Essential Skills for Entrepreneurs and Small Business Owners

Research studies into the failure of small businesses in Australia, have identified that in over 90% of small business failures, a lack of appropriate management skills have been cited as the key cause of that failure. One way to offset a lack of management skills is to outsource them to experts. For most small businesses this is beyond the reach of their limited budgets. A more viable option is to develop the skills you need to manage your business operation. Let’s examine the key competencies you will need.

Strategy Development

You need to develop skills in undertaking appropriate business research, including how to identify and locate relevant business information, analyse the data in order to determine an appropriate strategy. You then need to develop skills to effectively communicate that strategy in both a formal way, such as a business planning document, or to informally articulate it to your staff or other stakeholders when required.

Sales and Marketing Management

Strong sales and marketing skills are vital in the promotion of your small business and its products and services. You need to be able to undertake market research which will help you to identify where your markets are, the total market size and the size of each of its key segments. You should also be able to profile your customers, identify their needs, wants, behaviours and ambitions and parlay the information into powerful and effective marketing campaigns and sales techniques which will help to drive sales revenue.

You need to be able to keep your finger on the pulse of your customers ever-changing demands and the business environment in which you operate and to identify the threats and opportunities that may impact on your small business. Inability to adjust to changes in the market place was identified by market research as one of the key skills lacking in small business operators.

Financial Management

Many entrepreneurs abdicate responsibility for the financial management of their business to their accountants.This is a rookie mistake. As the business owner you must take responsibility for the management of your finances.

The first core requirement is the ability to maintain an accounting system that is compliant with current taxation requirements, such as MYOB or Quickbooks. These systems provide a raft of automated processes including the delivery of key financial documents such as Balance Sheets, Income and Expense Statements and Cash Flow forecasts.

You need to develop the core skills that keep your business liquid as more businesses fail due to a lack of cash rather than a lack of profit. You also need to ensure that your business has sufficient capital to continue operating. Financial planning and management skills are also vital to your businesses survival and you need to develop working relationships with your accountant and your taxation specialists

Legal

It is essential that you develop an awareness of your legal rights and obligations. You need a thorough understanding of the Acts, Regulations, Codes of Practice and licensing requirements with which your business needs to comply. Taxation is just one of the complex legal elements you will need to come to grips with.

Which ownership structure you choose for your business will also carry with it further legal rights and responsibilities. Being able to fully understand and manage the impacts on your business is important.

Operational Management

You need to build operational management skills in order to develop the systems and processes by which you deliver your products and services. The more efficient and effective they are the more ‘productive’ your business will be. Core operational skills include planning, management, communication as well as effective systems design.

Resource Management

Your staff can be your most valuable business asset – or your most expensive, depending on your ability to hire right. Developing appropriate policies and procedures as well as the development of induction, coaching and mentoring programmes can assist in the development of a productive workforce.

Self-Management SKills

Your personal organisation skills may be the key to the success or failure of your small business. You need to be organised, productive, able to communicate and manage your time. You need to be able to negotiate effectively, motivate staff and be able to handle sustained levels of stress.

Technology Management

Technology is the great enabler. It can increase your capacity to deliver with less staff. It can also be a key competitive differentiator. You need to understand and manage technology and be able to identify and take advantage of the multitude of opportunities is offers to small business.

It is important to remember that each of the required skills are not discrete skill sets. To be truly effective as a small business manager, you need be able to integrate each of the core management skills.

You should set yourself the task of developing your abilities in these key management areas on a continuous basis as the skills and knowledge required is forever evolving. Master these core management skills and the chances of your small business being a huge success will improve dramatically.

Choosing The Right Business Entity For You

As a San Diego North County business attorney, I am frequently asked:

“What type of business should I be?” It generally depends on what kind of business you want to conduct. The type of business entity should reflect the kind of business you do.

“What business entities are commonly used?” There are generally six most common business entities used today which are:

Sole Proprietorship

General Partnership

Limited Partnership

Limited Liability Company

Corporation

Subchapter S Corporation

“What is the difference between the different types of business entities?” Here is a breakdown of the differences:

1. SOLE PROPRIETORSHIP

A SOLE PROPRIETORSHIP = is a business owned and operated by an individual. Sole proprietorships are the basic forms of business organizations, which require no formal type of government filings to form the business and are not required to follow any type of operating formalities.

The BENEFIT = of a sole proprietorship is the taxability of business income and the deductibility of business losses on the business owners individual tax returns.

The LIABILITY = of a sole proprietorship is that the business owner is personally liable for all liabilities and obligations of the business, which liability extends, not only to liabilities in excess of the amounts invested in the business including any insurance coverage, but also to the business owner’s personal assets.

2. GENERAL PARTNERSHIP

A GENERAL PARTNERSHIP = is an association of two or more persons to carry on a business. A general partnership is another type of business entity which is easy to form but requires a written partnership agreement to govern the operations of the partnership and the relationship among the partners.

COMPLIANCE REQUIREMENTS = for a partnership are minimal and require that a Statement of Information be filed with the State and the partnership maintains records to provide to the partners in connection with the proper exercise of the partner’s rights and duties under the partnership agreement.

MANAGEMENT = in a general partnership extends to each partner whereby each partner is an agent of the business and their actions generally bind the business.

The LIABILITY = of a general partnership is that a partner’s liability not only extends to that partner’s percentage interest in the business but also to the partner’s personal assets as well.

3. LIMITED PARTNERSHIP

A LIMITED PARTNERSHIP = is a partnership formed by two or more persons that has one or more general partners and one or more limited partners as co-owners of a business. A written partnership agreement should be established between the business and its partners and a written partnership agreement should also be established between the partners themselves establishing the classes of general or limited partners.

COMPLIANCE REQUIREMENTS = for a limited partnership require more formal filings with the State, such as, filing a Certificate of Limited Partnership and obtaining an agent for service of process.

MANAGEMENT = in a limited partnership extends to one or more general partners who have exclusive management authority thus limiting the decisions of the limited partners in the business.

The LIABILITY = of a limited partnership is that the general partner is personally liable for the partnership’s debts, obligations and liabilities. However, the limited partnership allows limited partners to avoid subjecting their personal assets outside of their investment. A limited partner is granted limited liability as long as the partner does not participate in the control of the partnership business.

4. LIMITED LIABILITY COMPANY

A LIMITED LIABILITY COMPANY = is an entity having one or more members, organized under State statute. Limited liability companies have all the powers of natural people, which include the ability to transact business, sue or be sued, make contracts, own and transfer real estate, and issue stock subject to limitations.

COMPLIANCE REQUIREMENTS = for a limited liability company require more formality in formation and operation, such as, filing Articles with the State, filing a Statement of Information with the State, obtain an agent for service of process, and establish an operating agreement.

MANAGEMENT = in a limited liability company can be conducted by all its members or by one manager. Officers may be appointed to conduct the affairs of the business.

The LIABILITY = of a limited liability company is limited for all its members, managers and officers. As long as the State’s statutory requirements are followed, the members, managers and officers of the business are not personally held liable for any debt, liability or obligations of the business arising in contact, tort or otherwise solely by being a member, manager or officer of the business.

5. CORPORATION

A CORPORATION = commonly known as a C or regular corporation, is by far is the most common and well known form of business entity. All corporations are governed by the State of incorporation and are treated as separate and distinct legal entities separate from its owners with all the rights to own property, make contracts and sue in its own name.

COMPLIANCE REQUIREMENTS = for a corporation require strict statutory compliance, such as, filing the Articles of Incorporation with the State, filing a Statement of Information with the State, obtaining an agent for service of process, establishing bylaws, issuance of stock, establishing a board of directors, appointment of officers, holding annual shareholder meetings, holding annual director meetings, and maintaining books and records of written minutes.

MANAGEMENT = in a corporation is generally conducted by the board of directors with the day to day operations of the business ran by the officers. The overall decision making lies with the shareholders of the business.

The LIABILITY = of a corporation is limited for all its shareholders and the shareholder’s personal liability is limited to the investment. As long as the State’s statutory requirements are followed, the shareholders, directors and officers of the business are not personally held liable for any debt, liability or obligations of the business arising in contact, tort or otherwise.

6. SUBCHAPTER S CORPORATION

A SUBCHAPTER S CORPORATION = commonly known as an S corporation, is a corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code and is treated as a partnership for most tax purposes. The income of the S corporation is passed through to its shareholders therefore avoiding double taxation. Other than the different tax treatment, the S corporation operates identically to that of a C or regular corporation.

A Business Owner’s Divorce

I am under the opinion, after practicing divorce law in Southern California for over 42 years, it is almost impossible to separate your business life from your personal life. I, too, run a multi-million dollar operation. I am responsible for meeting payroll and living up to my commitments to the judiciary, clients, vendors, and governmental authorities. A business owner’s responsibility does not stop at 5:00 pm; rather it is a 24-hour-a-day job. This article seeks to address how a divorce impacts a business owner.

You Are Served
It all starts with the business owner being served with a Petition for divorce. As we all know, this usually means a sheriff with a badge arrives at your office and possibly startles the receptionist at the front desk. It seems, within seconds, the entire business knows you have been served with divorce papers. You may feel mixed emotions: embarrassment, complete anxiety, and possibly apprehension.

Could you imagine the look on your face when making a presentation to key staff members in the board room and your receptionist interrupts to inform you there is a sheriff, with documents, requesting to meet you? This could actually take the wind out of your presentation.

After you recover from this transgression you may nervously get on the Internet or call a trusted friend. After which, you need to make the necessary preliminary arrangements on how to respond to the divorce documents served upon you.

Strategic Consultation
It is absolutely critical you meet with an experienced divorce attorney. An experienced divorce attorney can provide valuable guidance at the onset of your divorce. Calming your fears is important. Make sure you select a practice limited to family law and a divorce attorney with years of experience. This is not a moment in your life to have a generalist talk about what might happen in your divorce. Keep in mind, the divorce process of Los Angeles County in 2010 is perhaps the most challenging environment you could find yourself thursted in to.

There are thousands of cases and thousands of statutes that can be cited in your case. The California rules of Court and the Evidence Code also factor in divorce proceedings. Experts can be called upon by either side to provide credentialed and specific testimonies, verbal or written, to assert either spouse’s best interests or to discredit the other spouse’s assertions.

There are different County rules. For example, (Los Angeles County rules differ from those of Orange County). There are different local district rules. Santa Monica Court has a completely different set of rules from Downtown Court. Judicial officers can look at the same set of documents and hear the same arguments and rule differently. There are judges who are elected and there are commissioners who are appointed.

Attorneys are different as well. Single practitioners may not have the operational capacity to handle complex and sophisticated transactional or custodial divorce cases. They can be overloaded by bigger firms requesting document after document or filing hearings after hearings. Older attorneys perhaps are more experienced than younger attorneys. Real estate and business experienced divorce attorneys are different from custody attorneys. Some attorneys have abilities in both types of cases (financial vs custody).

Employees
We make our living with these great people. However, they may be affected by our personal lives. A business owner is responsible for the culture, tone, and integrity the business attempts to manifest. If an employee senses that a business owner is acting out of integrity in their divorce, they may assume they are acting in the same fashion in the working environment.

The divorce process allows either party to subpoena and request documentation from the business directly. If appropriate, even the employees may be subpoenaed for a deposition to glean valuable financial and transactional information for the benefit of the spouse activating the subpoena. The divorce process can certainly be disruptive and disruption can lead to uncertainty in a business operation.

The business owner going through a divorce decision-making process is sometimes strained and challenged. This additional stress can lead to business inertia. Inertia can affect business income which can then affect payroll. Sometimes, as a result of a business owner’s divorce, employees are laid off, salaries are cut, or 401(k) matching plans are placed on hold if not entirely terminated.

Also, at the end of the divorce process, there may be a change in ownership or in fact a sale of the business. This absolutely affects all stake holders especially employees.

The Home Front
One must be extremely careful to behave in a civil and dignified caring manner throughout divorce proceedings. This means behaving in a mature, reasonable fashion if you are still living with your spouse. Believe it or not, a lot of people that are going through a divorce continue to live together. When children are involved, even if the tone in the family residence is tarnished, you have a responsibility to act completely civil and mature, especially in front of your children. Any inappropriate behavior is not taken lightly by judicial officers. Children must not be exposed to our adult indiscretions. You should never discuss divorce proceedings with your children.

Maintaining your civility at home and during your interactions with your spouse is absolutely necessary. What you do not want to do is inflame the situation whereby you threaten or assault, by any fashion, your spouse. You do not want to have an additional domestic violence case within your divorce case.

Keep in mind temporary restraining orders are available to protect individuals. Either spouse can request this order when necessary to protect themselves or their children. There is no excuse for domestic abuse.

If you do find yourself in a domestic violence situation, act responsibly and do whatever it takes to immediately reduce the situation; walk away and de-stress. Any arguments or disagreements should be resolved through your attorneys. Being kind and considerate to your spouse is invaluable.

Child Custody
Nothing is more taxing on a business owner’s ability to focus on the business than the custody of the children involved. A divorce may contain sensitive custodial issues. These issues may necessitate the assistance of child custody evaluations, minor’s counsel (attorney for children), or child custody monitors.

Temporary custody and visitation issues are challenging as well. Who will have the kids? Who will pick up or drop off the kids? New custody arrangements present challenging logistics that may confront your time management skills. Equally important to the counsel of an experienced attorney is how the attorney can communicate to the judge your ability to maintain the custody you are entitled.

Financials
This is where the tire meets the road. Financials are at the core of every business. Immediately a sophisticated divorce attorney on either side should have a preliminary understanding of both the personal and business financial situation of the individual being represented.

A divorce attorney experienced in complex divorce procedure can recommend the necessary professional for your divorce. One such professional is a forensic divorce accountant. The two most important reasons to engage a forensic divorce accountant is extracting business valuation and to determine what personal expenses are paid by the business, otherwise know as “perquisites”.

For example, if a high-earning business owner is going through a divorce, it must be immediately determined how to truthfully represent the financials to the family law court. While a forensic divorce accountant is invaluable, a business owner must maintain complete control of the process. Again, selecting talented and experienced professionals to assist you in your divorce is critical.

In the beginning of the divorce process, the financial disclosures are presented in the Income and Expense Declaration and Schedule of Assets and Debts forms. A business owner’s personal and professional life will greatly benefit from prompt preparation, reviews, and understanding of these forms. This is a significant step in the beginning of a business owner’s divorce. These financial forms are referred to as “preliminary disclosures”.

Sometimes complex divorces take time to resolve, even taking a few years. If this is the case, at the end of the divorce, these same financial disclosures are referred to as “final disclosures”. Any material financial changes must be reflected accurately. Insisting that my clients are truthful, organized, and pro-active is sensible for business. Keep in mind, when going through a divorce, the family law court is a court of equity. According to California community law, unless otherwise agreed to, most earnings and assets and debts must be equally divided between spouses. This is the cornerstone of the family law court.

Also keep in mind, all assets are presumed community. If a family residence or business was acquired or started prior to the parties’ date of marriage there may be significant separate versus communal issues and valuations that must be clarified. Another aspect that requires substantial analysis is support. Support may be for child support or spousal support (alimony). You do not want to be wrong in the process or representations.

Attorney’s Fees
Keep in mind, that temporary support calculations and analysis is different from permanent support. In other words, typically final support amounts are somewhat lower than temporary support. Last but not least, financial disclosures and their representations or documentary substantiation are indispensable when it comes to attorney’s fees.

Although, there are many reasons for ascertaining attorney fees, two reasons take the highest priority for a business owner: the need and ability, and compliance and cooperation. One spouse may have the need yet the other may have the ability to pay for attorney’s fee. Regarding compliance and cooperation, the divorce court frowns upon a spouse who is not complying or cooperating during the divorce process. A typical disciplinary measure employed by judicial officers is the charging of attorney fees to either spouse who engages in non-compliance or who is not cooperating.

Business Operations
Throughout a pending divorce process, the opposing party or their attorneys can launch a barrage of subpoenas demanding all sorts of financial information from the business. The employees, vendors, associates, and even customers, can be subject to such demands for production of financial information. Additionally, all these entities, including the business owner, are subject to a deposition.

If subpoenaed, they may be required to appear at an attorney’s office, bring documents, and be put under examination, under penalty of perjury, with a court reporter taking a legal transcription of the proceeding. It is actually an extension of the family law court procedure. If appropriate and permitted, the business owner’s employees, vendors, customers and associates can actually be connected to the divorce case and be subject to the divorce judge’s authority and orders.

Business owners, employees, vendors, and customers can find the divorce process disruptive if not managed properly. Business accounts, if permitted, can be frozen pending further order of the court, producing poor business.

While a spouse has the right to request extensive documents and information, handling these demands expends valuable business resources and may become extremely expensive.

As a business owner, you may find yourself allocating a significant amount of time to your divorce, to the detriment of your business. You may be called away for court hearings, depositions, accounting meetings or attorney meetings. Additionally, a court may thrust itself into a business if deemed appropriate. This includes perhaps placing a receiver (court appointed accountant) in the middle of operations. Typically, receivers can approve or disapprove key financial transaction. Naturally, having another individual in the driver’s seat of the business can and will wreak havoc on operations.