Colorado Business and Family Lawyer Blog

Even the smallest business venture will probably require some financing in the beginning. If an entrepreneur is unable to save up enough money to start his or her venture, then a small business loan may provide the necessary funds. However, accumulating business debt is risky. You can manage those risks by learning about different loan programs and committing to a debt management strategy in advance.

A few tips to consider: (1) Don't use your credit card for any amount that you will not pay within 30 days. Credit card interest rates are at an historic high. This cost of borrowing can easily crush a small business. (2) Think long and hard before using a home equity loan. It's likely that your home is your most valuable asset. While most business lenders will require you to personally co-sign for a loan to the business, it will be challenging for the lender to collect against your home since the mortgage lender has a first priority lien. However, if you use a home equity loan to finance your business, you create a situation in which the home equity lender has a security interest in your home and is in a better position to force a foreclosure sale. (3) Don't fall for 0% financing lures. Frequently, the price of the item has been inflated so that the "savings" are illusory to begin with. In addition, the terms of these purchase finance contracts are frequently draconian. For example, it is not uncommon to see a clause that allows the lender to charge interest retroactively on the entire cost of the vehicle or equipment purchased if you are late in paying off the account balance before the deadline, even by a single day.

For more information about small business loans, you can attend the upcoming seminar at the Colorado Springs Small Business Development Center this Friday, August 13, 2010 from 1:00 - 3:00 p.m. Call (719) 255-3844 to register.

Nonprofit and for profit employers should conduct periodic evaluations of their employees. An annual evaluation process is sufficient for established staffmembers, but new hires or underperforming employees should be given more frequent performance reviews. The benefits of early, consistent feedback are reaped by both the employer and the staff. Some of these benefits include:

• Identification of performance problems early in the employment relationship;

• Opportunity for the adaptive employee to modify performance to meet standards;

• Ability to reassign a valuable employee who is badly matched to his or her current role before job dissatisfaction results in loss of this employee;

• Reducing risk for the employer in the event that termination of the employee becomes necessary;⁽¹⁾

Performance evaluations should be recorded in writing and kept in a locked file. Maintaining written records of employee evaluations will enable a firm to establish relevant facts in the event of litigation. For example, if an employee who was regularly late for work is let go and then claims that he or she was fired due to racial discrimination.

Small organizations can use the same evaluation form for all employees. The use of a consistent form helps the employer to support promotion, demotion or firing decisions by referring to performance data in particular categories. Larger companies can invest the time and resources in a tiered evaluation process, distinguishing various staff levels and upper management. Similarly, even a start up nonprofit organization could use a more detailed form to evaluate the Executive Director.

Continue reading "Performance Evaluations of Colorado Employees" »

1. Recognize you are in a negotiation. When I took my first negotiation class with professor Stuart Diamond of the Wharton School of Business, he challenged us all to begin a lifetime habit of noticing the little negotiations we get into everyday. Your wife begins dropping hints about a new car. Your toddler is throwing a tantrum in the supermarket aisle. The repair shop calls to inform you that your car needs an $1,800 repair. Often we see these situations as problems, but fail to notice the opportunity. We are in negotiation all day long and we can either blindly stumble through these interactions (ignoring the wife, quieting the child, and paying the mechanic his asking price) or we can use these opportunities to practice our negotiation skills.

2. Clarify your goals. Sounds simple enough. But I can't tell you the number of times I've worked with clients who had only a vague idea of what they wanted to accomplish in a contract negotiation. Take a few moments to jot down specific short term and long term goals. Include not only what you want from this contract or venture, but how this particular agreement fits into the bigger picture.

3. Consider the value of the relationship. In their classic text "Getting to Yes", Fisher & Ury assert that positional negotiation damages relationships. What's positional negotiation? Think of the typical scene of a buyer and seller bargaining at your local flea market ("I'll give you $5.00 for this used book. " "I couldn't possibly accept less than $20.00"). Positional bargaining assumes a zero sum game in which every dollar you win is a dollar lost by the other side. You can see that stubbornness, an exaggerated opening position and use of collateral power are all successful strategies in positional bargaining, for the short term. They may work fine if you are engaged in a one time interaction, but when you are setting up a partnership that you hope will last for years, this negotiating style tends to create bitterness and hostility. Skillful negotiators broaden their viewpoint to take account of the value of loyalty, cooperation and goodwill over the long haul in a collaborative relationship.

Continue reading "Key Steps to Prepare for Negotiation" »

Skillful planning and a well-drafted, written contract can limit these risks for all parties involved. Restrictions on transferability, business authority or voting rights that are triggered by divorce may help the company to protect itself.(2) But good planning is like that proverbial umbrella in the closet. It can only help you if you slip it into your briefcase before you need it.

(1) There are exceptions, as always. For example, a traceable investment of inheritance money might continue to retain separate property status. Fact-specific analysis is necessary to determine whether any individual's business interest is marital property or not.

(2) To some extent Courts may treat ex-spouses who acquire their business interests through divorce like they treat creditors who acquire their business interests through a collections case. A careful analysis of the application of creditor protection and "charging order" caselaw is necessary to gauge the enforceability of specific restrictions contained in any operating agreement. As a practical matter, however, I find that provisions restricting the ex-spouse's ability to take full ownership benefits of any interests acquired through divorce is often enough to persuade the ex-spouse to trade off a share in the business for other marital assets, like real estate, or to accept a cash buy out.

If you need help creating a Colorado partnership agreement, LLC operating agreement or stockholder agreement, please contact me.

Colorado Springs Business Journal blogger, Matt Barrett, recently wrote about the need for potential business partners to prepare a written agreement before getting started in a new business. He described several of the most common "break up" scenarios that lead to conflict and litigation between business partners who haven't reduced the terms of their deal into a written contract, in particular the lure of a better deal elsewhere, a partner's decision to retire and or an unexpected death. I might add a few more that I've seen over the years. Like the genius partner who loses interest in the company once the creative stage is over. Or the wealthier partner in a "You bring the talent, I bring the money" arrangement, who assumes that when she added more capital to the company to buy new equipment, she also became entitled to a larger percentage share of the future profits.

But one scenario is often overlooked by entrepreneurs and their advisors. Surprisingly, given the 50% probability that any given marriage will end in divorce, very few business partners consider the impact that a divorce could have on their joint venture. Yet, even in the simplest two person business deal, the statistical likelihood that at least one member will become involved in a divorce is remarkably high. As the number of business owners increases, the shared risk becomes even greater. (Imagine tossing a handful of quarters in the air. What is the likelihood that at least one of them will land "heads up".) If you add in the emotional and financial stress of a new business start up, it's easy to see how someone's divorce could end up impacting your new business.

Continue reading "Divorce's Impact on Colorado Business Ownership (Part 1)" »