Have You Got the Stomach to Finance Your Business Using Money from Family and Friends?

Posted on July 27, 2010 by Eliot Wagonheim

I’m of the opinion that the best way to finance a new business is via the “3 F’s”: Friends, Family, and, for lack of a better term, Fools. Of course, the risk and headache you undertake when you accept money from relatives and close friends is often more aggravating and gut-wrenching than simply taking money from a faceless third party, like a bank or a venture capital firm. Unfortunately, however, because bank and venture capital financing is usually not viable for startups (and I’ll discuss why next week), new businesses are often left with no other alternative than to hit up the 3 F’s.

So, do you like your friends, family members and relatives? Want to continue to have a warm, fuzzy relationship with them? (I’m perhaps assuming too much here, but stay with me.) If the answer is yes (or even if it’s no), and if they’re considering providing funds for you to get your business off the ground, or to keep it running through a rough patch, then take heed of the advice I’m going to discuss here: come to an agreement with them in writing. BEFORE they give you the money.

Perhaps the best way to explain why you need to arrive at an agreement in writing with your family members or friends before they stroke you a check is by discussing what the agreement should, at minimum, include. Here are just a few of the issues you’ll want to focus on while you’re putting together some sort of document to memorialize the arrangements: 

  • Did you discuss whether the money was going to be classified as debt (a loan) or as equity (an investment) in the company?

Debt and equity are treated very differently for tax and legal purposes, and they have very different characteristics with respect to repayment and expected returns. Lenders won’t (or shouldn’t) expect much more than 6% - 12% annual interest, plus return or amortization of principal on some agreed-upon schedule. Equity investors, however, often have visions of buying a Greek island with the triple digit returns they expect to make via an investment in your company. Which would certainly help out the Greek economy, these days.

If the money is a loan, you’ll want to deliver a Note to your lender (yes, even if that lender is a relative or friend) which includes, at minimum, the principal amount, interest rate, maturity date, default provisions, repayment/amortization schedule and terms, possible collateral (in which case you’ll also need a security agreement and a UCC filing or a deed of trust), and dispute resolution terms. If the money is an investment (equity rather than debt), you’ll want to include the family member or relative as a shareholder or member of your corporation or LLC, and the rights and obligations of both the company and the equity investor must be spelled out in detail in the company’s constituent documents.  If you want to avoid problems both legal and personal, that is

  • Did you provide anything in writing describing your business and the expected return on an investment in your business (e.g., a business plan or a more sophisticated document, such as a Private Placement Memorandum)?

Bear in mind that even the smallest startup is bound by the antifraud provisions of federal and State securities laws with respect to the raising of equity capital, as opposed to debt financing. There are filings to make (such as a federal Form D and state Blue Sky filings), documents to deliver (such as subscription agreements, accredited investor questionnaires, and shareholder or operating agreements), and regulations to follow. Each investor must receive exactly the same information as each other investor, so if you delivered a business plan or PPM to any investor, you’ll need to deliver the exact same document to ALL potential investors. Running afoul of any of these requirements could result in serious problems for your business if you ever find yourself in the middle of a dispute with your investors.

It would also be very useful to prepare a set of pro forma financial projections demonstrating the expected return on an equity investment. This is not only useful for managing expectations, but it’s also important, from a legal perspective, that you disclose any and all material facts about your company and its prospects to your potential investors.

  • If the company goes belly-up (and lots of startups do), what are the rights of your lenders or investors? Remember, we’re talking about your friends and relatives here. Will they expect you to personally make good on their losses? Will they silently seethe and exclude you from all future family functions while badmouthing you within the business community? Are you sure you’ve discussed these issues with them and that your documents accurately reflect both your intentions and your investors’ or lenders’ expectations?
  • Suppose the company needs additional cash. Do you have a right to subordinate the loans of your family members to subsequent lenders (such as other family members)? Can you subordinate their Notes to a bank? (It would be a very good idea to retain this flexibility in case it’s ever necessary to utilize it.) Or, in the case of equity, do you have the ability to dilute the shares or equity interests you issued to your family members or friends by issuing additional equity to third parties?

These are just a few of the many issues you’ll need to consider as you raise money at the startup phase or for ongoing operating expenses. Which is why it bears repeating: if you’re going to be raising money from third parties (even if, or especially if, they’re relatives or friends), be sure you put the terms in writing. A very detailed writing. When all parties understand up front what their rights and obligations are, it’s much less likely that you’ll end up estranged from your family members down the road. Remember that you’re going to be married to your relatives and friends for an extended period of time via your mutual business interests in the company. There are rarely any divorces, and courts are not sympathetic to family issues in corporate disputes.

So, before you take money from the 3 F’s, ask yourself: Are you ready to get married? And is the necessity of financing the business worth the potential family issues that could arise down the road? If the answers are yes and yes, be sure you put the arrangements in writing at the outset, and be sure all parties sign that agreement before any money changes hands.

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You're Observing Corporate Formalities, Aren't You?

Posted on July 13, 2010 by Eliot Wagonheim

 

The first response I usually get from most businesspeople when I mention “corporate formalities” is a puzzled look. Which is not surprising, since the term is rarely used except by lawyers.  The second response is invariably a request by my clients for another cup of my famous high-octane coffee, since the mere mention of “corporate formalities” usually results in the realization that the meeting isn’t over yet (the end of a meeting with me being the highlight of most of my clients’ days). Fortunately, high-octane coffee is plentiful around my office. In extreme cases, I can even produce a finger or two of single-malt scotch if I notice my client snoring and slumped over in their chair mid-discussion.

But I digress. “Corporate formalities” is a term with which you ought to become familiar if you intend to run, or are already responsible for running, a business.

The reason I even bring this arcane term of art up is because of an admonition I included in my last blog (which you can access by clicking here. In that blog, I suggested that even if you make proper filings with the appropriate State agencies to set up your company, you would still not be adequately protected from company liabilities if you failed to also adhere to “corporate formalities” and maintain proper corporate records. So, what did I mean by that?

Let’s discuss a major misconception about “incorporating” (which is a term I use to mean forming any corporate entity, whether an LLC, corporation, partnership, or something else).  The misconception is that all one need do to obtain the “magic bullet” of limited liability is to file a document with the proper State agency, and voila! -- instant “teflon” for the company’s owners.  But the reality is quite different.

You see, incorporating involves a trade-off between you and the State (you didn’t really think that the State was going to give you a freebie, did you?). In exchange for limited liability for the owners of a company, the State insists that the company adhere to certain laws, keep certain records, and adhere to certain procedures.  Those laws, records, and procedures include the following:

  • The company must keep a separate bank account, and cannot commingle its funds with its owners’ funds and bank accounts. (Note that this is more straightforward in theory than in practice. I’ve seen numerous businesses get tangled up in banking and segregation of funds issues that could potentially lead to loss of the owners’ limited liability).
  • The company must make certain information public, such as the identity of the owners, the address of its corporate headquarters, and the identity of its agent for service of process.
  • The company must carefully authorize and document all actions taken by the company, usually in the form of signed resolutions (this is one of the most frequently overlooked corporate formalities, and potentially one of the most serious if the company is ever sued by a shareholder, employee, or customer).
  • The company must not engage in activities that are extraneous to its corporate purpose, or that properly belong to the owner or owners (e.g., don’t have your company pay for your tickets to Tahiti, or take on any tasks related to your spouse’s widget factory).

The bottom line is that the failure of your company to adhere to corporate formalities can result in a “disregard” of the corporate form by a court if your company is ever sued. Legally, this is known as “piercing the corporate veil,” and it’s a disaster by any measure. How? Well, if the court awards damages to the person suing your company, it means that YOU, as an owner of the company, are personally liable for those damages. It could also result in fraud and shareholder actions being upheld against you, and the literal unraveling of your company. 

Finally, let’s take the example of a corporate acquisition: your company has been approached by a competitor with a buyout offer, or you decide that, after 15 years in business, you want out and you want to sell your company. As a mergers and acquisitions attorney, I can tell you that the first thing the lawyers on the other side are going to ask for are your corporate books and records. Because the acquirer wants to know what they’re acquiring, and they want to ensure that they’re not inheriting any potential liabilities that they don’t want to inherit. Inadequate books and records can quickly scuttle a potential deal.

Again, I would urge you to ask yourself the following question: Is the modest cost of keeping adequate corporate books and records worth the potential personal liability, or the risk of scuttling a potentially lucrative sale of the company? Only you, as the business owner, can answer this question.

Has your company properly adhered to corporate formalities? Need help getting your corporate house in order? Give me a call. 

 

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Starting a Business? Do This First.

Posted on June 25, 2010 by Eliot Wagonheim

 

Limited Liability Company, “C” Corporation, “S” Corporation, General Partnership, Limited Partnership . . . or something else? When you start a business, your first order of business should be choosing a corporate form.

But what to choose? And where to domicile your company? And what are the potential consequences of your choices? Or rather, what are the potential consequences of bad choices?

Generally speaking, I form more LLC’s for my clients than anything else, and with good reason: for many (but not all) small to medium sized companies, particularly startups, it’s the most flexible corporate form in which to do business.

At the startup phase, you usually don’t know how far your business will go, how much capital it’s going to need to fuel its growth, whether it will need to reorganize to accommodate growth down the road, or how many investors or equity partners you’re going to end up with. LLCs are ideal under these circumstances. They keep your options open while shielding the members’ personal assets from liabilities of the company. Plus, LLCs are relatively easy to operate (more nimble than Corporations and less startup paperwork than Partnerships). They can also end up costing you less in taxes each year than Corporations, and are easier to convert into another corporate form down the road if it becomes advantageous to do so (and I can tell you if and when it would be advantageous to consider a format conversion as your company grows). 

On occasion, though, I’ll recommend that a startup client use an “S” Corporation or a “C” Corporation, particularly if paying salaries to the stockholders is important, or if bank or venture capital financing is essential to capitalizing the business from the getgo, or if offering stock options in order to attract top talent is important. Most banks and venture capital investors will want the permanence and stability of a Corporation before they’ll lend or invest money, and investors particularly like the ease with which a Corporation permits transferability of shares once the business is profitable. However, you’ll pay for these powerhouse advantages: corporate earnings are taxed twice. The Corporation itself is treated as a taxable person, so it will pay taxes on its overall income (the 1st level of taxation). Then, after the remaining income is distributed to stockholders as dividends, the stockholders will pay income tax on those dividends (the 2nd level of taxation).   Thus, choosing to operate as a “C” Corporation can be expensive, and a major issue when determining whether to choose this corporate form is whether the company will generate sufficient cash flow to make this double taxation worthwhile.

Whichever corporate form we choose, we also need to decide where to domicile your company (i.e., in which state). Decisions on domicile will depend on the type of business you’re in, the states in which you anticipate providing goods or services, and the complexity of your operations. For most Maryland-based companies, a Maryland domicile is satisfactory. However, your company may present circumstances that would warrant a hard look at another state. Ever wonder why virtually every Fortune 500 corporation and quite a few LLCs are domiciled in Delaware? (Yes, I know this burning question keeps you up at night). Let’s talk about it.

A few weeks ago, I wrote about what sorts of nightmares lawyers have (if you missed it, click here). Here’s the worst nightmare of all: you start a company but don’t use a lawyer and an accountant to help you choose and properly set up a corporate form. You make no filings with the proper governmental agencies (or you make inadequate filings) and you draft no documents evidencing your intended operating format. You adhere to no corporate formalities and keep no records of corporate decisions and actions. Instead, you simply open up your doors for business, sign a lease, enter into contracts with a few vendors and suppliers, put the letters “Inc.” or “LLC” or “Corp.” after your company’s name, and begin servicing customers or clients.

Guess what?   Under these circumstances, the law presumes you’re operating a General Partnership. And I’m here to tell you that you NEVER want to be operating a General Partnership without talking to me first. Why? Because, among other things, General Partnerships do NOT shield their partners from the liabilities of the company. Which means that if anyone sues your company for any reason and wins a judgment against it, your personal assets (your house, your car, your savings, etc.) could be used to satisfy that judgment. Was that something you planned on?

Of course, there’s a lot more to selecting a corporate form than space and time allow me to discuss here. If you’ve got questions about what type of entity your company should be, or if you want to review whether your current corporate form is best for your business going forward, feel free to give me a call. I’d be happy to discuss it with you. [Free of charge, as always.]  

 

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What lawyers have nightmares about

Posted on June 8, 2010 by Eliot Wagonheim

I have this recurring nightmare. I don’t have it every day, or even every month, and to be truthful it usually doesn’t even happen when I’m sleeping. It’s more of a daytime occurrence, but in substance and fear factor, it’s every bit a nightmare. And I have it often enough that it merits writing about here.

If you read my blog last week, you know that I’ve turned my attention to the legal issues surrounding the startup of a business. My nightmare relates to the scenario that occurs when a new client comes to me for the first time and tells me that he’s been running his business for a few months, things are going well, and he needs some sort of legal help with a new line of credit, or with a contract he’s about to sign with a new vendor or joint venturer, or something similar.

When I ask this hypothetical client what kind of company he’s formed, and whether I can see his formation documents, he gives me a blank stare. That’s when the nightmare begins. Both for me and, often enough, for my client as well.

When you form a new venture, it’s not enough to go to some online company or to OfficeMax, fill out a few forms, and file them with the designated state office. Sure, technically, you can do it that way. But there are too many issues (legal and accounting being only two) that need thoughtful consideration out of the gate, and a do-it-yourself kit isn’t going to adequately prepare you to think through those issues.

Instead, you need legal help.

Here are just a few of the issues that I’d ask a new client to consider and discuss with me before he opens his doors for business:

• What type of business are you going into?

• Did you sign any documents or commence any business operations before coming to me to discuss forming your company?

• Are you raising money from third parties (i.e., investors or lenders), or just from the “three F’s” (i.e., family, friends, and fools)?

• Do you have investors? Are they people or companies? Did they lend you the money, or invest it? Is there anything in writing evidencing their investments or loans to you?

• Are you minority or woman owned? How do you make that determination if you have several owners? Can you take advantage of contracting and funding programs related to your ownership status?

• Did you prepare a business plan? If you raised (or intend to raise) outside money, did you prepare an offering document? Did/does your investment offering comply with Securities and Exchange Commission regulations?

• In what state will you conduct the bulk of your business?

• Did you speak with your accountant about tax issues related to operations and the various corporate forms?

• Have you signed any documents in the name of the company?

• Do you have office space? Did you sign a lease, or do you intend to sign one?

• Did you open a bank account? Who has signatory authority on checks?

• What happens if one of the business partners decides to leave the business, or dies? Or one of your partners just decides to stop working on the business but continues to collect profit distributions? Can he do that?

It only took me about 45 seconds to think of the issues above, and I’m just getting started. My point is that when you start a business, there’s a lot to think about. Startup issues will affect the remainder of your business’s life, and your personal life (and mental health) as well. Your lawyer and your accountant need to be part of the process from the very beginning.

There’s an old saying: “Junk in, junk out” (the saying is actually a bit more, uh, “colorful” than this, but I think we all get the gist of it). In other words, it’s best to put high quality legal and accounting work into the startup phase of your business so as to avoid a lot of “junk” (in the form of liability, headache, tax, and other issues) later on down the road when you’re up and running.

I’m going to explore a number of the bulleted issues above in my next several blogs. In the meantime, feel free to call me if you’ve got any questions about any of these issues, or other legal issues affecting your business.

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Why you absolutely need to spend money on a lawyer

Posted on June 1, 2010 by Eliot Wagonheim

One of my favorite lawyer jokes goes like this:

Q:  What’s the definition of a corporate lawyer?

A:  Someone who prevents exciting things from happening.

Unfortunately, and all too often, the joke is true.  Many corporate lawyers fail to see the forest for the trees.  They get so wrapped up in focusing on every possible thing that could go wrong in your business or transaction that they “overdraft” your corporate documents and contracts and scare off the other party to your transaction.  Moreover, they often adopt an adversarial stance vis a vis your business partners, customers, and contracting counterparties, which ends up souring what is supposed to be a positive business experience for the companies involved.  All this extra time and extra analysis ends up costing you time, unnecessary anxiety, and more money in legal fees.

 In short, corporate lawyers too often act like overly wordy litigators.  And that’s not what we’re supposed to be.  We’re supposed to help you build, not to tear down.  We’re supposed to help you perform cost-benefit analyses with respect to your contract language, not throw in everything but the kitchen sink.  And building and benefiting should always be a cooperative and forward-looking endeavor, not an adversarial and retrospective one.  It’s not about your lawyer’s ego.  It’s about your business.

However, there’s at least one time during the life of your company when letting your lawyer get analytical and obsessive is actually more beneficial than detrimental, and when there’s a quantifiable benefit to the money you’re paying him for his services.  And that time is when you decide to start a new business.

You’ve got to get your ducks in a row, make sure the language in your formation documents is tight, and keep your gaze steely.  You don’t want your lawyer to stop this exciting thing from happening, but you DO want him to slow it down enough for you to make some serious decisions that will affect the financial and operational future of your new enterprise.  Decisions such as choice of corporate form, tax considerations, investor rights and obligations, corporate governance, banking relationships, and a host of other issues.  Some can be put off until a few months after you’re up and running.  Most cannot.  This is one time when preventing an exciting thing from happening too quickly is actually desirable.

 Are you going to part with some money in legal fees, as the title of this blog states rather forcefully?  Probably.  You might be able to spend a bit less, but you might end up spending more.  It depends on the type of business you’re starting, your financing, your facilities, your investors, your choice of corporate entity, certain tax considerations, and your appetite for risk, among other things.  It won’t cost you an arm and a leg, but it’s going to cost you something.  And it’s going to be some of the best money your business ever spends. 

 I’m going to explain why over the course of the next several weeks of blogging.  Stay tuned . . . .

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John Wooden's Last Loss and the Power of Trademark

Posted on March 19, 2010 by Eliot Wagonheim

If you have even a remote interest in college basketball, you know the name John Wooden.  In a society in which superlatives such as "superstar" and "awesome" are thrown around with such reckless abandon as to deprive them of meaning, John Wooden truly qualifies for the adjective so often attached to his name -- "legendary." 

In his 40 years as head coach for the UCLA men's basketball team, Wooden compiled a record that included a record 38 straight tournament wins, an NCAA record consecutive winning streak of 88 games over 4 seasons, an .813 career winning percentage, and an unprecedened 10 national championships. 

In 1976, the Los Angeles Athletic Club was looking to establish the college basketball equivalent of football's Heisman trophy -- a nationally prestigious award to be conferred upon the best basketball player in the nation.  Naturally, the LAAC chose to name the award after John Wooden.  The John R. Wooden Award quickly fulfilled the visions of its founders.  John Wooden signed over the right to use his name to the LAAC, which trademarked it as soon as the ink on the contrac was dry.

In January, 2005, Coach Wooden sought to influence another group for the better by working with a group known as Athletes for a Better World to recognize an athlete, regardless of sport, for contributions outside of the game.  The award was dubbed The Wooden Cup.  The LAAC balked, citing a violation of its trademark. 

Still able to size up the opposition after so many years removed from sport, John Wooden conceded.  He recognized the superior rights of the LAAC to his own name and walked away rather than participate in what would have been a long, expensive, draining, and ultimately demeaning legal battle.  For purposes other than submitting a passport application, John Wooden had given up rights to his name...and he's not alone.

Every day, companies sign away valuable rights to their brand, logo, products, and services, thinking only of the immediate goal of the contract, rather than about the long term implications.  Considering the marketing dollars routinely spent on building a brand, these contracts are frequently nothing short of a disaster.  To lose control of one's brand is akin to opening the door of your home to a thief.  Here, however, you will be forced to watch in the light of day as the thief legally makes off with the fruits of your labor.

More than perhaps any other contract, companies must be judicious and precise when granting licenses to their intellectual property.  Oral agreements or poorly drafted written ones can haunt a business long after the short term benefits of the deal have been exhausted. 

Just ask John Wooden.

 

 

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Why You Need a Non-Compete, Non-Solicitation, or Confidentiality Agreement for EVERY Key Employee

Posted on March 15, 2010 by Eliot Wagonheim

In my last post, I related the story of how Thomas’ English Muffins successfully sued to prevent one of its key executives from defecting to a competitor.  The rationale behind the court’s decision was that permitting the executive to join the competitor could cause irreparable harm to Thomas’ business, since the executive knew key information about Thomas’ products and its business.

As a business owner, you have a vested interest in preventing your company’s customers, processes, secrets, and the like from migrating out the front door with a departing employee. Although it worked out for Thomas’ English Muffins, you shouldn’t count on a judge’s or jury’s good graces. Plus, litigation is a very expensive way to protect your company’s vital assets. Better to take care of things up front and inexpensively, rather than from the inside of a courtroom.

 

So, what’s the best way to do that? Get your key employees to sign Non-Compete, Non-Solicitation, or Confidentiality Agreements as part of your corporate policy, and as a condition to their (continued) employment. 

 

There are primarily three types of legal documents you can use to protect your business. Each has a specialized function and may be more appropriate for your business than the others. In some instances, you may need two or even all three (they can usually be combined into one master agreement). Here are the basics:

 

  • Non-Compete Agreements: These agreements prevent key employees from working in your industry within a specified geographic area and within a specified time of their departure from your company. For example, if you’re in the business of manufacturing windows and doors, you may want to sign a Non-Compete with your top producing sales person (or people) that prevents them from working for any other window and door manufacturer or distributor within a 50 mile radius of your headquarters for 12 months after they leave your company (the geographic and time limitations should be carefully tailored by your attorney to ensure that they are enforceable).
  • Non-Solicitation Agreements: This agreement prevents departing employees from soliciting your customers and your other employees to leave your company. A Non-Solicitation Agreement doesn’t prevent the employee from being in the same business after her departure (as a Non-Compete Agreement does), but rather says to the departing employee, “You can be in this business, but you can’t steal my customers or my other employees.” It often makes sense to require more than just key employees to sign Non-Solicitation Agreements.
  • Confidentiality Agreements: These agreements are used to protect trade secrets, processes, sensitive company information (such as customer identities, financial information, and the like), and company plans. For example, if your company is planning to expand into a new geographic market, then you probably don’t want that information getting out to your competitors. You would require your employees with access to such information to sign a Confidentiality Agreement.

I believe that virtually every company should have one or more of these agreements in place with certain of its employees. Unfortunately, with the exception of the largest corporate enterprises, very few businesses are aware of these issues, much less what to do about them. Until it’s too late, of course. With that in mind, feel free to give me a call or shoot me an email to discuss any concerns you may have related to these issues, or any other business or legal issue that’s on your mind. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation. 

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What Thomas' English Muffins Can Teach You About Non-Compete Agreements

Posted on March 9, 2010 by Eliot Wagonheim

A week or so ago, I came across a story in the legal press that reminded me of something I wish more of my clients would focus on: Non-Compete Agreements. The story was about a lawsuit filed against Chris Botticella, a former Senior VP of the company that owns Thomas’ English Muffins. It seems that Mr. Botticella had accepted a new position as a senior executive at Hostess, one of Thomas’ competitors in the baked goods space. Thomas’ sued to prevent him from taking the job, and won.

Why? Well, it seems that Botticella is one of only 7 people on the planet – yes, the planet – who knows the secret to how Thomas’ English Muffins are made. And Thomas’ certainly didn’t want him taking that knowledge to one of its biggest competitors. As a result of the court’s decision, my guess is that Botticella is going to have a tough time finding work as counter help at the corner bakery, much less as a senior executive at a large, national baked goods company.

How does a lawsuit over English Muffins relate to YOUR business? Simple:  your people are your greatest asset, and, when they leave, potentially your greatest liability. They literally have the power to make or break your business. Every business guru will tell you this, but then you’re left to your own devices to figure out what it all means, and how to protect your business’ reliance on this sometimes unpredictable asset.

Perhaps the most important way you can protect your business’ customer accounts, secrets, processes, plans, and the like from traveling to a competitor after the defection of a key employee is to require key employees to sign a well-crafted Non-Compete or Non-Solicitation Agreement.

A Non-Compete or Non-Solicitation Agreement will prevent your best sales executive (you know, the one whose accounts resulted in 68% of your gross income last year) from leaving your company for a competitor, and taking her business with her to boot. Additionally, if you’ve got any proprietary systems or technologies, it’s imperative that you protect them. Your competitors will likely pay top dollar to lure away your key sales executive, information systems guy, CEO, or key manufacturing process employee. The loss of such an employee (and your competitor’s gain of that employee) will be felt where it hurts the most:  your bottom line.  Equally as important, they are enforceable.  As recently as 5 weeks ago, Judge Richard D. Bennett of the United States District Court for the District of Maryland reaffirmed in TEKSystems, Inc. v. Bolton not only that a Non-Compete is enforceable if reasonable in scope, but also that it will be automatically extended for the period the employee is found to have been in breach. 

Do you have employees whose loss would or could have a devastating effect on your revenues or your business? If you do, or even if you’re not sure, feel free to give me a call or shoot me an email and we’ll discuss it. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation.  You can also read more about Non-Competition Agreements in our recently released Business Owner's Pocket Guide. 

In the next entry, I’ll be writing about some of the important provisions a Non-Compete or Non-Solicitation Agreement should contain, and the real effects of these agreements. Stay tuned.

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Excerpts from an Interview about The Business Owner's Pocket Guide

Posted on February 16, 2010 by Eliot Wagonheim

 

 

Recently I was asked some pointed questions about my inspiration and motivation for writing The Business Owner’s Pocket Guide and I thought I’d share those thoughts here:

 

 

 

What was the motivation behind writing The Business Owner’s Pocket Guide?

The purpose of The Business Owner’s Pocket Guide was to help owners of small to medium sized businesses build stronger companies. As a small business owner myself, I know that these companies are the lifeblood of our economy…and I wanted to help make them better. Through The Business Owner’s Pocket Guide, I wanted to provide business owners with answers before it was too late by focusing on areas of critical importance throughout the life of their companies. I wrote the Guide to address bottom line concerns – even legal issues – in an easily relatable way in the hope that it may not only help business owners avoid unnecessary risks, but also travel well down their chosen path.

How was the content selected for The Business Owner’s Pocket Guide and what makes this guide different?

Having counseled businesses of nearly every size and description for over 20 years, I've gained an understanding of what’s important to business owners. Many of the major concerns cut across industry lines:

  • What do I need in my contracts to ensure that I’m going to get paid?
  • Should I ask my salespeople to sign a non-compete agreement?
  • What should I do if I want to bring on a new investor?
  • What happens if the owners of the company can’t agree on critical issues, and how can we prevent the problem before it arises?
  • How do I position my company for sale when I’m ready to retire?

I drafted the Guide based on the questions and concerns I saw over and over again. Then I sent the rough copy out to a group of business owners to get their feedback. I think that’s what makes it different – it’s not a textbook and it’s not written to sound “like a lawyer.” It addresses real world issues in an easily accessible way…and it’s free!

Who can and will use The Business Owner’s Pocket Guide? 

In the few days since it has been out, it’s been downloaded by business owners in industries ranging from landscaping to catering, professional service firms, and even some folks in local government. Basically, I see the Guide as a valuable tool for business owners and managers, regardless of industry, and whether the business has 5 people or 500. 

I wrote it to address issues across the board…and it seems from the enthusiastic early reception as though it is doing just that.

Visit www.wagonheim.com to download The Business Owner’s Pocket Guide and come back here to leave your thoughts and comments.

The Business Owner’s Pocket Guide is the third in a series including The Contractor’s Pocket Guide and The Banker’s Pocket Guide, which were released over the past several years by Wagonheim & Associates.

 

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The Prepared Business Owner: He Sleeps in a Storm

Posted on February 1, 2010 by Eliot Wagonheim

In Have a Little Faith, Mitch Albom quotes a sermon so important to business owners that I have reprinted the entire excerpt below:

A man seeks employment on a farm.  He hands his letter of recommendation to his new employer.  It reads simply, 'He sleeps in a storm.'

Several weeks pass and suddenly, in the middle of the night, a powerful storm rips through the valley. 

Awakened by the swirlining rain and howling wind, the owner leaps out of bed.  He calls for his new hired hand, but the man is sleeping soundly. 

So he dashes off to the barn.  He sees, to his amazement, that the animals are secure with plenty of feed.

He runs out to the field.  He sees the bales of wheat have been bound and are wrapped in tarpaulins.

He races to the silo.  The doors are latched, and the grain is dry. 

And then he understands.  'He sleeps in a storm.'

Running your own business is an exercise in piloting to safe harbors through strong and unexpected storms.  And as business owners, the storms rage all around us. The bankruptcy of a major customer is a storm.  So too, the loss of a major salesperson, along with the customers who elected to follow her.  A job gone south, the loss of key support personnel, and one's own unexpected absence from work -- all are gales of sudden and untold destructive force. 

To many, the state of our economy this past 18 months has been a storm of epic proportions. 

The question then becomes:  "Can you sleep in a storm?"

Have you:

  • Secured lines of credit with terms and limit appropriate to your business?
  • Protected your streams of revenue by locking down key salespeople with restrictive covenants? 
  • Limited your risk by negotiating manageable damages and indemnification provisions -- particularly in those contracts governing your largest projects?
  • Trained your replacement?
  • Documented key procedures so that a new person could step into a job knowing key passwords, resources, and procedures?

Too often, these types of preparations are like flowers at a funeral -- they arrive all at once, and too late.  Prudent business owners prepare.  They schedule regular meetings with their management team and key advisors, whether quarterly, every 6 months, or even annually, to consider and prepare for what storms may come. 

And when those storms arrive, as they most certainly will, the prudent business owner sleeps soundly.

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