How to Run a Coaching Business Legally (with Wesley Henderson)

Why do coaching businesses need this legal stuff? 

I talk to clients who haven't needed a lawyer in 15 years of doing business. Good clients have not encountered the popular meme from years ago.

The concept is well represented by "Karens," who ask for the store manager and are impossible to please. No offense to anyone named Karen, but the meme works well.

Karens come from different ages, genders, and backgrounds. They are difficult people who enjoy creating problems. This is why you do some legal work, to deal with accidental mistakes and difficult individuals who are hard to satisfy.

When dealing with legal matters, it's important to have the right legal provisions in place to handle such individuals and resolve the situation smoothly.

What kind of problems do coaching businesses face? 

1. Liability problems

Someone says, "You're the reason I lost profits. You're the reason I got injured. You're the reason I slipped and fell." Whether it's physical or business-related, liability issues are always a concern for any business.

2. General disputes 

Those can turn into lawsuits. Whether it's not getting what was said, content usage, trademark infringement, personnel disputes, or anything in between, we see it all. 

3. Getting paid 

That's a big part of it. Most of you here probably have that figured out, but it's important. Agreements can help address this pain point early on. If you're growing and have coaches underneath you, it remains a big focus. At our law firm and with our clients, it's always the focus to handle it properly.

4. Canceled sessions 

If you're running a coaching business, be clear about your policy when someone doesn't show up without a two-hour advance notice. Agreements and onboarding systems ensure clarity for clients. Communicate, "If you cancel within 24 hours, we'll charge you for that time."

During onboarding, discuss this with clients. Explain, "I would have prepared and blocked off that time. I couldn't have served anyone else during that time, so it's fair." Agreements establish these rules that even the Karens can accept. You can point to them as a reference, and they are fair.

5. Misunderstandings on deliverables 

I thought you were going to do this. I thought you were going to do that. Agreements come into play here to clarify things like cancellations and other issues.

6. Breaches of contracts 

Most lawsuits between businesses or clients arise when promises are not fulfilled, especially for this audience.

7. Poached employees 

When growing your coaching business and expanding your team, how do you prevent the loss of employees and clients? Non-solicitation agreements can be utilized with both clients and employees to safeguard those relationships. 

Additionally, non-compete agreements can be employed. Without such agreements, you can still allow them to move on, but they cannot take any part of your business or your relationships. This is crucial, especially for agencies or similar models focused on growth.

8. Angry client about results

With angry clients, they often express frustration by saying, "You promised me the moon, and I still haven't achieved the desired results."

When I emphasize the importance of a good agreement, it's because having a clear agreement and acting consistently with it can lead to early resolution of lawsuits. Although lawsuits can still be filed, there are measures such as filing a motion to dismiss or summary judgment to get rid of them, which should have happened here. However, the agreement's lack of clarity has resulted in the judges determining that a jury must decide the outcome.

Lawsuits are miserable

A lot of legal matters involve lawsuits. They are no fun, as they are expensive, time-consuming, and negative.

Benefits of lawsuits

We'll discuss some positive benefits now.

Legal matters are not just about fear or the possibility of being sued. It's not limited to dealing with rich angry individuals or Karens. There are positive benefits in the agreements you establish with clients and employees, as well as in the systems and processes you develop.

When working with someone who understands your industry, they can connect you with a lawyer who has the expertise to anticipate challenges. Skilled professionals in your industry also play a significant role. When I'm hired for a field I'm unfamiliar with, I need to familiarize myself with the industry's dynamics. For example, the concerns of a business coach differ from those of a health coach.

Each field has its unique considerations. One person may risk injuring their back, while another could face a million-dollar loss. Clear agreements promote clarity, benefiting all parties involved. It fosters good relationships and ultimately enhances your business and referrals.

Common mistakes that coaching businesses make

1. Gaps in liability protection

There are a few ways to protect your business. Firstly, conduct plays a crucial role in how you treat clients and employees, setting the tone for your business.

Secondly, having a well-defined contract establishes the rules and expectations.

Thirdly, insurance and contracts provide coverage for different types of risks and potential liabilities.

Lastly, consider forming an LLC. If you haven't done so already, visit our website at draftedlegal.com to obtain an LLC online. Having an LLC serves as a backstop, protecting your personal assets.

2. Poor agreements 

There's no reason not to set the stage. Just have a cup or two of coffee, depending on your preference, and create a solid agreement.

Consider having a lawyer who is knowledgeable about your industry draft it. While templates like the ones we offer can be useful, consulting with a lawyer is also recommended.

3. Employment matters 

For this specific audience, it's important to understand employment laws as you grow your business.

If your business reaches seven figures, it is highly recommended to have a local lawyer who can ensure correct employee classification when hiring. Employees should be classified as exempt or non-exempt, which pertains to salaried versus hourly distinctions.

It's crucial to be clear on this because it determines whether overtime needs to be paid and entails different rules. Additionally, when terminating an employee, it's essential to handle the process in a way that minimizes the risk of lawsuits. While giving employees opportunities to improve and coaching them is beneficial, sometimes termination becomes necessary.

To safeguard your business, ensure you address employment matters appropriately as you expand, including the implementation of employee handbooks.

4. Mishandled disputes

This is about business savviness: how to respond when someone is upset. You have two options. One is to prove your point by firing back an email, highlighting why they didn't fulfill their responsibilities. The other option, which we recommend, is called the 24-hour rule. Instead of sending an angry email, take a deep breath and wait until the next day. Put yourself in their shoes and try to find a solution that benefits both parties and minimally impacts the business. It's not about being weak, but handling the situation with savvy to avoid escalation.

Another common mistake is failing to respond to a lawsuit, leading to a default judgment where your side of the story isn't heard. If you receive legal papers requiring your acknowledgment, open them immediately, understand their contents, and promptly consult a lawyer. In federal court, you have 21 days to respond, while in state courts, it's usually 30 days. Take these deadlines seriously and don't overlook them.

The process of starting a coaching business

Start by choosing a unique business name. Ensure that no one else is already using it. Obtain an LLC. Obtain the necessary licenses, including a business license and any special licenses required. Lastly, focus on contracts. Let's quickly go through these points.

Business name 

Especially in today's internet-driven world, it's easy to be mistaken for another business. To avoid confusion, visit uspto.gov and ensure that no one else in your industry has a similar or identical name that could confuse consumers.

Here's the issue: After years of hard work, you finally gain popularity. Suddenly, someone from across the country, who isn't active online, discovers your growing Instagram presence. Unbeknownst to you, they own a trademark for your business name. They can send you a cease and desist letter, forcing you to shut down your business name and rebrand.

While it's not the end of the world, it's far from ideal. You'll need to come up with a plan to inform your clients about the change and lose the branding you've already established. Therefore, it's crucial to build a brand that you can control and protect. While creating a brand, invest time in generating business names that are not only unique but also legally secure.

Once you've started building value in your brand, consider obtaining a trademark. This way, if someone else surfaces with a similar name, you can simply inform them, providing your registered trademark details. They will be required to change their name, with a grace period provided to do so.

LLC 

To protect your personal assets, LLCs offer a cost-effective solution without the need for a board of directors like corporations. It's crucial to shift debts to your business whenever possible, although some guarantees may be necessary with banks. All LLC activities should be conducted in the name of the LLC, not personally.

Addressing scenarios like illness, relocation, job changes, or changes in contributions can be covered in the agreement to prevent disputes regarding compensation discrepancies.

Regarding business entities, avoid operating as a sole proprietorship as it offers no formal business structure. An S Corp is a tax status, not an entity, while options like sole proprietorships, LLCs, and corporations exist. Partnerships are also available but may not be applicable to your situation.

Tax statuses include partnership, S Corp, and C Corp, and you can file as an LLC or multi-member under different tax classifications. It's possible to be an LLC and file as an S Corp. Corporations are more complex, costly, and require more formalities, so unless advised by a lawyer, it's generally recommended to avoid them if possible.

Visualize the LLC as a protective shield for personal assets while your business operates independently, generating income and marketing itself. Although risks and disputes may arise, such as banking and intellectual property matters, your personal assets remain safeguarded. This setup is particularly advantageous for coaching businesses.

Consider the significant difference between involving your personal name in a lawsuit versus having your LLC handle it. Obtain an LLC to mitigate personal liability.

Licenses

Even if operating from home, a business license is necessary, often referred to as a home occupation business license. Search "business license department" with your city's name to find the relevant department. All cities or counties have a business license department.

Contracts 

We've briefly covered these points. Seek clarity on payment terms, services provided, and rules. I recommend upfront payment with monthly billing and late fees for non-payment. Include disclaimers outlining the scope of your services.

Disclaimer: This general information may not suit your specific needs. Add an attorney's fees clause for recovering owed amounts. Address session cancellation and termination in the agreement. Discuss payment, liability, cancellation policies, termination, and intellectual property (IP). Use protective disclaimers. Specify your choice of law in the agreements, preferably your own state. Avoid hiring lawyers from other states.

Key takeaways from this presentation

Intellectual property is crucial. Ensure ownership of your trademark and protect your created content. Consult a lawyer or research wage laws. Strong agreements with employees and contractors are essential. Include attorney's fees and non-solicitation rules. 

Package your business properly for sale, ensuring trademark ownership and LLC name in agreements. Obtain multiple liability insurance quotes and consider additional protection as your business grows. Well-drafted agreements can prevent lawsuits and address legal issues.