By Val Revnew, Attorney at Law, Epiphany Law
I am thinking of starting my own business. Where do I start? Begin by being prepared. Business can learn a lesson or two from the Boy Scouts. In particular, the Boy Scout’s motto of “Be Prepared” rings true for every venture in every stage of business.
The key piece of advice I offer to any business is to establish a team of advisors. Your team of advisors is a group of experts specialized in their individual fields that you can rely on to work together to allow you to focus on your business.
The exact make-up of the group varies based on your business and individual situation. We recommend the following team members: attorney, accountant, insurance person, lender, mentor and financial planner. Your particular business or circumstances may call for additional experts. Make sure to interview your advisors. If something doesn’t feel right on a gut level, thank the person for his or her time and find another advisor. These advisors will be the brain trust to help you succeed and grow your business. They will be the people you turn to when you are successful and are contemplating hiring employees. What must be done legally? What are the financial ramifications? What additional insurance is needed?
My personal preference is for a business to have these key advisors in place from the beginning to avoid mistakes such as signing a commercial lease without having the lease reviewed and negotiated. It is never too late to put these key advisors in place. Your team of advisors can help educate and protect you from things you would never have considered.
For example, I frequently see single member limited liability companies (LLC), who tell me they can handle the entity formation on their own. He or she goes online to file the Articles of Organization and pays a fee to the state to become an entity. When I ask them if they have an Operating Agreement, I get blank stares and looks of confusion.
Many don’t understand the valuable protection an Operating Agreement provides a single member LLC from creditors and attacks on attempts to pierce the corporate veil, assuming the Operating Agreement is followed. A single member LLC may also not realize there are statutory requirements for the entity such as filing annual reports or maintaining a fictitious legal identity. These and other requirements are all things that a good business attorney can explain. For example, having an Operating Agreement can help prove to a judge that as a single member LLC, the LLC is treated as a separate and distinct entity. An Operating Agreement establishes that the company is run by the preset rules and authority established in the Agreement. Further, an Operating Agreement should list an Assistant Manager that has authority to operate the business if something happens to you. This is invaluable to the company and your loved ones and avoids probate court.
Consider your team of advisors the dentist for your business. If you have a toothache, you don’t try to figure out how to fill a cavity on your own – you go to a dentist. The same should be true of your business. Each advisor you select will have a wealth of knowledge from their other clients that they are more than willing to share.
Someone close to me recently mentioned the importance of having these key advisors in place, and that they would probably be making at least $50,000 more a year if they had a mentor earlier to help position them in the market. Could your business use an extra $50,000 a year?