Business & Legal Risk Assessment

Why is Risk Management Necessary?

Risk is a part of everyday business life. You will encounter many types of risk in your small business. Every business encounters risks, some of which are predictable and under your control, and others which are unpredictable and uncontrollable. Some will have a minimal impact and you can manage them easily; others may threaten the very existence of your business.

A Business and Legal Risk Assessment involves identifying, analyzing, and taking steps to reduce or eliminate the exposures to loss faced by your business.

A Risk Assessment is vital for your small businesses, since some common types of losses such as property damage, liability claims, employee claims breach of contract claims and disputes with co-owners can destroy what may have taken you years to build. Such losses and liabilities can affect day-to-day operations, reduce profits, and cause financial hardship severe enough to cripple or bankrupt your small business.

Wouldn’t you prefer to minimize those things that may negatively affect your business and identify identifying those things that will help to achieve the goals and objectives of your business? A Risk Assessment will help you do that.

What Larger Businesses Do?

Larger businesses employ a full-time risk manager to identify risks and take the necessary steps to protect their company. You do not have that luxury. Instead, the responsibility for risk management falls on your shoulders. Your decision depends on whether you are you an ostrich or a businessperson.

Why you NEED a Risk Assessment – The Benefits

Your Small businesses can expect many benefits from applying risk management principles in a structured and systematic way. These include:
• Improved communication between you and your staff
• Improved relationships with your clients, employees, suppliers and contractors
• Stronger business planning and achievement of objectives and goals
• Reduced litigation potential
• Increased competitive advantage
• Enhanced quality of product or service
• Increased efficiency and productivity

Why you SHOULD – good business practices

There are many reasons why you should apply risk management and these include:
• Increased transparency in financial management
• Enhanced staff confidence in a secure and safe work environment
• Enhanced client confidence in the quality and integrity of a product or service
• Protection of assets and the longer-term viability of the business.

Why you HAVE TO – legal compliance

There are many legal regulatory requirements relating to risk management and these include:
• Employment Laws
• Contractual obligations
• Insurance requirements
• Financial reporting requirements

Where You Might be at Risk

• Structures, Agreements and Insurance
• Dealing with Co-Owners and Partners
• Employee Issues
• Business Operations
• Advertising and Intellectual Property

Structures, Agreements and Insurance

• Inappropriate business structures for asset protection and tax minimization
• Inadequate or unenforceable Business Succession Planning
• Inability to recover loans to businesses where the business becomes insolvent
• Rights and obligations pursuant to continuing agreements (e.g. Leases)
• Lack of adequate insurance or under insurance

Dealing with Co-owners and Partners

• Implications from the death, illness or disability of a key person or employee
• Unsuspected or early retirement of a co-owner
• Disputes between co-owners
• The sale of a co-owners shares or interest in a business without notice or consent

Employee Issues

• Disputes with employees
• Competition from former employees and loss of key customers or trade secrets
• Disclosure of confidential information

Business Operations

• Inadequate or lacking Standard Contract Terms & Conditions and contracting procedures
• Unlimited liability to third parties and customers
• Exposure to fraud and theft
• Financial stress due to bad debtors and inability to recover debt collection costs
• Liability in negligence and/or strict liability cases
• Compliance with industry specific legislation

Advertising and Intellectual Property

• False or misleading statements or warranties in advertising
• Difficulties in enforcing Intellectual Property rights where rights are not properly protected
• Unintentional infringement of Intellectual Property rights of third parties on websites.

The Poulos Law Firm offers a comprehensive Business Risk Assessment service resulting in a detailed report identifying the risks faced by your business and providing advice and recommendations for minimizing or avoiding those risks in future.

Starting-a-Business-Arizona

Starting a Business-Arizona Checklist

Business Checklist

Starting-a-Business-Arizona
Starting a business in Arizona isn’t complicated, but you don’t want to miss any of the steps. Follow this simple checklist to make sure you’ve thought your way through all the steps.

Write a Business Plan

Form goals and objectives for your new company. Start with a detailed outline of what you plan to accomplish. You don’t necessarily need a formal plan unless you will seek a business loan, but you must do something if you plan to succeed. Even a properly done One Page Business plan can help.

Choose A Name

When you decide on a name for the business entity and search it on the internet (Google it) to see if anyone else is using the name. Just because the Arizona Corporation Commission allows you to reserve a name does not protect you if the the name is already in use.

Purchase A Domain Name

If you will have a website that is the same as the entity name, you can purchase the domain name at this stage, or wait until after you’ve checked the name availability through the Arizona Corporation Commission owning a domain name does not give you any right to the name through the A.C.C. or through the Arizona Secretary of State. Domain names are completely separate from the A.C.C. and the Arizona Secretary of State. Having a website is essential in today’s business world of internet searches and social media. Register a URL that is memorable and relevant to your company and/or industry.

Funding

Whether you use your own savings or obtain loans, starting a business requires money. The lack of sufficient money is the number one reason businesses fail is lack of sufficient capital. Starting a business on a shoestring budget and hoping to bootstrap your way to success is bucking the odds. There are plenty of free counseling and training services available that can help you prepare a business plan, secure financing and more.

Choose a Location

Think about the people your business is designed to serve and then pick a location most convenient to them. Most successfully businesses are where there is the right traffic for that business. In retail businesses it is crucial – you are really in the real estate business when you own a store.

Determine Your Legal Structure

Are you creating a sole proprietorship, a partnership, a limited liability company (LLC), corporate, S corporation, nonprofit or cooperative? Note there is much confusion regarding some names. – “S” corp, “C” corp, and “501c3” corp are only federal tax designations. They do not indicate your legal structure , only how you pay your taxes. Arizona you would just form a corporation or a nonprofit corporation. LLC are popular entity structures for many small businesses. This can protect owners personal assets from business debts and liabilities if used properly. Incorporating can provide credibility and tax benefits

Get an Tax Identification Number (TIN)

A TIN is like a social security number for your business and you’ll need to obtain it from the IRS or your state revenue agency.

Choose a Tax Year

A calendar year runs consecutively from Jan. 1 – Dec. 31, a fiscal year is 12 consecutive months ending on the last day of any month except December.

Register to Pay State and Local Taxes

You might need to complete a transaction privilege tax application with the Arizona Department of Revenue. Check the ADOR website, www.azdor.gov, and the Arizona Commerce Authority Small Business Services website www.azcommerce.com for more information.

Insurance

You also may need to obtain insurance for your business. Coverage to consider includes general liability, umbrella coverage, workers’ compensation, unemployment and disability insurance. Don’t assume you do not need insurance if you are working from your home.

Obtain Business License and Permits

Arizona requires state and local licenses for many businesses.

Develop business collateral

Marketing material. Most buisnesses use customized letterhead, cards, and forms with their company name, logo and website for marketing and credibility. While there are many cheap printers on line, having a good relationship with a local printer could be a better idea for you.

Open a bank account and merchant account

To protect their corporate or LLC veil, businesses must maintain separate business and personal accounts and records. Establish a separate business bank account so your personal assets are not co-mingled with business funds. Banks may also require an Employer Identification Number (EIN) to open a business checking account. Your customers will want to pay you with no hassle. Depending on your expected volume of sales you may consider a merchant account. For lower transactions you might use PayPal or Square.

Hire Employees

Learn your legal obligations before you hire employees.

Identify where to get help

Know where and when to seek advice from other sources, such as attorneys and accountants, to assist you with specific questions about your business. Establish a board of advisors or mentors to help you along the way. This can be formal or informal. Getting guidance from a mentor or someone already successful is a smart way to go.

Follow government rules

Operating a business means satisfying ongoing government and legal requirements to maintain the company’s good standing

Poulos Law Firm has extensive experience helping businesses get started here in Arizona. We are happy to help with many of the steps in the process.

Do You Change Your Draw or Salary?

An article in the NY Times business section today poses an interesting cashflow question for small business.

Even if you are not having a collection problem, there are times, especially these days, when your cash will ebb and flow without reason. That can have a substantial impact on your sales targets and working capital.

At the same time, as the owner, you have probably set a salary or draw level based on your revenue projections. If your sales are cyclical, this is also an issue of balancing what you are taking out of the business at any time as well.

The challenge is how to determine whether to continue to take that salary or draw when your business is experiencing the collection downward trends. This of course assumes that you are monitoring your cashflow on a regular basis. Keeping an eye on accounts receivable and accounts payable is clearly something every business should be doing, no matter how small.

The answer is probably different for everyone, and there may not be a good answer at any particular time. Much of the answer may depend on whether you have confidence in your sales pipeline and can comfortably predict that cashflow will resume. This should require an analysis or projection by you of whether your orders are still coming in, whether you are still being asked for quotes, or other indications that your business is on track.

On the negative side, you may be experiencing issues that might reflect a different future for your business. You will have to address those issues right away.

Part of owning a small business is taking steps to navigate your financial ups and downs. Often, a variable that you can control is how much money you are taking out of the business at any given time. It would be an interesting discussion or thought process that many have probably already gone through

What About the Taxes on the Real Small-business Owners?

Most small-business owners do business as Sub S corporations or other pass-through entities. Changing the corporate tax rate will not help them.

I know that most of my clients and business acquaintances do business in a form that passes net income through to their personal 1040s where the tax is paid. But most of the political chatter we hear, view, or read keeps talking about reducing corporate taxes. That will probably not have a significant effect on the small businesses whose tax structures are based on their individual tax bracket. The two candidates’ position on this issue was recently raised in an AP article in the Washington Post. The article provides a quick analysis on the relative positions of Romney and Obama and how they will affect the actual taxes on small-business owners with pass-through income. The article concludes that under both candidates’ proposals, the big boys in C corps will get the biggest benefit.

It is pretty clear that, despite the lip service, neither candidate is addressing the individual tax issues related to small-business income. We all need to be alert, no matter what the election result, to review our business structure in the event of any tax changes. Assuming, of course, that Congress can ever agree on any.