If you are starting a new small business, you know that it’s important to plan ahead and avoid unexpected costs. Before you open your doors to customers, consider how you will answer these three questions. Doing this may help you to reduce potential problems and to maximize your business’s value.
First, what risks are you inheriting? This question applies if you are considering buying someone else’s business. In doing your research to determine whether purchasing the business is a good investment, make sure to check for all liens that creditors have placed on the business’s assets. Check for all debts that the business may have. Some problems may be difficult to find in advance, like potential lawsuits against the business. You can give yourself additional confidence with written sales and indemnity agreements with the previous owner that limit your responsibility for problems that he or she caused.
Second, where will you open your business? If you will lease a building, and especially if the landlord drafted the lease agreement, you should review the lease carefully. Leases to small businesses can be quite detailed and you will want to negotiate terms that are as favorable to you as possible if things go wrong. It is important to know whether the property is already zoned for your business. You also should determine what licenses or other approvals you will need from the state and your parish.
Third, how will you minimize the business’s taxes and your personal liability? The law gives you different options to structure your business, such as a partnership, an LLC, a corporation, or a sole proprietorship, and each one has different tax and liability characteristics. If you are beginning the business with other people, you may wish to have an operating agreement to say what each person’s rights and duties are in running the business. Putting the terms in writing will reduce future disagreements and provide a way to protect yourself if problems do come up. You then may need to file documents to set up your business with the Louisiana Secretary of State, as well as to register and obtain tax identification numbers.
Even the most careful planning cannot eliminate all uncertainty. But thinking through these three questions now may prevent common problems from occurring when you least expect them.