Small Business Development Center
At Chemeketa Center for Business & Industry
chemeketa students

Category Archives: Legal Issues

Carefully Consider Business Partnerships Before Tying the Knot

By Chemeketa SBDC

Let’s face it, you need every break you can get when starting or expanding a business. One oversight that gets businesses into trouble is not having written agreements with business partners. Written agreements are essential for creating general partnerships or multiple member limited liability companies and for relationships with financial investors. The lack of clearly written agreements can eventually lead to dysfunctional management and possibly early business closure. When it results in fighting partners or unhappy relatives you have a disaster.

The case for solid business agreements should seem pretty obvious. So why do people ignore the obvious and continue to ‘tie the knot’ with business partners without them?

One reason: business partners are frequently close friends or family members. Owners enter into oral or handshake agreements and think they both have the same understanding of what they just agreed to. Most likely their perceptions differ, and the realization of this only comes after work has been performed and problems arise. The belief that because they know each other makes written agreements unnecessary is frequently wrong.

Another reason: fear that suggesting written agreements in close relationships might be embarrassing or seem like a betrayal of trust. Good relationships stand the test of exploring agreements and disagreements, and putting them on paper. If it strains the relationship, they probably shouldn’t be in business together.

The process of having good business agreements starts by talking with each other. This helps identify how to do business together and what should be in the agreement. It helps identify areas of potential disagreement and avoids the need to solve these things later.

Some things that partners might include in a written agreement are:

•  How decisions are made. The daily operation of the business sometimes requires prompt decisive action.

•  How work is divided. When one partner thinks they are working harder than the other there will be conflict. Clear descriptions of the work each partner will be responsible for are needed.

•  How long the agreement lasts. Even if business owners remain on good terms, death, disability, divorce or other life changes are common. If there is no written agreement in place to protect the other owner, disasters can occur. Unintended consequences like children, heirs or former spouses having an involvement in the business can result.

•  How the finances are handled. Identify each partner’s investment, percentage of ownership and compensation. Also identify how banking and recordkeeping will be handled. Keep in mind that profits as well as losses will be shared.

•  How disagreements are resolved. It will be beneficial for your business agreement to identify a dispute resolution process. This might include mediation .

When problems arise the best thing is to do is keep talking. Most people are initially willing to extend some measure  grace. But that grace quickly ends when communication stops.

Forrest Peck is the MERIT Program Director at the Chemeketa Small Business Development Center. This column is produced by the center and appears each Sunday. Questions can be submitted to SBDC@chemeketa.edu. Visit the SBDC at 626 High St. NE  or call (503) 399-5088.


Think Before Buying a Business

By Chemeketa SBDC

Have you been considering buying a business recently? Perhaps someone you know is selling theirs and you would like to try your hand at running it? There are several important considerations before you jump on the opportunity. Think them through and make an informed decision before proceeding.

First, what is your experience and background in running a small business and in this particular industry? If you have never owned a business before it is very helpful to look for one in your particular field of expertise. And, generally, a bank would never consider loaning you money for a business in which you have no experience.

Next, look at the business itself. Why is it for sale? If it is as great as the seller claims it to be, why sell? Why not hire a manager, keep it in the family, or even lease it out? The reasons are rarely simple. The sale requires more research than just the seller’s explanation. There will be both personal and professional reasons. You job is to understand and to make your risk decisions accordingly.

What are you actually buying? How does the price tag spread across the assets of the business? What is the condition of the equipment? What is the true replacement value of the furniture, fixtures and equipment? What would you need to pay for similar assets on the used market? What assets are not staying with the business? Are any of these departing assets critical to success of the business?

Make certain that you are not (unintentionally) buying the business debt. At times the owner will sell accounts receivables along with the accounts payables. How old are these receivables? Are any actual bad debts that you can never collect? How old are the accounts payables? Has the business not paid their suppliers and therefore are on cash on delivery? Check the amounts and ages of the accounts receivables and payables — even it you are not “buying” them.

Look at the financial statements and summaries for trends in income. Does this business have the ability to keep its current market share and remain competitive? What will keep the customer-base coming back? Can they be easily lured away by your competitors? How many existing customers will the business actually lose with a change in ownership?

How much additional money must be invested in the business in order to make the changes you think are necessary?

This business may be running profitably now and yet still not be able to sustain the debt load (bank loan) if you have to borrow money to purchase and run the business.

The last three to five years of financial statements and tax returns (ask to see both!) can be an indicator of whether the business has been well run.

If you are told that the financial statements don’t really reflect the true value of the business — that, in fact, much of the profit is “hidden” — walk away.


Before You Sign

By Chemeketa SBDC

Things to Know About Commercial Leases

Commercial Leases are complicated contracts. Tailored to address the concerns of business owners, this workshop will provide an overview of commercial leasing and will highlight some of the pitfalls commercial tenants should be aware of, such as, actual monthly cost, use restrictions, default, and personal guarantees.

Time: Thursday, February 9, 3 - 4:30 pm
Location: Chemeketa Center for Business & Industry, 626 High Street NE, Downtown Salem
Cost: $25
Registration and Information: 503.399.5088


S-Corps and LLCs

By Chemeketa SBDC

S-Corps and LLCs

S-Corps and LLC’s can be very confusing. What exactly is an LLC? What makes the S-Corp different from a standard corporation? Learn more about these particular entities and the common misconceptions people have, plus why these structures have become so popular.

Date/Time: June 28, 10 am to 12 noon
Location: Chemeketa Center for Business & Industry, 626 High Street NE, Downtown Salem
Cost: No charge
Registration and Information: 503.399.5088


Taxes Made Easy – Getting Through the Maze

By Chemeketa SBDC

Taxes Made Easy – Getting Through the Maze

You have decided to go into business and may even hire employees. Now what do you do? Learn the basics on correctly reporting and paying your state business tax obligations. What taxes are required? How are these reported? How do I report taxes on my business income? What exactly is “Combined Payroll?”

Get the answers to these question and more through this class designed to “make taxes easy”.  

Date/Time: Wednesday, November 16, 10 am - 12 pm
Location: Chemeketa Center for Business & Industry, 626 High Street NE, Downtown Salem
Cost: No charge


Worker Classification

By Chemeketa SBDC

Worker Classification

Classifying a worker as an employee or independent contractor can be very confusing. However, misclassification can be costly to both the employer and employee. Learn the difference between the federal and state guidelines on what constitutes an employee versus an independent contractor, and the issues and legal ramifications that arise when employees are not correctly classified. Also learn about the resources available to help you in making the correct decision.

Date/Time: April 26, 10 am to 12 noon
Location: Chemeketa Center for Business & Industry, 626 High Street NE, Downtown Salem
Cost: No charge


Willamette Valley Safety Fest

By Chemeketa SBDC

Is your business prepared for an emergency?

Attend the Willamette Valley Safety Fest

April 6, 2011
Keynote Speaker: Steve Kuedell,
“Miracle Man Who Defied the Odds”

April 7, 2011
Keynote Speaker: Brigadier Gen. Cameron Crawford and
Oregon Ballistic Laboratories, LLC
Over 20 Safety Fest workshops including:

  • OSHA 10-hour certifications in construction and general industry safety April 5 and 6
  • Effective Hazard Recognition
  • Violence in the Workplace
  • Emergency Response: Do You Have A Plan?
  • Reasonable Suspicion
  • Make The Right Call & After the Call
  • Contaminants: What Are You Taking Home?

Register and find out all of the details at www.SEDCOR.com

Safety Fest Location:
Chemeketa Center for Business & Industry
626 High Street NE, Salem, Oregon

Cost:
One-day Safety Fest Passport: $75
Two-day Safety Fest Passport: $150


Firing a Client

By Chemeketa SBDC

Marcia Bagnall, SBDC Director

While it’s uncommon for a business owner to fire a client, sometimes it’s the best long-term solution for the business.

There are good reasons why some clients just aren’t worth your time and energy. Deadbeats who won’t pay up and have continually revolving balances (and excuses to go with them) may cost you more than they’re worth. Ditto for someone who eats away at your time, frequently changes meetings, stands you up, and needs endless attention (and still can’t make a decision). Some clients are overly demanding, belittling or abusive to you and your staff. And then there are the clients who ask you to behave in unethical ways (lie, forge documents, cheat vendors, etc.). Good riddance to these folks, they’re not supporting your business.

Here are some steps you can take to distance yourself from a client you no longer want to do business with.

  • While a phone call is more personal, a letter is a better option. It gives you a chance to carefully choose your words and have your say without being argued with, yelled at, threatened, cajoled into changing your mind, etc. You can respectfully lay out your rationale for the decision and give the client next steps. 
  • Carefully write a business letter (standard business letter format) that is polite and firm. Resist the temptation to make accusations. Don’t use sarcasm or profanity. Take an apologetic tact that expresses regret that you will no longer be able to do business with this client. 
  • Clearly list the top reasons for your decision but phrase them in a way that is tactful. If a client takes way too much time you could suggest that this client “…needs a higher level of service than we can provide…” You don’t need to create a long list of reasons, just pick the most important ones. And if possible, suggest alternative providers to give the client a next step.
  • Remember to clearly list any issues that the client caused, breach of contract, problems with vendors (after they cancelled orders at the last minute), missed meetings that cost you travel time, etc. These details will help you substantiate the client’s wrongdoings in the case that they try to take you to court. 
  • Don’t claim things that simply aren’t true. If you’re not going out of business or moving to another state then don’t claim that you are. They’ll figure it out soon enough and you’ll both be embarrassed. Same goes for fake terminal illnesses, made up family issues, etc. 
  • End the letter with a polite wish for luck in their future endeavors. Then go back and make sure that the letter is perfect in its spelling and grammar. Have someone else look it over as well, it’s too important to just dash off and hope for the best.
  • You may get an apologetic response from the client asking you to reconsider, but don’t give in! There are good reasons for terminating this relationship, stick to them. You may also get an angry response. Be calm but firm in your resolve.
  • Be sure to keep all records of this client along with this letter in a secure place. You may need to refer to them again. Then resolve to remain silent about the issue, no badmouthing this client to colleagues or family. You don’t want to set yourself up for slander or libel claims.

HR Basics

By Chemeketa SBDC

A CRASH COURSE IN EMPLOYMENT LAW! This seminar focuses on the issues that are most likely to get an employer in trouble.  Designed to give a big picture review in a short amount of time, this seminar will help you avoid the many traps, potholes and land mines of employment law. This one-day seminar is for business owners, managers and supervisors.                                                                                             When: Friday June 4th, 2010. 8:30 am – 4:00 pm                          Where:Willamette University College of Law; 245 Winter Street SE, Salem, OR        Cost:$95.00/SHRMA member; $120.00/Non-member                           Register at: www.shrmsalem.org


Protecting Your Trade Secrets

By Chemeketa SBDC

Marcia Bagnall

little-marcia

 

It’s common knowledge that patents, trademarks and copyrights are all forms of intellectual property that can be protected by the law. But there is another, less well understood category of intellectual property, and that’s trade secrets. What are they exactly and how can you protect yours?

Trade secrets can be recipes, procedures, customer lists, expansion plans; in short, anything giving you a leg up over the competition that you want to keep strictly to yourself. They are things that differentiate you from your competitors, and if leaked, could cause harm to your business.

Consider implementing these steps to protect your company.

(more…)