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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 Mark Larson
August - September 2011

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Sweet marketing music

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You can reduce fraud risk in any business ‘marriage’

Like a marriage, however, a business partnership needs a solid foundation that can survive the inevitable conflict and struggles after the honeymoon phase. The following important steps for a strong business foundation can also reduce chances of fraud down the road.

Select business partners carefully

Too often, it seems, entrepreneurs choose strange bedfellows when going into business, based on friendship, family connection or casual association. When selecting a partner, thought should be given to the role that each person will play and contribution that each can make, but also to compatibility. Business partners often spend more time together each day than spouses do, sometimes under pressure and stress, and a business divorce can be more expensive (and more emotionally charged) than the dissolution of a marriage.

Preliminary discussions between potential partners should focus on what each partner is willing to commit with respect to time, money and financial risk. A clear and specific understanding is especially important if the commitments of the partners to contribute capital, assume debt, meet future capital calls, make loans to the business, or personally guarantee loans to the business are not equal or proportionate.

If a business is launched before there is an understanding on these points, the partner with the greater commitment (or deeper pockets) might end up holding the bag on unpaid debt, unfinished projects and legal obligations.  If a potential partner appears to have an interest in financial reward without any corresponding risk, it is best to learn that early.

Write everything down

In the enthusiasm of starting a new business, the last thing entrepreneurs typically want to do is engage in the difficult process of negotiating terms of a comprehensive agreement among the owners.  Yet business partners who start out enthused and agreeable can later end up in court with irreconcilable differences.

Whether the business is organized as a partnership, a corporation, an S-corporation or a limited liability company, a written agreement at the outset of the relationship that covers key issues and potential problems is essential.

Such an agreement should address the owners’ levels of financial investment, time commitment, compensation and distributions of profits, outline the decision-making process and the respective rights, duties and obligations of the owners, and cover issues such as management deadlock, admission of new owners, withdrawal and expulsion, transfers of ownership, and methods of handling the death, disability, bankruptcy or divorce of an owner.

As uncomfortable as the negotiations may be, a “prenuptial contract” for business partners should be completed when the relationship is new and harmonious. If a potential partner is hesitant or unwilling to execute a detailed written agreement and refuses to seek outside counsel or advice, or if the negotiations become heated, these are obvious red flags.

If the potential partners cannot successfully navigate this preliminary phase of their business relationship, this doesn’t improve their chances of working together successfully in future stressful situations. Ongoing conflict may be more likely.

Partnership agreements are not static and should be reviewed and modified as the business evolves. This is particularly true with “buy-sell” provisions when there are changes in ownership or changes in the nature of the business or its property.

Open access to info

Trust begins to erode in a business relationship when one partner has sole control of the finances and limits the other partners’ access to information.  Even if nothing dishonest is taking place, suspicion and conflict frequently ensue when an owner has reason to believe that information is withheld or manipulated. Each partner should have ready access to all business and financial information, including bank accounts and payroll records, vendor contracts, accounts receivable and payable, customer lists and employee data.

The business partners should work with the accounting firm to assure that proper financial controls are set up to prevent mismanagement, waste or fraud and to alleviate the concerns of any partner who is not involved in day-to-day operations. Detailed financial statements should be furnished to owners even if not required by outside parties.

If any partner raises legitimate issues about financial management or information, the accounting firm retained by the business, or another neutral third party, should be promptly engaged to undertake an investigation and, if possible, resolve any issues before the life of the business is threatened.

Protect property

As new products, services, customers, trade secrets or other intellectual property rights are developed by a business, it is crucial that steps be taken to protect and preserve these assets. Such steps may include confidentiality and non-disclosure agreements, licenses, registrations of patents, trademarks and copyrights, non-compete agreements with owners, employees, or contractors, and similar contracts and arrangements.

In some cases, this may include preserving the separate rights or interests of one or more owners apart from the business entity. Without careful attention to these protections, a successful business can be at risk of losing valuable assets, customers or goodwill if one owner, or even a key employee, leaves to start or join a competing business.

A business partnership can be a rewarding and profitable experience. But, like a marriage, establishing a strong foundation will improve the chances of success and will preserve value if the partnership dissolves.