The following is a guest post by Jordan Ostroff, President of LegalEase Marketing.
So you want to start a business. Congrats!!! You're in for a treat, but also a huge obligation. Nowhere is that true more than the documents that govern your business, especially a law firm.
During these uncertain economic times, it has never been more important to make sure these documents are up to speed — and that you’re following them.
Different states will call these different things, and different entities will need different documents — but EVERY business should have a document that outlines the rules of the business.
Imagine sitting down to play a card game without everyone knowing the rules… It would be a nightmare! These issues are compounded when everyone associated with your business doesn't know what the business does, and who is in what role, and what rules govern everyone.
To give you an example, let's say three friends - Moe, Larry, and Curly — sit down to open a new business: A dry cleaner. What happens when Larry and Curly think Moe is going to run it, but Moe thinks Curly will run it? What happens when everyone thinks someone else is doing the payroll? How do we know how to break a tie if Larry is on vacation and a problem has to be solved now? All sorts of problems (or potential problems) like these can be solved by having a written operating agreement or bylaws.
And the best part is, you can agree to ALMOST anything. Let's say someone famous reaches out to you and wants to throw their name on your restaurant. You can make an agreement where they don't have any say in the restaurant and just get a cut for having their name on it, or they can be involved in the day-to-day it's up to the controlling document to establish these rules.
And don't worry, if everyone is on board, you don't even have to follow the rules. It's only when there is going to be a problem that you need to jump in and make sure everyone is doing what they're supposed to be doing.
Even if you are a single-member LLC or a fictitious entity, it is still very helpful to have a written rundown of your business. It makes it easier to bring in new partners or sell should the time arise.
Many retail businesses just use a receipt, which is totally fine. If you sell a product you probably don't need to explain anything too crazy — you give me money, and I give you a donut.
But what about when you sell a service? For a service, they give you money for the promise you will do future work. This raises a ton of questions:
And on and on.
All of these questions and the other ones that apply to your business should be laid out, clearly and specifically, in your customer service agreement.
We have seen six-figure deals happen on a handshake, and parents and children fight over a vendor agreement, so no matter how much you trust the other person, put it in writing. If/when someone doesn't pay you properly, it's better to have that in a signed contract to collect your owed fees from them.
This is an agreement with employees to outline their pay, benefit, hours, and the work you want them to do.
It is very helpful to be able to refer to the signed contract that outlined the pay and pay rate for your employee if they file a wage and hour claim. To be clear, you cannot have someone agree to something extreme like pay below the minimum wage, or to waive overtime, but again, it's always better to have it in writing and signed by both parties.
Along these same lines, you wouldn't believe how much money we have saved our clients when they had an employee file a claim that they were fired for some protected reason and we were able to pull up the employment agreement, along with employee evaluations, to show that the employee hasn't been properly performing the job they were hired to do.
It’s often a good idea to include a non-disclosure agreement of client information, business processes, etc. Some businesses also include non-compete agreements. The term of these limitations, and how broad they are, will be different for each profession, so if you’re considering adding this, make sure you contact an attorney in your state to properly draft the correct limitations.
Failing to plan is planning to fail. You don't want to fail, so make sure you plan.
A business plan can be super simple or very complicated but at its core you want most of the following:
For a mom and pop landscaping company, this business plan might be 2-3 pages. But for a tech startup looking to get investors, it might run into the hundreds of pages. Think about what you need and get that plan written down, and then follow it!
At some point, you aren't going to be working for your business anymore. Hopefully this is because you retired and sold it, or turned it over to a trusted colleague or your children, or something along those lines. Hopefully it's a super happy moment! But you need to know if your business can run without you one way or another. Right now, if you walked out and didn't come back, what would happen?
I used to want to be essential to my business, but then one day it clicked: I actually wanted the opposite. I wanted a firm that could run WITHOUT me.
You have to make sure you have a plan to be non-essential to your own business. Otherwise, when your kids take it over, the business is going to nosedive, or you might not be able to get enough for it to actually retire.
Make sure you have an estate plan and a strategy for being removed from your own business. It's one of the few things you pay for that’s only important after you're dead — and aren't here to be able to fix — so choose wisely.
Something that we have done was to have the business pay for a life insurance policy for the owners. Then, when one of them passed away, the life insurance policy bought out their shares and transferred the money to their next of kin. This way the business transitioned as smoothly as possible, under the circumstances, and the partner's family got the benefit, and security, of their life’s work.
But remember: The money is only half of it. If the owners are making below market rate, it will cost more to replace them. And the more the owner does, the more training and hiccups there will be to get someone new settled into those roles. You have to be sure that you have a plan from the operations standpoint as well.
Without you, how negatively impacted would your business be? What can you start doing today to limit that impact? Think about those things and then start creating the plan to get there.
Don't get me wrong, there are a million other things a business needs - one of which is for you to have a GREAT lawyer.
But these 5 things will protect you from A LOT of problems, which will give you more time to run a better business – and live a better life!
By signing up, you agree to receive news & updates from Smith.ai.