Canmore lawyer, Austin Ward sat down with Renée Gilead to learn more about some of the common risks that business owners overlook, especially when starting up a business.
What are some common challenges faced by new business owners?
Getting a new business off the ground can be both a stressful and exciting time for an entrepreneur. The focus is often on maximizing every dollar to turn an idea into a revenue generating enterprise. However, as the business grows, it is crucial to shift focus from merely getting things done to getting things done right in order to minimize legal risk both to the business and to the business owners.
How can professional advisors like lawyers and accountants help new business owners?
Professional advisors can help entrepreneurs ensure that their business is on the right track by providing clarity on business structure and legal requirements. For instance, understanding the differences between owning a business as a sole proprietor, where the owner's assets and liabilities are commingled with the business', versus through a corporation, where the corporation itself is a separate legal entity, is critical. Sharing ownership with another person can further complicate matters. Advisors can analyze the current structure and provide insight and guidance to avoid or minimize unnecessary personal risk.
What are some legal risks that business owners commonly overlook?
One common oversight is failing to put the right legal documentation in place early on. This could include making "hand-shake" deals without formal contracts, hiring employees without written agreements, or using personal funds to cover business costs without proper documentation. These practices can expose both the business and the owner to significant risks in case of disputes and can reduce the business’ attractiveness to prospective buyers, investors, or lenders.
Why is legal documentation important when selling a business?
For most business owners, selling their business for a healthy profit is a key goal. Prospective buyers will scrutinize the business to maximize value and minimize risk. Legal advisors can help business owners by conducting a thorough review of their business structure and operations to identify and correct deficiencies. Proper documentation and robust governance processes can prevent "red-flags" that might deter potential buyers, thereby enhancing the business’ value and leading to better deal terms for the owner.
If readers take anything from our discussion today, what do you want them to remember?
The key takeaway is that transitioning from a startup mindset to a more structured and legally sound approach is essential for sustainable growth and successful business transactions. Working with professional advisors early on can help safeguard the business' future and maximize its potential value.
