Wednesday, February 23, 2011

Helping Partners to Remain Friends

It has been an interesting few weeks as we have been working with a couple of clients who are severing partnerships and going their own way. Overwhelmingly we notice the problems that arise when you do not obtain legal help in setting up a partnership or a multi-member llc and you do not have the proper operating agreements in place.

These are the typical scenarios: Best friends decide to start a business to promote a shared dream. No thought is given to how the business will be managed if one of the partners develops health problems. A husband and wife form a business together, trusting each other completely. No thought is given to what would happen with the business in case the couple divorces. For too many businesses, the llc is formed by filing the Articles of Incorporation, but the set-up stops there. The operating agreement is the important next step after filing the Articles of Organization to form the LLC.

Businesses are started with excitement and good intentions. Part of the up-front set-up, however, needs to be a detailed operating agreement including the solutions for the worst-case scenarios. The following lists some of the topics to be covered in the business operating agreement:

1. Who are the members of the LLC (that's right, member is the correct terminology)?
2. What did each member contribute to the business?
3. What are the requirements for a new member to join the business and how will the price be determined?
4. What are the requirements if a member wishes to withdraw from the business?
5. What will happen if a member becomes mentally or physically disabled. For what lengths of time?
6. If a member withdraws, how will the buy out price be determined?
7. How will duties be separated and/or shared?
8. How will disputes be resolved?
9. How will profits, losses, and distributions be split among members?
10. What will happen in case of a divorce in a Marital Property State like Wisconsin? Do you have the proper documents and signatures in place so that you do not end up in business with your partner's ex-husband in case of a death or divorce?

These are just the building blocks of an operating agreement. They can be as detailed as you think helpful. As in all things related to business, planning up front saves you a tremendous amount of grief in the end. Agree on the solutions up front and you will save yourselves a lot of heart ache later.

I invite you to share your lessons learned if you went into business without an operating agreement and ended up with problems later on.

Thursday, February 10, 2011

Learning to run your business with your iPhone

Sharlyn Lauby of Mashable had a recent article about online learning apps available for iPhone users. Beth and I haven’t jumped on the iPhone bandwagon yet, but for those of you who have, this is a list of apps available to you:

• Learning To-Go by INTERSOG included Pocket MBA, Pocket CFO and Pocket Manager

• Sandler Training offers courses on sales and sales management

• Skill-Pill has 2 minute videos for hundreds of business topics

• CellCast Widget provides a mobile library with hundreds of topics

• iTunesU gives you access to Stanford’s Entrepreneurial Thought Leaders series

Next time you are picking up your kids after practice or waiting to see the dentist, take advantage of the down time to take in a little continuing education. We are big believers in constant learning and improving. Any apps out there we missed?

Tuesday, February 1, 2011

Are consultants worth the price?

I recently read a case study by Jessica Bruder in the New York Times. She was detailing the struggles a family owned business was going through after years of uncontrolled growth which resulted in the company being “functionally bankrupt”. They were hoping, at best, for an $80,000 loss on $3.5 million in sales. Desperate, they hired a consultant to come in and analyze the business and determine what was needed to save the company. The consultants determined that the business was lacking internal financial and operational controls. Employee job descriptions were weak and the organizational chart was haphazard resulting in a lack of coordination, inefficiency, frustration and a tendency for workers to focus a single task.

The thrust of the article was whether the $170,000 the consultants would charge to implement the turnaround plan was worth the money. The plan called for creating more detailed financial data which included job-costing as well as an improved organizational chart, job descriptions and employee performance reviews. Several experts offered their thoughts which included:

“If the long-term problem is that the family has exceeded its managerial capabilities, then getting a list of solutions from a management consultant — however accurate or perfect a list it is — won’t solve the problem.” Matthew Stewart “The Management Myth”

“This is the definition of crazy. Each year they keep doing the same things and hoping for a different result. I think they’re smart to bring in an outside resource, but I would make sure the resource is focusing on the entire business, not just operations. And I would make the payment performance-based.” Chris Carey of Chris Carey Advisors.

Beth and I offer consulting services such as this and we are helping a couple of businesses turn themselves around. We don’t charge $170,000 but we are interested in people’s opinions on the effectiveness of consultants. What have your experiences been?