When Should I Invest In Legal Help? #1 - Protecting A Big Investment

****This is the first post in a four-part series about when it makes sense to stretch your startup budget to include legal help. Bonus Top Ten Takeaways post here!

Food entrepreneurs operate on slim margins and slimmer budgets. Every penny counts, and legal help is expensive. Plus, who wants to deal with lawyers, anyway? Legal is one of those things that just keeps getting pushed to the back burner, again, and again....and again.

Well, until something bad happens (maybe you got a cease and desist trademark letter, or someone says they got sick eating your food) and then you need that legal counsel RIGHT NOW.

Dealing with legal can feel yucky, but there are some good rules of thumb

People hate dealing with things that they don't quite feel confident handling and feel uncomfortable dealing with people that they don't necessarily like or trust (i.e., lawyers). This is just human nature. I'm pretty sure most food entrepreneurs view dealing with lawyers the same way I view picking a health insurance plan. No matter how hard I try, I'm not ever really sure I understand the rules of the game, what I'm paying for, why it costs so much, and what I might actually get out of it at the end of the day. All I know is that it's taking a bunch of my money, and if I don't spend that money I could get REALLY screwed. That's not a good feeling.

I'm not sure where to turn for help with my health insurance questions, but I can help you gain clarity as far as figuring out when and how to invest in legal help for your food startup.

Four rules of thumb for legal investment decisions

You should invest in legal help if your business issue falls in one of the following four categories:

  1. Protecting A Big Investment
  2. Make or Break Relationship
  3. Use, Rinse, Repeat
  4. You Got Sued

This post talks about the first category, protecting a big investment. Click on the categories above for the rest of the series. (And click here for the bonus Top Ten Takeaways fifth post!)

Protecting a Big Investment

If you have put a significant amount of time or a large chunk of cash into your business, it makes sense to put in a little bit more to protect that big investment. 

For example, as I've written about here and here, it makes a ton of sense to protect what is probably your biggest investment and budget line-item -- marketing. This includes graphic design, logos, website design and copy, packaging, trade show booths, farmers market stalls, broker fees, slotting fees, hours spent sampling, wrapping your food truck...the list goes on and on. You'll easily spend tens of thousands of dollars on these items in the short term alone. The whole point of marketing is to get customers to recognize your brand and buy your product. If you don't own your brand, you don't really own anything, and you might be flushing thousands of dollars down the drain. 

Trademark, trademark, trademark

The solution here is clear:  Trademark your brand name. I say this over and over to clients, and I will hammer this home until the end of time because I truly, 100 percent believe it is one of the best possible uses of limited startup dollars. It can save you heartache and regret. And lots of money. I was just hanging out at a food event recently when a food business owner (and now client) told me something to the effect of, "If only I had listened to you a year ago when we sat down for coffee and you told me to trademark my in-development food brand name, I wouldn't be dealing with this messy trademark issue. And I wouldn't be thinking about changing my business name."

Don't let this happen to you. Please try to trademark your brand name, and do it yesterday. Also, if you already have a recognized brand name and no trademark, don't throw good money after bad. Find out if you have a shot at trademarking your existing brand. If you don't, and you might need to change your name, it's better to do it sooner rather than later.

Remember, if you are dreaming of one day selling your food business for big bucks (or even moderate bucks), you need to own your brand. You can't sell what you don't own.

Founder Agreement

Another example of a comparatively small legal investment that can save you money and heartache down the road is a founder agreement. If you're going it alone, that's fine, but if you have one or more co-founders you should get an agreement in writing that covers what happens when one of the founders leaves the business. The beginning of business is roses and sunshine and high hopes. But life happens, businesses fail, co-founders lose interest or stop pulling their weight. This happens every day. 

One simple way to address this common scenario is to put a vesting schedule in place. For example, with two 50/50 founders on a four year vesting schedule, each founder could vest (permanently receive) 25 percent of their equity each year. That would mean each founder get 12.5% of the whole business per year.

If both founders stay in the business for all four years, they each end up owning their entire 50 percent share of the business. But if one founder leaves after a year, that founder takes only 12.5 percent of the total business equity with them and leaves the remaining 37.5 percent for a new business partner or investors.

In contrast, without the vesting schedule, the founder who leaves during the first year would still walk away with a full 50 percent of the business, a potentially business-killing event. 

There are lots of nuances that can be added to a founder agreement, but getting at least something simple in writing can help your business survive a founder exit. A startup business is a huge investment. Protect it.

Food Business Insurance

This is an obvious example, and I've written more about it here. Having someone get sick from eating your food product is probably every food entrepreneur's worst nightmare. There are lots of lawyers out there that sue food companies on behalf of food poisoning victims. Get a solid food business insurance policy tailored to the particular intricacies of your operation. 

Click here for the second post in the Investing In Legal Help series.

When Should I Invest In Legal Help? #2 - Make or Break Relationship

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