It’s human nature to take the “if it ain’t broke, don’t fix it” attitude, which extends to allowing areas of your business to evolve and develop without scrutiny. This is why tuning up your business is an essential part of leadership for shareholders in a corporation and members in an LLC. When was the last time you really took a hard look at your business processes, systems, and the information you captured at each critical point in those activities? The larger and more complex your business, the more important this becomes.
The first area of focus is the business entity itself. The end of the calendar year is a standard time for corporate housekeeping, known as governance and compliance. It is an interesting dichotomy that the most crucial element of your business is the corporate entity itself. Yet, the corporate entity is the last thing many business owners pay attention to, often only to find it is too late.
One of the primary reasons a corporate entity exists is to separate the personal assets of the owners from the liabilities and contingent liabilities of the company. This is known as the “corporate veil.” When the corporate veil is intact, a creditor is limited to pursuing the company’s assets to repay debts and judgments. In many cases, especially in small businesses, the creditor would much rather pursue the holdings of the owner(s). The owners’ personal accounts, real estate, property, and investments are often much more substantial than the business’s.
If the corporate veil is intact, the creditor may only pursue the assets of the business in order to satisfy any debt or judgment. The corporate veil allows the company’s owners to take the types of risks they often must encounter to establish and grow their company. Unfortunately, a large number of business owners fail to do the simple tasks of corporate governance and entity maintenance required to protect the corporate veil. By the time a lawsuit develops, it’s often too late.
Essential corporate governance involves ensuring the business’s financial accounts and assets are kept entirely separate from the personal accounts and assets of the owners. Make sure there is no commingling – using business money to pay personal debts, using business assets for personal reasons, or mixing personal money and assets with the business accounts. Commingling is one of the fastest ways to allow a creditor to pierce the veil of the corporate entity. The argument goes something like “there is no difference between the corporate entity and the individual(s).” Commingling allows a creditor to convince the Court to declare the business and its owners are one and the same – opening the path for the creditor to pursue the owner(s) personally for business debts.
Another essential element to tuning up your business is to perform required corporate functions such as maintaining the minutes and updating corporate documents such as the shareholders’ agreement, operating agreement (LLC), or bylaws. As in the example of commingling, the business entity must be separate entirely from its owners, not just a shell designed to create the illusion of protection from personal liability.
Once the corporate veil has been reinforced and protected, business owners should consider the steps they can take to solve challenges, improve systems and workflow, and implement new strategies to capture information at multiple levels of the organization in a manner that makes it easy to accumulate and analyze. This information is critical not only for the reduction of taxation and the elimination of redundant or unnecessary expenses, it should provide insight into every facet of your company and the aspects that drive your business.
Tuning up your business requires a much more comprehensive perspective. What changes need to be made to improve specific areas of crucial performance? Consider every step of the process of conducting your business, from customer acquisition, supply chain management, product and service creation and development, business management, accounting, financial management, and tax, as well as legal compliance and governance.
What isn’t working? What is working but needs improvement? What do you do best? Consider working with an external vendor who provides integrative business advisory, legal, tax, and accounting services. You need an external business partner who can look at your company from an independent perspective and help identify specific areas of improvement.
This isn’t about reinventing the wheel (although, in some cases, that is exactly what is needed). This is about a tune-up. Completing consistently overlooked tasks, like the corporate minutes and updating corporate documents. What is the point of being in business if your corporate entity doesn’t provide the protections of the corporate veil?
What simple changes can be made in normal processes and the collection and reporting of information that would inform greater insight and faster, better decision-making? How can your own internal information be integrated into a dashboard that provides immediate insight into potential challenges as well as opportunities for improvement and growth?
This is the time of year most successful corporations dedicate to corporate governance and compliance, as well as business review and planning. This is the time of year to Focus on the important task of tuning up your business so that you are prepared to engage the challenges and opportunities of the coming year, increase the effectiveness and success of your team, as well as the income that flows from the business entity, separately, into your personal accounts.
The idea of tuning up your business may sound a bit odd, but it is probably long overdue.
This post was originally published on here
