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Howard County MD Business Law Blog

Business planning for success

There are a number of mistakes Maryland entrepreneurs sometimes make that can lead to the demise of their startup companies. Understanding these errors and then consciously avoiding them can help a business have a greater chance of ultimate success.

One of the major errors made by many small businesses is not having a business plan or having one that is inadequate. A good business plan may help the company by providing a blueprint so the owners can see where they need to work. Other problems occur when the business acts in a manner that is contrary to the plan due to a short-term concern. Instead, businesses can help themselves by having a good plan in place to start with and making modifications as needed on an ongoing basis.

Identifying potential pitfalls for start-up businesses

People who are planning to open a new small business in Maryland need to think about the potential pitfalls that may occur and then plan for them. There are several common types of problems that can arise with new businesses, and if they are not planned for, they have the potential to make the start-up fail.

One big problem that can negatively impact a business is when the owner hires family and friends as company employees. This can pose problems if the family members fail to pull their weight. Business owners need to be prepared to take care of problems early and quickly. Using the services of a professional recruiter to identify talent may be a better approach to staffing.

Business disaster planning

An unforeseen disaster could cause a Maryland business to temporarily shut down and lose profits. For some businesses, unpredictable closures can be so financially devastating that they are never able to reopen. When a company stops operating, contracts that it had with suppliers, customers and business partners could end up being breached.

Preparing for unforeseen disasters is an important part of business planning. A legal concept called 'force majeure" is often worked into business contracts as a clause that excuses parties for lack of performance during widespread and unpredictable events like wars, nationwide strikes and hurricanes. However, ensuring that force majeure clauses are included in contracts is only a small part of business disaster planning.

The importance of writing a business plan

All Maryland business owners can benefit from a strategic business plan. If a business is seasonal or earns a majority of its profit during one part of the year, it can be even more important to develop a written plan. When a strategic business plan is put in writing, an owner can be assured that others will be able to take over operations if and when they need to. A business plan can also help associates to understand how they can contribute to the realization of the owner's goals.

Business owners usually have many ideas and goals for the future of their company in their mind. By writing down these visions, a business owner will be forced to contemplate each idea and develop an actual plan. During the process of writing a business plan, a company owner can consult professionals, identify challenges and opportunities and come up with a business strategy.

How companies can save money through tax inversion

Companies that are based in Maryland may be able to save money on taxes by moving their headquarters overseas. Many companies take advantage of lower foreign tax rates by buying or merging with foreign companies and completing what is known as a 'tax inversion." Although regulators in the U.S. are trying to make tax inversions more difficult to complete, companies like Coca-Cola Enterprises and CF Industries are still opting to pack their bags.

Corporate tax rates in the U.S. are much higher than they are in countries like Japan, Germany, Canada and Great Britain. U.S. companies with overseas operations must pay taxes on profits that they earn in the U.S. as well as on the profits that they earn in foreign countries. When a company moves its domicile to another country as part of a tax inversion, it can pay only the local tax rate in all of the countries that it operates in.

Planning to sell a business or pass it to heirs

Maryland business owners may not think they need to consider what they will do when they are ready to retire or leave their company because it is far in the future, but all business owners need to have an exit plan in mind. Failing to plan can mean scrambling at the last minute to sell the company and only being able to do so for less than it is worth. For business owners who hope to leave their company to a family member, it is advisable to put documentation in place to smooth the transition.

A living trust can be an excellent way to protect the assets of a small business for heirs. Property, copyrights and patents can all be placed in a living trust, and if the company operates in more than one state, a living trust means heirs will not have to go through probate in those states. However, owners should keep in mind that some types of businesses may be more difficult to place in this type of trust. For example, a majority of its owners must agree to put an LLC into a living trust.

Why companies should include HR leaders in business planning

Maryland businesses engaged in strategic planning may do wise by including human resources leaders in their companies in the planning process. An increasing number of major companies are doing just that, and there are several good reasons why they now do so.

One of the biggest reasons a CEO should consider bringing HR professionals into the planning fold is because they understand what the company's gaps in skills are. By receiving information from HR, companies can better plan for talent-acquisition strategies and plans. They can also be better equipped to write their succession plans with the information.

How the strategy plan model helps Maryland startups

An entrepreneur who starts a new company will usually create a business plan. However, some believe that it is better to use a strategy plan instead. While they both guide how a business makes decisions, the strategy plan can be more flexible and dynamic. It may work better for new companies that may be growing and evolving at a rapid pace.

With a business plan, the creator of a startup is creating a document based on what the market has done in the past and what it may do in the future. This may be a flawed way to approach building a new business because what the market is projected to do and what it actually does are often two different things. It may also allow a new business owner time and space to procrastinate whereas the strategy plan creates pressure to follow through on future initiatives.

Federal court rejects appeal to award $96 million to Chevron

On Aug. 4, a federal appeals court rejected a challenge from the Ecuadorian government to an award of $96 million to Chevron Corporation. Individuals in Maryland who follow the oil industry probably know that the energy giant has been in a dispute with the South American nation for decades over oil field development.

Texaco, which Chevron acquired later, made a deal in 1973 with the Ecuadorian government that allowed it to develop oil fields in the country as long as it sold oil at less than market price. In the 1990s, Texaco filed multiple lawsuits that claimed Ecuador violated the contract. Chevron began an arbitration proceeding in 2006 at The Hague's Permanent Court of Arbitration, claiming that the courts in Ecuador did not to settle the legal actions in a timely manner, which was a breach of treaty between the two countries.

Business owners must plan their own retirements

Maryland entrepreneurs might be interested to learn that, according to a survey conducted by TD Bank, 47 percent of all small business owners do not have any sort of retirement plan. Many operate under a vague notion that a future sale of the business will provide for their retirement, but fail to specifically define their plans. With the right business planning, though, small business owners can build wealth for retirement at the same time that they build their operations.

When entrepreneurs retire, something must be done with their businesses. Thus, among the first steps in preparing for retirement is deciding on an exit strategy. Often, it's as simple as handing over the keys to a family member or closing the doors and selling the assets. The TD Bank survey indicated that most small businesses are organized as sole proprietorships.