As COVID-19 continues to rage, many small businesses are still struggling. From figuring out how to pay your employees to keeping your customers safe, you are likely still harboring countless concerns you never would have imagined just a year ago. Luckily, there are steps your small business can take to manage during these unprecedented times. Read on for ways your small business can sustain itself during the current economic downturn and prepare yourself for future times of uncertainty.

Get organized and then scrutinize your business expenses. 

One of the first things a small business looking to prepare its finances for a downturn should do is evaluate all current business expenses. This means getting organized and assessing where you stand and what exactly you pay for every month. To do this, make a list of each of your company’s monthly expenses. Common expenses include:

• Operating costs, such as your rent, mortgage, and utilities; 
• Supplies and equipment; 
• Employee payroll expenses; 
• Insurance costs; 
• Marketing budget; 
• Machinery, including company cars or trucks; and 
• Anything else you pay for on a monthly basis. 

Once you create this list, you should carefully review it to see where you can cut costs. For example, can you negotiate with your landlord for a lower monthly rent, at least temporarily? You might be able to reduce other expenses, such as payroll costs, through a tool like a Paycheck Protection Program (PPP) loan. 

Seek assistance from government programs.

Small businesses can, and in many cases, should, consider turning to government programs for financial help. Many of these programs were recently launched to help small businesses during the COVID-19 outbreak. The CARES Act includes provisions to assist small businesses, including the Paycheck Protection Program (PPP), which provides loans to small businesses that need help keeping employees on their payroll.

Once a business receives a PPP loan, that money can be used to pay qualifying expenses, such as payroll costs. The program was designed to provide direct relief to small businesses and incentivize them to keep their workers on staff. If certain requirements are met, PPP loans are eligible to be forgiven in full.

The CARES Act also includes tax relief for small businesses that may help to cut your tax liability. These include delaying estimated tax payments and employer payroll tax payments, and a tax credit for employee retention. Speak with a tax advisor to determine which provisions apply to your business and how you can take advantage of any new tax provisions to save cash when tax season comes around. 

Reevaluate your payroll expenses.

In addition to seeking a PPP loan, there are other ways to reduce your payroll expenses. Payroll is one of the largest expenses of most small businesses. Whether you have one employee or many, there are ways you can cut back on payroll expenses without having to resort to laying off your staff. Of course, layoffs are sometimes necessary to cut expenses during an economic downturn. However, before doing so, review these alternatives. Not only will you keep your employees happy, but you will also likely save time and money in the future when you do not have to hire and train new staff. Consider: 

• Eliminating overtime hours;
• Cutting back on employees’ hours; 
• Closing on holidays to avoid paying employees time and a half; 
• Reducing pay (while this is unpopular among employees, it is often preferred over layoffs); or 
• Hiring 1099 independent contractors instead of full-time employees to save on costs such as benefits afforded to full-time employees.

Focus on customer service and retention.

As a small business, your customers are your most important asset. During an economic downturn, many businesses lose customers and, therefore, a significant income source. Small businesses that focus on their customers and on delivering exceptional customer service, even during tough times, are more likely to survive a downturn than those that try to cut costs and cut back on the customer experience. 

Reach out to your customers to show that you care. Post on all of your social media channels to stay in front of your customers and engage with them, even if you cannot reach them in-person at this time. Provide them with information and resources to help them and you develop a connection that will keep them loyal. Even if they are not in the position to spend money now, they will likely line up to spend their cash at your business, in the future. 

Consult with an experienced business attorney for more help

Lastly, reach out to an experienced business attorney for detailed guidance on what your small business can do to weather this downturn. If you follow the guidance above, when this pandemic ends, you will not only have kept your business afloat, but you will have set yourself up for success. 

To get your business in that position, you do not have to go it alone. Business attorneys, consultants, accountants, and financial experts have worked with companies through downturns and economic difficulties many times before and can offer a new perspective and advice on maximizing your operations.

If you are looking to grow your small business and take it to the next level, you are probably ready to seek funding from an outside source. The catch, though, is that raising money usually requires compliance with federal and state securities laws, which can be burdensome and costly. Luckily, there is a (legal) way around these securities laws, and that’s where accredited investors come in. 

Here, we discuss what an accredited investor is, how accredited investors can help your small business grow, and some ways a business formation attorney can assist you with vetting and procuring accredited investors. 

Do I need to register my transaction with the SEC?

First of all, it is key to note the default rule: generally, offered investments or securities must be registered with the U.S. Securities and Exchange Commission (SEC) and your relevant state securities commission. However, there are exemptions to this rule, including if the investment is offered only to investors that qualify as “accredited investors.” 

What does it mean for an investor to be “accredited”?

An “accredited” investor is a legal entity or a person that fits certain criteria. Legal entities that might be accredited investors include banks, broker-dealers, and trusts with assets over $5 million. 

An individual accredited investor is someone who:

• Earned more than $200,000 (or $300,000, jointly with a spouse) in each of the previous two years and who expects to earn the same or more for the current year; or 
• Has a net worth (individually or with their spouse) of over $1million (not including a primary residence). 

Accredited investors are allowed to invest in securities that are not registered with the SEC. The SEC created this exemption to allow sophisticated investors to weigh the risks as to whether to invest. Normally, a registered offering requires a company to make burdensome disclosures and provide information to investors. In theory, this is to protect someone from investing in a business in an industry unfamiliar to the investor.  

Because the SEC believes accredited investors are sophisticated enough to handle their own financial analysis, they are provided less protection. In other words, a company does not have to follow the rigid SEC disclosure guidelines to offer the investment. 

Does it matter whether an investor is accredited? 

A small business owner needs to know whether a potential investor is accredited. While non-accredited investors can still make certain investments, only accredited investors can participate in non-registered securities offerings. If you are offering your investment to more than one investor, all investors must be accredited to fall under the SEC’s exemption from registration.

What are some smart ways to vet an investor?

If your small business is interested in selling investments to an accredited investor, you must vet every potential investor. The burden is on you, the small business, to take the necessary “reasonable steps” (according to the SEC) to verify that all of your investors are accredited. If you do not, you might be out of compliance with the securities regulations and could face fines and other penalties from the SEC, so it is important that you carefully do so. 

This begs the question: how can a small business vet potential investors? 

While you can do this on your own, a small business attorney will help the process immensely by:

• Preparing an accredited investor questionnaire, which will ask your potential investors for personal and financial information; and 
• Reviewing the financial documents provided by investors, including their W-2s, tax returns, bank statements, and anything else that will prove their income and/or net worth. 

Because the onus is on the small business to ensure that the investors are accredited, this determination should be handled with care. Your business attorney can assist you throughout the entire process to ensure things run smoothly and that only the proper investors take part in your offering. 

Can a business formation attorney help me find accredited investors?

To find accredited investors, small businesses should look to their peers for referrals, consider joining investment clubs or search crowdfunding sites that may provide leads. Do not count out family and friends, either, as, depending on their income and net worth, they may qualify as accredited investors themselves and could also invest in your small business.

The best way a business formation attorney can help during this investment process is through vetting your investors, confirming they are accredited, and preparing the necessary legal documentation. While there are few SEC requirements for investments offered to accredited investors, any investor interested in providing your small business with funding will want to review documentation about the business so that they can gain a full picture of what your company is about. A business formation attorney can help prepare these documents. 

If you are interested in seeking capital from accredited investors for your small business, reach out to a business attorney to discuss your options and begin the funding process. 

Contact Our Experienced Business Law Attorneys

Starting a business is thrilling. However, failing to abide by the proper legal and corporate formalities can land you in trouble, especially when it comes to financing. At Wilson Ratledge, we assist business founders in taking steps that help their businesses thrive, from their initial founding throughout their first few rounds of funding and beyond. For assistance setting up your business or navigating a relationship with an investor, or for questions regarding your entity, contact one of our experienced North Carolina business attorneys today at 919-787-7711 or via our contact form below.

Do you run a small start-up and hope to grow your operations with outside financing? If so, you likely already know that pitching your business to a venture capital (VC) firm is one way to land that funding. After meeting with a VC, your first step will be to put together a pitch deck – the slide presentation that describes your business and convinces investors why they should provide you with funding. 

Your pitch, which might last ten minutes or an hour, is what the VC will use to decide whether or not it will invest in your business, so nailing that pitch is crucial. Here, we discuss five tips to help you deliver the most compelling pitch possible and land you the funding your start-up needs to grow. 

1. Prepare an Effective Pitch Deck.

Your deck needs to be highly effective. Anyone can put together a presentation, but you only have a limited amount of time to convince a VC why it should invest their money in your start-up. As a high-level overview, all pitches should include:

• The problem your business aims to solve 
• Your solution to that problem
• The details about your product or service 
• Your target audience 
• Your strategy 
• Your financials
• Your exit plan 

This might seem like a lot of information to include, but you should still be sure to limit the number of slides (some VCs suggest not going beyond ten slides, so try to keep it between ten and twenty, at most). Remember that your slides should serve only as a guide as you present. They should not include every word you plan to say. Do not overwhelm your investors with text and information – the focus should be on you and what you have to say about your business. That is what makes for the most effective deck. 

2. Nail the Elevator Pitch.

When you begin your pitch, get straight to the point. Your first slide sets the stage for the presentation, and you need to convey immediately why your start-up exists and why the VC should want to hear more from you.

Start your presentation with an elevator pitch – a thirty-second overview of your target market, its problem, and the solution your start-up provides. VCs like it when start-ups cut right to the chase. They do not want to spend half the presentation trying to guess what your business is. Tell them right away with a concise elevator pitch and get them hooked from the beginning. 

3. Highlight Your Team.

As the leader of your team, you will prepare and present the pitch to investors. Sometimes, other members of your team might accompany you on the pitch. But even if they are not there in person, be sure to highlight each of your key team members during your presentation. Your idea and business matter, but without the right people, your business will never succeed. That is why VCs are particularly interested in getting to know your key people. 

Share the names and roles of your key people, but take it a step further and share a little bit more about them. Perhaps your marketing manager is a whiz at a specific type of internet marketing. Include this insight in your presentation and the VCs will get a better picture of the talent that your team brings to the table. 

While it is important to share the team members you do have and their skillsets, it is also important to let VCs know what you do not know or have. If you lack the talent in a specific area, do not be afraid to share that during your presentation. VCs are quick to figure things out, so it is best not to hide anything. It is ok not to know everything or have the resources to hire every necessary employee yet – that is why you are seeking funding, after all, to grow your business.

4. Be Specific About Your Financing Needs.

Do not beat around the bush when it comes to how much funding you are seeking. Clearly spell out how much, if any, has already been invested and how much more money you need to grow your business. 

When figuring out how much funding to request, first determine what you think you need to meet your goals. Then, ask for double that amount. For example, if you think you will need one million to take your business to the next level, ask for two million. That will serve to cover all the unexpected issues that are sure to arise and will prevent you from having to go back to the VC for a second round of funding. The worst thing that can happen is that the VCs say no or offer you less money, so it is worth the shot. 

5. Practice and Prepare for Questions. 

Finally, practice your pitch on friends, family members, and colleagues. Go through the whole presentation and ask them to provide you feedback and to ask questions. This will help you figure out if a certain part of your presentation is confusing or needs more detail.

While they will not ask all of the same questions a VC will ask, your friends and family will raise good points that investors will likely raise, too. Not only will practicing help you anticipate questions the VCs will ask, but it will boost your confidence, get some of your nerves under control, and prepare you for the real deal.

All business owners know how much time and effort goes into growing a successful enterprise. They meticulously run the day-to-day operations and set long-term goals, focusing on priorities from increasing revenue to fostering a customer-centered culture. But surprisingly few entrepreneurs plan for an inevitability in the business life cycle: succession planning. That is, what will happen to the business if one partner steps aside? The dissolution of a business partnership is not uncommon, but regardless, few companies are structured to manage these types of transitions when and if they become necessary.

Planning for a business partner’s departure is an essential step in running a venture that is set up for long-term profitability, scalability, and success. That is why every business with more than one owner should have a buy-sell agreement in place. Whether you have not yet formed the business or are in the middle of operating one, an attorney can help you draft a buy-sell agreement to protect the business when one partner departs it. Here, we give an overview of buy-sell agreements, discuss the key provisions, and explain why you should contact an attorney today to discuss drafting a buy-sell agreement for your business. 

What Is a Buy-Sell Agreement?

While it is not always an easy conversation to have, business partners should have a frank discussion about what will happen to the business should one partner depart. A buy-sell agreement is essentially a legally binding representation of that agreement among business partners. Buy-sell agreements have been described by some as “business prenups” since they lay out how a business will divide up its ownership assets upon the “divorce” of any of its partners.

On a more specific, granular level, a buy-sell agreement is a document or provision within another document (such as a shareholder’s agreement or LLC operating agreement) that details what will happen when one owner can no longer be an owner or no longer wants to be one. Usually, this occurs when an owner dies, becomes disabled, or wants to retire. The agreement will detail how ownership will be reallocated to the remaining partners or another pre-designated owner or manager. 

Key Provisions of a Buy-Sell Agreement

The primary purpose of the buy-sell agreement is clarity: for business owners, the goal is to create a clear, detailed roadmap for managers upon a partner’s departure. In other words, the goal is for there to be no mystery about how the business will handle its affairs. The agreement details exactly what will happen upon this event, instead of leaving it up to future negotiation, an executor of an estate, or even the courts. While a buy-sell agreement’s specific provisions will vary based on the business’ needs, there are a few key provisions that appear in most: 

1. Triggering Events
   Triggering events are those that activate the provisions of the buy-sell agreement, that is, the events that result in the right or obligation of someone else to purchase the departing partner’s ownership interest. These usually include, for instance, death, disability, divorce, bankruptcy, and retirement. 
2. Obligation or Rights to Purchase
   When a triggering event takes place, the buy-sell agreement will detail what happens next. Usually, this is either (a) the obligation that the remaining partner(s) buy out the leaving partner or (b) the rights of the remaining partner(s) to buy out the departing partner. 
3. Valuation
   Nobody wants to argue over money when a triggering event has occurred. For that reason, it is important to include an agreement about how to value and allocate ownership. This might include an agreement that an outside business valuation expert value the business at the time of the triggering event or provide another method for determining the purchase price.  
4. Funding Terms
   These terms set forth how the departing owner will be paid for his or her shares. This often includes the application of insurance proceeds since many business owners obtain insurance coverage on the life or disability of the other owners. Another common term authorizes the company to use its cash reserves to buy out the leaving owner.

Does Your Business Need a Buy-Sell Agreement? 

While there is no legal requirement that your business implements a buy-sell agreement, there are nonetheless a few compelling reasons to do so:

• Buy-sell agreements prevent owners from transferring ownership to a party the other owners would not want to engage. For example, upon an owner’s divorce or death, the owner’s spouse could acquire control of his shares. A buy-sell agreement would prevent that spouse from retaining ownership if the other business partners would prefer to avoid embroiling family members in the business’ affairs.
• Buy-sell agreements prevent costly litigation. Disputes among business owners are common. While this hopefully will not happen to your business, a buy-sell agreement can make an owner’s departure from the business less contentious and help you avoid litigation over issues such as valuation. 
• The departure of a business owner, and the transfer of ownership to a new owner, can cause unintended tax consequences. A well-structured buy-sell agreement can help owners avoid any tax surprises that may arise by virtue of a substantial change in business ownership.

How a Business Formation Attorney Can Help Your Business Draft a Buy-Sell Agreement

Whether your business is still a nascent idea or a booming enterprise, a business formation attorney can help you draft a buy-sell agreement tailored to your specific needs. Because these agreements can be complex, it is best to engage professional help to ensure you are planning for every possible contingency. This is the best way to prepare your venture for long-term success. 

Did you know that there is a way to maintain control over your medical decisions even if you were to become incapacitated? This is possible if you create a living will, a legal document that details your wishes for your medical care in the event you are unable to make decisions for yourself. A living will outlines your preferences so your family and doctors know what to do if you are unable to voice your preferences, for instance, if you find yourself sustained by artificial life support or reduced to a persistent vegetative state. 

A living will is an important piece of every estate plan, but many people do not know how these documents are used. Here, we discuss five things you might not know about these vital documents, which you can and should discuss with your attorney long before the need for one arises.

1. A “Living Will” is not A Last Will and Testament. 

If you have a last will and testament, or “will,” then you probably assume you do not need a living will. Right? 

Not so fast. A living will and a last will and testament are distinct documents with different intentions. A last will and testament details how you want to distribute your property after you pass. That document only applies after your death. On the other hand, a “living” will only applies while you are still alive, and it has nothing to do with your assets or property. Rather, a living will details your decisions and preferences for your medical care should you find yourself in a place where you cannot communicate them yourself. Specifically, a living will sets forth what medical treatment you want should you be sustained by life support or find yourself in a state of reduced capacity. By clearly stating your wishes ahead of time, a living will gives you peace of mind about these difficult decisions. It also helps your family members when it comes time to decide what type of life-sustaining care you should be granted.

For example, some people decide they do not want to be given any extraordinary forms of nutrition or hydration if a certain number of medical professionals declare that there is no hope of recuperation. Others specify specific means that they would like administered, and which they prefer to avoid. 

• A Living Will Is Not A DNR Order.

People often confuse living wills with “do not resuscitate” (DNR) orders. A DNR order is an agreement a patient makes with his doctor that he does not wish to be resuscitated if he suddenly becomes unconscious. This is mostly used after surgery or other hospital procedures. For example, if a patient has a DNR order in place and becomes unconscious while recovering from surgery, the hospital will not resuscitate the patient, even if that procedure might have saved his life. 

In the situation above, a living will would have no bearing on the hospital’s decision. Medical staff would likely still attempt to resuscitate the patient unless a DNR order dictated otherwise. A living will does not automatically grant that a person will not be resuscitated during a momentary lapse in consciousness. Rather, a living will is only invoked in limited circumstances – when the person is unconscious, terminally ill, and there is no reasonable chance of recovery. 

• Living Wills Go Hand-In-Hand with Healthcare Proxies.

If you have a living will or plan to execute one, consider drafting a healthcare proxy, too. Also called a healthcare power of attorney, a health care proxy is a person who is responsible for making health care decisions on your behalf when you cannot. A living will only applies when you are permanently unconscious and unable to communicate your wishes. However, in some situations, you may become temporarily unconscious, like after an accident. While these situations might not trigger the authority of your living will, you might still want a trusted person to make decisions on your behalf. In this case, your healthcare proxy would make those decisions. This person would also ensure the wishes in your living will are carried out properly if you were to become permanently incapacitated. 

• A Living Will Is Not Just for the Elderly.

You might think that a living will is just for the sick or the elderly, but this is untrue. Anyone over the age of eighteen should consider drafting and executing a living will. Accidents and illnesses occur every day, even to young adults who otherwise feel healthy and invincible. Without a living will, your spouse or parents are likely to be faced with difficult decisions about how – and whether – to continue life-sustaining treatment for you. Memorializing your wishes in a living will is a way to bring them – and you – some mental and emotional security. 

• You Can Revoke or Update Your Living Will at Any Time.

Making decisions about end-of-life care can be daunting. No one wants to ponder their mortality, and so they put off drafting their documents ad infinitum. But the uncomfortable reality is that an accident can happen to anyone at any time. Even if it is uncomfortable, spend some time deciding how you feel and what you believe about end-of-life care. Do you have specific moral or religious beliefs that dictate how you want to be treated? Are there family members you want to be deeply involved in the decision-making process? 

Keep in mind that getting something in place is better than waiting for perfect certainty: if you change your mind about your decisions or preferences, you can revoke or update your living will document at any time. Nobody else can do this on your behalf without your permission – you are the only person who can change your own living will. Remember, though, that a living will is a legal document that might be included with your other estate planning documents or files. So if you decide to change or revoke yours, be sure to track down all copies and provide anyone who might have had an old version a copy of the new one to be sure your current wishes will be followed. 

Bottom line: get something in place now. It’s okay if it isn’t perfect. 

Experienced Estate Planning Attorneys

At Wilson Ratledge, we assist clients in various aspects of estate planning, including drafting and executing living wills. Our experienced estate planning team can discuss your options and help you decide how to best proceed. Contact one of our attorneys today at 919-787-7711 or via our contact form below.