership Information Report. And it's the, it's under the Corporate Transparency act, which was a law that was passed last year, that was passed actually the year before, but it went into effect. And it basically is to prevent money laundering and, and kind of illicit business in these companies, U.S. based companies. But the impact is that basically all the small businesses in the United States have to file this report now. It is free and it's actually quite simple. So you go on. It's, it's run by FinCEN, which is the Financial Crimes Enforcement Network and it's a piece of the US Treasury. So if you go to fincen.gov, f I n C-E-N.gov you can find the BOI report, you can file it online. Basically what it's requiring is information about your company. So you know, what state is it in, what's the name of the company, where was it filed, what's your EIN number and then beneficial owner information about the beneficial owners. And there's a little bit of legal nuance, but for these, for small businesses it's pretty clear which is anybody that owns 25% or more of the business or has substantial control over the business. So you could be the sole owner of your business, then you're a beneficial owner. But, but if you have like a COO or a CEO that you've hired or president, cfo, whatever, they are probably a beneficial owner too because they have substantial control over the business. And then you basically have to put in that personal information so that person's name, their home address, their driver's license or passport number, and a photo id and that's it. It's actually quite simple and easy to file online. You technically file it one time and then you would only have to update it if the beneficial owners change or if the company information changes. So if your company moves or the corporate address moves, you're supposed to file an update. So anybody that's owned that the end. For any entity that existed before January 1, 2024, they technically are supposed to have complied by December 31, 2024. Except that a court in December or late November of 2024 said that it's unconstitutional and unnecessarily burdensome and whatever. So there was a stay on it. So as this plays out in the courts, is it technically due? I think as of today when we're having this conversation, the US treasury had not commented on whether they needed, you know, what, what their opinion was about whether it was going to be enforced or whatever. But the, the penalties are big. It's like $500 a day. Who's to say how they're going to enforce it and against whom they're going to enforce it? But I always tell people like it's a pretty easy thing to comply with and the potential, you know, penalties are, are certainly burdensome on small business owners. So some people have concerns about the privacy, that's why this is in court, that it's unnecessarily burdensome, that it's an invasion of privacy. It's a government owned database now of all these people and their things. I personally, I own quite a few entities and I've filed my BOI for all of them. I Don't feel like my personal information is very personal anyway, so I don't care. But that's what you need to know is that basically it's in legal flux. We don't know, we don't know whether it's going to be enforced and how it's going to be enforced.
- [49:27]
Daniela Warner
If you are CIA rule just cya.
- [49:30]
Unknown
Yes. So, so I'm still advising my client especially because I'm like, my clients are not like da da da. It's Monday morning. Like let me check on the status of this, the BOI report. You know like out of sight, out of mind, get it done. You know, if you want to stay up on it, you're welcome to like follow U.S. treasury, they're, you know, they'll send you updates I guess. But it is important to understand that it is for, for basically any small business owner that's listening, it is absolutely required. There are certain limitations. The only limitations that could impact some of these listeners are if your business does like 5 million in revenue or more and has 20 full time US employees then you might be exempt. So if you're doing that and you can, you know, and you're like, I might qualify as an exemption that doesn't have to report. If you're a public company you don't have to report. There's other things but most of your listeners probably don't, don't meet those exemptions.
- [50:28]
Daniela Warner
But just to, it should take you about five minutes to complete it. Just do it, have that done. Don't have something come up and surprise you. So this was so much information and I know like legal stuff makes me just like. But I think it's really, really important for business owners to know. It's kind of expanding our knowledge. We kind of jump into a business and like yes, I'm going to do this thing that I love and I'm passionate about it. I'm going to have fun, freedom and all of these things. But the deeper you get into it, there are a lot of complexities but just make sure that you, you don't have to be an expert in all those things. That's why it's like have your people that can advise you, that can help you, that can give you guidance and make sure that you are protected.
- [51:20]
Unknown
Absolutely.
- [51:21]
Daniela Warner
Where can people find you, follow you, get in touch with you?
- [51:25]
Unknown
Yeah, so you can find me at my website. Not your father's lawyer.com or on Instagram at not your father's lawyer. Those are the easiest places to get a hold of me. It's got my contact information there. So. Perfect.
- [51:37]
Daniela Warner
And we'll link everything up under the show. Thank you so, so much. This was so incredibly helpful. I want all of you listening to Go. Take action.
- [51:50]
Karen
Be a.
- [51:51]
Daniela Warner
This is. This is how you build a company. Not just create a hard job for yourself. Do these things.
- [51:56]
Unknown
All right.
- [51:57]
Daniela Warner
We will catch you on the next episode. As always, if you want to keep the conversation going, I want you to.
- [52:03]
Unknown
Head on over to the Spa Marketing Made Easy Facebook group, the number one free resource out there for estheticians focused on business building. We've got weekly marketing tips, a monthly goal setting and planning planning session, monthly esthetician business book club, plus a community of thousands of estheticians committed to business building in the spa industry.
- [52:26]
Karen
I'll see you there.