Episode 1

JC: [00:00:00] This podcast is called Lifecycle of a Business. We'll be joined by experts in this field and we'll examine how you can start, grow, protect, and exit your business. I'm your host, JC Stny. I'm the legal director for As your counsel. Prior to law school, I was a small business owner. I come from a family of small business owners and I have a lot of respect for small business owners.

Here with me is Sunny Kakwani, the founder and attorney at, as your counsel, who has helped hundreds of entrepreneurs navigate legal decisions. And scale their businesses. Sonny's expertise in small business law, combined with his practical approach to helping entrepreneurs understand complex legal concepts makes him the perfect person to walk through these issues.

The. Also, I'm joined by Lily Pak, an advocate of small businesses. [00:01:00] She's the founder of Portland Small Business Network, which connects entrepreneurs through networking events and educational opportunities. Lily's built something really special, a thriving business that's currently structured as a sole proprietorship that is at an exciting inflection point.

Where she's considering forming an entity, so she's asking all the same questions that many of our listeners, listeners are probably asking. At Azure Council, we believe in educating to empower. Giving entrepreneurs the knowledge they need to make confident, informed decisions about their businesses, and that's exactly what we're going to do.

Over the next four episodes. We're gonna walk through the entire life cycle. Of a business from a legal perspective. We'll start with formation fundamentals, the decisions that Lily is facing right now. [00:02:00] Then we'll move through growth strategies, dive deep into protection and risk management, and finish with exit planning that maximizes value, whether you're selling, passing on to family or simply closing down.

What makes this conversation unique is that Lily will be asking the real questions that entrepreneurs have, not just theoretical scenarios, but the actual real decisions facing a successful business owner who's ready to take the next step. Whether you're in Lily's shoes considering formation, or whether you've been in business for years.

You're gonna walk away with actual insights that save you money, reduce your risk, and help you build a more valuable business. So let's dive in.

Sunny: Okay, let's do it.

JC: So Lily, we wanna start off with you. You know that Portland Small Business Network, you founded it in 2009. Why don't [00:03:00] you take a minute here.

Tell us about the journey from 2009 to today and where, where is Portland Small Business Network today? What are some of the things you're working on, some of the challenges you're facing?

Lily: Thanks for asking jc. So happy to be here. A little bit about Portland Small Business Network.

We, um, I created it as a Facebook group initially back in 2009, um, with the intent on. Turning it into a meetup and then um, basically a marketing business.

JC: And Lily, when you started in 2009, was there anything else out there? Kinda what, what was that journey like, the founding story in 2009? What, what was going on then?

Lily: So, 2009. There wasn't a lot of competition when it came to networking groups. There were a lot of really structured ones, like the BNII take the Lead and Late Tip, and then there was the chambers. Like there's like, you know, the local chambers, which are usually pretty large. I al, I always found a lot of those groups a little overly structured.

It didn't feel, it didn't feel organic. It felt very, and I'm, and [00:04:00] to be honest, I'm not a morning person and, and going to a networking event at seven in the morning when my brain's not functioning. I don't know how productive you can be with networking when your brain's not even awake yet.

JC: So, some of our listeners might not know you know, about your events. So kind of describe the vibe of going to an event, you know, today. What's it like, what's it feel like? What's it like to go to an event?

Lily: So one of the things about my event is. It's in the evening, so it's after work. So it's usually like around happy hour time.

Um, we host our events at local businesses. I try not to move it around too much because people, I don't know, get confused very easily about parking. So, but I, I keep it, we do it twice a month, once a month at a family friendly venue and once a month at like a more of like a, a bar lounge situation.

I wanna make sure that people who have kids have the ability to still participate, but then also like, I wanna be able to like, know, have it more casual, like kind of a loungey feel too. So it's, I feel like my group is the [00:05:00] best of both worlds. We meet twice a month, so I feel like once a month.

Is, it's not often enough people become kind of stagnant and forget.

Sunny: Mm-hmm.

Lily: And once a week it's too much of a commitment for a lot of people because it's a lot of work, you know? Mm-hmm. Trying to schedule things and stuff. So

Sunny: I, I, I think that's really. I'll just jump in. I think that's really important.

You know, I'm involved in some of those networking groups and, you know, practicing law, early days of law, you're sort of out there trying to meet people, get your, you know, your name out there, get your name out there, network, you know, sort of meet other, um, lawyers and other business opportunities.

And I totally agree with you. There's. Definitely those other networking groups have very much a structure. Mm-hmm. And didn't feel welcoming and warm and a sort of a group that I wanted to make referrals to. Yeah. You know, it, it felt very, this is a responsibility and this is sort of. Structured and organized.

So the [00:06:00] idea of creating Portland small business, I think is a brilliant concept. And that really speaks to entrepreneurs, you know, what is the need mm-hmm. That you see and what's out there. And if it's not out there, I'm gonna create it.

Lily: Well, like sometimes when it's too structured, because like let's say you only have.

One real estate agent, one insurance person, one attorney one CPA, and let's say like the insurance person isn't a great insurance person or will drop the boss and get returning phone calls.

Sunny: Mm-hmm.

Lily: But that's the insurance person for the group. Mm-hmm. And you have to refer to that group. You don't have that flexibility, uh, so people aren't always incentivized to do a good job.

Sunny: Mm-hmm.

Lily: Also, like, let's say, um, it's the same 10 to 20 people every month, right? When you go to a group like that and it's not it, and when you're starting off as a small business, it's really expensive to have to pay like 13 to $1,600 to join a group.

Plus a lot of them require an an additional monthly fee or something. And [00:07:00] my group is $10. That just basically covers my, the cost of doing my event. I'd make zero money from it. Whatever extra money I, I make I bank it for the slow months because like, you know, it's always slow, the beginning and end of the school year.

Mm-hmm. The holidays. So any major holidays, so. I basically have been doing this group more as a public service than anything. Mm-hmm. Because I love building that community. I love that sense of community and helping people and you know, my tagline is be as a resource, not a sales pitch, and I live by that.

Mm-hmm. I wanna make sure that people are there to learn how to help each other because. No one's gonna wanna refer business to you if they just met you, but if you refer them business, they will go outta the way to reciprocate. And that's what I want. I want it to be reciprocal.

Sunny: Yeah, I think it's important that you say that, you know, you started it as a service and this is a passion and it's come from what you want to do and to give back.

You know, there's [00:08:00] multiple reasons to start a business. Right. But that's a really good point because entrepreneurs, become entrepreneurs for, for many reasons. But it's, our role as attorneys and business con consultants and the. Perspective of strategy, you know, is a really important consideration for entrepreneurs.

'cause oftentimes they don't know what it takes to make that jump. You know, I'm a sole prop. I'm doing this, I'm figuring it out. I'm, you know, I'm growing it. It's, it's successful for many reasons. But what about the business side? How do the numbers look? What's my legal setup? What is the structure? All of those questions.

Are very intimidating for a lot of people, but it's the natural jump because entrepreneurs come from passion. They create the their business. But then how do we take that and protect it and grow it and create the legal architecture and also the marketing and business strategy? Guidance to [00:09:00] allow that business to grow, you know, so

Lily: Definitely.

JC: So let, let me jump in here. As I say, let's get down to business. Yeah. So, so Lily, the two questions, you know, we want, we usually start with business owners are, one how's business and two, what are your pain points?

Lily: So, um, my group is technically not a business yet. It's, I mean, it is more of a meetup.

It's like a networking group. There's. I've been doing really well. I've, I mean, like I had to split it off to twice a month, but I, I try to keep it under 50 people. U usually the sweet spot's between 30 to 40 people because I want everyone to be able to meet everybody in the room. And that's actually really important to me.

Because when you go to a massive networking event with like two, 300 people, you'll meet. So many people, but you won't remember anybody that you met. So there's, it's, it becomes a waste of time, you know? Even if the group is small, like let's say you know, at the beginning of school year I might get like 20 people, [00:10:00] right?

And but if you have a good conversation with somebody, and to me, like the a networking event, any event is. Success if you make one good connection and it doesn't matter how many people are there, if you make a good conversation with a good connection regardless of it's a potential client, or they might know somebody that could be a potential client, then it's a success.

So, what I really want to accomplish out of this group is, you know, because I do a lot of consulting on the side but unfortunately I'm having a very hard time charging people 'cause I'm too. I'm a little bit like. I enjoy helping people too much and and I wanna learn how to structure my group into segue into consulting and basically hopefully be able to make an income out of that because, you know, I. Gift certificates doesn't pay my mortgage. So,

JC: so, so Sonny,

Sunny: let's talk about that structure.

JC: Let's look, let's look at the legal side. Mm-hmm. So, looking [00:11:00] at Lily and her operation how do you diagnose that? How do you look at it from an illegal perspective?

Sunny: Yeah, it's a great question. You know, and that's really the question that all a lot of people, small business owners, entrepreneurs, sole props, come to us with that question, you know?

Mm-hmm. This is my situation. What do I do now? Or I wanna do this, how do I get there?

Lily: Mm-hmm.

Sunny: Right? So that's what I think is our expertise, right? Mm-hmm. Listening to a situation, hearing a person's story. Understanding and expressing empathy for their, their journey and where they are now.

But we, you know, we always try to create that structure, right? And I think law is a lot of comes with some coldness and some, you know, direction and sometimes doesn't come with the warm and fuzzy comfort that entrepreneurs need, you know, so I think. At a YC, it's important to, to see the big picture, but to also zoom in, you know, zoom [00:12:00] into the specifics.

How do we accomplish that? So, you know, with your situation when you're a sole prop and you're, you're finding success and you're doing well. Mm-hmm. The question always comes, what do I do now? You know, what's the jump? How do I write off my expenses? How do I make sure I'm protected? How do I make sure that if something happens, I have.

Either a contract or I have an agreement, or I have LLC structure. H how do I build in? I have insurance, you know, I have contractual terms. How do I build in the protection to make sure I can do. What I want to do, how can I continue with my passion? So usually the first question is, let's think about a structure.

Should we set up an LLC or maybe a corporation? Mm-hmm. You know, between those two, there's advantages and disadvantages. There's different legal terms that are used. And, I'll, I want to get into and describe and explain some of that. But I think it's, uh, it's important to [00:13:00] just reiterate that entrepreneurs wear a lot of hats, and with Lily's situation.

To answer your question, jc I would diagnose the situation as she is extremely talented and is doing very well in wearing the hat of marketing and promotion and creating a good group. But maybe now we need to put on the hat of structure and legal side. So, that's would be the first question. What type of entity should we decide to set up

JC: and kind of piggybacking off that, so you know, Lilly, in your experience, you know, what's your familiarity?

Do you know what an LLC is? Do you know an an S corp is, you know, a C Corp is what, what's kind of your knowledge base?

Lily: Honestly. I know nothing.

JC: Okay.

Lily: I wanna know. Good. I wanna know. I wanna know and learn. Basically.

JC: You're in the right place.

Sunny: Yeah. Entrepreneurs wear a lot of hats. You know, it's really incredible to think about all that entrepreneurs really do.

You know, there's, there's [00:14:00] the marketing, there's the finance, there's the growth, there's the employees, there's the vendors, there's the contracts, there's the structure. It seems really overwhelming for most entrepreneurs. So, coming back to this question of what do I do? How do I make that transition from a sole prop to having an actual business?

It really starts with making that decision between LLCs and corporations.

JC: And so Lily, you know, we've kind of outlined the landscape here. What is an LLC? What is a sole prop? What questions or comments you had thus far.

Lily: So what benefits do I have? Like I doing it like I was thinking at LLC would probably be the best fit according to what you guys Yeah.

Described. So what benefits can I do? Like, can I, uh, write things off? Am I able to. Is it gonna cost me a lot of money to start an LC?

Sunny: Yeah. Let's talk about that. So what benefits come with setting up an LLC? And you are correct if, to be [00:15:00] clear, LLCs and corporations come with a lot of the same benefits.

Mm-hmm. It's just that LLCs are generally easier to manage, they're more flexible, they, LLCs can be owned by other LLCs. There's not a lot of. Compliance per se in terms of documentation and meetings and such. You know, obviously resolutions and all that comes with corporations sometimes can be overwhelming, but generally speaking for this context, I would say if, if you're not in a position where you're looking for outside investors.

The decision usually is to form an LLC because it's easier to manage and more flexible. So to your point, what benefits come with that? So the major benefits that come with starting any business LLC or corporation are twofold. Okay? One is liability protection, super important, right? Liability protection.

What does that even mean? It means if something happens with my [00:16:00] business. Yeah. It's not gonna affect my personal life, okay? Mm-hmm. The business activities, the liabilities and assets are held in a separate bucket, okay? Then the lily pack bucket, okay? Mm-hmm. Starting an entity means that you're setting up a separate bucket to put the business assets in and to put your contracts through and to have any liabilities that result from those activities stay within that bucket.

And the major factor is gonna be. Making sure that the, that your finances are not co-mingled. Okay. Your business funds and personal funds need to be separated because if they are co-mingled, then somebody could say, look at the way Lily was running her business, right? She was paying her business expenses through her personal account.

She was paying her personal expenses through her business account. Mm-hmm. And she wasn't reimbursing herself. So therefore. Everything was in one big [00:17:00] bucket. So if I have a cause of action or a claim against Lily's business, I should be able to access and go after Lily's personal assets because the money was all together, it was all connected.

So liability, protection and making sure that your activities with your business doesn't affect your finance and your personal life, um, is the crucial. Predominantly important benefit that comes with starting any entity. And I'll explain the second benefit in a minute here, but does that, is that clicking, is that making sense for you?

Lily: Yeah, no, definitely. Like, I mean. You definitely don't want exposure with your property, your personal property. I totally get that.

Sunny: Yeah,

Lily: that's definitely important. So

Sunny: yeah, your personal property, your personal bank accounts, your house, there is some overlap in setting up a business and thinking about estate planning, for example.

Lily: Mm-hmm.

Sunny: You know, what is the succession. Of this [00:18:00] business, how is it gonna flow to my beneficiaries? We'll get into some of those points in, in, uh, episode four in terms of dissolving or passing on my business. But the point you're making is important. It's crucial, right? That the things that you do and you've set up with you and your family is separate from.

Your entrepreneurial venture?

Lily: A hundred percent. Lately people have been talking about, you know, retirement and selling their businesses and stuff, and that's something that is on a lot of people's mind recently. So that's definitely something that I know a lot of people are gonna be tuning into to listen to.

Sunny: Yeah, absolutely. I mean, I think that is a great point, and it's important that it is mentioned here at the outset because you're absolutely right, you know, at every phase. Of the business in art in episode two and in episode three. Mm-hmm. We're going to touch on some of the factors that come into play when you are actually selling the business.

When you're selling the business, you have to go back to the foundation. Exactly. How is the business actually [00:19:00] set up? In order for me to sell, I have to set it up properly and I have to structure it properly. So it starts all from that point.

Lily: Yeah.

JC: So, so Lily wanted to ask you another question here.

So you're running potent small business network. Are you doing it on your own? Are you trying to bring in another person to, you know, co-manage the business with you? Do you want to bring in a business partner? You know, what, what are some of your thoughts around that topic?

Lily: So right now I run it on my own.

I have friends sometimes helping, volunteering to help. Because like I obviously don't make money off my group, you know, and you know, the door fee basically covers. The expenses or MailChimp or other expenses that do come up with running a networking event, tipping out the servers, that type of stuff.

Um, I've been doing a lot of consulting on the side, but I'm just having a very difficult time charging people. And I think that if I turn it into a business and I have some sort of structure to [00:20:00] it, it'll be a lot easier to. Charge people because like I have no structure. I'm basically walking in and like, yes, I'll help you.

And I'm just giving everything away without even discussing payment. And I can't pay my mortgage with with a gift card, which is like, kind of like the joke, but that's basically what it is, you know?

Sunny: So, so when you have expenses that are from the business, you're paying them personally.

Lily: Yes.

Sunny: Yeah. And you're not documenting those se businesses separate from your regular

Lily: expenses?

Well, I mean, I have a separate bank account specifically for the networking group. So the, the money that does get paid through the networking group

Sunny: Great.

Lily: Goes directly, specifically to that bank account.

Sunny: Yeah. So it's tracked.

Lily: Tracked, yeah. And any expenses that occur for the networking group, like.

Um, the MailChimp or if I had to pay, get anything printed or whatever comes out of that bank account.

Sunny: Wow. Okay.

Lily: And it also it, the fact that like some months, like I said are, are slower than other months because during the holiday season or um, [00:21:00] 4th of July or the beginning or end of the school year, there's a huge drop in attendance in my group.

So, having a little bit of extra cash from like the busier months is helpful to cover, the fixed expense that that is part of running the group.

Sunny: Yeah. And it's, it's interesting that you say it that way, you know, and I think the point is that you're a step ahead, you know? Mm-hmm. And that speaks to entrepreneurs, you know, we're always, we're always a step ahead.

And what I'm gonna, you know what I'm gonna describe, uh, you know, about the business banking, EINs asset separation. You know, you're in some effect already doing some of that by tracking your expenses separately. Mm-hmm. The bank account is still in your name. Yes. And not in entity's name. Right. Yeah.

See, that is the crucial point, right? Yeah. If. If the bank account was owned, right. How is it titled is the question, right? Yeah. When we think about the same, that same question, when we're thinking about succession of assets, right? And distribution, what are my assets and how are [00:22:00] they titled, right?

Because how they're titled is gonna determine the succession or flow of those assets and also simultaneously determines the liability mm-hmm. Of, of the entity, right? So if something happens. To the account and it's connected to you personally. You're personally exposed. Right, exactly. The, that's the crucial learning point.

And I think it's very interesting that you're already tracking your expenses separately. That speaks to I. You know, your, your foresight as an entrepreneur and that also sometimes the legal rules and procedures aren't unnecessary, you know? Yeah. There is some benefit to actually separating your expenses

JC: And one point to jump in, you know, Lily, you had mentioned the idea of writing off expenses or capturing certain tax benefits.

Mm-hmm. So the real starting point here is to create an EIN mm-hmm. Which is you are registering the business. With the IRS, [00:23:00] you're creating a specific tax identification. Mm-hmm. Number, and through that number you can begin, you know, as Sunny mentioned, ke, you know, keep a separate spreadsheet, you know, make sure certain income that's coming into the business expenses, you're aware of that.

Because when it comes to filing your business tax return, that's where you can generate your write-offs and other, uh, you know, capturing other tax benefits.

Sunny: Yeah. And to that point, that second benefit, I know uh, JC you asked a question about bringing in a partner and operating agreements, single versus multi-member, and that is an important.

Point and you know, I think we'll come back to that in a minute, but to your you know, it's crucial that you, that we talk about the second benefit. Of starting an entity. Right. We talked about liability protection. Mm-hmm. And the other major benefit is writing off necessary and ordinary business expenses.

Mm-hmm. Okay. And I use those, that [00:24:00] phrase necessary. Mm-hmm. And ordinary. Mm-hmm. Because you know, and as was disclosed, uh, earlier, we are attorneys and I'm not a CPA and I'm not a tax attorney, right? So mm-hmm. I speak from knowledge of entrepreneurship and from the legal perspective, but.

You know, I would defer specific questions about tax election and designations and filing your taxes to mm-hmm. The respective tax professional. But from a legal perspective, that second benefit of setting up an entity and then necessary and ordinary expenses are written off of your revenue that's generated, and therefore, when you're filing taxes.

At the end of the year, you get that you get the benefit of only filing, uh, you know, paying the tax on the revenue after the offset of expenses. And. I say necessary and ordinary because that is a IRS and [00:25:00] compliance perspective, you know? Mm-hmm. That they are expenses that are generated from your business activities.

Mm-hmm. And to jcs point, they are documented clearly. Mm-hmm. Um, as such, and they are separate. From the, from your personal expenses. And that usually that question usually leads to entrepreneurs asking, well then how do I pay myself? You know? Mm-hmm. What, how do I pay myself out of the business?

Mm-hmm. And how do I file my taxes if I am a single member LLC and not. Ha have chosen not to be taxed as an S corp. Okay? Mm-hmm. That is also a, a separate and an important distinction. Before an LLC designates to be taxed as an S corp, they are taxed as a pass through entity, okay? Mm-hmm. So, jcs point is absolutely correct from an SS corp perspective, but bef before that, I know that if you are still a single member, [00:26:00] LLC.

Your taxes are, are filed through your personal tax returns on a Schedule C. So the income that is generated through the business is on a Schedule C, and it is, you pay your taxes through your regular 10 40. You don't file separate taxes, returns for your business until you make that tax election of filing.

As an S corp, you set up a payroll, put yourself on payroll and pay yourself that way. So. I don't wanna get too much into the weeds here, but the point is I'm trying to make is that there is a distinction between an LLC and an LLC that's elected to be taxed as an S Corp.

JC: So a number of different legal concepts there.

Lily, I know a lot of legal is what. You know, when you hear this kinda what's on your mind, how, how do you kind of, process this or kind of take this in?

Lily: Well, that was just a lot of information to be honest. Yeah. Taxes I had mentioned before to you guys especially jc 'cause we're friends.

[00:27:00] Yeah. Taxes are something that just scare me. Yeah. We, one of the things I always say, like, with our educational system, that there's things that should have been taught Absolutely. In school and. Just the idea of like the different aspects of it. It's, it just, it's so intimidating for like someone normal, especially when it like, nevermind personal taxes, like business taxes.

Yes. What you can, can and cannot write off. Those are things that like, obviously is some questions for A CPA, but like. But I kind of need to know a little bit of like what benefits, which type of, corporation versus a LC mm-hmm. Versus a S Corp. Mm-hmm. Like how does that work and how do I, you know, and, you did explain a lot of it.

Yeah. But like, yeah. At the same time, it's like, that's just a lot of information.

Sunny: Yeah, I, no, I hear that. Let's talk in plain terms.

Lily: Yeah, exactly.

Sunny: You know, and let's talk in specifics to your business and your situation.

Lily: Yes, exactly.

Sunny: I, I wanted to make sure, and it's probably the [00:28:00] lawyer in me, that I wanted to make sure that the knowledge is expressed and it's out there

Lily: a hundred percent,

Sunny: you know, and maybe what's effective is to then.

Tailor that specific information to your situation in plain language.

Lily: No. Yeah. Legalese is great, but it's hard to follow sometimes.

Sunny: Absolutely.

JC: So, so li let, let, let's start off this way. You know, let's start off with the revenue side. So the, the money you're taking in

Lily: Yes.

JC: So, you know, every event you're charging people $10 Yes.

Per person to enter the event.

Lily: So, and I would say, and I don't charge everybody, I, I charge most people, but I do. But like, there's specific people who I don't charge are people who, who have, who basically refer to me, people who are doing something for me, like signing people in doing the photography for the event, so there's like, there's a handful of people that go don't get charged. I would say on average I take in between a hundred to $150 a event. Right.

Sunny: Okay. So you're right about, there's other [00:29:00] people and there's barter. Yeah. Maybe, yeah.

Lily: Bartering

Sunny: that, that speaks to vendor agreements and making sure we're on the same page.

Yeah. Or a term sheet or a letter of under an MOUA memorandum understanding. Broadly speaking, we'll get into some more of the specifics about having a contract with some of those bartered

Lily: Yeah.

Sunny: People, but just having something on a one pager where the agreement is clear. Right.

Lily: Yeah.

Sunny: But you know, broadly speaking to your, to jcs point Yeah.

You have revenue that's coming in, so

Lily: Yeah.

Sunny: How, and when we say document your expenses and document your revenue mm-hmm. Uh, you know, and I have personal experience with this starting the law firm. I have the business bank account, but I also just have a spreadsheet. Right? Yeah. And for me, it's pretty straightforward.

You know, there's, I know there's multiple ways to do accounting, and then JC could probably speak on some of the I don't, what is it called? Where it's like the two, two co, three column, four column?

JC: Yeah, we can go, it's a complex. We can [00:30:00] go, you know, double credit, triple credit. Yeah. Uh, life. OFFO. Let's, let's, uh, let's get some, uh, heavy accounting here.

No, just kidding. We're, uh, scary. We're here talking legal side, but just, you know, generally speaking. I, I like to think of accounting, you know, money coming in, money coming out. Yes. Yeah. So let's, you know, kinda, you know, and you're, you're in a really good state with your business. You have revenue coming in, so you know, you have a bank account.

You're keeping track of that. The thing which is gonna be important is, you know, these. Receipts you have with MailChimp, these, uh, other expenses you have with other vendors mm-hmm. Keep those. Mm-hmm. Because you know that tho again, it's like, let's say you're averaging $300 per month revenue

Lily: mm-hmm.

JC: And your expenses are, you know, around $200 month. Yeah. You can, again, from a tax perspective, when, when Sunny's saying. There's an a write off, you're kinda writing off those expenses against the income you're receiving.

Sunny: Yeah. So a basic two column spreadsheet, you know, I, I, [00:31:00] JC has some of the CPA, uh, you know, interested in finance sort of background, um, and also some of the personal experience, you know, managing his business of rental properties.

So he's a really an expert on the accounting side. But from my, my perspective on the legal side. I keep it simple. It's two columns. It's revenue on the left and it's expenses on the right, and I simply track the revenue, track the expenses, and you know, at the end of the year, the expenses come off. The, the revenue is deducted by the expenses, right?

And either I'm paying the revenue on my schedule C 10 40 taxes if I haven't elected to be an S Corp or. If I have an S corp, I'm filing separate tax returns. Okay. So broadly speaking, you know, there's obviously a lot of nuance, a lot of complication. There's a lot of ways that you can be creative around accounting, but from a legal perspective, the important thing is tracking your revenue, tracking your expenses, and [00:32:00] making sure that the.

The business bank account is not co-mingled with your personal bank account. Mm-hmm. Okay. That is the crucial takeaway that I want to reiterate.

JC: So I, I, I'd say that and you know, this is also really important too. 'cause not only are you thinking about where your business is, you're thinking about where you're going and your consulting business.

You know, you can send someone an invoice for an hourly consultation or. A, um, you know, project quote. So again, you know, you have some great revenue opportunities there and so that's why, you know, you're already spending on, you know, these different business expenses, ordinary and necessary, so that that's the way you can offset there.

So. Any questions kind of on the, this kind of tax category before we kind of move on to another area?

Lily: Nope.

JC: So, kind of to conclude this, uh, first episode here. You know, we, we wanna take a minute to talk about working with the state and kind of mm-hmm. You [00:33:00] know, we're here in Oregon, there's some certain requirements and compliance before we kind of dive into the legal side.

What's been your experience working with the state of Oregon? How, what does compliance mean to you? When we, when talk about it?

Lily: I mean, I've worked with compliance for other businesses, but I've never actually done anything for this one, so I definitely, wanting to learn so much and you know, I'm very open to hear all about it.

So

Sunny: I, this word compliance, you know, I think can be really overwhelming for a lot of people.

Lily: It's intimidating.

Sunny: Yeah. Yeah, right. Compliance, I mean, what does that even mean? That

Lily: it's like doing right and wrong?

Sunny: It's like, you

Lily: know, you don't wanna do something wrong.

Sunny: Exactly. And what am I complying by and with, and how do I know the proper things to comply with?

You know, I, I think. There's a lot of, um, nuance there and I think it can get really convoluted this idea of compliance. So, it, it depends on your activities, [00:34:00] right? Specifically if I'm leasing a restaurant and I want to sell liquor, I need to. Follow compliance by filing for an OLCC application, a liquor license application on-premises, off-premises.

What are the categories? Mm-hmm. You have to file the application, right? Mm-hmm. I mean, compliance can also mean, you know, what is, what are the federal regulations around a DA compliance, right? And how is that incorporated into my lease? Right? It's such a broad category that. I just want to come back to the question of forming an LLC and what is the steps necessary from the state, okay?

Mm-hmm. And then what is the, uh, management that is needed? Okay. I, I want to try to break that down. And I, you know, I say that with subject to obviously if there's certain activities that you're doing or certain. Ways that your business is functioning, then we would have to look into that question of [00:35:00] compliance a little deeper.

But from a compliance perspective of starting an LLC, it means I am going to, I. Complete an application with the Secretary of State by filing articles of organization with the Oregon Secretary of State to form my business.

Lily: I mean, is that necessary? If it's just me? Did you have to do that?

Sunny: It's necessary to make that jump.

Okay. Okay. This episode. And that's a great question for this episode, right? Yeah. Like, is it necessary, I'm running my business as a sole problem. Why do, why should I even. Do that. Why do I file? I mean, it's a hundred dollars annual. Okay. Yeah. So it's not overly burdensome, but I will say that it, that is what it takes to make the jump from

Lily: No, but

Sunny: where you are to setting up an entity.

Lily: Yeah. With the articles to organization

Sunny: Yes.

Lily: With the organization that's like, it's me by myself.

Sunny: Oh, yeah, I hear you. So I think, so what you're talking about is the operating agreement?

Lily: Yes.

Sunny: [00:36:00] Okay. So with LLCs, there are usually just two adjoining documents. Okay. Again, it gets confusing.

I'll just say it's articles and operating agreement.

Lily: Okay.

Sunny: And corporations is articles and bylaws.

Lily: Okay.

Sunny: Okay. So the question you're asking is about. Operating agreement and it's how you're running the business, how what if somebody wants to enter or exit, and we'll get into some more of that in terms of.

The next episode with growth, right? Yes. And bringing on a partner, an equity partner, raising capital, so that what you're talking about is the operating of the business. But to start with the articles is what is needed in order to make the jump of filing with the state and now. The Oregon Secretary of State will give me a a filed receipt of my articles of organization and approving my LLC entity name.

Okay. So then I have my articles. Mm-hmm. I'll [00:37:00] take my operating agreement and I'll take my e And those three documents is what you need. You go to any bank and you open a business bank account. Mm-hmm. Or in your case, you would go to the bank and say, I already have this account. Let's convert it from me.

To the business. So then the bank account is gonna be owned by the LLC.

Lily: Okay.

Sunny: Okay. So when I say compliance, it's taking 10 minutes. You know, I won't, it, it's not overly complicated, but you're essentially filing out, filling in, filling out an application and filing it with the Oregon Secretary of State to start my entity.

And then every year on that anniversary date is your annual report. You pay $100 directly to the Secretary of State, and you make any changes with the name or address or member or manager and registered agent.

Lily: So you, you pay the a hundred dollars no matter what, or you have to, or you pay it when you need to make changes.

Sunny: No, you can, you pay the a hundred on the annual renewal, and that is also your opportunity to make changes. Okay. If needed. [00:38:00] You're just you're filing a report with the Secretary of State and you're. Telling them if there's any changes on the ownership of the entity. Mm-hmm. The registered agent of the entity.

Mm-hmm. And the the address essentially. So, because that is the requirement mm-hmm. That the Secretary of State is aware of your business. So if somebody sues the business, they know who to sue. Okay. Where to go to. Hopefully they don't sue me. It doesn't happen. Exactly. That's the registered agent. To answer your question, jc the compliance with an LLC really is forming the entity by filing, and then every year making sure your annual report is filed.

JC: So, Lily, we've, uh, we, we've talked through some of the foundation, the kind of fundamental points of starting a business. You know, we're, we're gonna, we we're gonna move on to talk about other topics, but, you know, thinking about your situation, you know, obviously you're a sole prop. Thinking about going to an LLC, what are some of your, your thoughts, [00:39:00] questions, in terms of this kind of formation kind of starting piece?

Lily: I'm basically, I'm just excited to try to take the next steps. I mean, I'm hoping that once I get my organization ready to go and, and organized that I can actually start charging for my consulting, which. I've been doing for quite a while. And also maybe build my my brand, um, with the group to

JC: yes,

Lily: maybe get more partnerships with people, um, with other businesses because I think that it's really important to.

Not just being, doing it on your own, but doing it with a community of people and lifting each other up. And I think that's why like I was excited about doing this podcast with you guys. 'cause there are so many things that you guys know that I don't know. And I'm sure there are things that I know that you guys, absolutely might not be as good that.

So I think like. Not being so hard on ourselves and trying to do everything and not, and trying [00:40:00] to be good at everything is really important. And realizing what you're good at and partnering with people who are good at the other stuff and just helping each other out. And I think that's, that, that's the whole reason why I created the group,

Sunny: yeah. That level of excitement is exactly what I love to hear. That's the reason we do this, and I'm sure, yeah. Similar. Sentiment for you as well. When people come to you and they express this excitement, right? Like Yeah. And the, what you're expressing is excitement for growing the business, for scaling the business.

It's a perfect segue into the next episode. You know, how are we, how am I gonna do what I'm doing at a bigger scale? How am I gonna support more people? How am I gonna. Continue to do the work I do and expand what I'm already doing.

Lily: Yeah. Partnering with people and keeping your identity, keeping, making sure that you're protected, making sure that people that you partner with don't take over your business or you, and that's the thing is like.

I've gotten so many offers of people trying to partner with me. [00:41:00] And my biggest fear is if I partner with them, are they just gonna take away my, the what I built? I, you know, we have like over 22,000 members on Facebook alone. Mm-hmm. And we have, you know, I have a extensive mail email list. I, ha have been.

Working so hard to build this group, this business, and to have it getting taken away by somebody who says they wanna be my partner scares me.

Sunny: Yeah.

Lily: That's why I wanna make sure, like when I do turn my group into a real business, that I protect myself. Yes. That I am able to partner with people.

And not have to worry about them just pushing me out,

Sunny: yeah.

JC: But Sonny and Lily, we, we really appreciate it. We'll put a pin in it for this episode, but you know, we're, we're gonna talk more about that here in our next episode. So just wanna say thank you both for great insights there.

And to everyone listening, stay tuned for our next episode.

Lily: Perfect.

Episode 2

JC: [00:00:00] Hey everyone. Welcome back to Lifecycle of a Business. I'm JC Stiassni here with Sunny Kakwani and Lily Pak.

Sunny: Hello. Hello.

Lily: Hi.

JC: We did, uh, in our first episode, we were really talking about the fundamentals and foundation of starting a business. What you know you need for an LLC or how to convert an uh, how to convert a sole proprietorship into an LLC.

And today we're gonna talk about growth. How to go to the next level that, you know, we've been talking about Lily, about her journey and we're gonna talk and really. Think about how we can take her organization, her business plans, into growth mode. So in that, I'm gonna shift it over to Sonny and he can talk through the legal dynamics of growth mode.

Sunny: I'm really excited about this episode. You know, this episode is really what it's all about because I think entrepreneurs have big vision, big ideas. Mm-hmm. They're thinking about. Doing a lot of things right? Yeah. So the first episode we were talking [00:01:00] about, let's just create that foundation.

Let's set up the entity, let's set up our bank account. Let's figure out how we're gonna track our expenses. Let's set up, just the basic foundational, um. Capacity of our venture. Now in episode two. Let's grow it. Let's think about scaling. Let's accomplish our goals. You know exactly what you spoke upon, you know, with the last episode, you mm-hmm.

Entrepreneurs. You have a lot of ideas. You want to do other things. You wanna do consulting, you want to maybe bring in somebody else and uplift somebody as a partner who brings some strategic benefit to you, right? There's mm-hmm. A lot of opportunities of growth. So in this episode, we're gonna talk about.

Potentially bringing in an equity partner and what that looks like or otherwise raising capital through debt. . Talking about client service agreements and doing the consulting work that you wanna do, or the other service that an other, businesses conduct, you know, we're gonna talk about hiring [00:02:00] help, bringing in an independent contractor, or hiring an employee, potentially.

We'll talk about maybe even having space. Let's sign a lease. Let's create a commercial lease with a landlord negotiated an enter into a lease. You know, maybe not. With your business in particular. But those are all important factors in growth mode. Let's start there.

I wanna ask you, Lily, what do you think you're most interested in doing first? Bringing in a partner, maybe doing consulting work, leasing a space, broadly speaking from where you are. What do you want accomplish?

Lily: I wanna be able to do consulting work and feel safe doing that. And maybe, and then also secondly, working with partnerships without.

Losing my entity without losing, you know, my control over what I built. Yeah. You know, those are things that, that concern me. I feel like a part of the reason why my, my group, I feel like I feel it's getting stagnant for me is because. [00:03:00] I know in order to take the next steps, I need to partner with people, but my fear of being controlled or being pushed out or scare me.

So I wanna make sure that I create my, this business where I can protect myself and protect what I built.

Sunny: Wonderful. Thank you. That's very, that's very clear. And you know, I hear that. As counsel, I hear that a lot mm-hmm. From clients, you know, they are, they want to grow, but they have that fear and you wanna make sure that the things that I've built, all of the work that I've done is not gonna be dissolved or disseminate, decreased in value through a bad decision, right?

A bad joint venture or a bad partnership with somebody. Right. So. Let's talk about that. Mm-hmm. You raised three different things there, you know, and that's what lawyers do. Yeah. We're always issue spotting. Right. Let's you know, I'm gonna hear what you're saying and let's break it down and figure out how we can accomplish that.

Mm-hmm. So, one of the things you said was [00:04:00] bringing on a partner internally, and then you also said partnering with other groups, businesses, other businesses. Mm-hmm. Okay. So that question or that dynamic. Involves either bringing on an equity partner for the business that you just formed

Lily: mm-hmm.

Sunny: And now are gonna grow mm-hmm.

By giving them some equity internally. Mm-hmm. Or signing a joint venture agreement. Mm-hmm. Negotiating the term material terms, and eventually signing a joint venture agreement between your business entity and another business entity. Okay. So those are two separate and distinct things.

Lily: A hundred percent.

Like I wanna know. What are the benefits of each of them? If it's worth it? Should I just do one or the other? Can I do both? Is it worth it to bring somebody and give them equity? Losing equity is like something that I'm also afraid of doing, but is that necessary? Do I have to do that in order to grow?

Yeah. You know, can I just partner with another business? That's the thing is like, you know, 'cause I'm not good [00:05:00] at. The accounting side, but I could just hire an accountant, right? Mm-hmm. So I'm not good at certain things. And that's the thing is like as a small business owner, as anybody, you know, you have to admit what you're not good at.

Sunny: Mm-hmm.

Lily: And allow somebody who is good at that to take that over. I mean, I always joke around about like. I'm terrible at housekeeping and cleaning.

Sunny: Mm-hmm.

Lily: What would take me all day or half the day to do might only take a couple hours for a professional cleaner to do. Absolutely. So the, if you have that attitude might and realize that you're not wasting your time, spending your time trying to do something that you're not good at.

You could be doing something way more productive, way more fun for you. Yeah, and that's basically what I wanna do. I wanna figure that out. So

Sunny: opportunity cost. Yes. You know, and there's a real maturity, even though entrepreneurs wear a lot of hats, they also recognize. That I don't need to wear this hat and there's somebody else who does this better.

Right. Let me defer to the expert.

Lily: Yeah. I just had this conversation with one of my friends you know, my [00:06:00] friend Eugene, who owns scout Coffee. I mean he basically, actually no, it's not called touring coffee. Sorry. He just switched it. My friend Eugene, who owns touring coffee, and he was, he has hired people to do the roasting and the bagging and that type of thing, and he's, he says that he has a hard time letting go of that because he knows, 'cause you could do it better.

JC: Mm-hmm.

Lily: Quicker, more efficiently. But I'm like, but you're the owner. You should be going out getting more customers. Let somebody else do those things. Mm-hmm. You know, train them and, and let it go and spend your time instead of. Roasting and bagging to go and get new customers. That's what you need to do as an owner.

You need to just let the manual layer, let certain things go and a lot of things like, you know, people don't think about that, 'cause they're so, yeah. 'cause it hurts them. As a small business owner, it hurts to let go of money. So,

Sunny: yeah. Okay. So then now you're talk, now you're touching on the fourth topic, which is hiring help, right?

Mm-hmm. Independent contractor versus an employee. Oh, yeah. Versus bringing on an equity partner. Okay. Mm-hmm. [00:07:00] So we can maybe look at that into three phases. Okay.

Lily: Definitely.

Sunny: Let's, so let's start there and then we'll get into. The consulting work and your client service agreement. Okay. So I think broadly speaking, when you're, you know, your perspective about how do I accomplish this goal for the business, it's hiring help.

Okay. Yeah. I think, to start with it's really do I bring on an independent contractor or do I hire a W2 employee mm-hmm. That I put on my S corp. It's businesses, payroll, and pay them through through the entity, right? That is the crucial question. And, then I think if an employee proves to be super valuable and important, you know, there could be ways that you start to think about structuring that employment relationship, which could potentially lead to equity in the business.

Mm-hmm. Right. So the way I, and the way we see that at at Azure Council is it should be. Strategic, right? Mm-hmm. It should [00:08:00] be accomplished through this pathway, right? Mm-hmm. Maybe you start by hiring somebody who's an independent contractor. Mm-hmm. Um, and then maybe they shift to an employee and then, those little tools that I'm talking about to.

Encourage the retention of the employment could be, annual bonuses or profit sharing, or vesting equity over time, right? There could be multiple levels of incentives that can be built into employment agreement to lead them. To an equity partner.

JC: And one thing to add here Lily, you're, you're a great mentor and you've given a lot of people in the community chances whether you know, help, you know, having people help you to coordinate events, you've really taken people under your wing, so you're doing a lot of these things.

What we're just telling to you is that. It's really helpful to put this on paper. Mm-hmm. To really say, Hey, I want to give this person a shot. They might be in college, they might be younger. I wanna mentor this person. I want to give them a chance to work with me. But right now, we're an [00:09:00] independent contractor.

Right Now, you're not an owner of the business. This is not. You know, a W2 relationship. This is how we're gonna start. And maybe that can be changed over time, but this we're just saying, uh, to create this relationship, just put it on paper to make sure it's clear to you and the other person.

Sunny: That's great.

Thanks for putting that into plain language. That's exactly what it takes, you know, that's. Specifically what we're talking about, right? Yeah. This hired help. Mm-hmm. Um, this person who's gonna support your business activities, what are they gonna actually be doing? Right. So, I mean, broadly the, the independent contractor agreements deal with some of the IP provisions, like confidentiality and, you know, non-compete or non-solicit and making sure trade secrets are protected.

Okay. That's one aspect mm-hmm. That is important and beneficial for a company to make sure. They're not stealing your clients. Mm-hmm. They're not taking your customer list, they're not taking, you know, there's actual recourse, right? Mm-hmm. If any of those things happen, but beyond that, [00:10:00] you know, we want to, in plain language, we want to just express what are they gonna be doing, right?

Mm-hmm. What is their role? What are their responsibilities? How do they. You know, check in with you, what is their scope of work, how do you pay them? And the, I just wanna say there's a lot that can be there, but the really important thing is that you're making sure you're not misclassifying somebody, okay?

Mm-hmm. You can't, you shouldn't be very careful. All businesses should be very careful and making sure you're not misclassifying an actual who's an employee functioning as an employee. And you're paying them, or you're saying they're an independent contractor. Mm-hmm. Because there are, you're saving money by hiring them as an independent contractor because the business is not paying for their contribution.

Yeah. And also their tax contribution. You know, when taxes are generated, there's a mm-hmm. Employee and [00:11:00] an employer side. Mm-hmm. So hiring an independent contractor has a, is a lot lower. Barrier. Mm-hmm. And I think for most businesses, that is usually the first step because mm-hmm. You're basically just paying somebody, work for me for 10 hours, do this work and I'll pay you this.

Lily: X amount of dollars.

Sunny: Yeah. Yes. Every week. Okay. I'm not thinking about benefits and insurance and my tax liability and everything that comes with that, but the downside, or the thing that I want you want to make sure to say is that employers cannot. Supervise that person. Mm-hmm. In the same capacity.

You can't have reviews of that person. You can't really tell an independent contractor when to work or what hours mm-hmm. To complete the task. Okay. So that's the distinction between an independent contractor and an employee. It's really the oversight and those provisions are incorporated into. A contract.

JC: So kind of returning to your, your initial thought, Lily, so, [00:12:00] you know, you're kind of articulating this vision, it's like you're mm-hmm. Thinking about running this consulting firm, you're thinking about bringing in some help with your events, you know? Mm-hmm. Kind of based on what Sonny just told you. How, how, how do you want to do some of these things?

How do you want to implement them for your, for Portland Small business network or for your new venture?

Lily: So like right now, we're already doing networking events, right? But I wanna be able to be hired by corporations to do host events for their business. Basically helping them from start to finish, hiring people to do like, bartending and all that fun stuff. Like, um, kind of like having an open house for a business, you know? Mm-hmm. To try to help them like navigate, like it's a marketing opportunity basically.

JC: So, kind of a clarifying question. So like. What you're saying is you want, let's say there's someone here in the community, they come to you, they say, Hey Lily, we want to do this event.

You kind of handle the details and on your side mm-hmm. You're gonna put together kinda a game [00:13:00] plan, and then you're gonna say, okay,

Lily: get all the vendors, all that fun stuff.

Sunny: Yeah. So it's important to make this distinction. Okay. Yeah. What we're talking about. Can be internal or external. I think that's just the, the big picture way to look at it, right?

Yeah. Am I hiring somebody to help me in my business?

Lily: Mm-hmm.

Sunny: Am I, is that person gonna be an independent contractor, employee? Mm-hmm. Or equity owner? Okay. Mm-hmm. Versus am I, is somebody hiring me? My not hiring me, is somebody hiring my business? Mm-hmm. To do work for them. Yeah. Okay. Externally.

Lily: Mm-hmm.

Sunny: So there's a distinction between you bringing on help to do your, your work versus somebody other business, either hiring the business or joining in the strategic partnership.

Okay. No, totally. Which I see as external. And that's defined through client service agreements. Mm-hmm. And joint venture agreements. Mm-hmm. Which is external versus internals, independent contractor, employee, or equity owner.

Lily: Yeah, like, um, one of the things was like, you know, I wanted to [00:14:00] also, partner with you guys, partner with a CPA partner with a commercial property management company partner with a commercial insurance company, and basically having everything kind of like a plug and play for small businesses.

So let's say someone wants to start a small business. Instead of having to shop around for this and that they have people who already trusted, who's been vetted by me.

Sunny: Mm-hmm.

Lily: And basically have all the questions answered without having to. Search around for it, and I think that that makes it so much easier.

Like even if you already have a business to have all these resources at the tip of your fingertip, you know, your fingertips is

Sunny: absolutely

Lily: huge, you know?

Sunny: Yeah. So what, what you're talking about is creating a service, right? Yeah. Let's create a package. Yeah. Why don't, why don't we, you know, either through Portland Small Business Network mm-hmm.

Uh, LLC or through, as your council, LLC, right? Mm-hmm. We. Either through one of those businesses or both businesses joint [00:15:00] together, we sign a joint partnership agreement. Mm-hmm. We set up a third entity. Mm-hmm. And then we create a client service agreement mm-hmm. That offers this service. Right.

That's exactly, that's what you're talking about. You're talking about packaging services.

Lily: Services mm-hmm.

Sunny: To offer for, to somebody else, to hire us

Lily: Exactly. Partnership with other businesses in order to, to make it more accessible to, to people. So that. It's easier for them to open their business or level up their business.

Right. And that's the thing is like, there's not a lot of that going on. Like there's all these online courses, all these online templates and stuff and mm-hmm. Having a template is completely different than having a actual person. Mm-hmm. Who with. Knowledge, real knowledge. Mm-hmm. I started having to google things and research things and mm-hmm.

You know, there's all these people who are who claim to be experts but have like zero education, zero degrees. Mm-hmm. But people are just listening to them on YouTube or on mm-hmm. Instagram or TikTok and it just, it [00:16:00] just kind of. Kind of makes me cringe how many people are giving advice mm-hmm.

On things that they should not be giving advice on. Mm-hmm. You know? Mm-hmm. And in real life application, you want somebody who is a licensed mm-hmm. First and foremost and and has the actual real world experience, you know?

JC: Yes.

Lily: Yeah. Like you might have experience with, you might have experience doing it for yourself, but everyone's business is different.

Everyone's, wants and needs are different. And the thing is like, what works for one person might not work for another. And, and you're just listening to people who are just basically talking from their experience only. Yeah. And not someone who has. Experienced it with multiple people, with multiple thing situations.

JC: And just one thing to jump in on this comment, Lily. Mm-hmm. That, you know, what I love about this is the growth mode. I can feel it. Mm-hmm. You're so excited to be talking to all these other people, but just to reiterate. You know, as Sonny articulated, you know, [00:17:00] in this kind of internal and external, it's all about clarity.

Mm-hmm. You know, making sure whoever you're talking to, if you're talking to a potential customer, well, hey, here's our agreement. Here's how we work with you. Here's how we are accepting payment from you. If we have a dispute, we can go to mediation. Just and, and they know that. Okay. You're their client.

You don't, they are just receiving services and the same, so a lot of these agreements from a legal perspective are, um, mostly oriented to provide, you know, clarity to the other person.

Lily: A hundred percent. Yeah. Um, actually we, we were discussing this a while back about prenups. Basically it's clarity like when I was in my twenties.

I had a boyfriend who was an attorney, and he wanted to me to sign a prenup, and I kind of laughed. I'm like, why would you prepare to get a divorce? Like, I wouldn't marry you if that's what I was planning on. But now as I get older, I start to realize it's a prenup can protect both sides. Mm-hmm.

And, and looking at like, you know, these [00:18:00] agreements, it protects both sides, you know?

JC: Yes, it does.

Lily: Making sure that people are being held accountable, understanding where the. Where their rights land and how, and basically just, just things that you just don't really think about because you might assume that the other person's on the same page as you.

You might assume that they think the same way you do, but unless you write it down and you both understand before you get into, you can agree on, on where things both places stand. Um. There's no way of knowing what the other person's thinking. So

JC: now really appreciate that.

Another question I wanted to ask you, I mean, again, can feel your excitement for growth mode and really going after new accounts and working with new people. So let's kind of talk about kind of the funding mm-hmm. In terms of, sure. You know, you wanna bring on new employees or maybe make, you know, have some new expenses.

Are, would you at some point be thinking about, you know, [00:19:00] getting a loan from a business or bringing on someone else, maybe who is like, what we call an you know, a money partner, someone who's a partner in the business who contributes capital investor. Investor. Is that something that you've thought about?

Lily: I thought about that. I think like in hopefully the near future, that would be something that I definitely would consider. I think at this point, because like my venture is not profitable at all, but I wanted to try to do the consulting to try to make it profitable so that I can justify getting an investor so I can do all that stuff.

Sunny: Yeah. And I think in order to do that, right, to your point, being on the same page that. Speaks to the value of having a client service agreement in place.

Lily: Mm-hmm.

Sunny: Right? Like that to me is one of the foundational fundamental agreements that is crucial to have early. At, early, right after you set up the entity and you create the operating agreement, what is the contract?

What is the agreement that your potential clients are gonna see?

Lily: Yeah.

Sunny: What,

Lily: what's [00:20:00] expected?

Sunny: What's expected? You know, how are they gonna pay? What do, what is the scope of work? What is the liability? You know, what are the re where's the liability release, language incorporated, right? Where's termination?

What happens if we need to? And this engagement together. How do we deal with billing? How do we deal with disputes? Mm-hmm. All of these factors are what we call material terms in a client service agreement. Mm-hmm. And now. To zoom out again, because to your point, it's all about deferring to the expert, and I think it's strategic.

That's what I was thinking in the, you know, when you were expressing the value of the expert. It's really the ability, people on TikTok maybe can't, you know, zoom out and see the whole picture, right? Yeah. They're focused on one little thing that maybe they're teaching you.

Lily: Yeah. What they. Their personal experience, which is not gonna be the same as everyone else's personal experience.

Sunny: Yeah, exactly. And that may not apply to your [00:21:00] specific situation. Right, exactly. So bringing in a legal expert who, has that strategic ability and understanding what to prioritize, right? Mm-hmm. That. That's, I think, where are we, what our wheelhouse is and how we differentiate, right? We, we understand your situation and we'd say, let's form the entity.

Let's open the bank account. Let's set up your operating agreement, and the first thing you should probably do. Is set up a client service agreement, and then because you have such a strong brand, I would say the probably early, the second thing to do is to file a trademark because your name and your logo has been established since 2009, right?

Mm-hmm. So to protect your business, which we'll get into in the third episode, right? Protecting your business, looking at your contract, but client service agreement is foundational. Mm-hmm. Because when somebody comes to you and says, I want you to consult for me. Lilly sorry. Portland Small Business Network, LLC.

It's not Lilly anymore. Okay. Yeah. You are simply the member of the entity. [00:22:00] Definitely. So you would be signing as Portland Small Business Network by Lilly Pack comma member, okay? Mm-hmm. That designates that you are simply authorized in your operating agreement mm-hmm. To bind the company to these obligations

Lily: a hundred percent.

Like I did that on purpose when I created the networking group. I did that on purpose when I started the networking group, was to have the entity, like the logo as the main focus versus me because. I'm not. Mm-hmm. I didn't do this group for popularity. I didn't do this group for anything other than creating a community that I felt like we needed, growing up like we had spoken about before, like in an immigrant community, helping each other and supporting each other, that's something that I feel like today society is lacking

Sunny: mm-hmm.

Lily: Having. Having the group as like an entity and not even attaching my name to it

Sunny: Yeah.

Lily: Has been really important to me.

Sunny: Yeah. As a, as a marketing expert. Yeah. You [00:23:00] understand the value of brand.

Lily: Brand,

Sunny: right? A hundred

Lily: percent.

Sunny: So what you're speaking on is brand. I mean, I know you're saying entity where Yeah.

My brand. We're getting you to the entity. But your brand. Yeah. Brand is strong. Your brand is super strong, right? Yeah. So to protect that brand Yeah. Through IP protection is crucial. And to use that brand to promote your consulting services mm-hmm. In growth mode, which is what we're talking about.

Mm-hmm. Through a client service agreement, making sure that it's clear that, that you're hiring this brand, this entity to do this work for you. This is what we're gonna do, and if things go wrong. This is how we're gonna get out and we, both of us know that we can come back to this agreement if there's any issues.

This is our governing document, right? Yeah. There's, there's a professionalism and value that comes with client service agreements.

Lily: No, definitely.

JC: And so I, I love this. It's so, it's just so exciting to, think about what the possibilities are and what you know, where efforts can lead to.

So kind of this [00:24:00] next topic, you know, I want both of you to kind of imagine, imagine, you know, three years down the line, five years down the line, Portland small business network is thriving. Mm-hmm. You're profitable, you have different employees. You're starting to think about an office. You're trying to think about, Hey, we, we need a location to, you know.

Convene our groups, convene our meetings, maybe even have a space that you are a dedicated space for hosting events. Mm-hmm. So, you know, it might not you, you might not be there yet, that's okay. But imagining kind of three to five years down the road, Sonny, how would you give. Guidance to a small business owner like Lily to how to approach signing a commercial lease and getting a space.

Sunny: It's a great question. And um, it's a great topic to, you know, probably wrap up this episode of Growth Mode because, you know, there is some overlap with growth. There's also protection, right? Mm-hmm. Like, you know. Making sure that, um, your fears don't [00:25:00] overcome your goals, right? Mm-hmm. And through legal protection, growth is simultaneously happening the whole time with protection.

Sorry. Protection is happening simultaneously with growth, so. A commercial lease is a big decision.

Lily: Mm-hmm.

Sunny: Entering into a commercial lease has multiple factors, right? Like a personal guarantee. What is the term? What is the permitted use? What is the exclusive use? What is the subletting and assignment clause?

Say if I need to exit the lease, what can I do in the future? If I want to expand my use, right? There are a lot of provisions, repairs, and maintenance. Who's responsible for the windows or the doors or, you know, repairs to the hvac? There's so many components of a lease that for a tenant and as an entrepreneur to enter into a new lease.

Mm-hmm. It. I would say that going to knowledgeable counsel and getting a clear [00:26:00] view of what I'm agreeing to. Mm-hmm. What is the potential exposure that I'm taking on here, you know, and what is my leverage? Right. What is, mm-hmm. You're getting into my most exciting topic here. You know?

Leverage, right? Leverage. I think about leverage all the time. You know, I think about strategy. Micro macro and I think about leverage because that is what it takes to be an entrepreneur. And from my perspective, to be a good lawyer, you have to recognize your leverage and try to use it. To your benefit and also recognize the other side's goals and how we can come to a win-win.

Mm-hmm. You know, this type of law is win-win, you know, so I think with commercial leases there are a lot of factors, but I would say the high level factors would be making sure your entity is the lease, making sure you're comfortable with the term. And making sure those two provisions about exiting in the worst case scenario is thought about.

Mm-hmm. With through the assignment and subletting [00:27:00] clause, if I need to assign this lease to somebody else, is the landlord gonna review this in their sole discretion or with reasonableness, right? Mm-hmm. It's a small difference, but it has some legal strength if you have reasonableness there. Mm-hmm. And then secondly.

What is the personal guarantee, right? Mm-hmm. My, my entity is signing this lease as a tenant, but the landlord in every single lease, I would say nine, nine of a hundred, your entity signs it as tenant, but the landlord's gonna say, what if your LLC cannot pay? What if it has no money? Mm-hmm. Who's gonna pay the rent?

So that's what we call a personal guarantee. Mm-hmm. Where you say to the landlord. If Portland Small Business Network, LLC cannot pay rent, I personally Lily Pack will pay this rent. You can pierce the corporate veil and come to me personally on these, these rental payments guarantee. Yeah. Yes. I'm guaranteeing, I'm on the surety on this contract.

So I would say those provisions are most important because it goes back to [00:28:00] that first question, right? How do I separate my business exactly from my personal? Mm-hmm. How do I make sure. That my personal life is not gonna be affected if something happens with my business.

JC: So a lot of information. Yes. Very exciting.

But you know, you also know this topic, you know, Lilly's market, you, your family has, owned real estate, has rented out and interacted with other vendors. So what, what's, you know, what are some of your thoughts when you start thinking about commercial real estate, commercial leases? What goes through your mind?

Lily: I mean, like, there's so many benefits of commercial leases. I, obviously like I am. Technically a landlord with my family's property. Um, it, you know, like people don't realize like commercial real estate is always it's a huge investment but yeah for now, like obviously I'm kind of like.

I'm doing everything on my own. But once I get to that point, um, once I grow the group enough or the business enough to be able to afford a space, those are things that like I need to learn about [00:29:00] now. So when I get to that point, like I know what my end. Game is what my goal is. Absolutely. And then there's gonna be so many people who are listening to this, who are, needing that space.

Especially like if they have a retail, they're open thinking about open a retail space. Exactly. And I think that that's what's important about doing this podcast is to be able to visit all the things that, all the options that everyone needs to know that they have, even if it doesn't pertain to me.

It's things that everyone needs to know, so I'm excited about their next steps.

Sunny: Yeah. Really well said. You know, with, with all of these decisions, it's important to think about it strategically, right? What is the most important thing I should focus on for my business to grow?

Lily: I mean, even if it doesn't affect you, it's something that, it's good for you to know.

It's always good for you to know, because if you have friends who are in businesses and stuff and, and they have questions, and it's something that like. I feel like it's never a waste of time to, to learn things, so yes, knowledge is power, right? Yes.

Sunny: Yes.

JC: What, what a [00:30:00] great sentiment to end on, you know?

Uh, Lily, sunny, another great episode. Really exciting. Think about growth, possibility, opportunity, clarity, you know, really exciting stuff here. So, uh, wanna thank you both for your expertise. Thank you everyone else who's, uh, listening out there and we're hope looking forward to getting, uh, looking forward to hearing you next time.

Sunny: Yes. Thank you.

Lily: Thank you.iption text goes here

Episode 3

JC: [00:00:00] Well, welcome back everyone. We have another great episode here for you. Previously, we were talking about starting a business, then we were talking about growing a business. Today we're gonna be talking about protecting a business. I'm JC Stiassni. I'm here with my colleague, Sonny Kwani, and good friend of mine, Lily Pack.

We're gonna be talking about small business. Specifically today, the issue is, you know, problems and how do you navigate it. So in that spirit, want to kick it off with you, Lily, you know, what, what are some common issues that you see that small business owners have and you know, how do they manage those issues?

Lily: Sometimes when you start a business, you are starting, not alone, but with a business partner or investor. How do you protect yourself? I mean from like, if there's a conflict even with a client or something, um, if you wanna leave, you know, the business to your kids or if you wanna sell your business.

How, how do we combat that, um, conflict and how do we manage it before [00:01:00] it happens?

Sunny: That's a great question. You know, I think you're absolutely right that there are a lot of problems and challenges that small business owners face, and it can be confusing. First of all, just to even understand the separation.

Is this a problem that I have internally or externally? Just from that baseline. Something that lawyers do and I want to kind of provide this type of insight to entrepreneurs like you, so you can sort of see behind the curtain so you can get into our heads, understand how we think about things.

So it would allow you to feel more empowered in making your decisions and operating your business. So something that lawyers do very specifically and all the time is think about risk, you know?

Lily: Mm-hmm.

Sunny: Essentially, lawyers are risk managers.

Lily: Mm-hmm.

Sunny: You know, that is a, a really just simple way to think about what the work that we do as transactional lawyers supporting small businesses.

We [00:02:00] are trying to think about your risk. And try to either reduce it, mitigate risk, try to shift risk, bringing in an insurance person, an insurance plan, a a umbrella policy so somebody else has that risk or we. Shift risks through contracts, right? Is this, is this the business's risk or is it the client risk?

Lily: Mm-hmm.

Sunny: So always we're thinking about what is the risk? How do we reduce it, or how do we shift it? So the question you're talking about is the idea of how do we deal with a problem with a business partner? So that goes back to an internal. This is an internal problem.

Lily: Mm-hmm.

Sunny: Versus a problem with a client.

So when we're thinking about an internal problem, we have to go back to the foundation of episode one, right? We're starting a business.

Did we prepare our operating agreement correctly? So let's look [00:03:00] at that.

JC: I was gonna say, whoa, you know, great perspective. Uh, there're sonny, but that's a lot of information.

Li Lily, how, how are you, how are you feeling about this risk, risk management? I mean, when, when you hear that, how, how do you feel?

Lily: I'm, I'm wondering like, does it have to be all at the beginning or can we do amendments throughout the business plan? For the business plan? So let's say you start a business with a business partner and then fast forward to six months to a year down the road, and then you see.

Some challenges and you wanna work that out and you could see like maybe in the horizon that would be a conflict down the line. Is it possible to add amendments to

Sunny: Yes.

Lily: The business plan?

Sunny: Yes. So, uh, I, and I just laid it out like that for the listeners, because I wanted to frame the issue before just jumping into the answer.

Lily: Mm-hmm.

Sunny: I certainly can answer all the questions, but I want you to really try to. Step out, zoom out.

Lily: Mm-hmm.

Sunny: And think about how a lawyer would think about your question, right?

Lily: Mm-hmm.

Sunny: So first, [00:04:00] the first thing is what is the problem? What is the problem you're talking about? And then identify what is the document where we created that?

Lily: Mm-hmm.

Sunny: And let's look at what that document is. The partnership operating agreement.

Lily: Mm-hmm.

Sunny: Or the bylaws of a corporation.

Lily: Mm-hmm.

Sunny: Yes. Let's see what was written. Let's deal with the problem We're in front of us and let's amend that. Okay? So yes, absolutely. We can certainly amend it. And you try to think about potential problems in the beginning, but you can't imagine all the possible things that can happen.

So there are problems that also happen with clients externally or vendors.

Lily: Mm-hmm.

Sunny: I just wanna make that distinction that the

Lily: a hundred percent, like

Sunny: the question you're asking about Right?

Lily: Yeah, I know.

Sunny: Is an internal problem.

Lily: Yeah. Well, and then miss, the second half of the question was about like, clients. Um, like what would you do if like, you like, I have a tendency, this is my, my thing, I'm a, I enjoy helping people.

But the problem with me starting my own business is I enjoy helping people too much that I, by the time [00:05:00] I become friends with them, it starts to, the lines start to blur. How do I make it? Where that line is still there. And so that I get paid, because that's the thing is like, like how can I avoid basically getting stepped because they think that I'm their buddy.

So that's my biggest,

JC: so, so Sonny, if we think about this, you know, as they say, it's good to sell, it's good to set boundaries, it's good to, to, you know, make sure it's a win-win type relationship. How do, how do we do that in the law? How do we kind of create these dynamics where there's an understanding, there's mutual respect?

What are the best ways to do that?

Sunny: Yeah, it's a great question. You know, I think the answer I always say is. You have the lawyers, and you have your advisors and your outside consultants there to do the hard work and to have the, the structure of the relationship developed, right? So the answer in short, in short terms, would be having a strong contract, right?

Lily: Mm-hmm.

Sunny: And the point is, is that you have a strong contract. You maybe have something like [00:06:00] a late fee after 10 after five days, you know? But you may just choose to waive that as the business person, right?

Lily: Mm-hmm.

Sunny: But you go to the lawyer and you say, these are all the possible things I'm worried about.

How do we make sure. That that doesn't happen, one, and if it does happen that there's a clear procedure to resolve the problem from the legal side, right?

Lily: Mm-hmm.

Sunny: But then you as the business owner, the entrepreneur, you may waive a clause. You may not enforce something. But the answer to that question, people taking advantage or not, is you have to make sure that the terms of the relationship are established clearly so that there is a problem.

You can go back. To the Bible, you can go back to the, to the contract, to the governing document and say, well, this is what you agree to and these are our terms. So, you know, it doesn't necessarily need to be, I'm gonna sue you, but

Lily: mm-hmm.

Sunny: You know, this is the contract, so we need to follow the terms of that.

Lily: Basically more documentation, making sure that you basically,

Sunny: I, I [00:07:00] wouldn't say necessarily more, I would say. Stronger, sharper and more tailored to your specific business.

Specific to the issues that your, that your business may come across that issues that you may be concerned about. You know, it doesn't necessarily need to be longer or more, it just needs to be tighter.

It needs to be more prepared and planned out and specific. That, that's my perspective from. From counsel.

JC: So, so Lily, you've heard the, uh, attorney's guidance here, as you're saying, you know, you're, you know, such a caring and compassionate person wanting to give, how, how does that make you feel?

You know, are you, are you a little nervous doing a contract or what, you know, kind of hearing that, what, what, what's your perspective?

Lily: I mean, like contracts are I, I know they're. They're very necessary. I mean, I've, I've heard of people basically agreeing to do something. Like for instance, like let's say somebody hires somebody to do a specific job, right?

[00:08:00] And they pay it paid f first, um, half, and then second half when it's completed. And then, but then when they complete it and it completes faster than, than expected, then the person, the customer goes, I don't wanna pay the full amount. It didn't take you that long, but you had already agreed on that, that, that, um, price.

Sunny: Right. So agreed. How,

Lily: yeah.

Sunny: What was the agreement? Is it in writing? Did you agree?

Lily: Like in writing? Yeah. Or, or that type of thing. Can, is there, can that person go and say, Hey, like, it was a lot faster than what you saw, and that's, this has happened. Okay.

JC: Right.

Lily: Yeah. And, and that's the thing that I am concerned with where I don't wanna have to go to small claims court.

I don't wanna have to fight for every penny of things, you know, like. Sometimes you, you do something by the hour. Sometimes you do something by the job. It just depends what it is, right?

Like,

JC: okay. Can I, so can I ask you a, so what you're [00:09:00] saying is you've entered into an agreement with someone.

Lily: Mm-hmm.

JC: You set expectations, but things went sideways somewhere. Yeah. Meaning that you e the person, either completed something. Faster than expected or not as intended. So what, what's the legal dynamics here? I mean, so like, let's say,

Lily: I mean the, but the thing's completed, there's nothing wrong with it.

Okay. Like it did, they did a good job. But then the person, the customer literally will say, well, this happened. Okay. Like this literally happened to a friend of mine. Then the client. The second, why am I paying you the second half when it only took you an hour when it should have ta?

Sunny: And the answer is because you signed a contract.

Lily: Exactly.

Sunny: There's no emotions. I know. I mean, you know, I, I, I totally understand the, your perspective and the actual, the way that small businesses work. You know, I run a small business too. I completely understand. And I deal with tons of small businesses. You know, JC and I deal with small businesses all the time.

Lily: Mm-hmm.

Sunny: So, you know, I, I know it's, it's maybe. [00:10:00] Not an answer that is

Lily: it just sounds,

Sunny: it doesn't feel great. But the point is, is that with business, you, there's a balance.

Lily: Mm-hmm.

Sunny: You know, there's a, there's a duality in everything. Right. You know, the, you're running a business, you wanna be nice to people.

You of course, you absolutely do that, but you also simultaneously have strong agreements. Yeah. Because you can't let people take advantage of you. And if they're not gonna do it. Because they're, they're ethically and morally the right, uh, person. Then you have your backup agreement. Yeah. This is what we signed and you know, I'm sorry, but this is the agreement.

I, you know, it's. And I, I understand where you're coming from. 'cause as a business owner you wanna do the right thing. You want be nice,

Lily: you don't wanna upset your customer, you don't wanna get a bad review. Sure. And that's, that's what happens with a lot of business owners is Sure they allow people to take advantage of them because they're so afraid of getting that bad review.

Yeah. And people have taken advantage of it so much. Yeah. And it's frustrating because I see that with a lot of my friends with their businesses where. I mean, remember when Yelp was a [00:11:00] thing? Yeah. And like, nobody said anything about Yelp people because they were afraid of the backlash.

Sunny: Mm-hmm.

Lily: And I don't know if you guys knew this, but I actually sued Yelp and Wow.

Yeah. Back in 2010, I think.

Sunny: No, I, we didn't,

Lily: I was, I, I was the named person, for the class action action lawsuit against Yelp, because they were. Because I had over a hundred thousand followers and, I think I had like almost 500,000 followers and they, I had too much power.

So what they did was they were deleting people who have too many followers and saying that they're getting paid for the reviews, which wasn't even the case because they were trying to sell advertising. So why would you pay a thousand dollars a month to Yelp if you could just like, offer a free meal to like a influencer or whatever?

JC: Let's zoom out on this question. The question is, okay, you're a small business owner. You wanna keep your clients happy.

Lily: Yes,

JC: you want to, you know, do well by them, but

Lily: the client's being an unfair,

JC: the client might. [00:12:00] Be, you know, asking for a little bit more. They might be saying, can you do a little extra?

Can you give me a discount? So

Lily: after you've completed the project,

JC: the question for council here is

JC: you know, how, how do we, how do we, how do we make this win-win? You know, how do we make sure that, you know, the business owner is, you know, satisfied and as whole, but also. If someone has given them a hard time to kind of deescalate what are some tools or some options that someone like Lily or someone in her shoes could go to?

Sunny: So I think like life, same as in life in business, we need to make sure that. We have our boundaries, right? Yeah. And I think, you know, that's why, you know, we're called Azure Counsel, legal Services and Business Counseling. You know, there, there's a lot of counseling that actually goes on with, with small business work because we have to remind entrepreneurs and business owners and soul props, you know, that.

You are, you're in business and somebody's taking advantage of you, [00:13:00] okay?

Lily: Mm-hmm.

Sunny: And I know it's hard, but sometimes we have to put a firm line and maintain our boundary. So to me, the answer is. Either outsource the collections to, to somebody else, have, um, some kind of manager or counsel or, consultant.

I mean, typically counsel, but try to, if somebody's not paying or they're not doing the right thing, you know, there is some, some avenues to do that. And then the other thing I would say, going back to the reviews and all of that too. There are certain contractual, uh, terms that we build in

Lily: mm-hmm.

Sunny: To client service agreements. Okay. And one of those examples is what you were referring to is a respectful communications clause, okay?

Lily: Mm-hmm.

Sunny: I mean, it's, it's not a silver bullet per se, but the idea is that the client is agreeing to come to you and discuss the problem and try to work out a solution before.

[00:14:00] Posting a negative review or filing a complaint. I mean, again, you can't restrict free speech, but the point is, is that it's an attempt to try to deal with. Resolving a problem short of litigation, and there's also other tools like mediation and, and, uh, arbitration.

JC: Arbitration. Well, Sonny, let me ask you a question.

So what you're saying is, so if Lily is working with someone and they're, you're trying to work something out. And that person says, Hey Lily, I want to take you to court. What you're saying is that Lily and this person need to try to work it out beforehand. Is that what you're saying?

Sunny: I'm saying if the contract right, that was signed by, by Lily's entity.

Lily: Mm-hmm.

Sunny: And the client. Right. The first question is always, what does the contract say? What are the terms of the contract? Okay. What are the obligations of both sides? And what does each person have to provide, you know, either services or cash in order for that [00:15:00] considered bargain for exchange, right?

You know, what are the terms of the agreement and then what are the dispute resolution terms of the agreement, right? So if something is, uh, if something's a problem, what does it say? Do we, do we have a mediation clause? Do we have an arbitration clause? Do we have a. Uh, negotiation, sort of talk and try to resolve.

You can build in procedures short of court, right?

JC: And, and so Lily, you know, there's a big word now in, in, in the law. It's called a DR for short, but it's called alternative dispute resolution. We can talk about that, you know, mediation and arbitration. So, when you, as a small business person hear this concept of mediation, what does that mean to you?

Lily: I mean, just having someone, a third party that is, you know, non partial, that can, can listen to both sides and, and try to find a resolution that would hopefully satisfy both sides,

Sunny: yes, exactly. So mediation is, [00:16:00] is that basically it's somebody who generally gives a recommendation? Yeah, it's not binding.

They listen to both sides and they say, this is what. I recommend you guys do. You don't have to do it, but it's, it's somebody who comes in and gives you their suggestion.

JC: So let, let's zoom out, but why, why should we, why don't we just go to court? Why should we do mediation in the first place? Why? You know, it's like if I'm really having an issue with Lily, faster, cheaper, why don't I just take you to court?

I mean, why, why, why does mediation exist at all?

Sunny: Yeah. Faster, cheaper, encourages the

Lily: communication.

Sunny: Maintain, yeah, communication. Maintaining the relationship. You're not severing the relationship. Potentially it encourages a workout in a much more effective and efficient way.

JC: And is this, does this go to court or what, what is, what is mediation?

Like how, how, how does it work?

Lily: Who, who does the mediating usually?

Sunny: Yeah. So the ADR is broken up into mediation and arbitration.

Okay. Mediation is non-binding. Arbitration is binding. Okay. Okay. So you can potentially do both before court or you can just say. Mediation and then arbitration to [00:17:00] resolve it.

No court.

Lily: Mm-hmm.

Sunny: Right. Yeah. It depends on what the terms of,

Lily: do you have to do arbitration if you resolve it in mediation or, or is that No,

Sunny: no. So the the, so you

Lily: arbitration would be the next step.

Sunny: The next step, exactly. Yeah. If you can't make an agreement. Exactly. So mediation is the suggestion. The parties can agree or not.

Lily: Mm-hmm.

Sunny: And then if they don't agree, then you would go to binding arbitration. Somebody comes in, it's out of court. So you don't have the same strict rules of evidence or procedure. And you essentially just tell your side of the story

Lily: is a judge or is it

Sunny: it is a retired judge or a retired lawyer or,

Lily: or something.

Sunny: You know, there's experts particularly within small business also. So yeah binding arbitration is certainly a great alternative. To litigation because the court's always open, right? Yeah. Anything you can go to court. Right. But if you, if you don't,

Lily: that's a lot of work to going to court.

Sunny: Yeah. But if you have these type of provisions in your agreement.

It, it encourages resolution.

JC: So going back to your [00:18:00] original concern, Lily, you know, you're like, well, what happens if things go sideways? What happens if a contract's not followed? What happens if someone doesn't disagree? What, what do you think about some of these options here? Like we call a good faith clause in a contract or an a DR clause?

What, what, what, what's your take here?

Lily: I think those are like all really good options. I mean, these, you know, I didn't know that mediation, arbitration, you could just do it that way as like a step. Versus like, but I think that that's something that, that a lot of people don't really understand that or don't really know that, so it's always nice to know that what, going back to the contracts

Sunny: Yeah.

Lily: I mean, how, do you have to hire a attorney to put together a contract or can you put together a contract? Do you guys have something that someone can download as like a, a whatchamacallit as a outline for a contract or a service agreement?

Sunny: So the answer to that question is, if the, sort of, the essence of what I'm saying today is that.

If we [00:19:00] can tailor a client service agreement very specifically to your business, your concerns, things that you're worried about, issues that you've seen, or that you're anxious about, obviously the, the, the tailoring of the template is. Is you know, specific and not something that can be downloaded per se, right?

Lily: Mm-hmm.

Sunny: But they're generally I'm sure there's templates out there, right? Yeah. But I think this the, you know, I know that lawyers always sort of can feel like bottlenecks for entrepreneurs. You know, I'm doing, I'm running business, I'm doing my thing. I don't need people in my way to slow things down or extra expenses, right?

But the point is, is that. We have to think as think about the value that lawyers can potentially bring to a business, right? The idea that we

We create a one time we create a client service agreement that we work

Lily: mm-hmm.

Sunny: This template that's tailored for your business.

Lily: Mm-hmm.

Sunny: And all we have to do is.

Edit the name of the [00:20:00] party and edit the scope of work. And the rest of the legal terms and business terms are specific to your business. There's a lot of value and a lot of issues that you could be avoiding. So, you know, there, there are probably ways to do it in a cheaper or more cost effective way, but I think there's a ton of value and actually.

Having that deep conversation with your attorney and creating a very planned, prepared client service agreement that you can use for all your clients in all the future. And I think there's a, that's very cost effective.

JC: And, and just to add onto that one thing that, uh, we, we do it as your counsel as we start by really listening to what is the business, how do they operate, what are their you know, specific products or services.

That are being offered. And then from there, a, a contract can be tailored because that, some companies are, you know, manufacturing heavy equipment. Other, other businesses are involved in, you know, [00:21:00] serving customers as plumbers. So there's a wide variety. Of, uh, you know, how money is received, how collection, you know, how do you collect the payment.

And so to answer your question you know, it's really important as a small business owner thinking about, how are you interacting with your customers? How are you being paid? How do you wanna resolve things if things go sideways? So those are some of the things that, uh, council is really brainstorming.

Lily: I think it's definitely helpful just to at least have a, a template for outline. Like I don't, I think it's really important to have an attorney to kind of, to help you with the, the contract at the end, but at the very beginning, at least be able to. Organize your thoughts. So then that way that you have a smoother meeting and then that way you'll have a better agreement or better contract.

Because that, that's the thing is like half the battle when you, um, when you start a contract, is trying to figure out like the direction where you're going.

Sunny: Mm-hmm.

Mm-hmm.

Lily: And I [00:22:00] think like having that outline will be helpful to everybody. Mm-hmm. And in that way. When you do meet with the clients, I think it will be helpful for them because they have more, uh, organized thought then you, then you could find what's missing.

Then you figure out versus having to build from scratch.

Sunny: Mm-hmm.

Lily: From at the meeting. Just find out like all the bells and whistles, all the things that they need to, they need to put in.

Sunny: Yeah. And let me, let me add to to what JC just mentioned there in terms of. Different types of businesses have different types of risk.

Okay. It's really

Lily: a hundred percent.

Sunny: Yeah. Yeah. It's important to just like frame, frame the issue broadly that way. Mm-hmm. Right. Because not all, not all businesses are gonna require the same client service agreement or terms and conditions, or there's a variety of, you know, ways that businesses protect themselves.

It's not just a contract per se. Right. But

Lily: I think like, like a [00:23:00] questionnaire like. You know, what's the, like the, you know, before they have a, a meeting with you, they go, Hey.

Sunny: Absolutely.

Lily: I'm starting this kind of business. This is what it is.

Sunny: Oh, absolutely.

Lily: And then like, what's your target audience?

Like how do you get paid or whatever. Whatever things that you guys need to know in order to get that outline. I think that would be something that would be helpful.

Sunny: Absolutely. So let me just add on to what JC was saying for the benefit of the listeners because. There are, I assume there's gonna be a lot of different types of businesses that people are thinking about, um, when they're listening to this episode.

And I think broadly from like I was saying, you know, I want the listener to get the benefit of understanding how lawyers think about risk and understanding how they think about your business. So, broadly speaking, different businesses have different risks, you know, so we kind of like to think of it as a scale, you know, or.

Sort of a spectrum of risk. And whereas one side of the, the spectrum are [00:24:00] businesses that are dealing with overnight stays or serving alcohol or, uh, dealing with children or education, you know, something like a bar, restaurant, hotel school fitness, consultants. Those are one sort of on one side of the scale, um, side of the spectrum versus the other side.

Are more business consultants or the strategy or maybe in design, right? There might be less. Risk that that type of business has. So we always want to think about specifically, what are you doing for your business? You know, what type of risk are you exposed to? What are the contractual protections you have in place?

What are the LLC protections you have in place to make sure you're not co-mingling? Business and personal funds, what type of insurance do you have in place? What, uh, agreements do you have with your vendors, your clients, your contractors and your employees? [00:25:00] And then broadly, what type of umbrella insurance do you have, right?

So it, it is all very specific. It matters what business you're doing and how. Where your business falls on that spectrum of risk. And then from the council's perspective, how we can hedge, mitigate, and shift that risk as best as possible.

JC: So, so Lily, bringing it back to, to you and, thinking about.

You, your family's business, some of these other friends, you know, what, what are, what are some risks that you're seeing, you know, as you, you know, what are some risks that, uh, that you've kind of seen, and then what are some things that could be helpful to you?

Lily: I mean, just mainly, you know, people not wanting to pay for things.

That's basically what it's,

JC: you told, you told me once we, there's a joke that you always have. Everyone's trying to get something for nothing.

Lily: Yeah. Yeah.

JC: Yeah. It's just like, good luck with that.

Sunny: It's, it's probably the most, uh, common problem that all businesses have, right? Yeah. So, you know, that's why [00:26:00] sometimes we might implement a different procedure.

Pay me upfront, right?

Lily: Yeah.

Sunny: This is the contract, you know, like,

Lily: yeah, pay half now, pay half later. Which is like, what, what I usually suggest people to do. Yeah. I mean, I honestly just. I go to my friend's businesses and not expect a discount,

Sunny: mm-hmm.

Lily: Um, and I still support them. I post social media, do whatever I can, but at the same time, like if they want to like give a discount for something or whatever, a comp do a compliment because that, that person's helping them, that that's totally fine.

There's nothing wrong with that, but I feel like a lot of people. Don't go into the friends' businesses with that attitude where I plan on being here to support your business.

Sunny: Mm-hmm.

Lily: I'm not here to get a free meal, to get a free this, free that. I mean, like, I appreciate it when people call me, but I always over tip.

I always like tip at least what the, the product is.

Sunny: Mm-hmm.

Lily: You know? Mm-hmm. Because I feel like, or at least 50% is the minimum. I feel like you should tip what? On top of like your regular tip,

Sunny: so that, I feel like that is the duality of like [00:27:00] the legal black and white kind of hard perspective running a business, professionalism versus.

A small business, it's a little softer. You know, think about going into to Louis and saying, oh, can I get a discount on this? I mean, that's not the way it works.

Lily: Oh, you have no idea how many people ask me for free food from my family's market. And it's not even my market. It's my mom's sister's market.

Sunny: Exactly. So I, I think that's just a problem that small business owners have, right? That

Lily: mm-hmm.

Sunny: People recognize it's a small business and they try to use that leverage against them. So how do we bolster up the small business? We have strong agreements. We have a clear procedure. We have, this is the way we do things.

You know, it's, it's like comma assertive, you know? Yeah. Seasonal Milan. If if you're not comma assertive walking your dog, your dog's gonna walk you, you know? So I think that's a really important, and it's a real problem that people have. And

Lily: a hundred percent,

Sunny: maybe it's shifting more to the mindset of I'm a, a medium, or I'm a big business, I'm established, I have, I've been doing, I've been running the business this way.

This is our, this is [00:28:00] the way we work. You know, like, this is our terms. Take it or leave it, or, you know, maybe there's something we can work out here. I know it's, it's hard to hear that, but the backend of being nice is then we deal with all those problems, and that's not a fair situation.

Lily: Yeah. It's, it sucks.

You know, like, and the, at the end of the day, like, I would never expect a discount. I'm always like, oh, cool. Like, but I always, I always wore the makeup for the discount because I appreciate it. Because I understand how hard it is, you know. Um,

JC: so Lily, bring this back to you. We kind of started this conversation kind of like, well, what do you do now?

What, so you've kind of, you know, we, we've talked about some options. We've kind of talked about the legally, you've talked about the pragmatism. So kind of how, how do you feel about this, you know, as you're kind of venturing out starting new venture, how, how do you, how, how you feeling?

Lily: I feel pretty confident.

I feel like, you know, um, a lot of my questions are answered, but. I wanted to probably like, I don't know if we have time, but, um, maybe talk a little bit about like, like the [00:29:00] exit strategy, that type of stuff.

JC: Great. Well, what we'll do is, we'll, we'll put a pin in this conversation for protection.

Lily: Mm-hmm.

JC: And, uh, you know, great segue there. Our, our next episode we're gonna be talking about exiting that, you know, it's like you've worked so hard to build something. Now what?

Sunny: Yes. Am I selling it? Am I passing it on? Am I am I growing it even bigger? You know, what is the next step? What is the, what is the timeline and what does it look like for once you've grown, started a business, you've grown a business?

Then what?

Episode 4

JC: [00:00:00] Welcome back everyone. It's great to be here with our friends. Uh, this is JC Stiassni here with Sunny Kakwani and Lily Pak.

Lily: Hello.

JC: We've been having some really great conversations. We talked about how do you start a business? How do you grow a business? How do you protect it? And you know, here we are, we're now thinking about.

What's next? So it's like the, what we call an exit. And so that could be selling a business, that could be transferring a business, that could be bringing a management team. All sorts of options that, it's great to have success. It's great to reach. Points even beyond your wildest dreams. But once you're there, you kind of wonder now what, so we're, we're gonna be diving in to that conversation.

So Lily, I wanna lead with you. You know, my question to you is now what, you know, you've succeeded. You've, you've built up this great company, you've really achieved these things. You know, what are, what are some things you're hearing in the small business community? [00:01:00] What, uh, what are, what are some topics you're hearing around this idea of exit?

Lily: So I, I mean, I have so many friends and family who are in the small business community, and they're all. Concerned about the same thing right now because a lot of people who are aging out of running a business, you know, and they're thinking about selling it, handing them down to family members, that type of thing.

I personally am not looking to or planning on getting rid of small, small business anytime soon. But should I be thinking about a exit strategy now? Should I plan that ahead of time? What do you guys think?

Sunny: Yes, absolutely. That's a strong yes. From my perspective and from, I think any council's perspective, the right time to start exit planning is in the beginning the first day of your business.

You want to think about how I'm set up and when I'm ready to move on from this passion of mine. It's almost [00:02:00] the gift and a curse of all entrepreneurs. You know, we're very passionate. About things, but then at some point that passion runs out and we're ready to move on to our next passion. So from my perspective and from council's perspective, it's always gonna be exit planning starts from the beginning because the key to exit is making sure your foundation is strong and set up properly.

JC: But Sunny, what what you're saying is. You want to think about the exit before even growing? I mean,

Sunny: can you believe that?

JC: How, how so? Wait, wait, wait. You like, don't you wanna grow the business? Or like, what, what, what, what do you mean? Yeah, tell me. Like, unpack that for me.

Sunny: Yeah. I think, you know, that's a great point that you're making there, JC and I think that's also part of the, uh, part of what we talked about last episode that might have been a little frustrating for.

For Lily and our other entrepreneurs out there, I don't wanna do that and I don't want to do these unnecessary things. I'm just trying to run the business, you know? Mm-hmm. And I think it's, it's a hard thing to think about as an entrepreneur because we're much more [00:03:00] pragmatic. We're on the ground, we're pushing things forward.

We're only focused on the things that have value. And it's hard to understand the value in having a client service agreement or. Having the contracts. Yeah, contracts like, or doing what the lawyers are saying, or you know, why, where's the value in that and. That is a very, uh, specific thing that comes back to us all the time.

You know, people say, oh, um, you know, um, this client is giving me a, a difficult I'm having a hard time with this client. We'd say, all right, show us the contract. There's no contract. You know, uh, my, my business partner wants to exit. I wanna buy them out. Okay, great. Let's look at the terms of the partnership operating agreement and how you've determined valuation.

There was never an operating agreement signed. So do you know not having that there in the beginning, how many problems can result from that? First of all, the time to do that is in the beginning when everyone's feeling good, everyone's positive, we're gonna do this great business [00:04:00] together. That's when you have the leverage and opportunity to, to do something good If you, you try to do that when there's already a dispute or there's an argument.

You know, it leads to court and high costs. So yeah, the point is, the foundation is always thought about the beginning, the middle, and the end. You know, exit planning doesn't just start at the end. It's making sure that your foundation of your business is strong.

JC: So, so Lily, there's the classic quote.

Begin with the end in mind. How, what you know, thinking about that quote and thinking about what you're hearing, I mean, what you know. Would you, is that advice you would tell some of your friends and family or kinda what, you know, walk me through your thoughts.

Lily: Well, I mean, I'm thinking like if it's a sole proprietorship, I mean, would you need operating agreement for that or if would it be beneficial?

What if you start off as a sole proprietorship or LLC or what's the difference between all that? I know we went over that on the first episode, but re refresh my memory. What the benefit of each of those things are and how that would [00:05:00] actually affect, handing it off or selling it or that type of thing.

So

Sunny: yeah, and I think that's a great question because. The basic response to somebody saying I'm selling my business would be, what are we selling? Mm-hmm. What are we selling? Are we selling

Lily: the value? What's the value?

Sunny: Yeah. So valuation is determined. Mm-hmm. By, we have to either pick apart the assets that are being held by the LLC or corporation and then we sell the assets.

To another person or business. Right. That's called an asset sale.

Lily: Mm-hmm.

Sunny: An asset purchase or asset sale versus are we selling the entire business? We're selling the stock of the corporation to somebody else. We're signing it to somebody else who's gonna come in and take over the business. Or in the LLC perspective, it's membership interest units.

Are we selling the entity or are we taking the assets out of the entity and selling those assets to somebody else? Or in your example, without the entity, you know, just a sole prop, [00:06:00] am I just gonna sell the assets Right. That I'm holding personally as opposed through an LLC.

Lily: So what if there's no real assets?

It's a, the entity itself. It's the name, it's the brand.

Sunny: Yeah. Okay. So that is an asset, right? Yeah. Asset is reputation, Goodwill. You know, the client list, the phone number, the website, the file trademark, right? Mm-hmm. Those are all considered assets. We have to kind of get into a specific example, right?

Like, what am I selling? Is it, you know, there's hard assets and soft assets, right? Mm-hmm. That's another sort of part of the conversation.

JC: So, so let me jump in. You know, this is, it is great. We're talking about, begin with the end in mind. You know, Lily, you're just getting started here with Portland Small Business Network.

Mm-hmm. So we're just getting started. Why don't we talk about a potential end exit for Portland Small Business Network. What do, what do you think?

Lily: Well, yeah, definitely. I mean, I built this group, as just like a little meetup and I've done a lot of consulting on the side, but I've always had a hard time charging.

So [00:07:00] at the end I wanna know, like, like once I switch it over to actual business and doing consulting, full-time consulting.

Sunny: Mm-hmm.

Lily: Um, how would I basically be able to switch it over? And then, and how would I be able to like sell it? Because I don't think my kids will be into it. My both my kids are in the medical industry.

They're not gonna do this.

Sunny: So the consulting work, when you're saying switch it over, I mean, I would say the consulting work that you are continuing to do, that you will continue to do for other small businesses, should be wrapped up and put together either. Taken out of Portland small business or created from.

You need to kind of unwind that from Portland small business 'cause you're gonna continue to run that.

Lily: Yeah.

Sunny: Right. So that, I think that's a separate question. That's the question after I sell my business. Mm-hmm. Right. I'm going to start a new business or I'm going to grow this existing business. Right.

Versus. Could, [00:08:00] because the buyer of the business is gonna say, well, I want that. Also, you're consulting you're consulting relationships, right? Mm-hmm. So we have to really think about drill down,

Lily: separating them.

Sunny: Yeah. Well, what are you selling? Right? What, what, what are you, what would you sell?

You're selling the client list, you're selling the vendor contracts. You're selling the name. If it's trademark, the website,

Lily: I feel like, like with Portland Small business. Mm-hmm. Because it's a, it's a group itself, right? Mm-hmm. I basically wanted to add consulting to it. Like I don't want it as a separate business.

I want it to be a part of it.

Sunny: Okay. So if you add consulting to the business

Lily: mm-hmm.

Sunny: Recognize that a potential buyer who's gonna buy mm-hmm. Who's gonna wanna buy Portland small business may also say,

Lily: I wanna buy the consulting site.

Sunny: Yeah. Lump that together. You've already lumped it, so I wanna buy it all.

Lily: Yeah. So would it, so it would be beneficial to have it separate. And to have it as a partnership versus,

JC: well, let, let me jump in. There's this topic in the [00:09:00] law Yeah. Called key man risk and or in, in this case key, key woman risk. Yeah. 'cause you know, anyone who knows Lily Pack, you know, she's a superstar, you know, in terms of knowing so many people around Portland.

So. Mm-hmm. To your point, this is a question to you, Sunny, that. Okay, we've created this business put in small business network. There's a consulting here. Is a buyer gonna want Lily to stay? What's it gonna, or do they want them to go? Like, how does that play into this conversation?

Sunny: Yeah. I think the answer to the question is what?

What is my goal? And what is my goal after? Okay, so any, the way to answer the question is what am I gonna sell and what am I gonna keep? Right. If you're intending to. Continue to consult, right?

Lily: Mm-hmm.

Sunny: The, the thing I would say is probably don't lump that together with pull in small business. Go back to our episode one.

Lily: Mm-hmm.

Sunny: Let's set up a new entity. Have that structure and that business and everything you create outta that separate [00:10:00] completely, right?

Lily: Mm-hmm.

Sunny: And then let's bulk up and build out and

Lily: mm-hmm.

Sunny: Really delineate and specify, maybe talk to a broker to look at some valuations, right? Like, we'll, let's really.

Bolster what we're selling.

Lily: Mm-hmm.

Sunny: Right? And that, that means we have to really break down what we're selling the client list, the website, the reputation. Right? We have to really think about who's gonna what is the value here and how, who's gonna want come in and what do they want to take from this?

And mm-hmm. Can they run with it, right? Like, mm-hmm. That's, so, that's why I say it doesn't necessarily, it's not at the end, right? These are at all stages of the business. Through different growths and growth spurts of the business. You might be thinking about this, right? Mm-hmm. Let me build out my trademark, let me develop, a vendor agreement, right?

Those are all steps, those are all assets of the business that are eventually have value and that eventually can get sold.

JC: Lot, lot, lot of details there. A lot of [00:11:00] things to unpack, so. Lily, what, what are what are your thoughts? What, what are you thinking here?

Lily: Trying to figure out like what's a better, um, structure for me?

If it's like a LLC or what, what are my options again? Or

Sunny: LLC or Corporation.

Lily: Corporation. Yeah.

Sunny: I mean, generally LLCs are easier and more flexible, so I would say the answer to that is if you're not looking for outside investors. Then generally file for about prepare an LLC.

Lily: What about, so prop prop, is that like an LLC?

What's like I'm completely prop Yeah. I'm completely naive to all this.

Sunny: Oh, it's okay. I, you know, anybody can go right back to episode one and,

Lily: yeah. No,

Sunny: we'll, uh, you know, break this down in more detail, but, so prop is. Kind of the, before somebody forms the entity. Okay. So it's essentially so prop and then they

Lily: switch to an LL system,

Sunny: they convert to an LLC, and then they run their business or they sole prop and they convert to a corporation.

Lily: Corporation. Got it.

Sunny: Yeah. And then the second que part of the question, going back to. [00:12:00] The original is what are we selling? Right? So it's either an asset sale or a stock sale.

Lily: Mm-hmm.

Sunny: Okay. Those are the two things. If you have an entity

Lily: mm-hmm.

Sunny: LLC, or corporation, you're gonna sell. Most likely the stock versus if you, you strip out the assets, it can be the assets of the business.

JC: So, yeah. Que question for you, Sunny. When I, when I hear you say stock, I think stock market, so I mean, are we, mm-hmm. Are we selling shares here or what, what, what does that mean? I mean, so assets sell, you're selling your equipment, your inventory, you know, your kind of physical, tangible items.

Sunny: Yes.

JC: What, what, what is it?

What's stock sell? What, what does that mean?

Sunny: It means that you are selling the entity, the entire structure of the business. So,

JC: so Portland small business network is being sold, you know, kind of all of it. It's so kind of un unpack that.

Sunny: Yeah. So, corporations have stock and, public or private that, you know, people think of stock and they think of the stock market.

So those are corporations that have gone public, [00:13:00] right. Versus. Corporations that are private, you still have an Oregon corporation, and what you have is you have stock of that business and the parallel to that is an Oregon LLC.

Lily: Mm-hmm.

Sunny: It's just different terminology. You don't say you have, you. LLC stock.

You say you have LLC membership, interest units, so that also can be dealt with through estate planning and the succession,

Lily: mm-hmm.

Sunny: Of the stock or the membership interest units, but also on a sale you could either sell. The, the a, the inventory, the assets, the things that you mention that the corporation or the LLC holds

Lily: mm-hmm.

Sunny: You can sell those assets to somebody else.

Lily: Mm-hmm.

Sunny: Or you can sell the entire business, the entire corporation or, or LLC to somebody else. You can say Portland small business, LLCI know it's not set up that way. Yeah, yeah. But you can say Portland small business, LLC. Lily Pack is the managing [00:14:00] member, and now I'm selling it to JC Sansi and he's gonna be the new managing member.

JC: So, what do you say, Lily?

Sunny: So you're assigning this,

JC: you, you want, you wanna do a deal? Let's, uh, let,

Lily: no let's

JC: go. What do you think, sir? I mean, you we're kind of talking these kind of big picture things. Yeah. You know what are some of your thoughts or are some of your questions?

Lily: Well, aside from point Small business Network, let's say it's like a retail store.

Yes. Right. This business has been in business for several decades. The parents the owners Yes. Are ready to retire. The kids do not wanna take over the business. Yes. They own the building, but they don't wanna sell the building. They wanna sell the business. Or what other options do they, they sell just to name the business, the inventory, but not the building?

Or can they just, or do they, can they split the business into different things? Like, um, just like the business itself? Or the wholesale versus the retail or something like that.

Sunny: Yes.

Lily: How do they break that down?

Sunny: Okay. So when somebody has a retail business, just starting from there. Typically when somebody has a retail business, the other [00:15:00] big thing that we need to think about in a sale mm-hmm.

Is liability. Mm-hmm. Is a lease, right?

Lily: Yeah.

Sunny: Typically, somebody is in a lease that has retail space. Mm-hmm. And a lease is actually liability. Mm-hmm. Because the lease is, the business is on the hook for three years more of rent, right? Mm-hmm. So. When we're dealing with an exit, sometimes we're talking now from a positive perspective, right?

The business is doing really well. I'm going to maybe have a broker and list the business or sell to one of my employees or pass it on to my children. That's in a positive perspective. Mm-hmm. But the other perspective is also important to think about. The business isn't a real problem, right?

Mm-hmm. We can't pay our rent anymore. We have to shut down. What, how do I exit the business in a challenge? Right? And I raised that with your question here, because with leases. And retail spaces, leases are typically a liability. Mm-hmm. And we need to figure out a way to get out of the lease. Mm-hmm. But in your example, you're talking [00:16:00] about a business where the business owners also own the building, right?

Yeah. So, so that, that's a unique situation, not, not many entrepreneurs in the position that they also own their building that they're leasing from.

Lily: Mm-hmm.

Sunny: Okay. So in that situation. The landlord is also the business seller, the tenant, essentially, right? I mean, yeah. They're not, they're probably through different parties.

Yeah. They're, they're maybe one corporation, another LLC, right? Mm-hmm. But they're

Lily: essentially it to the same.

Sunny: Yeah. So the answer to your question is. We, if we're selling that business,

Lily: like, can you subpart business versus like the entire business?

Sunny: Yeah. That, that, that goes back to what you were asking, right?

Yeah. With the consulting, right? Yeah. So we can, we can either spin out a part of the business or. Create the consulting arm of the business through a separate entity. Right. The point is that we just need to develop a structure where it's separate. Mm-hmm. So the thing that we are selling or is [00:17:00] encapsulated within its own entity and I can do with the other stuff what I want.

Right?

Lily: Yeah. Because I'm more thinking of like, let's say established business people are re retiring. And they basically wanna sell like a, the biggest chunk of the business, but still wanna run a part of it. Mm-hmm. Like the building itself, or let's say there's like a food side versus wholesale side versus retail side.

Mm-hmm. Can they break that up? Yes. Or they, yes. In retrospect, because like, the thing is like, this business obviously has been established 'cause alumni, I'm talking about a lot of people who are boomers or are retiring, you know, and they're like. Well, I don't want to not have anything to do, but I don't wanna work as hard, but I can, I sell a portion of my business.

Sunny: Yes. And I just you're, you know, you're putting the, the building as part of the business, you know? Mm-hmm. And just the way you ask the question. So, again, what I, what we do as lawyers is be very precise and distill the issue, right? Mm-hmm. The bit, the building is not part of the business per se.

I just wanna,

Lily: that's a whole other thing. Yeah.

Sunny: Yeah. That's, and that's a huge [00:18:00] other thing, right?

Lily: Yeah.

Sunny: Owning a building is a huge asset in and of itself.

Lily: Yeah.

Sunny: And that's. You're, that is a business and you're acting as a landlord there.

Lily: Yeah.

Sunny: So yeah,

Lily: I'm talking more like the restaurant versus wholesale versus retail

Sunny: and that already if somebody owns a business and a and the building

Lily: mm-hmm.

Sunny: They definitely have an attorney. Mm-hmm. The, the first advice they got was to separate those two. Mm-hmm. Two things.

Lily: Mm-hmm.

Sunny: Yeah. Have the, the building held in a separate LLC or corporation. And have the business held in a separate LLC or corporation and have a lease between the two? They should, I mean, yeah, if that's not already the case, but they should.

Okay. For many reasons. For tax purposes, liability reasons. There's a whole, but yes, absolutely. To your second part of the question, the actual business we can spin things out of. Mm-hmm.

Lily: And

Sunny: c create the, the, the world that the entrepreneur wants, right? Mm-hmm. The point is, is like always what is the goal and Yeah, absolutely we can do that.

JC: So, so Lily, to put a, a [00:19:00] fine point on it. And this is the joke that lawyers use all the time, is it depends.

Lily: It depends,

JC: yeah. But, uh, you know, it's, you know, obviously the facts matter, the background matters, that was a really great analysis there, Sunny. I wanted to you know, take the conversation in a different direction here.

And so the question that the topic I wanna think about is this idea of the silver tsunami. Have you have both? You heard about this?

Lily: Yeah. Yeah.

JC: That you know, you know that Lily alluded to this, and Sunny alluded to it, A lot of people who are in the baby boomer generation are retiring.

Lily: Mm-hmm.

JC: That they may have businesses, they might have real estate, they might have these items.

And you know, we talked about selling. But I wanna shift gears to talk about estate planning. So let's say you own a piece of real estate. Let's say you own a business. Let's say you own both, you know, but the idea here is we want to transfer this to the next generation, either by a will, a trust, or other vehicle.

Lily, you know, [00:20:00] as you're talking to different small business owners or people thinking about, transferring to the next generation, or what are, what are you hearing?

Lily: I think like, one of the things that I've get gotten questions about was like. They, some people are talking about retiring, but not selling the business, but still like, kind of like still having a foot in the door, but not completely.

Mm-hmm. Like still owning part of it and having someone, it's hard to let go. Entrepreneurs

Sunny: can't let out,

Lily: especially if it's their baby.

JC: The classic mine is I wanna retire. Retire from what this, I

Lily: know this is

JC: what I do.

Lily: My aunt is pushing 70 and she still works at the market every single day. I mean, wow.

For the longest time she never closed the market and now she closes two days a week. Mm-hmm. And she closes for a month for the holidays. And

Sunny: we're a different breed.

Lily: Yeah. Just entrepreneurs are

Sunny: just born different.

Lily: Yeah. It's just, I'm like, you do realize that you need to see the world. It's instead of just being in your business.

Right. You know? And you know, I have so much admiration for, the old way of thinking, but. I mean, it's sad because like you don't wanna wait [00:21:00] until you're like barely able to walk to see the world. And, and that's the thing is like, but I know so many entrepreneurs that just like can't let it go completely.

Yeah. What do they do? What can they do? Yeah. To still own a piece of the business, but also retire, like have somebody else deal with like the day to day and not all that type of stuff.

Sunny: Great question. You know, again, this is another. This is another counseling question. You know, it's, it's part legal, part counseling, you know, and I think with small businesses, we love our entrepreneurs for those reasons, you know, because we have so much empathy for how mu, how hard they work, how focused they are, and how much they nurture their baby, it truly is.

So I think the answer to that is. You know, they're, they're a lot of different ways. One of them is key employee, you know? Mm-hmm. You mentioned it to some extent, but you know, it, it doesn't happen on the last day, like two days before I'm retiring and I don't have this plan. Right. It's, there has to be some, for some [00:22:00] foresight, you have to kind of project this forward, you know, and

Lily: giving little op little responsibilities.

Basically adding to them.

Sunny: Yeah. And yeah, and then, that can turn into. You know, an independent contractor agreement can turn into an employee employment agreement and then an employment agreement. Can turn into profit sharing or it can turn into vesting equity, right? Mm-hmm. Or it could turn into, you know, milestones where based on whatever external milestone, you know, there's more equity that's passed, right?

So. When you have an entity, like a, a

Lily: small business or whatever they call, or like,

Sunny: no, like a corporation or an LLC as opposed to a sole prop, right? Yeah. With a sole prop, you can't, you're not you're not kind of relinquishing that over time, right? Yeah. But when the benefit of having an entity, you can relinquish your equity over time, right?

Uhhuh, you can pass it on over time, either to a key employee, to a, you know, a, a sibling or child or [00:23:00] family member. Right?

Lily: Mm-hmm.

Sunny: But there, there are these little sort of, ways that the idea of retirement can become more realistic for an entrepreneur. Mm-hmm. It's hard to walk away, right? Yeah. But over five, six year, 10 year time, more and more equity is, is vested or sort of sold or given as part of compensation to somebody else.

Lily: Like we're equity basically.

Sunny: Yeah. I mean, that's one way. I mean, there, there's also. I mean,

Lily: they could purchase a person or something.

Sunny: Yeah. Oh, absolutely. You know, but that's the counseling question, right? If somebody doesn't wanna walk away, how do we get them to walk away? I mean, we, we have to support them and provide these options, but.

Yeah, broadly speaking, there's obviously a lot of other ways that you can sell a business. You can pass it on, but,

JC: so let, let's talk about,

Sunny: I think it's a great question.

JC: Let's talk about that question passing on, because, listen, I know some entrepreneurs want to be involved in, and you know it's their baby as long as they can.

But let's say you, there's a family that they have the next [00:24:00] generation, they're ready to go. How, how does that work? Is the title transferred? Does it go to. Trust, kind of walk, walk us through this idea of like estate planning. We're kind of transferring to the next generation.

Sunny: Yeah, I mean, it goes back to the structure, right?

It goes back to how is the business set up, right? And how the business set up is gonna determine the options we have with succession.

JC: So what, what do you mean? I mean, so like. Again, we're talking Lily's business here, you know, she's setting up an LLC

Sunny: mm-hmm.

JC: And thinking through that.

Sunny: Mm-hmm.

JC: You know, let's say down the road you know, again, we're beginning with the end in mind there, Lily.

Lily: Mm-hmm.

JC: So, we're thinking 20 years down the road can Lily, uh, create an estate plan with that LLC.

Sunny: Mm-hmm. Yeah. And that's actually a great question. 'cause, you know, at Azure Council we also do estate planning.

It's another area of our focus. And, you know, I'm, I think I'm uniquely qualified to kind of, provide this insight that I don't know if small businesses small business owners know, LLCs are a very interesting hybrid from an [00:25:00] estate planning perspective.

JC: Okay.

Sunny: Because we're talking about estate versus non-state assets, right?

I mean, this is a much bigger and maybe another series of episodes we'll do on estate planning, but broadly speaking. When we're thinking about estate planning, we're thinking about setting up the structure of our estate assets. Okay? And when I say estate assets, that means things that we own in our name, not owned jointly or not with a beneficiary designation.

Okay? So when we're thinking about things that we own, we always start with. What do I own is, depends on how it's titled and if there's a beneficiary noted on it, right? Like a retirement account, life insurance, bank accounts, houses, they're all of these different assets that people have. But when it comes to business, an LLC is a very interesting hybrid because if the LLC operating agreement, the governing document.

Has [00:26:00] language about succession that says, when I die, I want the membership interest units of this business to go to this other person. Okay? Or with a corporation, when I die, I, this other person should get this stock in the business. Okay? You're building in succession within the governing document.

That means it's coming outside of your state and it's gonna pass. To that other person automatically by operation of law.

JC: So, so Lily, we got a lot of legalese there, but you know, you know, it sounds like you, you've got a, you know, again, we're talking about creating your LLC. Mm-hmm. What are some of the benefits?

What are some of the value there? This, you know, what, what do you think about this estate planning as a value for your LLC?

Lily: I mean, that's a whole other animal for me because like now I'm, you brought up estate planning. It's bringing up like my family's investment property, you know? Mm-hmm. Is it we should, should we put, be putting in an estate so.

Let's sit. So that, is

Sunny: it, is it held in an [00:27:00] LLC or is it in a trust? Right? They're, yeah, they're all of those considerations and yeah. People usually think about LLC or trust because you're thinking about protection during my lifetime, but also succession.

Lily: Succession, yeah. Like, I'm thinking for my daughters, like when they get older.

Mm-hmm. Like both my daughters are in their twenties and they're doing well for themselves, but like I worry about, if I pass on and I wanna make sure that the property isn't. Taxed so much where they can't afford to keep the houses. Mm-hmm. And that's the whole thing is like, I don't have that many houses, but I have enough for it to be,

JC: sure.

Lily: A concern.

Sunny: Mm-hmm.

Lily: Because it's one of those things where you think of where like people talk about putting things in trust and then, and then also like insurance and taxes and all that scary stuff. And those are things that. I think should be something that we probably should discuss on another episode.

'cause that's a whole other animal.

Sunny: Mm-hmm.

Lily: And that's something that I'm really interested in learning about. 'cause I know that's something that everyone's been talking about as well, as succession.

Sunny: Yeah. There, there's, it is [00:28:00] an important subject. You know, I don't want to I'm trying to be as sort of, clear and distilled as possible to not convolute. Mm-hmm. The issue. But I, I just wanna say that it goes back to this overall kind of advice of this, these four episodes, right? Mm-hmm. Planning starts early, thinking about your goals is how we accomplish anything, right? And it happens at different stages, and it happens through thoughtful consideration.

And execution of that, right? Mm-hmm. And I just bring up the interesting aspect of estate planning with LLCs because it just is another vehicle, and it's another, if you're educated, you're empowered, and it just provides more opportunities. To accomplish your goals.

JC: So, so thus far, you know, we've been exploring this topic of exit.

We've talked about selling, we've talked about, distribution through estates. You know, what else can you bring in investors? [00:29:00] Can you bring in a management team? I mean, kind, you know, Lily, as you think about and Sunny, you think about what, what else, what else is out there? What other options, you know.

We're thinking Lily, 20 years down the line, you know, she's really successful. She's built this up. What could she do at that point?

Sunny: Yeah. My options always start with what is the goal.

JC: Okay.

Sunny: I always, you know, we can talk about a million options. You know, that's the beauty of law. Right. You know, the, the thing about law that a lot of people don't seem to understand, I remember this in contracts.

Lily: Mm-hmm.

Sunny: 1 0 1, they essentially said, you know, we can contract for anything. There are obviously some exceptions and rules. You know, you can't contract to hire a hitman. You know, there's legality, there's a, a variety of things that you learn in law school, but I wanted more concrete. I always thought of law and the contracts as so close end, right?

So limited. There's all these rules and structure. The thing you start to realize and what I'm, what I really want to convey to all entrepreneurs, you know, like once you have the knowledge, you recognize that it's empowering because we can do whatever you want to do. [00:30:00] And if you're clear about your goal, I can be clear about the solution.

JC: So, Lily, what do you wanna do?

Lily: I wanna get started.

Sunny: Exactly.

Lily: Let's get started.

Sunny: Yeah, let's get started.

JC: Let's get started. I, I, so, okay. In, in that vein, you know, we've had an opportunity here to really unpack a lot of these topics in terms of, you know, starting and growing, protecting and exiting. I mean.

What does this kind of make you think about Lily? I mean, you know, is it, is it exciting? Is it scary? Is it overwhelming? Kind of, you know, walk us through what you're thinking as a, you know, a small business owner, Ray, to take the jump here.

Lily: Well, I think it's always been, it's always scary to start something new.

It's always but at the same time, I'm excited because I feel a little more better equipped after talking to you guys.

JC: Great.

Lily: Figuring out my options, that type of thing. I think it's very important to, to walk in with knowledge so that you don't second guess yourself and having somebody guide you with that [00:31:00] knowledge.

It's very important. And I think that's why it's always it's great to have specialists, people who specialize in things and, you could always do things yourself, but it's gonna take you 10 times longer and you might miss something.

Sunny: Right.

Lily: And there's nothing that can replace experience.

And that's what I always tell people. It's, it's like, even, like, this is gonna sound silly. Having a maid service come to your house, that's gonna take them half the time, that would take you, and they'll do 10 times better job because they do it all the time. Same thing with mechanic. You could learn how to fix your car on your own, but it's gonna take you 10 times longer and you mi might not know what to expect because you don't know what to do.

And the same thing with law, like you don't really, you could read books until you're blue in the face, but at the end of the day. You don't have the experience, real world experience, and you don't have the knowledge to find things that are missing.

Sunny: Mm-hmm.

Lily: You know, it's great to like educate yourself and kind of learn kind of the outline of what needs to be done, but at the end of the day, it's [00:32:00] very important to have someone who has the knowledge and experience to make sure that it's done the right.

And that's so that goes smoothly. Yeah,

Sunny: you're talking about opportunity cost and Absolutely. Right. You know, once you recognize entrepreneurs recognize what kind of value they have in their own time and what they can accomplish, then you start to really, be able to let go of all of that control, like you refer to, you know, entrepreneurs also tend to be controlled because they, you know, they want to do things the right way and, and their way.

So the one thing I'll say, the last thing I'll say to. To in response. You know who's the expert, the biggest expert in small businesses, the entrepreneur. You are the expert. I'm I and jc. We may be the experts on the law, but nobody is an expert on your business more than yourself, right?

So I absolutely appreciate and recognize that you certainly do defer to the experts, but I hope that this, this [00:33:00] series of episodes. At least provide some baseline level of knowledge that leads to empowerment and really leads to entrepreneurs reflecting on their own goals, right? What did they want to do with their businesses?

What did they want to do in the future? What did they want to do? To avoid the problems that they're facing, right? Mm-hmm. And then if you come entrepreneurs with that clarity of their own business and their own goals, come to council, we can accomplish your goals very smoothly.

JC: And kind of in in that vein, you know, as we're concluding here.

I want both you Lily and Sunny, you know, just take a step back, think, you know, talk to a younger version of yourself or maybe a young entrepreneur out there, someone just getting started. What's that one piece of advice? You know, what's that one thing? We've talked a lot of different topics and a lot of different things, just to kind of wrap up, what's that one thing you would tell your younger version of yourself, that younger entrepreneur who wants to get started?

What would you tell them? Lily, what [00:34:00] would you say?

Lily: To not be afraid to ask for help, to not be afraid to, to, just listen to other people. I mean, a lot of times entrepreneurs, like I said, are very stubborn and they want do everything on their own and, but sometimes. Proving yourself as being so independent, you end up shooting yourself in the foot.

So,

Sunny: that's great advice. Yeah. Yeah. I mean, I think I would say believe in yourself. Believe that your vision and your view and your passion is unique. You know, there's only one of you out there in the world, and the things that you have and you bring to the table is special, right.

I think there the basis of what we do at Azure Council is try to empower others. So my piece of advice is believe in your dreams. Believe in your vision and stay committed to accomplishing your goals. And know that there's [00:35:00] resources out there. You know, if you, if you come with clarity, if you come with precision, your business will just continue to thrive and your, your vision will be.

Reality.

JC: Well, I love that so much great thoughts. So much great energy. I mean, what a, what a real privilege here to really unpack a lot of great stuff and, uh, hopefully beneficial for you, Lily. Hopefully beneficial for different small business owners out there. But I think we'll, we'll put a pin in it for now and I guess we'll regroup at, estate planning or other topics in the future.

Lily: Sounds good.

Sunny: Absolutely.