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Questions For Your Professionals

Setting up and operating your new business in the first year and beyond inevitably raises a myriad of issues and challenges.  You no doubt realize that you should be asking questions of your professionals to meet these challenges.  But particularly during this critical, fast-changing period, how do you zero in — quickly, concisely, and comprehensively— on right questions to ask?

Fail at this, and no one pays a bigger price than you do.

Over the years, too many clients have told me their sad stories of lost assets, income and lawsuits, purely because they did not know which questions to ask — or realized them too late.

I won’t let that happen to you.  I’ve put together a “get you started” list of questions to help you hit the ground running with your professionals. Of course, it’s not a complete list — and can’t be.  Your situation is unique, and may change based on the economy, changes in your focus, goals, needs… but I’ve found that the concerns addressed here are virtually universal.  Posing these questions may also help you clarify the distinctive aspects of your business that could spell the difference between struggling and success.

For Your Attorney:

1. Which contracts do I need to have in place for my business?

        a. Review lease

        b. Employment contracts

        c. Independent contractor agreements

        d. HR manuals

        f. HR posters

        g. Employment laws

        h. Buy sell / agreement (if you have a partner)

        i. Shareholder agreements (if you have a partner)

        j. Profit sharing for employees

        k. Any specific changes to bylaws or operating agreement

2. How do I replace a board member?

3. How do I add a new shareholder?

4. How do I bring on an investor without violating SEC rules?

5. What commonn problem areas expose a new business owner to lawsuits, and how do I avoid them?

11.    “I already have my team of professionals and I don’t need any help.”
Just last week I renewed a relationship with a high end financial planner with a background in M & A (merger and acquisitions) who proceeded to remind me of his powerful network throughout the US when it comes to having access to the best tax and financial strategies. I am always on the lookout for top quality strategies and professionals and my current professionals know that. No offense, I am just looking for the best people to product the best results. I do not have family or friends do my work, for that reason alone. If they are highly qualified friend or family member, that would be a different story. Usually that is not the case. Make sure you are maximizing your results. Most professionals are at some point evaluating if they want to keep you as a client, why not do the same with them.

Here is the bottom line; it is your money, your assets, your future. Be aware of some of these costly belief systems so you can continue to grow AND protect your net worth! Being successful isn’t easy, if it was, everyone would be.

10.    “I do not need business credit because my business is already doing well and I am in a very good position financially.”
If that is the case, good for you!  This is the best time to establish business credit! Most people make this classic mistake. They form an entity and still use their personal credit for everything (most may not even be aware of how that happens). Most companies fail for financial reasons. If that is the result of cash flow problems, and you go under and have personally guaranteed everything, guess what, you still lose all your personal assets even with a separate legal entity.

9.    “I treat everyone well, who would sue me? “
This is not the real world. According to the FBI there are over 250,000 criminals that make their living through lawsuits! It doesn’t matter if you are the nicest person in the world. If you have money or the impression you have money, you may be a target. Protect yourself and move on.

8.    “Everyone is financially hurting so we are all in the same boat.”

First that is a generalization, not everyone is in a financial stress. In my opinion, the next couple of years may be the best opportunity to accumulate wealth long term as things, especially in real estate hit bottom or close to it at some point. Time to save your cash, tighten your belt, improve your personal credit score and get yourself to take advantage of the “fire sale” that may occur in the next two years!

7.    “I do not need more protection I have plenty of insurance. “
This is really crazy! Insurance is very important but as the only tool it may attract more lawsuits to you. Plus if you are hit with a suit towards your insurance limits do not expect the insurance company to overnight you a check the next day. If you have a $1 million policy and a $950,000 claim, you may see the insurance company’s attorneys before you see any check. You may get paid, and you may not, why take this risk as your only line of defense.

6.    “I will operate as a schedule C and start at the beginning of the year and incorporate or form an LLC”
This is not your case as a client but you may know several business associates or friends that share this belief. The problems with that are: According to the IRS there is a $300 BILLION tax gap per year, meaning the IRS has $300 BILLION of uncollected taxes. They have identified that 70% of that comes from small business owners and of that, sole proprietorships are the biggest target. Why? Sole proprietorships are more likely to exaggerate their expenses. Result: schedule Cs are more likely to be audited. Another problem; unlimited personal liability, the wrong marketing message to send to your prospects all of which will cost you 5-10x more the fee to establish the proper foundation in your business.

5.    “I am already incorporated or have an LLC so I am protected.”
One layer may not be enough. The key is not to put all your eggs into one basket. If you’ve been in business for 4-5 years with just one entity and that entity is sued and you lose, and your insurance does not pick up the entire tab, you will lose 4-5 years of hard work and countless hours of effort  down the tubes. The more success you have the more protection you need!

4.    “I will get to it later.”
We are all busy. We all have probably 100 things on our checklist of to-do’s. The key is to prioritize the most important items and take action. Unfortunately most people focus on shortening the to-do list vs. working on the most important items. With that being said, look at the situation we currently live in; the subprime meltdown, war, political climate, fires in California…do you think lawsuits over the next 12 months will increase or decrease? My bet is that they will increase, and dramatically! When people get tight on money and are stressed they may feel like there is no solution other than to sue someone. You do not want to be someone’s lottery ticket. You may need to reevaluate the priorities on your own to-do list and ask, if I was sued today how would that affect my net worth or livelihood? Make it a priority to add extra layers of protection around your financial net worth!