15 tips for performing an annual business checkup
This is my site Written by CPorterEsq on January 4, 2011 – 3:10 pm

Last month, Chicago Business bLAWg posted 18 tips for completing a year-end business checkup. I thought they were a good reminder for every business owner, so I’ve compiled the 15 most useful tips here in no particular order and added my own thoughts.

Annual Business Checkup

  1. Perform aging reports on your accounts receivables (A/R).
    You know how the saying goes: you can’t pay your bills with accounts receivable. Take time to identify, monitor, contact, and resolve problems with slow payers! A little proactive work on your part now can avoid costly debt collection efforts later.
  2. Perform a cash flow analysis of your business on a frequent and routine basis.
    Even if your business is profitable on paper, if cash is flowing out of the business faster than it is flowing in to the business you will very quickly find yourself in a position where you are unable to pay your suppliers or your staff. Forecast your when you expect to get paid and when you need to pay your own bills so you can determine whether you will have a surplus or shortfall of cash. Update your cash flow forecast with actual numbers as soon as they are available so the forecast becomes your actual cash flow position as you go through the year. Do some ‘what if’ scenarios to determine the impact of, say, sales running at 5% below forecast, or costs increasing by 10%. This will show you where you need to focus your attention to ensure you hit your targets. Finally, if it looks like you have a cash problem looming always take advice from a qualified accountant or business adviser first, rather than from an organization that could loan you money.
  3. Review your buy-sell agreements or shareholders’ agreements.
    A buy-sell agreement, or shareholders agreement, is designed to help you and your business navigate life’s tricky twists and turns. Disabilities, untimely deaths, marriage breakdown, and simple falling-out between partners can mean disaster if these scenarios (and others) have not been given due consideration. Take a few minutes to review these agreements to make sure they are still appropriate for your business and accurately reflect your wishes. If you do not have an agreement, it’s not too late. The time to get one is now, as you never know when events will conspire against you.
  4. Complete or update your business succession plan and have an exit strategy.
    Too many businesses suddenly collapse because they have no plan in place to deal with a sudden loss of leadership and/or the financial strain of losing an owner or key employee. Be sure to groom a successor – who knows how to run your business in your absence. Buy life insurance and/or key man insurance for yourself (as the business owner) and for all of your key employees. The money can help “rent” a director or “buy” management expertise while your successor tries to get your business back on track.
  5. Perform a thorough review of your business insurance.
    Ensure you have the right type and amount of coverage for your risk, including business continuation coverage – i.e. insurance monies to cover renting a temporary place and/or buy supplies, replacement products, emergency phones, internet connections/servers, etc., in the event of an unexpected disaster. Unexpected disasters could include a fire, storm, flooding, and even death of a key employee or owner.
  6. Develop and implement a disaster plan.
    Too many businesses suddenly collapse because they have no plan in place to manage the chaos that ensues after an unexpected disaster. Address the loss of a key supplier or customer, your data, inventory, equipment, or even your workplace. How will you ensure the physical safety of your employees in the event of a fire, earthquake, or other natural disaster? Can your business handle the financial strain? What contingency plans are in place to protect against the loss of strategic data, business assets, and equipment? Once the physical danger has passed, do your employees know your plan to get your business back up and running as soon as possible?
  7. Monitor the financial health of vendors.
    Many businesses rely on a few key suppliers or partners. In an unpredictable economy, keeping track of the strength of these businesses is important. This information will help you identify potential problems and plan, so your business continues running smoothly if one of those vendors goes out of business.
  8. Assess your company’s employee benefits.
    Companies must do everything they can to maximize employee satisfaction while satisfying their own bottom line. Are the benefits and retirement contributions your company offers reasonable (or at least on par with industry standards)? Is your company paying competitive rates for the benefits you offer?
  9. Complete and update all of your confidentiality, nondisclosure or non-competition agreements.
    Ensure your existing agreements for your employees, vendors and/or customers are still enforceable (i.e. they are reasonable given the circumstances and their restrictions are narrowly tailored and fit the facts surrounding the situation).
  10. Maximize your intellectual property rights.
    Be sure to have measures in place to secure and protect your valuable intellectual property rights and trade secrets. Address any infringements and/or possible disputes over your IP rights, licensing and trade secrets. Determine if there are new ways you can monetize your IP rights and secure potential new sources of income.
  11. Assess corporate governance and comply with formality requirements.
    If someone goes asks a court to hold you personally liable for the acts of your company, you may be able to bolster your position if you can produce a record book that shows you’ve consistently treated your company as a separate legal entity. Make sure your record book is up-to-date and includes important paperwork, such as the certificate of formation or articles of incorporation, your operating agreement, membership register (if your business is an LLC), meeting minutes, resolutions, and written consent forms.
  12. Inventory and assess liabilities.
    Be proactive! Meet with your business lawyer and discuss a strategy to address any disputes or issues and how to mitigate or head off potential liabilities or litigation. As the old adage says: an ounce of prevention is the best medicine.
  13. Review your independent contractor relationships.
    The Internal Revenue Service and many States (i.e., their Department of Revenue and/or Department of Labor) are auditing business/corporate tax filings and reports concerning their use of independent contractors. In cases where the IRS and/or the State tax agents reclassify “independent contractors” as employees, the business is not only required to withhold/pay the required tax payments (i.e. FICA, FUTA, etc.), they are usually also assessed significant penalties for failing to file and pay the required employment taxes.  So review your situation with a business lawyer and avoid a potentially costly reclassification of your independent contractors!
  14. Be sure your employee files are in compliance with state and federal laws.
    Every employer covered by the Fair Labor Standards Act (FLSA) must keep certain records for each covered, nonexempt worker. Washington businesses must also keep records in accordance with the Industrial Welfare Act (RCW 49.12). There is no required form for the records, but the records must include accurate information about the employee and data about the hours worked and the wages earned.
  15. Review employment policies & procedures.
    Does your employee manual accurately reflect your company’s expectations and standards of behavior? Has it been updated recently to cover mobile and social media usage and data protection?
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