Are you thinking of buying an existing business? There are number of issues you should consider.Get the answers to the following 16 questions during your due diligence review. The answers will help you to determine whether the business is a sound investment.
One of the biggest risks for any small business owner is the possibility of facing a lawsuit or a debt collection from creditors. If you have invested a lot of your personal assets into your business, you may lose them if your business becomes insolvent or bankrupt. Therefore, it is important to take proactive steps to protect your business from creditors before any financial problems arise. Here are some strategies that you can consider to safeguard your business assets and your investment from creditors.
If you fail to protect your business assets before you borrow money, incur substantial debt, or encounter significant financial problems, you may be giving your business creditors a better chance of accessing your assets and challenging any future planning you have done.
As a shareholder of the business, your exposure is generally limited to the amount of your investment, including your shareholdings and any shareholder loans you make to the corporation. However, various situations may arise which impose additional liability upon you.
If you have given a personal guarantee to guarantee the debts and obligations of the business, creditors may be able to sue you and attach your personal assets (by way of garnishment or seizure) to cover the amount guaranteed.
As a director or officer of the company, you may also have additional personal liability for such things as unpaid employee salaries, uncollected or unremitted sales or other taxes, unremitted payroll deductions, and breach of contract.
Prior to signing a personal guarantee, engaging in a new business opportunity or agreeing to be a director or officer of a company, you should consider the following strategies:
There are similar steps you can take to protect the profits of your business:
It all started so well. You went into business with a friend or colleague, and for awhile everything was great. But as time went on you realized it wasn't working. Now you want to dissolve the partnership but you're worried it will ruin your friendship. You need to find a way out of the business relationship that doesn't leave you hating each other at the end of the process.
Sounds a lot like ending a marriage, doesn't it? And the fallout of terminating the relationship can be just as acrimonious as a failed marriage. But there are steps you can take to make the transition less painful for both of you.
Hopefully you had the foresight to draw up a Partnership Agreement at the outset. A well written Partnership Agreement will cover how the parties are to proceed if the relationship is terminated, how profits and losses will be allocated and assets distributed, and an option for one partner to carry on the business if the other wants to withdraw. But if you didn't formalize the partnership in writing at startup, you can still formalize the breakup with a Partnership Dissolution Agreement.
It's never wise in business to burn your bridges, so keep a smile on your face, mind your manners, and treat your soon-to-be-ex-partner as you would like to be treated. The more civil you can be during your break-up negotiations, the smoother the transition will be. And it will make your mother proud.
Your lawyer and your accountant should both be involved in the process. After all, that's why you hired them - to give you advice. They're the experts when it comes to the tax and legal implications of dissolving a partnership. They have no emotional attachment to the business, which is a distinct advantage because all breakups - professional as well as personal - are fraught with emotion for the parties involved. You should also hold a formal partners meeting to discuss the dissolution and have an outside third party present to take notes of the proceedings. The presence of outsiders often helps to allow cooler heads to prevail.
Don't be greedy and don't make unreasonable demands. Try to come up with an exit plan that works for everyone. Put the emotions aside (see points #2 and #3 above) and negotiate in good faith.
You would never have gone into partnership with these people unless you felt that your respective skills and talents meshed well. As mentioned above, never burn bridges if you can avoid it. The day may come when you need to call on the skills of an ex-partner for a project, so staying on good terms is essential. So long as you can keep talking, you can work your way through the bad feelings and get to a better place where you both feel more comfortable.
Forget the long drawn-out drama and just cut to the chase as quickly as possible. That way you can all get on with your respective careers in a more positive and productive environment.
Image by A Different Perspective from Pixabay
Have you reached a point with your business where it's no longer desirable or feasible to continue operations? So many businesses, large and small, have faced that decision during the COVID-19 pandemic. It's very difficult to consider walking away from something that you have built with your own equity, sweat, love and passion. But if you have reached that crossroads and there is no hope of selling it and no family members or employees willing to take it over, then your only other course of action may be to shut it down, liquidate the assets, and pay your creditors.
Confidentiality agreements, non-disclosure agreements, NDAs, business protection agreements – no matter what you call them, they're an essential part of a company's internal and external contractual structure.
There is no good reason for your business not to use an NDA, and a number of good reasons why you should have at least one NDA template in your corporate toolbox. Many companies have several Non-Disclosure Agreements – one for employees, one for outside contractors, one for suppliers, etc. Let's discuss the top 4 reasons your business needs an NDA.
Reason #1 is an obvious one. You are legally responsible for securing your customers' personal information to ensure that it's not stolen or disclosed, whether accidentally or intentionally. Most countries have adopted privacy laws to protect consumers against fraud, identity theft, and invasion of privacy. A business that fails to comply with those laws can suffer serious consequences.
All employees, managers, and contractors who have access to your customer records should be required to sign a Confidentiality Agreement prohibiting any disclosure of any such information to anyone, including family members. You can choose to incorporate the confidentiality provisions into your standard employment contract, or use a separate agreement or confidentiality pledge form.
You should also adopt a company confidentiality policy that clearly states what the employee's / contractor's obligations are and what their liability will be if they breach the confidentiality provisions. The policy statement should also be distributed to any outside consultants that the company has contracted with, who may receive or have access to confidential information in the course of performing their services.
A competitor could use your financial data to their advantage. So could an ex-employee. A 2014 white paper by Osterman Research revealed that "68% of information workers store work-related information in a personally managed file-sharing solution". And "89% of employees continue to have access to at least one application from their former employer now that they are working for someone else."
A 2021 article by SmallBizGenius.net quotes some alarming employee theft statistics. According to the American Bar Association, "59% of ex-employees admitted to stealing the company's sensitive information when leaving previous jobs".
While requiring your employees and contractors to sign a Non-Disclosure Agreement may not completely protect you from employee theft or fraud, it creates a contractual obligation on their part to protect and not disclose your confidential information, which will continue beyond the term of their employment with you.
If you have a patented process, a unique business model, a "secret formula", or a software application you've developed specifically for your business, this is a valuable trade secret that your competitors would like to get their hands on. Trade secrets and intellectual property are some of your company's most valuable assets. If you used outside consultants (programmers, researchers, and the like) to assist in developing the trade secrets, every one of them should be bound by confidentiality agreements. Likewise everyone inside your organization who has knowledge of the trade secrets should also sign an NDA.
If you're planning to sell your business, potential buyers will want all the information about your operations so they can do their due diligence. If you don't have a confidentiality agreement signed by the buyer before turning over that information, you run the risk of having your data stolen by someone who may just become your next competitor - with your trade secrets in their hands.
Image by Gerd Altmann from Pixabay
If you operate a small business, you already fill a lot of different roles. Should Accountant / Bookkeeper be one of them? Maybe outsourcing is an option that will work for you. Here are some pros and cons to consider when deciding whether to outsource your accounting functions vs. doing them inhouse.
Artists, artisans, vendors, crafters, home businesses and small manufacturers often find that selling their wares through traditional channels can be too difficult and too expensive. Selling goods on consignment, whether online or through a bricks-and-mortar storefront, can be a workable alternative that costs very little, and gives them an opportunity to obtain exposure for their work in several locations and sell goods through more than one dealer.
The success of your business is dependent in large part on how well you market it. That is why it is vitally important to develop a solid, workable marketing plan for your business. An overview of your marketing plan should be included in your business plan as well, so potential investors and lenders can review your marketing strategy.
Are you thinking of starting a home business? Do you know whether you can do so legally in the neighborhood you live in? Before you invest a lot of money in inventory, supplies and equipment, make sure that your ability to operate your business will not be impacted by zoning laws, bylaws, or restrictions imposed by the local Home Owners Association. If you live in a condo, or if you rent, there may be further limitations imposed by the condominium association or by your lease.
