Don't Postpone Your Annual Business Physical

by Stan Johnston

Most businesses use lawyers only after they are confronted with a legal or financial crisis. Just as it is cheaper to practice preventative medicine and cure diseases detected early, business lawyers should be used to prevent legal problems and quickly fix issues before a business is embroiled in costly and lengthy litigation or facing a significant financial liability.

Using lawyers as a shield instead of as an emergency technician will, in the long run, save money and enable the business owner to concentrate on what he or she does best—running the enterprise. It is highly more economical to use a lawyer as a consultant/planner than it is to rely upon him or her strictly as a “crisis manager.” In order to control his or her own financial future, the entrepreneur must learn to mobilize the lawyer to help smooth the path to reaching goals.

Once businesses discover the power of planning legal affairs, rather than merely reacting to crises, and making counsel a part of the planning process, they likely will experience lower legal fees and view legal fees as an investment in the long-term future, rather than a short-term expense. If businesses establish close relationships with legal counsel, so that the legal counsel knows who they are and where they are going, the counsel will be more productive and effective in helping them to figure out how to reach their goals and in dealing with legal matters both before and during any major events.

The best way for a business to monitor progress and maintain health is to review legal affairs with the company’s personal lawyer periodically. Since most people tend to live their lives in yearly segments, an annual legal checkup works well for most business owners. Throughout this continuous planning cycle, an owner’s business goals should serve as a wellness guidepost, and the company’s personal lawyer/adviser can serve as its “health” monitor.

The best time of the year to schedule the annual legal physical varies from business to business. Near major holidays or annual vacations are popular times, because the owner has time to compile information and calmly reflect on the business. Others combine it with their year-end tax planning or preparation of their tax returns.

Each person will need to decide what time best meets his or her needs when conducting an annual business physical. It is wise for every business owner to schedule this comprehensive review at roughly the same time each year, to establish a routine which can be integrated into the life of the business. Of course, special checkups easily can be arranged to diagnose and treat special or unforeseen problems.

What should a business owner review during this “physical”? While a comprehensive examination would include personal tax planning, investment strategies, family issues and retirement goals, a specific list of business issues should include:

• annual maintenance checkup for the entity, such as minutes and state qualifications, insurance review for adequate coverage and policy terms;

• important contracts, with review of termination issues, deadlines, assignability and updates for current business activity;

• human resource review, making sure all key employees are bound by a current confidentiality agreement and a non-compete agreement, and employment manual updates to insure consistency with actual conduct;

• succession planning, with a review of buy-sell agreements among owners, including a valuation update for the enterprise, and preparation or update of the business contingency plan for death or disability;

• recent legal developments to determine if new laws affect the business operation (recent examples include new privacy, health information and overtime rules);

• intellectual property and technology update/review of trade secret trademark and patent protection, and licensing agreements; and

• future business plans.

A business owner who regularly conducts such an annual business physical will be on the way to maintaining a healthy and vibrant business, in shape to meet the increasing demands of the marketplace.

Stan Johnston ?is Chair of the Business, Tax & Estate Planning Department of Lewis, Rice & Fingersh. He can be reached at scjohnston@lrf-kc.com or via phone at 816.472.2530