The Four M’s of Successful Business Planning
Constant change creates constant opportunity. If you have identified an opportunity in this time of great change, have created a plan for how you are going to bring your solution to the market, and have assembled your team, your next step is to create a company to manage money, determine how decisions will be made, how you will deal with the inevitabilities of transition, and how to address the unique elements of your particular solution. No one but you has the vision and passion to turn your solution into a reality. An experienced business lawyer can help you create a company that will provide structure to your plan for success. I’ve had clients tell me that I’ve explained more about how to set up, organize, and operate a business in one hour of business planning consulting than they got in 10 hours of google research and reading.
There are plenty of “do-it-yourself” ways to set up a company. Seems easy enough, right? Well, getting my teeth cleaned also seems pretty easy. You get a little metal pick, scrape around a bit, do some polishing and flossing, and voila, you are done. The advantage of having an experienced dental hygienist is that you not only avoid stabbing yourself with that little metal pick, but they know what to look for and how to address what they find. The same is true with a good business planning attorney. All companies have similarities, but knowing how to spot the issues and provide a solution for them is critical to positioning your business for success.
Texas Business Planning Tips
Creating a business entity is a great tool to help you manage risk and taxes. There are other critical components to consider when setting up an entity. I like to call them the “four M’s.”
- Money: Cash is the lifeblood of every business. Consider what you and your partners are going to initially contribute to the business. Contributions can take the form of cash, property, equipment, services, or a note. Also consider how you will address the need for additional cash infusions, should that be necessary. It’s important to designate who gets to decide when additional capital is needed and what happens if one of the partners does not contribute. Some businesses will use debt (loans) to fund the company’s operations. Determine who will loan funds to the company and how those debts will be repaid. Finally, not every business partner will be involved in the day-to-day operations. Designating a salary for those involved in the day-to-day (separate and apart from profit distributions) is a good way to maintain equity among the partners.
- Management: If your business consists of only you, decisions will be easy; however, when you involve two or more people, it is critical to decide up front how decisions will be made – before conflict arises. If one person is going to take the lead in day-to-day decisions, define that person’s authority and responsibility. Certain major decisions, like selling the company, incurring debt, or adding additional partners, can be reserved for all of the partners to decide by some measure of approval (e.g. majority vote).
- Momentum: No business is immune to the inevitabilities of life. Partners die, get divorced, go bankrupt, become disabled, or just decide they don’t want to be a part of the company any longer. Determine in advance how you will deal with these events. Agreements usually involve a plan to value the business and buy the affected partner out of their interest in the company. In a worst case scenario, you need to determine how to oust a partner that has committed fraud or some other bad act that negatively affects the company.
- Miscellaneous: While all businesses have similarities, there are unique elements to every company. Know how you will deal with the particular, distinctive components of your business. Here are some to consider:
- Restricting competition among partners
- Requiring partners to personally guarantee company debt. This is important if debt will be used to fund the company’s operation.
- Including spouses on the agreement so their community property interest is covered, which is important in community property states like Texas.
- Preferred returns for certain investors. Partners that take on significant economic risk will sometimes want a preferred return on their investment.
- Creating classes of investors. In more complex projects, investors can create classes with different voting rights and allocations of profits.
- Access to information. Companies often have confidential information that demands protection. Determine how that information will be safeguarded and who will have access to it.
Texas Hill Country Business Lawyer
It is tempting when setting up a business to only cover how the profits will be shared. While that is an important decision, it’s not the only one a business owner should consider. As an ounce of prevention is worth a pound of cure, so is good business planning to deal with the unforeseen challenges in starting, growing, and operating a successful business. If you’d like help bringing your business dreams to fruition, contact Greg Richards, an experienced Texas business lawyer.