Nolo's Small Business Legal Blog

Under the stimulus package, eligible small businesses with net operating losses (NOL) in 2008 can carry those losses back for five years instead of the current two-year carryback period. If you paid a tax on profits in the past five years, this is good news -- you'll basically get a free refund on some of the taxes you paid. The IRS has published an FAQ that explains the new NOL rules and has also updated the instructions for the forms used to claim the loss: Form 1039 (for corporations) and Form 1145 (for other businesses).

This allbusiness article on franchises published last week ignores some of the worst drawbacks of franchises. The biggest problem with many, if not most, franchise operations is that franchisors charge too much for a business that doesn't have enough value to justify the high upfront and ongoing costs. In a recession, many franchises won't have enough income to cover the cost of capital and ongoing franchise fees. If yours is a typical franchise, you'll have agreed to pay the franchisor three to six percent of your monthly gross revenue (big-name fast food operators, such as Wendy's, McDonald's, Burger King, and Subway typically charge between eight percent and 11.5%), plus a few more cents on your sales dollar for the franchisor's marketing efforts. You may also have obligated yourself to buy goods and services either directly from the franchisor or from an approved supplier, meaning you'll almost surely be paying more than if you bought them on the open market.

Add it all up, and you're likely sending the franchisor eight to ten cents of every dollar you take in. This is obviously a huge added burden if your business has begun to lose money, because unlike an independent business, you need to make not only an operating profit, but also enough extra to pay the franchisor.

For more information on buying a franchise, see Nolo's article Want to Buy a Franchise? Ten Reasons Not to Do It.

Welcome to Nolo's Small Business Legal Blog! In this microblog we'll provide legal, financial, and tax tips for small businesses, particularly for small businesses that have used Nolo's business products to set up or operate their companies. We'll be scouring the web for articles that are helpful to small businesses so that you don't have to sort through the mountains of information online, much of it applicable only to larger businesses. We'll also provide our own tips about how to handle legal, tax, and debt issues, manage cash flow, and help your business remain competitive by cutting costs and being innovative.

The blog is written by Beth Laurence, J.D., and Diana Fitzpatrick, J.D. Beth has been a Nolo editor and author since 1997, specializing in small business issues and LLCs. She is the co-author of Save Your Business: 10 Crucial Steps to Survive in Tough Times or Close Down and Move On, the upcoming Chapter 7 Bankruptcy for Small Business Owners, and Business Buyout Agreements: A Step-by-Step Guide for Co-Owners, and she has also co-developed Quicken Legal Business Pro software and Nolo's Online LLC. Beth holds a law degree from University of California, Hastings College of the Law, a B.A. degree from Boston University (Phi Beta Kappa, magna cum laude), and is a member of the California State Bar.

Diana has been a Nolo editor and author since 2003, specializing in small business tax issues and corporations. She is co-author of The Work From Home Handbook: Flex Your Time, Improve Your Life, as well as editor of many of Nolo's corporation and tax books. She is a graduate of NYU School of Law and Barnard College.

The opinions expressed in this blog do not necessarily reflect the views of Nolo, its clients, or its partners. This blog may provide legal information, but not advice. Consult a lawyer if you want professional assurance regarding how the law applies to your situation.