Effective Use of LawyersSpeaker:

William A. PriceAttorney at Law

www.growthlaw.com

Why Use Counsel?

Business Survival Rates, March 2009:

• 10 years or more: 50%• 4-9 Years Old: 24%• Less than 4 years old: 27%

Source: Bureau of Labor Statistics

What Kills Businesses?

• Angry Creditors• Disgruntled And Greedy Spouses• IRS and State Tax Collection Actions• Employee and Customer Lawsuits• Inadequate Capitalization

What Can Lawyers Do To Help?

Angry Creditors:

1. Write contracts that give you time to pay, and time to fix payment and quality problems

2. Set up payment arrangements that give you timely cash flow

3. Use debtor’s rights, or BK protections

Angry Wives

• Negotiate a Buy-Sell clause for every business deal, so you can leave if your partner’s wives get greedy (Hagshenaes v. Gaylord)

• Try a prenuptual agreement, or at least a divorce or separation agreement that won’t kill the business

IRS And State Tax CollectionThe IRS Or State Can Levy (Seize)• Your property• Bank Accounts Or Other Third Party

Held Assets• Very Few Limits On Type or

Amounts of Levy And Sale • You Pay Penalties, Interest, and Tax

Due

What NOT To Do

• Try to hide assets (overseas banks, socks under mattress)

• Fail to answer IRS or state tax notices within 30 days

• Fail to pay taxes on time• Fail to negotiate for time and penalties waiver

What Can Lawyers Do To Help?

1. Help You Document That No Tax Is Due2. Present an Offer In Compromise, To Settle

Tax Debts3. Negotiate Time To Pay, with proof of

personal hardship or business cash flow issues (IRS comes back after a year)

4. Bankruptcy filings, only if necessary

Litigation Risks

• Your Partners and Shareholders: Fraud and Fiduciary Duty and Greed and Incompetence

• Your Employees: EEO, UI, ADA, etc.• Your Suppliers: Late payments, bad

credit reports, bank account freeze• Your Customers: P/L, Warranty,

Nonpayment Risks

What Can Lawyers Do To Help?

1. Partners/Investors: Pre-investment disclosures, ongoing partner/investor accounting and reporting of all material facts, Buy-Sell Agreements

2. Employees: Good HR Documents, Response to Complaints, Discipline Supervisors If Problems, Not Just Staff

3. Suppliers: Pay them on time: Loans for cash flow can help

4. Customers: Testing before sale, Respond if Problems, Consider Mandatory Arbitration Clauses

Inadequate Capitalization

1. Don’t confuse revenue with profits

2. Expenses Come Before Income3. Lack of Cash Flow, Not Lack of

Net Worth, Is What Kills You4. If You Don’t Meet Payroll, Your

People Will Quit

Avoid Cash Flow Death

• Payment Terms: Get paid upfront, or as soon as possible and document this in your contracts

• Factors: A/R 95% available, P/O 75%, 1.5% per month interest

• Lenders: SBA Rates 2% over prime• Capital Sources: Friends and

Family, Partners, Angel Capital, VC

What Can Lawyers Do To Help?

1. Payment Terms: Negotiate industry standard and « help us get started » terms from customers and suppliers (Get paid early or net 10, pay within 60 days, not COD.)

2. Factors: Use your customer’s credit, then large cash sources will be available

3. Bank Loans: Introduction and negotiation, many of 21 SBA and other small business lenders in Illinois

4. Access To Capital: Learn the meaning of terms, prepare disclosure documents, approach all sources

Any Questions?

William A. Price, Attorney at LawTel/Fax 1-800-630-4780

Email: wprice@growthlaw.comA