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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Court Anderson
Feb./Mar. 2009

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How to prevent ‘great idea’ from turning into ‘biggest mistake’

Best friends often make the worst enemies and our courts are littered with examples: everything from partners buying Porsches on the partnership’s dime to one partner changing the locks in the night while the other partner is asleep.

Even small transgressions take their toll, such as constantly using company property for personal use or regularly showing up for work an hour later while the other partner toils away.

In most instances, simple safeguards put into place prior to the disputes could have protected these business owners and their interests. Unfortunately, many entrepreneurs begin a small business with a friend or family member and have the false belief that, “I don’t need any safeguards. My business partner is my friend. We trust each other.”

But I’ve seen enough friends battling out small-business matters to know business can break even the tightest relationships. Business is a lot like marriage, and we know how many of those end in divorce. The wise business owner always plans for the best but prepares for the worst.

1. Form a business entity. Not creating a business entity before any business is conducted is one of the biggest mistakes a small-business owner can make, because business entities provide a liability shield.

Ground rules needed

Good options for small business owners include a limited liability company (LLC), S corporation and C corporation. They are separate legal entities and shield you from personal liability for corporation debts. By taking the time to form a business entity, you protect your home, your car, your assets and most importantly, your family.

Each type of business entity has its advantages and disadvantages, including tax treatment, liability shield, health and medical benefits, and the availability of retirement plans. Work with an attorney to determine which type of entity is right for your business.

2. Set the ground rules. When setting up a business with a partner, make sure you both have a clear understanding and agreement of:
Roles: Are all partners working in the business or is one or more solely providing capital? Do any partners have a continuing duty to fund the business?

Responsibilities: Who is in charge? Having two CEOs is often like having no CEO. How much time do the partners anticipate spending on the business?
Capital contributions: Who is contributing and how much are just the beginning. Remember that businesses often do not go as planned so it is important that the parties discuss additional obligations to contribute capital in the future. There are also a variety of contributions that the parties must value such as real estate, plants and equipment.

Departures do happen

Time commitments: How much time do the partners anticipate spending on the business? Do the partners anticipate set hours during which each will be in the office?

What will happen if one person leaves the business: Great ideas can turn into great headaches. People leave businesses for a variety of reasons including death, disability, compensation, family and burnout.

3. Put it in writing. Seems simple enough, right? Unfortunately, many people don’t understand how vital it is to have ALL important business agreements in writing. Oral agreements are not always enforceable.

Signatures a must

Voting agreements, employment agreements, understanding of benefits (for example a company car, payment of personal expenses, medical, dental, etc.), and buy/sell agreements all need to be in writing with both parties’ signatures.

4. Don’t promise continued employment. If you promise employees that they “will always have a job” or otherwise create some sort of implied long-term contract, then they might legally no longer be considered an “at will” employee, meaning they can then only be let go if you have a valid reason – they stole something, harassed someone, etc.

Even then, the company may have an obligation to purchase that business owner’s shares. Keep in mind an economic downturn is not a just cause.

5. Settle don’t sue. Litigation is expensive and is often a very poor way to resolve disputes, especially if you litigate for years and spend $75,000 only to find out they’ve filed for bankruptcy. The best alternative is a quick settlement to resolve disputes.

6. Learn the law. Ignorance is NEVER bliss for small-business owners. There are great books out there to help you understand the laws, tax issues and guidelines to setting up and running a successful small business.

7. Keep personal and business assets separate. Co-mingling assets can create major problems, such as risk of losing your liability shield and risk of an IRS audit. Moreover, as in a marriage, finances are the single largest issue over which small-business owners fight. Create and keep your personal bank account separate from your business account.

Create plan B

8. Tax planning. Tax planning goes hand-in-hand with which type of entity you choose to create. Carefully review the options with an attorney to ensure you are receiving maximum benefits while minimizing tax liability.

9. Create plan B. No one wants to think about it, but the reality is that the majority of small businesses do not succeed. That’s why it is critical to form a plan for what happens when a business doesn’t work. Create a buy/sell agreement (a “business pre-nup”) with any partners, and be sure to determine what happens to the losses.

Above all, get it all in writing early. It’s easy to reach agreements at the outset when everyone is happily scratching their ideas on napkins. It’s a little more difficult when the Porsche is being towed out of the driveway.