Your Business Matters AlexanderAbramson.com • (407) 649-7777 October 2019
Business Horror Stories
Mistakes That Will Haunt Your Company
It’s amazing how fast this year has flown by. It seems like we were just celebrating the Fourth of July, and now Faith and I are getting ready for the onslaught of trick-or-treaters! With all the ghouls and goblins taking to the streets, I thought now would be a good time to cover some scary material myself. Plenty of mistakes and missteps can haunt entrepreneurs, but the following examples are terrifyingly common. The Curse of Incorporation This is an error that many first-time business owners make right at the outset of their venture, and it can plague them for decades if left unaddressed: They choose the wrong business entity. Amid the excitement of launching a company, it can be easy to overlook the little suffix that will follow its name. Does it matter if your business is an LLC, PLLC, or Inc.? Well, yes — quite a lot. The type of business entity you form can have huge legal and tax implications and can even affect how it operates. Not putting enough thought into the exact designation you want for your organization can lead to a lot of headaches down the road if you discover you can’t structure your
business in a way that makes the most sense or take advantage of the same tax strategies as your competitors. Many companies end up being like Frankenstein’s monster: an inefficient combination of mismatched parts. The Phantom Partnership Agreement All too often, when disputes between business partners break out, both parties make a horrifying discovery — they don’t have a partnership agreement in place to resolve disputes. This is another element of starting a company that gets left by the wayside. Why think about hypothetical disputes and “unforeseen life events” when you could be working on flashy branding and exciting marketing campaigns? When you don’t have these important documents to ward off the specter of litigation, the results can be disastrous. Not having a comprehensive partnership agreement between all of the owners has the potential to destroy the value of your company. Not only could the resulting legal battle eat up huge amounts of time and money, but it could also deeply damage the business's valuation. Worse still, disputes may become so tangled that the state simply chooses to statutorily dissolve your organization. A Boardroom With No Exit This is a mistake made by those toward the end of their business cycle, but it’s a big one. Not having an exit strategy planned in advance is a risky move for any entrepreneur. As I mentioned last month, everyone leaves their business
eventually, often sooner than they planned. Failing to ensure that you have a plan for this departure can spell heartbreak for you, your loved ones, and your employees. You should take a hard look at what you want your exit to look like and plan for that. Do you want to amass enough wealth for a comfortable retirement? Are you hoping to leave a legacy for your grandkids? Do you want to see the business you built go on to do great things, even as you take a step back? All of these goals are possible, but not without forethought. It’s especially important to have an estate plan in place in case tragedy strikes. Without one, your spouse may be caught in a bitter probate battle for the right to run or sell your business. These nightmares have spelled the end for countless companies and drained the resources of even more. Thankfully, there’s a silver bullet that any entrepreneur can use to fend off these ghastly monsters: proactive action. Whether you are incorporating a business, entering into a partnership, or setting your goals for the future, taking each of these steps carefully and with proper legal counsel will always be better than taking them quickly and alone. That way, these nasty surprises can never creep up on you.
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