Top Seven To-Dos to Get Your Business House in Order, 2020 Edition
I don’t know about you, but this January I’ve had the clean-out and clean-up bug---WAY MORE so than in previous years. Maybe because the world feels a bit chaotic right now, I’m determined to keep my own house in order.
Judging by the steady line at the Goodwill drop-off this past Saturday, I’m not the only one. So, if you are rolling into the 2020s feeling the urge to organize, it’s a perfect month to get your business house in order.
HERE ARE THE TOP SEVEN THINGS YOU SHOULD TACKLE:
1. GET YOUR ESTATE PLAN DONE. I’m not an estate planning lawyer but please, please GET YOUR ESTATE PLANNING DONE NOW. If you don’t have a trust (if it is the right vehicle for you), a will, durable health care power of attorney, living will, and general power of attorney, you are setting your work team and your family up for heartache. If you already have this done, great, but also take time to make sure all your assets (including your house, the membership interests in your business, etc.) are in the name of the trust. It’s called funding your trust. Trusts don’t work if they aren’t funded. Also, if you own a business, look into a key person insurance policy. Talk to your leadership team about a disaster plan and don’t avoid uncomfortable topics like disability. Business owners are much more likely to have a disability event than a death; plan for it and hopefully you will never have to use it.
2. UPDATE YOUR OPERATING AGREEMENT. If you have more than a single member in your Limited Liability Company (LLC), drag out your Operating Agreement this month. It’s time for an update. You will recall that on September 1, 2019 all newly created LLCs had to comply with a new set of statutes—the first rewrite of the Arizona Limited Liability Company Act ("Act") since it went into effect in Arizona in 1994. In September of this year (2020) all other LLCs have to comply. There are some really significant changes in this updated Act. While your current Operating Agreement will still be valid after September, if you haven’t addressed something in there like fiduciary duties, a member who drops out (dissociates), indemnity rights, or wrongful distributions, you might not like what the new Act has in store. I think the new act is mostly positive, but there are some things that you must discuss. Don’t leave it to chance. Set up a consultation with a business attorney you trust and consider amendments she or he recommends. Also, if you are a single member and you don’t have an Operating Agreement, get one. You need one, not because of the new law but for asset protection. Your business should operate like a business with an Operating Agreement. If not, you could have an issue if you are sued.
3. REVIEW YOUR CONTRACTS. I know you like to operate on a handshake, and you have never had a problem. But you are living on borrowed time. You need to have your one or two most common types of contracts professionally vetted. I love Google, just not for form agreements. The law and legal trends change weekly. I am used to looking at something and giving you a flat fee for a rewrite or replace (because sometimes that is going to be cheaper). If you gig (website design, graphic arts, consulting), it is critical that you have a good contract.
4. CONSIDER PUTTING A MEDIATION CLAUSE IN YOUR CONTRACTS. Arbitration clauses are everywhere. From employment agreements to almost every web app, arbitration has become really standard. Let’s face it, though, arbitration is expensive. Filing fees are way more pricey than the cost of state or federal filings. What I prefer, and don’t often see, is mandatory mediation before accessing something like a lawsuit or arbitration for a claim. I’ve been putting them in contracts for years, and have heard more and more buzz about them in 2019. If you don’t have one in your business contracts, think about it. Mediation is much more cost-effective. Find the right mediator and you can sometimes get intractable parties to budge. It is efficient and there really isn’t a downside. Sometimes I hear litigators say early mediation is a waste of time. Having mediated disputes of all kinds, I heartily disagree. I think it is a business-minded tool in the settlement arsenal.
5. LOOK UNDER YOUR EMPLOYMENT HOOD. I know it’s dark and scary in there but what you don’t want to see can hurt you a lot. Update policies, schedule trainings, look at restrictive covenants (non-competes, non-solicits) and check to see that you have employees properly classified. Remember the FLSA salary threshold for exempt employees went up January 1 to $35,568 annually or $684.00 weekly. If you make a mistake in classification or overtime it can be very costly.
6. CHECK YOUR TRADEMARKS. Make sure you check the status of your federal trademarks. They expire at ten (10) years and you need to file a Declaration of Use after the fifth year. There are also Declarations that need to be filed toward the end of the trademark’s first ten years. You should monitor your trademark regularly. You don’t want to get caught snoozing on your rights.
7. PLAN YOUR EXIT. If you own a business and have an interest in selling it to someone else, you need to start planning now -- preferably two to five years in advance of when you actually want to sell. Too often business owners hit a wall, have a health challenge, or lose a key employee and want to sell immediately -- but that is the worse time to head into a sale. You need to start the process long before you enter into a letter of intent with a prospective buyer. Getting your balance sheet in order is job #1 and it’s not a “just add water and stir” endeavor. It takes time. You also need to have a personal plan for what to do after the sale. Really. Kick the process off in 2020. There are lots of trusted professionals who work in this area. Put a team together, plug holes, and watch your sale price blossom.
If you have any questions, need a referral to a competent professional who does something I don’t, or are interested in our general counsel subscription please give me a call.
Here’s to an amazing new decade. I hope your family and your business flourish!