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With the downturn comes opportunity.  Many people start their own businesses.  Hewlitt Packard, for example, was launched in a garage in Palo Alto in 1939 by two former GE engineers.  

Here are some general thoughts for those starting new businesses in today's challenging (a euphemism for "creepy" or "crappy") economy:

-Find a good CPA you trust (they are actually more important than lawyers);

-Find a lawyer who understands the state laws governing your particular business, these laws are usually a complete mess;

-If you buy a business, you should have a good, enforceable restrictive covenant binding the seller that will protect your investment (you BOUGHT his good will ... it's YOURS to lose);

-With any luck your due diligence involved a careful examination of the existing contracts, agreements and leases and  with clients, suppliers and landlords to gauge legal exposure;

-Make sure you have adequate listing in the Yellow Pages, since, depending on what your business is, many of your best prospects are probably going to be older people who are probably less Internet oriented;

-Cash is good; the balance sheet is crap and their ain't no such thing as a free lunch;

-Especially if you changing careers, get to know the "iron:" successful business owners usually need to develop strong feelings for the product or service;

-Pitch the product or service at local college and grad school orientations ... good source of clients, same idea probably works with senior housing;

-If you have to sue or enjoin the former owner for breach of his restrictive covenant (and this is not uncommon)  remember it is just business.  It is usually better to arbitrate if possible (the Contract should  leave room to go to court to get an injunction, however);

-Stipulate venue and choice of law in all your contracts: if the business is in Richmond and the guy you need to sue lives in Boca, you want to make him come to Richmond;
-Tax and estate planning are key: your retirement is now tied up in growing the business enough to sell it for a lot of money: the good news is this does not have to be at age 65; the bad news is that it may be never;

-The toughest times for small businesses are inflection points, not just down turns but booms: many small businesses die of success they are unprepared for;

-Most businesses do failwhat CPAs and Lawyers do is help you avoid fatal mistakes while you make the myriad of right and wrong decisions that let you know "what right looks like;"

-At a certain point, a successful business will out grow the owner.  That's not failure: that's success;

-Avoid being a sole proprietorship.  

-Limited Liability Companies ("LLCs") are usually fairly easy and cheap to form in most states and are taxed straight through to the members, avoiding the double taxation of "C" Corporations.  

-That corporation or LLC you form protects you from individual liability ... which is why all your creditors and suppliers want a joint and several personal guarantee from you and anyone you may possibly know;

-Learn to know and love (but never trust or rely on) your banker;

Generally, only publicly traded corporations need audited financial statements and SarbanesOxley ("SOX") compliance, however, banks often ask for audited statements from private companies and LLCs that borrow a lot of money or have a large line of credit;

-SOX is probably a major administrative hurdle for smaller, publicly traded entities.  However, if SOX someday precludes an eventual public offering of your business, it may be that the business is just not ready to be publicly traded;

-Owning a small business is the only form of slavery still legal in the United States ... there will be a fair number of Thanksgivings, Christmases, Purims and Spouse/Significant Other ("SO") and Kids' Birthdays spent on this;

-Be careful of the taxes you will have to collect and remit: payroll taxes and sales tax (if any for this service in your state);

-Insurance brokers can point you toward cheaper benefit plans and may also point you toward clients;

-Have your lawyers introduce you to the regulators ... close ties are a bonus to doing business, especially in or near State Capitals;

-Employees create problems, but you can't do much without them.  Depending on the nature of your business (especially retail), you are may have to have to be more careful than most (are their bonding requirements or background checks required in your state?); and

-Be careful of laws regarding taping people's incoming calls ... check the phone company tariff in addition to state and federal law.

Finally, with free advice you get what you pay for ----Good Luck.

Strong managers who make tough decisions to cut jobs provide the only true job security in today's world. Weak managers are the problem. Weak managers destroy jobs.---Jack Welch  

Originally posted to John Minehan on Tue Mar 03, 2009 at 11:42 AM PST.

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