Future Proofing a More Valuable Small Business

There Are A Number of Relatively Easy Ways of Adding Value to a Small Business

Whether you are buying, growing, maintaining, or preparing for succession or sale – having proper formalities will save you time and money"Money" means a medium of exchange currently authorized or a....  Not only that – it will add value and certainty to your small business"Business" means a trade, occupation, profession, or other c... and by extension, your life.

I put this quiz together as an easy way for you to quickly identify areas in your business that may require additional attention.  I find checklists like this useful.  Score yourself on a scale of 1-3 on each issue and tally your total score at the end.  This quiz/checklist should provide you a rough idea about the vulnerabilities of your business and provide loose guidance for steps moving forward.

Scoring

1 You have given no thought to the issue or have made no plans to account for the issue’s potential problems.
2 You are cognizant that there may be some potential consequences but haven’t taken formal steps to safeguard against potential issues.
3 You have a firm handle on the issue having received professional guidance on the subject OR after careful consideration, have determined that the issue doesn’t apply to you at this time.

Business Continuity & Protecting Value

Category Question Score
Death: What happens if an owner"Owner," for purposes of Title 1, 7, or 8, means: (A) with ... dies unexpectedly? Does ownership shift to a capable spouse, or one that would rather not be bothered with business decisions? What if you have multiple children with various levels of skill and key managers?
Disability: Is the business able to operate in the absence of an owner? Are affiliates willing and legally able to deal with a non-owner decision maker? At what point will it be necessary to implement a succession plan?
Divorce: Is there a prenuptial or ante-nuptial agreement"Agreement," as distinguished from "contract," means the bar... and/or will an ex-spouse have a say in management? Will a divorce settlement force the business into insolvency"Insolvency" means the inability of a person to pay the pers...?
Succession: Who will eventually take the company over and on what terms? If the owner(s) prematurely pass away with children should the company be sold, run by a third party, or left to the children?
Disagreement: If the owners disagree, how are disputes settled? What happens if one owner wants to reinvest profits and the other wants to increase his/her salary?

Contract Related Issues

Category Question Score
Systematic Review: Do you periodically review contracts under which your company is obligated? Have you used other party’s contracts without understanding all of its terms or used contracts derived from the internet?
Indemnity: Are there certain situations when you may be liable due to someone else’s actions or situations when a third party should rightfully help you cover losses?
Limitation of Liability: Is there a situation when your liability may escalate quickly and without limit? Have you contractually limited how much you could be required to reimburse a client/customer?
Intellectual Property: Have you properly utilized independent contractor agreements with work-for-hire clauses? If you are using someone else’s property, have you properly licensed it? Have you treated your IP as both an asset and a liability?
Representations & Warranties: Unless you make appropriate disclaimers, your business automatically offers certain representations and warranties on products and services. To what extent are you standing behind your products/services, and to what extent are your vendors standing behind theirs?
Governing Law: If there is a dispute, which set of laws are utilized and where will the dispute be litigated? Could you find yourself having to travel great distances to protect your rights?
Dispute Resolution: Should your dispute be mediated, arbitrated, or tried in a pre-determined jurisdiction? Who is responsible for the various expenses like court costs and attorney’s fees? Are there situations when a Justice of the Peace Court is preferred?
Confidential Information: Are third parties becoming privy to your trade secrets and do you have procedures in place for handling sensitive information?
Term & Termination: How long do your obligations to others exist? Who is responsible if a party backs out of an agreement partway through?
Events of Default: Do you know what happens if your company is unable to perform its obligations as promised? What are your company’s remedies if a party you rely on decides they are no longer interested in providing the goods/services you depend on?
Assignment: Can you transfer your contracts? What happens if you want to sell your company?
Damages: Have you contractually ensured that you will be made whole if a matter goes to trial?

Personal Liability

Category Question Score
Piercing the Corporate Veil: Have you treated the business distinctly from your personal affairs?
Improper / Non-Existent Company Documents: Have you properly maintained all legally required and/or advisable corporate documentation?
Business Deadlocks: If you MUST buy out a partner’s ownership interest"Ownership interest" means an owner's interest in an entity.... on certain terms based on triggering events, will you be put in a situation where you will be forced to personally pay and/or could your partner make a payment to you, ending your entitlement to business income?
Violation of Securities Laws: Have you taken money (or received value) from a person who doesn’t have a decision-making role in the business?
Taxation & Government: Have you applied for and received required government licenses, paid taxes, and filed all government reports such as the Public Information Report (PIR)?
Personal Guarantees: Are you aware of all the instances you have made personal guarantees and what the total potential liability is of those guarantees?
Intellectual Property: Did you know that your intellectual property could cause personal liability? If it is titled to you personally, you could be sued for infringement.
Principal/Agent Considerations: If you have recently parted ways with someone of decision-making authority, have you notified third parties that the person no longer represents the company? Has it always been clear that you have entered into agreements on behalf of your business (and not privately) by disclosing the existence of your company?
Statutory Obligations and Non-Delegable Tasks: Is your business engaged in activities that could be considered inherently dangerous? Are you performing all statutory functions required for your industry?
TOTAL SCORE
26-52 You should seriously consider seeking professional advice before making any potentially life-changing decisions regarding the business.
53-65 You have a good handle on your business. You should consider
interviewing attorneys in order to form working relationships going forward and/or to receive help with more important or complicated issues.
68-78 Your business planning is superior to the vast majority of your business owning peers. Unless major changes are occurring in your business or personal life, you should carry on as is. The main function of a business attorney would be to provide assurance that you have correctly recognized and handled important issues.
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Texas Constitution