I spent this past weekend cleaning up a large planting bed on the less traveled side of my home. What had started out as a simple bed of shade loving plants had grown, over time, into a bit of a mess. As I surveyed the work to be done I could still see the original layout of plants but the bed had become home to some new plants that had found their way in, weeds and grass had sprung up, and everything needed some shaping and pruning. I set to work and re-evaluated the bed when I had finished. I ended up discarding a few of the original plants that no longer worked, I pruned what was left to make them look good again, and I kept some of the new plants that added to the value of the bed. The weeds and the grass were definitely gone but they always creep back. It was a lot of work and I found myself wishing I had better maintained the bed so it would not have grown out of control. I made a goal to do better.
A business can be a lot like my garden spot. A business can start with clear and concise plans, personnel, and objectives but due to the passage of time and a lot of “life happens” it morphs into something unrecognizable or at least something that needs some pruning. Consistent and dedicated maintenance will ensure that a business stays on track and accomplishes the owner’s goals.
From a legal perspective, here is a list of important periodic maintenance items to consider for your business:
1. Review your employment practices. Are you following applicable state and federal law governing the employment, compensation, and tax reporting for employees? Do you have or need the following: employment or independent contractor agreements; confidentiality and non-disclosure agreements to protect your and your clients’ trade secrets and confidential information; non-competition agreements to protect your business operations if you part ways with an employee or owner; and an employee handbook and benefits guide? You may consider using a business and employment attorney to audit and review your business to ensure that there are no weeds in your employment processes that need to be cleaned up.
2. Review your tax reporting. You should make sure that state and federal business tax reporting, especially any applicable sales/use tax and employment taxes are up to date and being done correctly. As a business owner you generally have personal liability for sales/use tax (you do in Idaho at least) and for payroll taxes even if you have delegated that responsibility to someone else in your operation or to an outside vendor. You should never keep and use your employees’ state and federal payroll withholding funds. This was a common problem during the last recession as businesses struggled with cash flow and improperly used the withholdings to stay in operation; however, it is a direct path to severe tax penalties, a possible business shutdown by the IRS, and potential criminal penalties.
3. Review your insurance. As your business evolves, the risks and liabilities of your business may change and your insurance coverages need to keep up. A periodic meeting with your insurance agent to review workers’ compensation, vehicle/equipment, commercial liability, directors and officers coverage, insurance coverage for related and subsidiary businesses, and other needed loss and liability policies is a smart and easy thing to do.
4. Review your IP. The intellectual property of a business can be a significant part of its value. Securing your intellectual property through trademarks, copyrights, patents, and license agreements will help to protect its value to you and your business.
5. Review third-party agreements. Most businesses use or frequently run into contracts, purchase orders, leases, and other legal agreements. A review of such documents by an attorney before entering into agreements can help avoid problems that can arise later on with the interpretation and performance of the agreements.
6. Maintain your corporate filings. If you have an entity such as a corporation, limited liability company (LLC), or partnership, the governing documents for the entity (i.e., bylaws, operating agreement, and partnership agreement) likely require you to have an annual owner and managers/directors meeting. By law, a corporation must have at least an annual meeting of its shareholders and board of directors. Minutes of such meetings should be recorded even if they are simple minutes. The annual meeting is the time to review the past year’s performance, approve action taken by the company and its officers and managers, and to plan for the next year. For entities, having an annual meeting and recording minutes is one way to establish that you are treating your company as a real, operating business that is entitled to all of the personal liability protection afforded to you under state law.
In addition to annual meetings and minutes you should make sure that your entity is in good standing with the Secretary of State’s Office for the state in which it is formed. In Idaho, the State mails a colored postcard asking you to file an online annual report to keep your company in good standing and to update the State’s records on who the owners and authorized persons are for your entity. If you let your company’s status with the State lapse you can lose your personal liability protection and the company may be administratively dissolved.
7. Review your exit plan. A business owner should always have an exit plan that will allow the owner or his or her heirs to pull out the value of the owner’s interest in the business. Every business owner will eventually retire, die, or become disabled (and not necessarily in that order!). By dealing with that reality now, a business owner will be doing the very best for him or herself, the business, fellow owners, and the owner’s loved ones. An exit or succession plan can include successor owner and management grooming, business sale positioning, and a “buy-sell” or similar agreement to address, in advance, owner departures and ownership interest valuations. By not having a plan, when a crisis occurs a business owner is letting someone else, or a court, decide the financial fate of the owner, the business, and the owner’s loved ones.
When faced with a business that needs some maintenance, getting started is usually the hardest part but it is not an impossible task. Pick one area that needs improvement and start and build from there but definitely do something. The business owner’s reward for cleaning things up is a business that is operating at full potential and, most importantly, peace of mind which can be invaluable.
For more information, please contact our Business Group or call 208.344.6000.