Small business legal advice with Ric Selby of Dworken & Bernstein. Ric heads up the commercial litigation department and has extensive trial experience in state and federal court. In addition to his litigation experience, Ric regularly consults with clients on employment related issues and is called in to assist at trial with the class action department when those matters go to trial.
He has been recognized as a Super Lawyer Rising Star, and was selected to be included in the 2019 edition of Best Lawyers in America. He is also a contributing editor to Attorney at Law magazine, featuring articles on employment law.
Rick joined Dworken & Bernstein in 2000. Became a partner in 2011, and this year became managing partner.
Transcript of Biz Chat Ohio’s podcast 1.5: Ric Selby
Welcome to BizChat Ohio, the podcast bringing you big ideas for small businesses. Throughout this series, we hope to bring the best of small business news and industry trends from Ohio thought leaders, and just maybe something to help your run your business a little bit better. I’m your host, Cathy Walsh, Director of the Small Business Development Center at Lakeland Community College. And I’m joined once again by my co-host and soul sister, Gretchen Skok DiSanto, Director of Lakeland Community Colleges Entrepreneurship Center and Business Advisor for the Ohio Small Business Development Center. Hi, Gretchen.
Hi, Kathy. How are you today?
I’m doing pretty good, and yourself?
Good. So I think you and I both agree that legal issues should be at the forefront of all business decisions. This is something that you simply cannot screw up, because it’s going to cost you a lot of money if you do. Right. A lot of time, a lot of money. Unfortunately, in our work at the Small Business Development Center, we have businesses come to us with issues and problems that really have arisen out of the fact that they haven’t worked with an attorney. OK. So things like, they didn’t have an attorney look at that purchase agreement for a new building. And it really wasn’t in the best interest, some of the terms in that agreement. Or they may have started making sales without an actual any type of contracts that they provide to their customers, et cetera, et cetera and it can go on and on. Particularly, we see a lot of issues with employees, legal issues that come up with employees.
So today, we’re hoping that we can shine some light on all of that. Yes, so we’re very pleased today to be joined by Richard Sabie of Dworken & Bernstein. Rick heads up the Commercial Litigation Department and has extensive trial experience with Dworken & Bernstein in both state and federal court. In addition to his litigation experience, Rick regularly consults with clients on employment related issues and is called into assist at trial with the Class Action Department when those matters go to trial. He has been recognized as a super lawyer rising star and was selected to be included in the 2019 Edition of best lawyers in America. In addition, he is a contributing editor to attorney at Law Magazine featuring articles on employment law. Rick joined Dworken & Bernstein in 2000, becoming a partner in 2011. And this year became managing partner at work, and so congratulations, Rick. You are now managing a small business yourself.
Yes, thank you.
Dworken & Bernstein is the largest law firm in Lake County with an office in Painesville and also one in Cleveland, and they’ve been in business for over 60 years. So Rick, welcome to BizChat Ohio. Gretchen and I are so glad to have you with us today.
Oh, thank you very much for having me. I’m glad to be here. I look forward to this.
Yeah Rick, you’ve been so generous today in agreeing to let us pick your brain. OK. And prior to us coming online today, we asked you to come up with top five things that you wish every business owner would do before they take the leap of going into business. So in your experience, what’s the number 1 piece of advice that you’d like to share with our listeners today, they’re considering that new or prevents your business. What do they need to hear?
So I think the first thing that every business needs to do before they do anything else is really put together a business plan and a budget. I can’t tell you how many clients. I see things oftentimes when a lawyer when things have gone bad. And I wish more and more people would come and see an attorney up front and not wait till they go bad. Because oftentimes they can save money and do things more efficiently up front than they can after the fact.
But we’ll have so many people come to us who haven’t really thought out what the business is going to need or put together a budget. How much money they’re going to need to spend to start up the business and do that initial investment. What they’re going to need on a month to month business. When you are looking whatever your product, whatever you’re selling, whether it’s a service, whether it’s a product, if you’re going to be going out and selling cupcakes, you need to figure out before you start.
You need to sell 1,000 cupcakes a week at $4, or 10,000 cupcakes at $15. Because if it’s the latter, you may be able to– you’re going to find yourself in trouble pretty quickly. And you have to think about from the perspective, all right, who are my customers going to be? What am I going to be selling to them? How am I going to reach them? What do I need? Can I run this business out of my house, or am I going to have to go and rent space and find someplace to run the business from? Or am I going to need equipment, am I going to need employees?
Then when you have that basic outline of what the business is going to look like, there are really two sides to the budget. There’s the startup cost, what do I need to start this business? Am I going to need to go out and borrow money to buy equipment, to buy initial raw materials to enter into a lease or purchase a building? And then secondarily, what is my month to month budget going to look like. What are my costs as far as rent on debt service, what am I going to be paying my employees? What am I spending in raw materials? What am I spending on utilities.
And then conversely, what money is coming in from whatever it is I’m doing. How much do I have to sell? What kind of money am I going to be able to generate, and I’m like going to be able to cover those expenses? Particularly, when you’re talking about a new business and starting something out, you also have to consider how long you may be able to go without making significant money. When a business is just starting out, they’re going to be expenses that you’re incurring and getting going before revenue is necessarily coming in.
One of the things about being an owner of a business is you are the last person to be paid. Your employees get paid first, your vendors get paid first, your landlord the bank they get paid first. Now, when the business is incredibly successful and when you’ve got it up and running it going well, that can be tremendously beneficial to you. When you’re the owner, you’re taking all those profits at the end. But at the very beginning of the business, there may be a period of time where there’s not going to be profit. And if you set yourself up, if you’re going to be able to only take a nominal salary or no salary for some period of time until you get things going.
You really want to think about all of that before you start up. Because I’ve seen a lot of people drive new businesses into the ground because they think, well I’m the owner, so we started and I’m going to take a big salary. I’m going to lease the new Mercedes through the company and everything’s going to be great. And they haven’t really, the business isn’t justifying that yet. And so you really need to think realistically about how that business is going to budget out that first year. Before you even open the door, you want to try to figure out how those things are. And that’s going to help prevent yourself getting into some financial difficulties that you didn’t even really see coming. So that’s definitely the first thing that somebody needs to look at.
Excellent. Thank you. Once the business plan is in progress, what would be the next tip that you would suggest?
So I think you really need to line up the professionals who are going to assist you. Some of the things we’re talking about down the line that are the next step, you’re really going to need expertise. You’re going to want to have an accountant who can help you with how you’re structuring the finances of the business, tax issues, anticipating those things. You’re going to want to have an insurance agent out there. There are a lot of liability issues depending on what you’re going to want to have some general liability insurance. If you’re going to have employees, you may be wanting to offer health insurance to them. Depending on your practice, you have some type of professional practice, you’re a physician, you’re a lawyer, you may have to go out and get some type of malpractice insurance. You’re going to want to have that insurance agent lay it out you’re going to want to meet with them before you start and figure out what type of coverages you’re going to need to protect yourself in the business. Likewise, you’re going to want to line up an attorney.
There are going to be areas that you don’t necessarily have expertise in. Whether it’s negotiating, if you’re buying the business from somebody else, negotiating that, the purchase of the business, whether you’re going out and leasing space, you’re going to want to have somebody who has the expertise to help you with that lease. When you’re hiring employees and dealing with employees, there are just a multitude of state and federal laws that you have to comply with, and you want somebody who can help you do those things.
No matter what business you’re starting, you have a level of expertise and whatever that is. Whether it’s they’re making cupcakes, or whatever the case is. But nobody’s an expert in everything. And there are these important aspects to running a business that have nothing to do with what the underlying business is. Dealing with vendors, dealing with landlords, dealing with banks, dealing with employees, those are all things that regardless of what the underlying business is you’re going to have to do those things. And you’re going to want to line up the professionals who have the expertise to help you with those type of things before you start the business. Because like I said earlier, there’s only so much that your professionals can help you with if you come to them after you’ve already screwed everything up.
Talking to somebody up front and making sure you’re doing it the right, that you’ve set up your tax withholding’s the right way. That the lease provisions what everything you have in there is laid out correctly. Oftentimes with a new business, you may not have a lot of leverage in some of these times but you want to make sure you understand them. When I go back and you put together your business plan, there’s risk associated with starting any business.
All of those things are how you hope things are going to turn out, but you never know how it is actually going to play out. And how much risk you’re taking for example, is how much personal liability. Have you had to sign personally on a loan? Have you had to sign personally on a mortgage? How much are you doing, because if you can eliminate that personal liability or you don’t have that personal liability up front, you may be able to take more of a risk or be willing to take more of a risk. So even if it is just to talk with somebody to make sure you understand everything you’re entering into, having the advice of those professionals is going to be very helpful. And doing it on the front end is way more effective than waiting until you get into trouble and have somebody try to save you.
Cathy and I we can agree with you more. I mean, you hit the nail on the head when you said that we’re certainly not all of us aren’t experts in everything. Right. That’s why we specialize in our certain areas and we bring a lot of value to those businesses that we work with. I like to tell folks over the SPDC that you just don’t know what you don’t know. And particularly, that I’m a law school dropout, I got to tell everybody. I just there is so much depth in the law and businesses really can’t find themselves in a lot of trouble if they don’t consult with an attorney. And I like to tell them and hopefully you’d agree with me, Rick, that they look at it as why I’m spending too much money on this? Now, I like to look at it, think of all the money you’re saving.
There’s no doubt. I’ve told people all the time you know I a lot of what I do is Employment Law, and advising people on Employment Law. And I can tell you that the clients I have who call me up and say, hey, we’re having trouble with this employee and we spend an hour talking through how they should handle the situation, spend way less money on me than the person who calls me up and says, hey I fired this guy four months ago and I just got served with a lawsuit. That hour up front to make sure you’re doing everything right and you’ve documented it and sometimes he advises you shouldn’t be doing what you’re doing. You need to back off, but that hour spent up front is, you can do that 100 times and you’re spending less money than you are defending one lawsuit. So that those upfront costs you really are saving money by spending getting that review up front.
OK. Excellent so OK. So we’ve gone through two of your tips. What is next? What’s your third tip?
The third thing is you really want to think about how your business is going to be structured and there really two sides to that are important. There are basic, there are a number of different forms of businesses and types of associations under Ohio law. You can just be a sole proprietorship without any type of business. You can have a partnership, you could have a limited liability company, you can have a corporation. There are reasons to do each of those and there are advantages and disadvantages to both structure wise, how the business is run and tax wise. It’s one of the reasons why you want to have those professionals up front. You want to talk to and a lawyer or an accountant when you’re setting up the business.
But you know when I talk about the structure of the business almost important is that, if you are going to have a partner and they’re are going to be more than one of you who are an owner of a business, setting up and determining ahead of time how everything is going to run is incredibly important, and having that put in some type of operating agreement or limited liability company organizational agreement, a partnership agreement whatever it may be. And things about how our decisions going to be made. Who has the final say what’s the authority. How is voting going to be handled? Particularly, if you’re not 50-50 owners. If one owns 75 and the other 25, does that 75 have controlling interest or not? How is money going to be divided up? When are you paying yourselves? How are you paying yourselves? How do you resolve disputes if they do arise?
It is so much easier to sit down and come to an agreement on how all of that stuff is going to work and to put that together in agreement so everybody goes into it with eyes wide open, and knows how it’s going to work, as opposed to trying to work those things out after it is gone bad. I can tell you that when businesses, they don’t always work out. People don’t always see eye to eye, and if the business ever goes bad, you want to have how things work and when there are disputes laid out ahead of time because if you don’t have those once you’re not getting along with the other folks you have in the business. Once things have gone South, it can get really ugly.
We have litigated businesses breaking up and I will tell you it is not much different than we call them business divorces, because they’re very much like a divorces. A lot of times there’s a lot of hard feelings. You’re fighting about how the money is going to get split up, how the business is going to get split up, is it just going to be dissolved, is one person buying the other out? A lot of these issues you can think about up front and put down an agreement and it is going to simplify things on the back end.
It is also helpful to have those discussions because people, it sets up expectations. If there are two of you coming in, are you on the same page as to how much you’re going to be paying yourselves? Are you leasing cars for yourselves? Are family members spouses going to work for the business? There are a lot of things and a small, closely held business that a lot of people do differently. And talking through those things and knowing those expectations up front and working through that ahead of time can solve so many problems as to just jump into the business and you do this, and two years later, you realize both of your expectations are horribly different, and one always thinks the other is taking advantage of them or trying to. And it just helps if you have put all that stuff on the table, worked it out, put it into an agreement ahead of time. It can solve a lot of problems down the road.
Yeah, I’m glad to hear you talk about the benefits of having that operating agreement because we really do try to drive that home with partners who come in or larger groups of investors in a business, because while you’re getting along and while you’re setting your business up, that’s the time to figure out what you’re going to do should things change down the road and what those expectations are. So I’m glad to hear you say that because that is a point that we really do try to drive home with our clients who are going into partnership with another person.
Can I– I want to jump in. I just got a quick question. If they do decide to do it may not necessarily a partnership could it be an member LLC, but you mentioned 50/50, Rick. I’ve heard some people or some other attorneys say, hey, I wouldn’t suggest 50/50, what about 51-49? What are your thoughts on that? I mean, can you really have a successful business if there are 50-50 owners?
So one of the things that 50-50 owners what it does is it sort of forces consensus. It is you have to work with each other and come to some type of decision because if you don’t, you’re just going to be paralyzed. Now, you know the problem becomes if you do end up on separate pages and you’re looking at things differently, sometimes you can force where all you have is the business is going to break up because you can’t make those decisions. But the truth is, even if you have a 51-49, if you have found yourself that diametrically opposed where you can’t find that compromise, the 49% person who has everything jammed down their throat by the person who has the 51 is going to end up being unhappy and is going to want out of the business anyway. Sometimes the 50-50 forces people to compromise, so you don’t get into a liquidating situation, whereas if you have the 51-49 sometimes you can be vulnerable to whoever has the controlling interest to just disregarding what the other person has to say. So a lot of it has to do with the personalities of the people in the business and how you think those things are going to play out.
Thank you. Yeah, thank you. OK, what would Number 4 be? I’m liking them so far.
So number 4 is whenever you start a business, they’re going to be certain up front contracts that you’re going to have to enter into. If you’re buying a building or leasing space, if you are purchasing the business from somebody else, there’s going to be some type of a purchase agreement. You’re going to likely have contracts with vendors, people who you’re buying raw materials or supplies from, or perhaps you’re going to have contracts with your customers, depending on what kind of business you’re in. For example, if you’re a construction business, you’re going to have contracts. You really want to have those reviewed professionally upfront before you start signing anything.
One, sometimes having a professional out there can help you negotiate terms that are more favorable to you. Especially with the startup business, one of the things that everybody should be concerned with is how much personal liability you’re signing on to. If you need to go get a line of credit with the bank, is that line of credit just going to be with the business or you going to have to sign on that personally? If you have a lease, is that just with the corporation or limited liability company, whatever it may be, or you’re going to be signing on that personally? When it deals with customers or vendors, what are the terms of those contracts? How long are they? What is your ability to get out of them and the terms under which you can get out of them?
There’s two sides to this. One, do you want to try to negotiate terms that are more favorable to you and create less risk for you, and maybe prevent you from running into problems down the road when they arise? But the second is understanding that, even if you’re not going to have the leverage with a landlord with a bank with a large supplier to really negotiate different terms into that contract, it’s important that you understand what is in there. From the perspective of how much personal liability you’re signing on to, that may assess what kind of risk you’re willing to take with respect to the budget, with respect to your business plan, understanding that you’re not just putting the business on the line, you may be putting your own personal finances, your house, all of your assets.
You need to understand what exactly it is that you’re doing and understanding those risks. So if you’re going to run the business effectively and appropriately, you need to understand those things. So you really should not be signing anything that you have not had a professional review.
I’m so engrossed in that. Gretchen, I’m taking notes over here. OK. So we are at number 5, Rick. What is your final tip that our prevention startup businesses cannot miss?
So you want to get some level of knowledge and background with respect to employee-employer relations. You eventually going to be bringing employees on. And especially for small businesses, there’s a minefield out there. There’s so many issues you have to think about, whether it’s how to handle withholding taxes, how to get signed up for workers’ compensation and make sure you have those coverages. There are, especially with small business where you may have a few people up to work a lot of hours understanding how the Fair Labor Standards Act in the Ohio equivalent deal with overtime, and who has to be paid overtime and who’s exempt. Understanding all of the different laws as they relate to leave and discrimination and disability.
Again, these are areas you’re not likely going to have a lot of expertise in. And especially new businesses aren’t going to be large enough to have a dedicated human resources professional. A lot of smaller businesses simply aren’t big enough. They have, the controller is also there HR professionals. And they don’t necessarily have a background in that. I think it’s really great. There are a lot of seminars and webinars out there that you can go, that’ll give you sort of a basic understanding you want to do enough background that you’re at least recognizing issues and knowing the questions you should be asking, knowing situations when you want to go out and seek that out. I know.
I do a lot of employment law and with a lot of my smaller clients. I sort of act as an HR backstop. They can do a lot of the daily things getting people signed up for benefits and doing that. But you know, occasionally, somebody will come in with some type of leave of absence request, or they’ll have a difficult employee that they’re thinking about disciplining them and how they want to write him up and how they do that. A lot of them will use me as sort of that HR backstop with the complicated issues. And I’ll once or twice a month get a call from a client, hey, can you take a look at this and let’s talk through this. Do you time for a call?
Again, it’s an area that is so complicated and there are so many places where you can really get yourself into trouble doing some basic education of yourself, so you know all the issues you should be trying to recognize. And then having somebody available that when the complicated situations come up, when you recognize one of those issues that you have somebody to talk to, I think that’s very important. Because that those employee employer relations is almost certainly going to be something that is outside the expertise of whoever the business person and thus starting up in the consulting business it’s probably something they’re not familiar with.
OK. So we’re almost at 30 minutes. But I’d like to ask you one last question, do you have a few more minutes for that final question?
OK, great. So can you give us an example of a success story that would interweave everything you’ve talked about today?
So I think, I know personally, I look at Dworken & Bernstein Law firm. It was founded by Howard Bernstein and David Dworken in 1959, with just the two of them that graduated from Ohio State Law School, and started this firm. And 60 years later, all of the original partners are retired. Some of the second generation of partners are starting to retire. I’m really part of the third generation of partners who now are in control, and some of the people who were bringing on now are probably really the fourth generation of partners. We’ve been around 62 years. But when I look at some of the things that make us successful, a lot of these things that I talk about with respect to a new business, these are really things that every business should do.
When you talk about a business plan and a budget, those are things you should constantly be revisiting. We have an annual retreat for the partners where we set aside a Saturday and we go through the entire operations. We look at all the different departments and the revenue that’s being generated, we look at how much money we’re spending in different areas, marketing on employees. We really try to look at that stuff every year to figure out, are there ways we can do better? Are there places we can save money? Are there places we can increase revenue?
Even though we now have almost 30 lawyers and 60 employees, we have our outside professionals. We have our accountants we use. We have our insurance agents. We even have attorneys. We have a large pension plan for four 60 employees. And we go out and hire our own counsel who are professionals dealing with pension plans to put together our pension documents and to make sure we’re doing those things correctly.
We have over the years Dworken & Bernstein has looked at how we’re organized and the operating agreement has been updated and modified over the years as what was appropriate when it was, just Howard Bernstein and David Dworken was different when you have 12 partners and 30 lawyers, and 60 employees.
And we’ve always gone back and revisited all of those things and doing it. So I think we’ve been incredibly successful over the years. And I’m very proud of that. But part of that is because all of these lessons that I would tell to a brand new company. I think every business out there should be re-evaluating those things on a regular basis, and thinking about how their business is running and making sure that they’re looking at these things. Because you never want to get complacent, situations change, your business change, your customers are going to change, the marketplace changes. And if you’re actively looking at these things all the time and have the right structures in place, you’re going to be in a situation where you can address those changes and deal with them and hopefully be ahead of the curve.
Thanks so much, Rick. It’s really valuable you being with us today. I know Cathy and I are really thankful for you. And I know our listeners are too. Your knowledge of business processes, risks and pitfalls it’s absolutely priceless. So I’ve got your website here, it’s www.dworkenlaw.com. So we’ll make sure that we put that in our show notes for everybody listening today. OK, that’s www.dworkenlaw.com.
Yeah, thank you Rick. We will definitely make sure that that’s in our show notes.
Thank you for having me. I really enjoyed this and anybody who wants any help or wants to pick my brain, I’m glad to talk to them and I’m glad to help out.
So we’re going to add all that information into our show notes about your website. And we again just want to thank you for taking the time to talk to us about some issues that are important to our clients and are important when we talk to our clients trying to get them started and off on the right foot and build a good foundation for their business.
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