Business owners – review your year now

29 Nov

Making an annual review or “check-up” part of your corporate routine

Now is the time, as the calendar year comes to a close, to have a business “check-up”.  This is particularly important in small to mid-size businesses, as they do not always have routines and practices where such check ups are automatic.  Large corporations have the benefit of deeply-entrenched and well established corporate policies, routine practices, and risk management procedures.  For many publicly-held companies and those with enough employees to have “mid-level-managers”, the corporate books and risk management oversight are often being tended to by specific employees within the company, in addition to outside advisors.

However, over my years of assisting clients with formation, organization and ongoing operation of small to mid-size businesses, I’ve realized that small business owners often tend to the fires that are burning, rather than the sparks that may ignite a fire.  Small businesses are often so focused on the details of day-to-day business, that it’s easy to overlook the big picture.  They may not see a problem arising until the fire has grown to a size that it cannot be easily contained.

Nearly every individual knows that an annual check up with a doctor and dentist is prudent.  Most small business owners probably know that a regular check-up with their accountant and their attorney may also be prudent, yet they aren’t always as diligent about getting it on the calendar.  Outside of those businesses who use an accountant for tax preparation or ongoing advising, many business owners fail to check in with an attorney or accountant regularly.  As a result, sometimes they miss the “spark” that may ignite the fire of a problem within their organization.  Far too often, it takes a lawsuit, shareholder dispute, breach of contract, or other controversy for a business to look at its internal records, contracts, and policies, only to find obvious deficiencies once it’s too late to correct them.

What kind of “check-up” should you do?

Rely on your accountant and attorney to help you identify what you may want to review in an annual or more regular check up.  Small to mid-size businesses may find that key issues to review include (but are not limited to) the following:

  • Maintain good standing.  Verify that your entity is in good standing with the Secretary of State, and that it is authorized to do business in other states in which it transacts business
  • Contract review.  Review contracts and vendor agreements to ensure the entity is meeting its obligations to others, and that others are meeting their obligations to your entity
  • Lease and real estate status review.  Verify that any leases your company has entered do not expire or renew within the next year.  To the extent they do, identify an action plan for how those will be renewed, amended or what the company intends to do when they expire.
  • Corporate record updating.  Review your “major actions” taken during the last year.  Did you hire employees, lease new space, take on new members/owners or take other action that should be properly documented by a written action or resolutions?   If so, your attorney can help you address these changes appropriately in your company records.
  • Employment and personnel matters.  Does your company have employees or independent contractors?  If so, do you know how recently you have updated your employment agreement, policy manuals, and independent contractor agreements?  If you can’t remember when they were last updated, it’s probably been too long.
  • Risk management review.  Does your company anticipate litigation or have any unresolved or outstanding issues which may be better handled proactively than re-actively?  It’s easy for companies to wait until the last possible moment to address potential controversies, when in fact that is sometimes the least successful approach.

Ultimately, businesses of all sizes should be proactive in their use of legal counsel just as individuals should be proactive in their use of doctors.  Diagnosis and prevention of problems can often be infinitely less expensive, less disruptive, and less challenging than “treating” a problem.  Allocating the time and relatively small expense of regular check-ups can be invaluable when it comes to risk reduction and  cost savings when compared against the clean-up required if a company runs on auto-pilot until a problem arises.

Consider the month of December as an opportune time to check in with your company’s legal counsel to address these issues and more.  If your company does not have counsel, now may be an opportune time to get that resolved.  Mark the issue on your calendar for follow-up, before the pace of day-to-day business takes you to the next issue without getting a proactive plan set into motion.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  Brad has worked with a wide array of small and mid-size businesses through all stages of the business life-cycle, from formation, to ongoing operation, to shareholder disputes, work-outs, and sale or dissolution.

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