Every business needs a mission statement, to serve as a blueprint for business planning and decision-making. A mission statement that clearly states the business’ purpose and goals will inspire your people to pull together as a team to accomplish that purpose, and will give management and stakeholders a means of measuring its success.
No matter how experienced a speaker you are, rehearsals are necessary each time you make a presentation.
Preparing for a seminar is not only hectic and time-intensive, it can also be incredibly stressful for the organizers. It's inevitable that something will go wrong. But you can stay ahead of the game and maximize the number of things that go right with some careful planning.
This is the final article on conducting a due diligence review when purchasing a business. This article lists relevant records, contracts, financing and credit arrangements, and brokerage commissions relevant to the transaction.
Administration includes all of the procedures, policies and records related to the day-to-day operations of the company. A well-run company keeps good, thorough, accurate records. You will need to review copies of all the administrative records, including:
Get a list of all property (real and personal) owned or leased by the business, and review all documentation related thereto.
Review all loan and credit agreements, and any other documentation evidencing material borrowing, including:
Lastly, is there a broker involved in the purchase and sale transaction? Who is the broker representing? If you're liable for paying any portion of the broker's commissions and other costs, you must have a copy of the broker agreement.
Once you have had a chance to answer all of the questions and review all of the materials listed in these last few articles, you should know all you need to know to determine whether to go ahead with purchasing the business. If you and your lawyer and accountant are happy, it's time to negotiate the Purchase and Sale Agreement. Good luck with your acquisition!
In our last post we discussed the importance of a due diligence review when you're considering purchasing a business, and covered the questions that should be answered with respect to the business' financial and corporate history. This week we talk about legal and regulatory matters, customers, goodwill, market share and potential for growth.
Today we start a 3-article series on how to conduct a due diligence review when you are considering buying an existing business. Part I of the series covers the financial, corporate and historical data you should look at with your accountants and your lawyer. If you're thinking about purchasing a business, there are many issues you need to consider and many documents you need to review with your legal and financial advisers before you close the deal. It's not only important to know the current status of the business, but also its past history, its long-term viability, future market opportunities, and potential for growth.
You've invested a lot of time, money and resources into your business - you need to protect not only the business, but also your employees, your premises, your assets and your future. You cannot afford to leave yourself exposed to unnecessary risk. Stinting on your insurance as a means of saving money is false economy - it's a short-term saving, at the expense of future viability.
Do you know what types of insurance coverage your business actually needs? Each industry has its own unique risks and liability issues. It's important to analyze each facet of your operation to determine what could conceivably go wrong, what sorts of hazards your employees and customers may be exposed to (even minor ones), and what different types of policies are available to limit your liability and protect yourself and your business against claims and damages.
In an era when people will sue for just about any silly reason (remember the infamous McDonald's hot coffee lawsuit?), it has become increasingly important to get it right when putting together your business insurance package. You should start by obtaining risk analyses and insurance quotes from at least three insurance agents, preferably agents who have experience with your type of business and are familiar with the inherent risks. Whenever possible, you should insure with a local agent so you can arrange face-to-face discussions about your specific insurance needs - someone to whom you can become a recognizable person instead of just a policy number. Here is a list of the types of business insurance that you should consider in your Quest for Ideal Coverage.
Business owner's insurance coverage is like a homeowner's policy for a business. It packages together a number of coverages and the premiums typically cost less than they would if you purchased these coverages separately. A business owner's policy usually includes:
This type of insurance is more cost effective for small to mid-sized businesses, and may include much, if not most, of the coverage that your operation requires.
The business owner's policy may not extend to damage outside of your premises. If you're located in a multi-occupancy building, you may be required to carry additional property insurance as a condition of your lease.
Liability insurance insures against claims for damage to property or injury to persons for which you are held to be responsible, including negligence claims, and suits filed by employees injured on the job. Liability insurance policies cover the legal costs and any damages awarded to the claimant.
Product liability insurance covers you in the event a product you produce causes harm to a purchaser of that product, or any third party. The purpose of product liability insurance is to protect your business against paying legal or court costs for claims arising from such an event.
Professional liability (or professional indemnity) insurance protects service providers against claims for negligence, misrepresentation, violations of fair dealing and good faith, and inaccurate or incorrect professional advice. It is required by law to be carried by medical practitioners (malpractice insurance) and legal practices (errors and omissions - known as E&O - insurance).
If your business owns any vehicles, you are required by law to have adequate collision and liability coverage on all of your commercially used vehicles.
Workers' compensation provides wage replacement and medical benefits for employees who are injured on the job. In return for receiving workers' compensation, the employee relinquishes the right to sue the employer for negligence. By law, employers must carry workers' compensation insurance for all employees.
As mentioned earlier, a Business Owner's Policy will bundle a lot of essential coverages into one package, at a lower premium. But remember that you get what you pay for. The cheapest policy may not provide you with the best protection. There are other ways to keep your insurance costs down without compromising the safety of your business and your employees.
Increase your deductibles. Increasing the amount of your deductible under each policy will decrease the amount of your premiums. While it will also mean that you will pay more money out-of-pocket in the event that something goes wrong in the future, it will positively affect your cash flow in the here-and-now.
Take advantage of group rates through business organizations and professional associations. Many business organizations offer special discounted insurance rates to their members. Calculate the cost of paying the association dues plus what you'll pay with the special insurance rate, and compare that to what you're paying now.
Use the risk analyses as a guide to reducing your liability. Remember those risk analyses you obtained from the insurance brokers? They pinpoint the areas of risk in your business. Eliminate or deal with as many as you can, and inform your broker about what actions you've taken. This should help reduce your premium costs.
Shop around. Get quotes from several brokers, do some Internet research, and talk to friends and business associates about their insurance coverages. Be informed before you decide.
Insure the building, not the land. There is no need to insure the land that the building stands on. The land can't be damaged, destroyed or stolen. Your property insurance should cover the replacement value of the structures only, NOT the land.
Review your policies once a year with your insurance agent, to make sure you're still adequately covered and still getting the best value for your money. Laws and regulations change, and it's important to be sure that you haven't left a gaping hope in your coverage out of neglect or lack of information. You may have bought new equipment, expanded your operations, hired more employees since you bought your insurance - any of these events can mean your coverages are no longer adequate. Or perhaps you've scaled back your business and sold some assets, in which case you may be over-insured.
Regular reviews are the best way to determine whether your current insurance coverage is still sufficient for your growing business.
Image by Steve Buissinne from Pixabay
You've finally found an ideal location for your business, and you can start negotiating the lease with the landlord. But what should you be looking for in the commercial lease agreement? Before you sign anything, review the lease and make sure it answers each of the following questions:
1. Will you be given a copy of the building inspection report? If not, can you arrange for your own inspection?
2. Is a drawing of the leased premises attached with the demised area clearly marked?
3. What is the date of possession? What are your remedies if the space is not available to you on the date of possession?
4. Are you required to obtain any approvals or comply with any local regulations or ordinances before you can commence business in the leased premises?
5. How long is the free rent period? When do the lease payments begin?
6. How will your security deposit be handled? How long will it take to receive a refund of the deposit at the end of the lease term?
7. Are there restrictions on your use of the space? What are those restrictions?
8. What are the provisions for rental increases? How much prior notice will be given?
9. Are the tenants required to pay a percentage of the property taxes?
10. What types of insurance coverage, in what amounts, are you required to carry?
11. Which utilities and services will you be responsible for paying?
12. What other costs are associated with the space (advertising, merchant association dues, etc.)?
13. How much will the landlord pay towards your leasehold improvements?
14. Are there any restrictions on what kind of signage you can have? Do you need to get the landlord's prior approval before installing your signs?
15. What are the landlord's obligations for repairs and maintenance on the building, the common areas and your premises?
16. How much are your common area maintenance costs?
17. What are the provisions for renewal of the lease at the end of the term?
18. Do you have the right to assign the lease or sublease any of the space?
19. What are your rights in the event of eminent domain, foreclosure, or partial or total destruction of the premises?
20. What happens if you default in any of your obligations?
21. What are your remedies if the landlord defaults?
22. Are you required to return the premises to its original condition at the end of the lease period? Based on the original condition, what will the costs be to do this?
23. Is there an obligation to pay legal fees and costs in the event of a dispute?
If you are satisfied with the answers, you can proceed with submitting a Letter of Intent or a Lease Proposal to the landlord which sets out all the negotiable elements of the lease - square footage, initial term, renewals, base rent, rent-free period, allowance for leasehold improvements, etc. and the relevant tone of your negotiations to date. The LOI will allow the parties to continue to negotiate the final terms of the lease. Keep every draft of the LOI as a paper trail documenting the negotiations.
Finally, have your lawyer review the lease BEFORE you sign. And never sign anything that you don't fully agree with.
Image by H. Cuthill
If you're starting up a business, cost drives every decision you make. And when it comes to business equipment, you need to determine whether it is most cost-effective and advantageous to lease or purchase the equipment necessary to your business.
There are essentially three options available for acquiring the equipment you need: a straight lease, lease-to-own (a "finance lease"), or outright purchase. The term "business equipment" can apply to anything you need for your operations, including computers, printers, and other electronics; office furniture; communications systems (cell phones, pagers, Blackberries; alarms and security systems; shelving and storage; specialized machinery; warehouse forklifts and loaders; and vehicles.
The upside of leasing is that it requires less of an initial outlay than purchasing, so you're not tying up so much money right off the bat. And for computer equipment, it can be the best option. Your lease costs can be deducted as an operating expense, and they don't depreciate. Since the average equipment lease runs for 3 years, your lease will be expiring right about the same time that your computer equipment is obsolete, and you can upgrade to a new system under a new lease. Review the lease terms to make sure they provide for maintenance, updates and support.
The downside of leasing? Your overall costs are almost always higher, you don't own the assets, and you build no equity in the equipment. And there will probably be restrictions on whether, and how much, you can customize the equipment for your business.
When you buy it, you own it. And you can probably deduct a good portion of those asset purchases on your business income tax return. You also get the benefit of the depreciation deduction. If the equipment you need has a lifespan of more than 3-5 years and you've got the capital to do it, you probably should purchase instead of leasing it.
Office furniture is a good example of equipment with a long lifespan. While you may replace the chairs every few years, it's likely that the desks, shelving and filing cabinets will be around for a long time. These items are readily available from second-hand office suppliers, which can save you money. Buying second hand can be a great way to save money and still get what you need. Look for classified ads, listings on Craig's List and Kijiji, and shops that specialize in used office equipment and supplies.
Check out the local and online auctions as well. You have more recourse when buying from a dealer since you can usually take the item back, although there will probably be no warranty. The price might be higher than if you bought it from an individual, but the ability to return the item is worth paying more for. The risk you run when buying from an auction is that you can't actually test the equipment beforehand. Many auctions sell goods as seen, which means if the goods do not work, you have almost no chance of getting your money back, except for online auctions such as eBay. Find out what the restrictions are - and what your rights are - before bidding on any auction items.
I'm assuming that, like most start-up businesses, your company will need to finance any equipment purchases by securing a loan. There are some questions that you will have to get answered in order to determine what the actual cost of leasing versus purchasing will be.
Now that you know what the costs will be, ask yourself whether the business can afford it? Do you have sufficient cash flow at present to support your monthly lease or loan payments? If your business is seasonal, you'll need enough cash to support those payments during your off-season. And what about the maintenance costs? Are they included in your lease? Did you provide for them in the loan calculations? Do you know what they are? Then there's insurance. How much is the annual insurance cost to cover the equipment? Is it included in the lease?
If the answer to any of the above questions is "No", you should determine which equipment is absolutely essential for your business, and which items can wait until your cash flow improves. If you have to have it and the cash isn't there to buy it, then talk to several leasing companies and negotiate the best lease you can.
Image by xuefei wang from Pixabay
Careful preparation for meetings with the investment community seems as obvious as it is necessary. However, good intentions all too often get sidetracked and key preparations can easily be overlooked. The questions outlined below will serve as a checklist to make sure that every important item is addressed well in advance of your next investor session.
