starting a business in mn

Preparing To Sell your Business

In November, we celebrated National Entrepreneur’s month across the country. It’s a great time to celebrate the successes you may have had an entrepreneur or those successes of your family or friends. As the year comes to a close, many businesses look towards planning for the upcoming year(s). In that same vein we thought it would be helpful to look at something that many business owners often overlook: Getting ready to sell your business. Even if you’re not currently thinking about selling your business, it’s important to start preparing and take the right steps to get you ready. In fact, many of the steps are best practices for businesses no matter how old they are.

While it’s a bit old, Entrepreneur magazine had a fantastic article on what steps you should take to make sure you’re prepared. Inevitably, your business will have additional steps you need to complete, but this is a very good basic start:

  1. Get a business valuation
  2. Get your books in order
  3. Understand the true profitability of your business
  4. Consult your financial advisor
  5. Make a good first impression
  6. Organize your legal paperwork
  7. Consider management succession
  8. Know your reason for selling
  9. Get your advisory team in place
  10. Keep your eye on the ball

As you can see, many of these things are best practices that every business should be doing regardless of the stage the business is in.

We recommend that the first thing you do is to put together a good team to work on your behalf. Most likely you’ve got these people already available to you and are already working with them. The three key people are your accountant, your attorney, and your personal financial advisor. You want those three people to work as a team for you. They each will be able to help you with parts of your preparation for a sale, but you most likely don’t have a financial planning, legally trained accountant.

Often times one of these steps will lead to another and your team will need to work together. For example, as your accountant is developing the valuation, the way that your company is structured can have a significant affect on the value of the business. How well you have kept your corporate records can change the type of sale you will be able to complete. Will it be a stock purchase or an asset purchase? Are you in good standing with the state and have you filed your meeting minutes with the state if you are an LLC? You may also want to look at any contracts that you may have and how that positively or negatively affects the valuation.

Once you do get that valuation, you’re going to want to understand how that will affect your personal finances. You will want to make sure that you have the appropriate accounts in place and strategies for what to do with the money that you have worked so hard for. We don’t bring all of this up to scare you, we bring it up because this is our area of expertise. You have worked hard to build your business and that is your expertise, but we strongly suggest working with people that know all the rules, regulation, tips and tricks when it comes to selling a business. You have trusted advisors that work in this field, it’s worth it to use them to make sure you get the best result possible.

starting a business in mn

Legal Issues for Business Owners

This month, Kiecker Law is celebrating National Entrepreneurs Month. A couple of weeks ago, we talked about what goes into starting a business from a legal standpoint. Today, we want to talk about other legal issues for business owners. We’ll talk about two main topics: keeping your legal structure up to date and the contracts you use within your business.

Keeping Your Legal Structure Up to Date

What do we mean by keeping your legal structure up to date? Assuming you set up a legal entity, the state requires you keep your records up to date and renew your business filings on a yearly basis. Essentially, that means that you need to have meeting minutes xxxxx, and xxxx for you to be considered a legal functioning business. You also need to file an annual renewal with the State of Minnesota.

So, what happens if you don’t file the necessary paperwork? Essentially, the State of Minnesota will dissolve your business entity and will no longer recognize you as a business. That means that someone else could file paperwork for a business of the same name and they would have rights to your business name and all the protections that go along with it.

Next month, we’ll talk about how not having the appropriate paperwork filed can affect you when you’re ready to sell your business. It’s safe to say, that it is in your best interest to make sure that you are keeping your business filings up to date with the state.

Business Contracts

The other part the legal aspect of your business that we want to discuss are the every day contracts that you agree to and use. Inevitably, you will be asked to sign contracts to do business with other companies. If you own a retail store, one of your vendors may ask you to sign a contract that allows you to be the only seller of their products in a 30 mile radius. That may seem like a great deal, but when you get something you’re always asked to give something up as well. Those contracts may prohibit you from selling certain other products as well. Is that really something that you want to agree to? Or maybe the vendor requires you to provide prime shelf space. Is that really the best thing for your business? As they say, the devil is in the details on these types of contracts and often times you will be required to give up something that you do not really want to. It’s essential that you carefully consider all of your options before signing a contract.

Another scenario might include you growing your business so much that you need to add on to your building. If so, that’s great, but you’re likely going to want to hire a construction company or contractor. In that case, you may want to add deadlines for when things need to be done by or your business could be more adversely affected that you are willing. Again, reviewing those contracts is essential. Many times it’s in your best interest to have an attorney review them first just to make sure the contract is saying exactly what you want it to.

starting a business in mn

Starting A Business in Minnesota

November is a celebratory month for small businesses. November is National Entrepreneur Month as declared by former President, Barack Obama. According to the US Small Business Association there are 30.2 million small businesses as of 2015. Those small businesses employ 58.9 million people across the country. That means almost 50% of all people working in the United States are employed by a small business. Getting right down to it, small businesses drive the economy in the United States. It doesn’t matter what sector of employers, small businesses play a part. It could be health care or construction or services or retail or any other business you can think of, small businesses affect the world. Most likely, you or someone close to you is a business owner and should be very proud of what you are building. Business owners are a key cog in our society and need to be protected.

That’s why this month is a fitting month to talk about how those businesses, or yours, is legally structured. You may ask, “what does that matter?” Well, it can play huge role in how your business can be affected. Let us explain….

4 Types of Business Ownership

Let’s start out by saying there is no “wrong” way for your business to be structured whether it is a sole proprietorship or partnership or LLC or corporation. The reality, though, is that there are good and better ways for business to be structured. Today, we’re going to focus on Limited Liability Corporations (LLCs) and Limited Liability Partnerships (LLPs) and why they are usually a better structure than a sole proprietorship or partnership. There are a litany of reasons including tax advantages and ownership flexibility. The most important reason, quite frankly, is the reduced personal liability that you, as a business owner hold. By changing the legal structure of the business, you can shield you and your family from catastrophe. In a sole proprietorship or partnership, the owner is considered one with the business from a legal standpoint. What that means is that anything that happens in the business, the owner is responsible for and, in the litigious world we live in, that can be a dangerous set of circumstances.

Business Liability Examples

You may say that there is little or no liability in your business, but we’ll walk through two examples in two different industries.  

Let’s start with a small financial services firm. Suppose you give some advice to a client to purchase a stock or investment. That investment turns out to be a bad purchase and your client ultimately blames you and decides to sue you. Yes, you should have insurance and you probably do, but what if your insurance company decides that they don’t cover this particular scenario? What if your insurance company decides that you should have known better and won’t pay a claim? If you ultimately are found responsible, an LLC shields you from having your life savings taken for a simple mistake. The LLC would be liable financially, not you personally.

Another scenario might entail a retail business, say a paint store. Now, you might say, what kind of liability could a paint store possibly have? Well, we live in Minnesota. In many cities, retail stores are required to shovel the sidewalks outside their business or leading up to their business in the winter. If the sidewalk happens to not get shoveled as quickly as you want and someone slips on a patch of ice, falls, hits their head and suffers traumatic injuries that put them in the hospital for 2 weeks, who pays for the medical bills and, inevitably, the pain, suffering and loss of wages of that person? Most likely insurance, but what if it doesn’t? Your business likely would. The question is do you want to risk your personal wealth or do you want to limit it to the business?

Understandably, many people will say that those are far fetched examples and it will never happen to them. We would point to large businesses that employ many attorneys on their staff. Many of those large businesses feel so strongly about this, they require anyone that any vendors or contractors that they work with to have a legal entity.

What is The Best Form of Business Ownership?

Each individual business is different. We’re not saying that an LLC is the only way to go. Your situation should be evaluated by an attorney to help you decide what makes the most sense for you. Our hope is that you take the necessary steps to protect you and your business.

Happy National Entrpreneurs Month!

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