Small Business
The process of passing a family business onto the second generation is so difficult that not even a third of them survive. Beyond that, roughly half make it to a third generation. In a normal day in the U.S., 40 percent of businesses are confronted with a change of owners. Those who have founded the companies are struggling to find remedies, but there aren’t many options.
Here are a few possible remedies to this problem:
- Sell off the company.
- End the business.
- Remain as the owner, but contract others to manage.
- Keep ownership and management within the family.
The most common causes for failure of the transition of the small business are as follows:
- There is no strategy.
- The business is missing energy.
- The owner lacks the motivation to change the business.
- The coming generations are not interested in working with the business.
The main reason for closure is not having a strategy. If planned properly, the business has no reason to worry.
The family must do the following to attempt to have a worthwhile transition:
- Formulate a strategy focused on the family.
- Formulate a strategy focused on the business.
- Make a Succession Plan, which includes setting dates for retirement and the training for who will follow.
- Make an Estate Plan.
These are the four key points to a successful business transfer. They basically guarantee a transition for years to come within your family when implemented correctly.
What is a strategy focused on the family?
The purpose of the family strategy is to keep a well-functioning business. The policies for the role of the family in relation to the company are set in this strategy. There may be policies for entering and exiting the workforce of the business. It should incorporate the basic guidelines as well as a mission statement that explains what is important to the family. The strategy needs to take into consideration who in the family would like to have significant roles in the business and who would like less responsibility.
What is a strategy focused on the business?
A strategy focused on the business permits each new member of the family to establish their own future for the company. To make sure that everyone has the same idea as to where the business is headed, there is a need to formulate goals. The strategy should concentrate on the future of the company at a particular date.
What is involved in a Succession Plan?
The purpose of the succession plan is to aid those who founded or are in control of the company through the transition. It should explain the details of how to know when the next generation is ready to take over and the process for that transition.
What is contained in an Estate Plan?
The plan for the estate is vital for the company and family. In the end, without a strategy, there will be higher estate taxes than needed, which in turns gives less to the successors. This plan should be in accordance with the succession plan to ensure the transition of the business is done in the most tax effective way.
First, think about why you want to start your own business and make a list. The thrill of being self-employed, the need for independence both financially and professionally, and the desire to use the most of your intelligence and talents are a few of the most frequent motivations.
You also need to make sure you have the desire to put in the time to make a successful business. To decide what type of business fits you the best, you should think about what you find enjoyment in doing and what talents you have. Ask others for their thoughts, and see if any of your everyday activities can be made profitable.
At this point, you will need to investigate what will be the exact niche for your company. Determine what it is you want to put on the market, what the competition is like, and how to get ahead of the competition. The most important consideration is the demand for your product or service.
A business strategy, when applied to your company, should include an introduction, details about marketing, financial management, operations of the company, and a closing statement.
In the introduction of the business strategy, what should I incorporate?
This segment of the business strategy should contain information about the company and its objectives. Detail the experience within your company and the structure of management and legal status. State what your business has to get ahead of the competition.
In the marketing portion of the business strategy, what should I incorporate?
This is where you should state the products or services being offered and their demand in the market. It should also detail the market and its particular location and size.
In the financial management segment of the business strategy, what should I incorporate?
You should outline the source and amount of the initial equity capital. You also should create a monthly operating budget for the beginning years, as well as expected return on investment (or ROI) and monthly cash flow for these years. After that, present the balance sheets and income statements for the first 2 years and state the break-even point. Discuss your own balance sheet and ways of compensation. Explain who will be in charge of accounting affairs and how they will be maintained. Lastly, think through the possible problems that may arise and develop solutions.
In the operations segment of the business strategy, what should I incorporate?
This is where the explanation of the management of the daily activities will be. It should include insurance coverage, lease or rent agreements and the processes related to the staff and employment. It should also detail what is necessary to produce the products/services and the processes of production and delivery.
In the closing statement of the business strategy, what should I incorporate?
You should restate the company’s objectives and purposes and explain the dedication you have to make your company succeed. Be sure to include the methods you plan to use to reach your objectives.
You have to base your decision to start your own business on something other than the desire to be your own boss, such as: knowing beforehand what it is going to take, a thorough evaluation of your personality, and willingness to go the extra mile.
You must be able to make plans and continually make the necessary changes and developments as you go. You will want to set up an environment that is devoted to the professional aspects of your life and even consider a separate office within your home.
A home based business is affected by many of the same laws that apply to normal companies. You need to speak with a lawyer and the state department of labor to learn which of these laws and regulations will come into play. You will need to know your city’s zoning regulations as well as knowing which products may not be produced from home.
Explosives, fireworks, toys, drugs, sanitary or medical products, and poisons are normally outlawed for production based at home. Other states will not allow the production of drink, food or clothing from home.
You may be required to obtain a business bank account, a separate business telephone, a work certificate or license from the state, and a sales tax number for registration and accounting standards.
If you have employees, you will be held responsible for social security taxes and withholding their income as well as observing the employee health and safety laws and minimum wage.
Choosing a Professional
It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.
The following should be considered when determining if an attorney is necessary:
- Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney.
- Does a book exist that will be able to help me so I don’t have to hire an attorney? Some problems can be resolved with little help.
- Have you looked for non-Lawyer legal resources to help?
Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal organization such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.
The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.
Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.
Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.
Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.
Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.
Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.
These are the low cost options in comparison to going to court or hiring a lawyer for representation.
Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.
Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.
Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.
More sources are the Who’s Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).
If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.
The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.
Before beginning a consultation, the following questions should be asked:
- Is the first consultation free?
- How long have you been an attorney?
- Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)
- Are there references, such as trust officers in banks or other attorneys that I can contact?
- Are there any clients or special-interest groups that you work for that may cause a conflict of interest?
- Can we make a fee agreement? May we discuss the fees?
- Is there anything in particular that I should bring to the first consultation?
Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.
It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with the attorney and the fee agreement
The basic rate for legal services depends on location. Based on your knowledge of the fees, a “fair” fee should be selected. Here are a few factors that play a role in the decision:
- What can you afford?
- Is this a routine case or do I need someone with special experience?
- What is the going rate for the attorneys in my area?
- What can I take care of without the attorney?
The following are basic fee agreements in use by attorneys:
Flat fee: There is a specific total that will be charged for work on your case.
- Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.
- This is normally offered only if the case is simple or routine.
- Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.
Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney’s fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.
- Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.
- The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.
- Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?
Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenario, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.
- Idea: Find out if the fee will be calculated before or after expenses are taken into account. This can make a significant difference in the amount of the fee.
Choosing a Professional
It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.
The following should be considered when determining if an attorney is necessary:
- Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney.
- Does a book exist that will be able to help me so I don’t have to hire an attorney? Some problems can be resolved with little help.
- Have you looked for non-Lawyer legal resources to help?
Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal organization such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.
The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.
Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.
Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.
Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.
Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.
Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.
These are the low cost options in comparison to going to court or hiring a lawyer for representation.
Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.
Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.
Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.
More sources are the Who’s Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).
If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.
The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.
Before beginning a consultation, the following questions should be asked:
- Is the first consultation free?
- How long have you been an attorney?
- Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)
- Are there references, such as trust officers in banks or other attorneys that I can contact?
- Are there any clients or special-interest groups that you work for that may cause a conflict of interest?
- Can we make a fee agreement? May we discuss the fees?
- Is there anything in particular that I should bring to the first consultation?
Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.
It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with the attorney and the fee agreement
The basic rate for legal services depends on location. Based on your knowledge of the fees, a “fair” fee should be selected. Here are a few factors that play a role in the decision:
- What can you afford?
- Is this a routine case or do I need someone with special experience?
- What is the going rate for the attorneys in my area?
- What can I take care of without the attorney?
The following are basic fee agreements in use by attorneys:
Flat fee: There is a specific total that will be charged for work on your case.
- Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.
- This is normally offered only if the case is simple or routine.
- Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.
Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney’s fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.
- Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.
- The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.
- Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?
Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenario, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.
- Idea: Find out if the fee will be calculated before or after expenses are taken into account. This can make a significant difference in the amount of the fee.