Written by: Eric Yaillen, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Professional coaching is growing in popularity today. Especially when it’s the passion of the owner, coaching can provide a significant return on investment (ROI) and can be an extremely lucrative business.
Every month, there are over 1.5 million internet searches made by those looking for life, business, and executive coaching because individuals and companies see the profound benefits coaching provides.
It’s no surprise then that the coaching industry is the second-fastest growing sector in the world with a market size of $20B at the end of 2022 and an average yearly growth rate of 6.7% according to PriceWaterhouseCoopers (PwC).
But like many things, when something becomes trendy and popular and the potential to make money is lucrative, the business we chose to enter can become tarnished by many bad actors that begin to appear.
Coaching – A propensity for scams
I’m a coach myself, so don’t take this personally. Just beware that some bad actors have made things a little more difficult for the rest of us. As a matter of fact, regulators such as the Federal Trade Commission (FTC) have found coaching businesses to have a high potential for scams, false advertising, and financial harm to customers.
One famous example was made of Frank Kern, the self-proclaimed “godfather of digital marketing,” who was fined $247,000 for his “Instant Internet Empires” money-making claims. Another coaching business, MOBE (My Online Business Education), had to surrender millions of dollars in assets to settle their FTC charges. When searchingfor potential scofflaws, one of the first places regulators look is the internet. They can easily employ AI bots to scour and evaluate every webpage to discover where compliance issues may arise. Big paydays can be found by targeting multi-national companies such as Facebook (fined $5 billion in 2019), but with civil penalties up to over $50,000 per violation, the little guy can be easy pickings simply because small business does not have the resources to battle the government leaving little choice other than pay up or shut down.
Each time these events occur, you need to be mindful that your legal notices and disclosures may require updated language, so not addressing this “elephant in the room” is like playing Russian Roulette with your business and your brand. Your coaching business is just one complaint away from getting regulators to levy hefty fines and shut down your business for good. That’s why I’m continually bewildered at the sheer volume of coaching websites that either have no legal disclosures, have significantly out-of-date policies, or sites that cut corners by pasting something they found online on another site, displaying no awareness that what they published is not applicable to their business. So, if you want to ensure that you can have a growing and sustainable coaching business, here’s 10 essential areas to address:
Form Your Business EntityProperly
Become a Licensed or Certified coach
Protect Your Intellectual Property
Create and Publish all required policies and disclosures.
Make customers sign contracts
Be Careful in How Collect and Process Payments
Address Negative OnlineReviews
Keep Your CRM/Marketing Automation Tools Up to Date
Include the mandatory information necessary for marketing emails
Follow A2P Brand and Campaign Registration for SMS/Text Marketing.
Form your business entity properly
It seems a lot of individuals think they can become a life coach without going through the legal hoops because it’s person-to-person coaching. It’s one thing if you are counseling a couple friends or relatives, but as soon as you make yourself available to others, you need to register your business.
But while we are at it, don’t just run out and register. Too many people make the mistake of doing it themselves. Understanding what company type (Sole Proprietorship, LLC, C-Corp, S-Corp, Partnership) best fits your needs and best protects your income and wealth requires the advice of tax and accounting specialists. Also don’t make the wrong assumption that you must register your company where you live. You don’t. In the U.S., your business income can be significantly impacted simply based on where you register your business. Would you rather pay 11.5% in corporate income taxes as you would in New Jersey, or 0% as you would in South Dakota or Nevada. Your overall tax liability will include personal income taxes too. Several states have zero personal income taxes such as Florida and Nevada. Talk to a professional and choose wisely if you want to protect your earnings.
Become a licensed or certified coach
The coaching industry is highly unregulated, but that’s changing. Some states require certifications to be a coach in your field, other states view your business as online advice and leave the professionalism up to reputation. If you can, you should absolutely become a licensed or certified coach, even if it’s not required in your particular state. For one, being licensed allows you to sell your coaching services in states that do require it. A wider reach is always a perk for extending who’s in your target audience. The license also helps the FTC see your own business as less risky.
Protect your intellectual property (IP)
IP includes registering trademarks, copyrights, and legal rights to your non-tangible properties. With a coaching business, you generally have digital goods and services and few physical items if any, so it’s all intellectually based.
While IP protections (IPP) aren’t a requirement, they do factor into compliance.
Even something as seemingly insignificant as your domain name or business name should be registered. All of this acts as a symbol of your entrepreneurship and represents your brand and the unique service you provide to your ideal clients. When you have IPP, you’ve confirmed that what you’re selling is unique, it’s not being used elsewhere, and whatever materials your new clients receive are of value. That’s how it affects compliance: having IPP demonstrates value for your business.
Create And publish all required policies and disclosures
This year, 2023, has proven to be the year of Privacy. It seems almost every week I get a notice of changing regulations all due to the prevalent rising tide of identity theft, spam, fraud, and unwanted messaging virtually everywhere.
It started on January 1 when Virginia became the first state other than California to implement its own privacy standards. By June 1, Indiana, Montana and Tennessee implemented their own Privacy laws, joining the growing rank of states that chose to protect individuals’ personal information. Other states passing laws soon to come into effect include Connecticut, Colorado and Utah. Texas and Oregon are right around the corner.
As of January 26, 2023, the FCC and all major telephone carriers began the A2P 10DLC Campaign Vetting process to reduce spam, fraud, and unwanted messaging and protect SMS as a trusted communications channel in the U.S. Effective July 5, 2023, all 10DLC phone numbers used to send SMS and MMS messages to U.S. phone numbers must be fully registered to an approved campaign under your brand.
The latest announcement came on July 10, when the EU adopted the Adequacy Decision for their Data Policy Framework. This significant step officially takes effect on September 5 to ensure the protection of personal data transferred between the EU and the US. Switzerland is also expected to issue a corresponding adequacy decision soon. No matter what type of online coaching business or coaching niche you have—life coaching, business coach, relationship coach, wellness coaching, career coaches—you must follow the same rules listed below.
As a new coach, you cannot promise results. This is one of the biggest compliance issues with the FTC, which usually takes shape in the form of advertising. For example, if you have a health coaching startup business, you likely want to build up hype and momentum for your service and say things like, “you will lose 10lbs, guaranteed,” or “I promise with my 10-week course you’ll be a happier, more confident you!” Phrases like this are catchy and motivating, but they’re wrong and illegal. You cannot promise that someone will see results. You can only imply great results if a customer sticks to your regime. Here’s where disclosures come in. Have your customers sign a disclosure agreement that makes sure you both are seeing eye-to-eye when it comes to expected results. You also must disclose in your promotional material if you’re not licensed as a healthcare professional, and you 100% cannot make definite claims.
Make customers sign contracts
Contracts can be the life or death of your business. As a business owner, making customers, JV partners and vendors sign contracts takes disclosures to the next level. You’re not just informing them of expectations, you’re making them understand exactly what they’re getting into from a legal standpoint. Contracts should include detailed services provided, termination and refund terms, liability concerns, disclaimers, deadlines, coaching sessions–whether it’s private coaching or group coaching, webinars, and anything else you feel is important.
With these binding terms, it will be more difficult for customers to request a refund from their bank (causing chargeback liabilities) and regulators will be hard-pressed to take action against you since everything is outlined and signed. In most situations, you can easily manage this entire process online. If you are offering a membership subscription or a coaching program, contractual obligations are typically covered in online policies such as Terms of Service, Disclaimers, Refund and Shipping Policies. Just be sure to identify that upon making a purchase the customer is agreeing to the terms that are provided, and be sure to have active links that are easily identifiable and visible next to that form. For more detailed relationships such as JV Partners, event contract and affiliate agreements, have agreements in place that can be uploaded or incorporated into your online systems.
Be careful how you collect and process payments
A logical step to startinga coaching businessis getting creditcard payment processing and a business bank account. Payment processors and acquiring banks stay well-informed of FTC cases. Coaching programs are considered high risk, and banks want to avoid as much risk as possible. You’ll equally have to convince them of your compliance status. In this industry, how many times have you seen this? Some coach or guru speaks from a stage and makes an offer, then tells the audience to run to the back of the room to complete an order form with their personal and credit card information. This may be a tactic that was used for years, but today it is both old school and against the law. The modern and compliant marketer that speaks on live and virtual stages knows this, so you will see them flash a QR code on the screen, tell the audience to text a keyword to a phone number, or pass out flyers with a QR or URL listed for the call to action. They do this because they have the encryption-based systems in place to collect, process and protect all of your personal information. When trust is the foundation of any relationship these days, your business is responsible for keeping clients' sensitive data secure. Safely collecting and storing credit card information is one way to cultivate long-lasting relationships with a loyal client base. It's also required by law. While far from simple, understanding how to manage credit card information protects clients and your reputation.
Recently the FTC announced that it intends to look closely at membership subscription programs. The biggest lawsuit was recently filed against Amazon for its Amazon Prime subscription program and that might result in a potential fine in the Billions. Of course, big companies have the resources to contest complaints that the typical coaching program does not have. You're left with the choice of paying the fine or shutting down your business. With this in mind, popular small business merchant service providers like Stripe and Paypal are contemplating new annual fees for anyone collecting recurring subscription fees. When establishing a merchant account, have a clear business model and subscription template/outline for your online courses and everything else you sell. Some processors will do some research on your small business, so negative remarks, scam reports, and bad customer testimonials will factor into your approval. But if you provide a strong business structure, and stay clear of false promises, your online coaching business will stay compliant and get approved for processing. Just be mindful that simple missteps have caused many coaches headaches. There are numerous stories of accounts where revenues are being held for “suspicious activity.” Often this is simply due to the ebbs and flows of business, with periods of few transactions to an overabundance of transactions after speaking at an event, or from launching a new program or course. If your revenueprojects aren’t relatively consistent from month-to-month, be sure to notify changes prior to launching new programs so that your processor is not caught off-guard.
Make accepting payments more straightforward and secure with systems that take the guesswork and liability out of compliance. Your successful online coaching business is in sight, let us help you reach it.
Other things to watch for in a compliance sense
There are a few other pillars of negativity that not only affect your own sales but your compliance status with the FTC. Stay on top of these points and you’ll steer clear of any unwanted legal action.
Reputation is a crucial factor in the success of an online business. Replying to reviewers, especially those who leave negative remarks, is beneficial to your business. As you can imagine, negative reviews can harm your company tremendously. Those same reviews can be used against you if the FTC gets involved. To maintain FTC compliance for your online coaching business, you need to take care of all reviews. When you respond to a negative review in a meaningful way (e.g., apologizing, offering a discount, providing contact information), it makes your business look more professional. It also makes it look like you have genuine concern that one of your coaching clients didn’t enjoy the service. Take care of negative reviews. Your reputation and sales depend on it.
Social advertising done wrong
Social media is a powerful tool with incredible advertising power. The FTC has guidelines for advertising online, social media endorsements, and business posting. They also team up with local law enforcement to monitor online advertising in certain areas. That should give you a clear idea of how important online and social advertising is from a legal perspective. Though each platform has its own audience, they all generally follow the same guidelines from a legal standpoint. LinkedIn, Facebook, Twitter, Instagram–they’re all playing by the same rules. Not just the FTC, social media platforms have their own compliance standards. Most overlap, but not always. For example, you cannot include endorsements or testimonials in your social media ads. The biggest one is false advertising, of course. Use social media to your advantage, but always stay truthful to maintain compliance.
Along the same lines as false advertising, making extreme claims about your service will knock you right down into a legal hellhole. One of the most common claims is about the potential earnings of a customer for business coaches. Of course, you want to sell up your service and let potential clients know what’s possible. Making larger-than-life claims of any kind will get you in legal trouble. Upselling can also be problematic. If you upsell too much or push a higher ticket item when the first client is purchasing a minimum-cost service, it looks bad on your business. Upselling is not illegal, but be aware of what you upsell and how it’s being done in terms of pricing.
Keep your claims at a realistic level and use the extremes for case studies where it only remains as an example of someone’s real success.
Protect your brand from today’s cancel culture
We must be cognizant that we are creating a business in a current Cancel Culture environment too!
Coaching businesses often revolve around the personal brand of the coach. So it’s important to always be vigilant and be mindful that there are lots of people out there that are eager to report you to some entity and possibly destroy your business. Just look at the popular podcaster, Joe Rogan. Someone took offense at something he said and tried to get Spotify to cancel his Podcast.
To address this growing problem in both the United States and Europe, government regulators have been cracking down on online coaching businesses. New case studies are uploaded to their blog each week detailing the news of hefty fines, imprisoned business owners and shuttered coaching businesses. So it's of little surprise that more and more people are looking for guidance.
Keep your CRM up to date
Last but not least, your CRM (Customer Relationship Management) and your marketing automation systems should be updated with every interaction you make with a customer.
This includes storing and tracking interactions, payments, agreements, contracts, conversations and everything else possible. You never know when you need to pull up proof.
At the end of the day, it’s all about building your reputation, enhancing your brand, protecting your revenues and doing what’s necessary to ensure that your business can stay open and grow.
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Eric Yaillen, Executive Contributor Brainz Magazine
Known as a Marketing Technology Wizard, Eric helps his clients save countless hours and expense by streamlining their processes and eliminating unnecessary systems for managing customer information and marketing programs. As the creator of The MegaFluence Method, he applies his extensive knowledge and decades of experience coaching businesses on becoming market leaders in their niche. Email him at firstname.lastname@example.org or go to megafluence.net/eric for a free 30-minute introductory business analysis.