Organization + Operation = Success

I attended a continuing ed seminar a few weeks ago that focused on estate planning. One of the phrases that stuck with me, long after I left, was “its not just organization, its how you operate that makes a difference.”
The context was the organization and operating of trusts… but with our focus on entrepreneurs, my mind naturally jumped to the business context.

We routinely meet with clients who have registered with the Secretary of State – but who have not taken any additional steps to establish a business, such as prepare by laws or an operating agreement, obtain a federal EIN for tax purposes, or even open a business bank account.

As much as it can seem like these are things that take too much time, and potentially cost more money than you want to spend right now, the risk of not following through can be even greater.

For example, Joe Entrepreneur starts his business on the first day of the month with the Secretary of State. He gets busy right away, making specialty gourmet pizzas and delivering them to clients. He didn’t “have time” to open a business account yet – and besides, most of his clients pay cash. He called himself an LLC, but he doesn’t have an attorney draw up an operating agreement, because, after all, he’s just in business with himself.

Joe owns his house, which he bought before he met his wife – so it is still in just his name. They now have three kids.
What do you think happens when Joe, rushing and not paying attention, pulls out in front of another car, injuring the driver and the passenger?

Some of the risks:
• Does Joe’s insurance even cover him, given that he was utilizing his vehicle for a commercial purpose?
• Even if it does cover him, but isn’t adequate to cover the injuries, Joe’s personal home may be at risk – needed to be sold to settle any claims over and above the insurance.

Why?

Joe didn’t take the time to set himself up as a business in the eyes of the law. The protection of your personal assets from business liability only kick in if you take your business seriously enough to operate as one, in all aspects. Just paying your filing fee at the Secretary of State’s website is not enough.

You can prevent this though, simply by checking yourself.  Are you running your business separate from your personal accounts?  Do you have the legal structures in place- such as bank accounts, agreements, commercial liability insurance — to demonstrate that you are taking your business seriously?

 

 


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