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The Professional Adviser And The Small Business Owner: A Partnership For Success

By Michael Hanks, Esq.

In this article, and in upcoming articles, I plan to explore legal issues affecting small businesses. In my law practice, I have had occasion to represent small business owners in almost every type of legal situation that can arise in the life of a business. Through that experience, I have developed thoughts regarding the proper role of an attorney in a small business. I hope to use this column as a forum for discussion of issues, and to answer legal questions of general interest from our readers.

The typical small business owner is a sole proprietor (or perhaps the sole shareholder of a corporation). In that role, the owner wears many hats and needs to make many decisions over the course of the day. These decisions typically run from the mundane and ordinary to the infrequent and unusual. They will likewise cover a myriad of topics from business organization to business financing, employee and labor relations, growth and expansion, real estate acquisition and leasing, contract disputes with customers and vendors and finally, issues relating to sale or liquidation of the business. Further, these same types of issues arise whether a business is profitable or unprofitable.

While the specifics of the issues faced by the owner will vary depending upon the type of business and the particular facts of each case, one characteristic applies across the board: the owner typically has no one else to consult with inside the business with respect to management decisions. In large corporations, this role is filled by the board of directors. In partnerships, this type of consultation typically occurs between partners. But since the vast majority of businesses are operated as sole proprietorships, the normal give and take and “brain storming” process through which larger organizations typically make management decisions is not carried on in the small business.

It is my experience, both as it relates to my law practice and as it relates to the broader issues of life, that brain storming is the single most productive management technique available for arriving at intelligent decisions. By that, I mean frank and candid conversation between informed and intelligent persons regarding issues of importance to the business in which all options are debated aggressively.

While the concept seems simple and somewhat obvious, the force and power of the concept makes it indispensable to proper business management.

However, due to the absence of multiple owners in most small businesses, this brain storming process is often times under applied or completely overlooked. This is unfortunate since the necessary resources are readily available from qualified accountants and attorneys knowledgeable in small business matters.

The small business owner may object to the need for such consultation with outside professionals on several grounds, such as:

I can make adequate decisions on my own since I am most familiar with the needs of my business;

I can always consult with my spouse or friends if I need any input, and their advice is free;

I can use my employees for that purpose, and they’ll do it for free.

Such use of an attorney’s or accountant’s time is wasteful and inefficient.

In response, I would simply raise the following points:

  1. No matter how diligent and careful you are in your business, you are not objective, particularly when it comes to important or critical decisions in which you may have had little experience. Further, you may not even know the proper questions, or, may be afraid to ask them. Just as any chief executive of a major organization needs to rely upon input from knowledgeable and trained advisors, so too does the small businessman need this advantage, particularly in a world as competitive as the United States in the 1990’s.
  2. No matter how loyal and conscientious your employees are, most of the issues which you should brain storm directly effect your employees. Will they be truly objective? Moreover, do you want to involve your employees in sometimes difficult and sensitive matters involving your business requiring full disclosure?
  3. Although your spouse or friends will presumably have your best interests at heart, there is no reason to believe that they will be both objective and fully candid. Further, it has been my experience that most business owners desire a degree of separation between themselves and their spouse with regard to business matters. It is often times unhealthy to involve friends in your business in a fashion as intimate as a brain storming session would be. What happens if the advice given by the friend proves to be ill-advised?
  4. Using an outside professional in a brain storming capacity is not only not wasteful and inefficient, it is the most efficient method of using such counsellors, particularly if done before the fact. Attorneys and accountants with experience in small business matters bring not only objectivity and independence to the equation, but almost certainly they have experienced far more variations on similar problems than a single small business owner ever could. They have also had the opportunity to see prior problems from inception to conclusion.

Finally, with respect to costs, without exception it is always less expensive to avoid problems than to solve them.

With this as an introduction, I solicit ideas from readers regarding topics for future columns. These can cover any topic you wish, and should be accompanied by some factual background to provide context to my response. I will use future columns to discuss issues (anonymously of course) which may help give guidance to you in the future. Please send correspondence to Mike Hanks, 11211 Gold Country Blvd., Suite 107, Gold River, CA 95670.

I look forward to hearing from you.

To speak directly with Attorney Michael Hanks about a business, real estate, estate planning, elder law or prenuptial agreement matter, contact the Law Offices of Michael Hanks at (916) 635-0302.

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