Legal Tips for Setting Your Business Up for Success in 2021

December 11, 2020by Brian Walsh

During a single year, your business experiences a lot of changes. It’s critical for your business’s long-term success that you take time to reevaluate how those changes affect your legal situation. You want to build a solid foundation so that your growth next year is not hindered by unaddressed legal issues.

There are six different areas you’ll want to review as you close the books on the year.

1. Review Commercial Leases

You need to review all of your leases. Many real estate and equipment leases have automatic rent acceleration terms that kick-in at the start of the new year. When reviewing your leases, you will want to make sure you understand any provisions that will change your rent and that those changes are being imposed as per the rates specified in the contract.

If a lease term is expiring in the next year, you will want to create a strategy for renewing the lease, renegotiating better terms, or letting it lapse.

If you plan on letting a lease lapse, you want to make sure that you fulfill any notice requirements so that you don’t trigger an automatic renewal.

During your review of your leases, you also want to make sure the landlord or equipment provider fulfills their duties under the contract. If there are significant areas where the other party is not upholding their side of the lease, you will need a legal strategy for solving the issue.

2. Review Contracts with Vendors

The end of the year is the best time to review all of your agreements and contracts with third-party vendors. You will want to pay special attention to issues such as:

  • Costs of the agreements
  • Value provided by the vendors
  • Terms of the agreements
  • Deadlines for terminating the agreement
  • Timeliness of each vendor’s performance
  • Cost of remaining with each vendor for another year

Because of the hectic nature of running a business, firms often stick with vendors when their quality of service and costs have become a burden on the business. If you do not regularly review your vendor contracts, you may miss deadlines to terminate the agreement and have the agreement auto-renew.

Even small issues with vendor performance can increase your costs and act as a drag on your revenues and your growth. Make sure you are starting the new year with the best possible relationship with your vendors.

3. Review Customer Contracts

Your relationship with your customers should be your top business priority. At the end of the year, you need to review the contracts that govern those relationships to make sure they are still serving the interests of your business.

One trap many growing businesses fall into is continuing to use outdated contracts that do not reflect increased costs of doing business, changes in operational procedures, or that limit the profitability of each customer relationship.

As your business grows, you may outgrow certain types of customers or specific business practices. You want to make sure that your customer contracts are structured so that you can meet your obligations comfortably and earn enough profit to continue to grow the business.

When reviewing customer contracts, you want to evaluate:

  • Your performance history
  • Customer payment history
  • Profitability of each customer
  • Quality of the customer relationship

When review customer contracts, businesses are often surprised to find that some customers are not profitable because of outdated contract terms or poor contract performance issues. Terminating or restructuring unprofitable customer relationships will help boost next year’s profits.

4. Do Some Corporate Housekeeping

The end of the year is the best time to take care of the loose ends often neglected during the rest of the year. Failure to tie up these loose ends can lead to fines, fees, or even put your entire business in jeopardy.

The most common corporate housekeeping issues you will need to review are:

  • Review your corporate entity status
  • Hold an annual meeting
  • File any required annual information reports
  • Update or amend corporate charter or other internal governing documents

You want to make sure that your current corporate entity meets all of your liability protection and tax minimization goals. You will also want to ensure that you comply with all of the legal record keeping requirements for your type of corporate entity.

It is critical that any major changes in your business or corporate governance are accurately reflected in your governing documents, and that you have properly filed the most up to date version.

5. Address Any Employee and Contractor Issues

Business is a team sport. You can’t do it all by yourself. However, working with employees or contractors also requires additional paperwork.

If you have any employees, you need to review your document retention policies. Have all of your employees completed an I-9 and W-4? Did you retain only the supporting documents required by law?

If you use contractors, did each contractor complete a W-9?

The end of the year is also an excellent time to make sure that you don’t have any practices that would allow a contractor to claim they were actually an employee.

Now is the time of year for making sure you have a system for filing all employer taxes and forms. Don’t start next year by scrambling to set up a system for mailing 1099s and W2s.

You should also review your employee handbook and human resources policies. If you don’t yet have an employee handbook, you should spend the end of the year creating one so that you can start the new year on the right foot.

6. Business Insurance Audit

Insurance tends to be one of the things business owners only think about when they need to make a claim. This is a dangerous practice. It can easily lead to having gaps in coverage or misunderstandings about how to file a claim.

The exact types of insurance you need will depend on your business. However every business needs basic liability insurance.

Make sure you enter the next year fully protected. Review all of your insurance policies to ensure that you have all of the coverage you need and that the deductibles are reasonable for your risk profile.

You will also want to compare your current insurance rates with what other carriers are offering. If you find you are overpaying, you can switch carriers or negotiate a better rate with your current carrier.

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