Are you an aspiring entrepreneur? Entrepreneurs are the backbone of our economy, and communities truly appreciate their contributions. Heed the advice of some of the most common business-centric expressions as you start your path to business ownership.
The “Gentleman’s Agreement.”
We’ve all seen it, and it is all too common for entrepreneurs – the “gentleman’s agreement.” With the best intentions at heart, you start a business engagement with a friend… without putting it into writing. You get right to work, excited for the big plans and sunny outlook. Everyone likes each other – until they don’t. Once a dispute arises, you then become keenly aware that you don’t have a contract in place.
Spending time and money negotiating a contract can be intimidating and feel like a bottleneck. Instead, think of this as a time investment, which will ultimately pay dividends in the long run. When parties draft and negotiate contracts properly, they’ll know their rights and responsibilities during disputes. Even if the contract doesn’t list the exact issue, parties will have a dispute resolution plan without resorting to costly litigation.
In many cases, the process of negotiating the contract uncovers misunderstandings and miscommunications. By finding these issues early, you can nip them in the bud before it results in a relationship breakdown.
“Save a Penny, Lose a Pound.”
One common misstep among entrepreneurs is “Do It Yourself” (DIY) legal and not seeking professional advice. If you avoid spending money in cost centers, like legal counsel, it can be more expensive in the long run. A poorly negotiated contract or a major compliance violation can be costly. You may experience avoidable liabilities, such as fines, penalties, or added legal fees to address the issue after the fact. These are the matters that keep most business owners up at night.
Unfortunately, we have seen many cases where entrepreneurs have learned the hard way that DIY legal isn’t beneficial. Even when using paid services like Legal Zoom, you can ultimately experience higher costs and major headaches. In one case, a client who used an automated legal service to form their business spent more than $10,000 to fix errors that could have been avoided by consulting with a live attorney. This is more than double the cost of working with a firm like Equinox in the first place.
“Putting all your eggs in one basket.”
By acting strategically and thoughtfully, entrepreneurs ensure that all baskets stay separate and all eggs are intact.
The nature of entrepreneurs is to multi-task, working on multiple business projects at once. This can include running a consulting business while also managing investment properties. A savvy entrepreneur starts by partnering with trusted legal counsel early on to separate and protect these ventures. Legal counsel will advise on business formations and strategic management of the legally distinct entities to help them grow safely.
Many entrepreneurs successfully form separate LLCs for each venture; however, they’ll fall short on strategically managing them. Failing to follow proper compliance, like documenting fund transfers between entities, can put you at risk. The validity of those corporate forms may be challenged, exposing one entity to liability for claims by another entity’s creditors.
“Jumping the gun.”
In business, we often value fast, decisive action. However, there is wisdom in slowing down to assess situations before signing on the dotted line. One example that comes to mind is entering into a business partnership with a friend or relative. Going into business with a trusted friend or family member can work well when done thoughtfully. But many make the mistake of starting a business without first having difficult discussions about decision-making, disputes, and exit terms. For example, in a 50/50 partnership:
- How will two individuals resolve a disagreement?
- What happens if one partner dies or suffers a disability?
- How will the partners determine their ownership interest value in the event one partner wants to exit voluntarily?
While these conversations may be uncomfortable while growing a business, their value outweighs any discomfort. The time investment in these conversations will pay dividends and can be the difference between a successful or failed partnership. Remember, in a race, a runner who jumps the gun gets disqualified. Taking that extra second before leaving the starting line can make all the difference.
The “Lone Wolf.”
Finally, many entrepreneurs go into business with a “get it done” attitude. Many may even think that if you want something done right, you must do it yourself. But doing everything yourself means losing out on the perspective and expertise that others can provide. Whether that means hiring the right employees or engaging a strong team of legal, financial, and business advisors, the lone wolf will ultimately be stronger and more dangerous when traveling in a pack.
Legal Disclaimer: This article contains general information. Do not view this article as legal advice. Talk with counsel familiar with your unique business needs before taking or refraining from any action.