The Basic Legal Aspects of an Effective Business Plan

As we enter the final month of the year and excitement grows for the holiday season many people may not realize December also holds a special designation for business owners and aspiring entrepreneurs. It is National Write a Business Plan Month. And while the holidays often serve as a time for reflection on the year that was, developing a business plan forces business owners to look forward and put constructive thought into the years ahead.

No matter what stage a business is at it is always beneficial to develop and strengthen a strategic plan. A well-drafted business plan serves as a strong foundation for a successful business. The plan acts as a road map directing what the business will do, how it will grow, the markets its will serve, the manner in which it will operate, the struggles it may encounter and the goals it hopes to achieve. Similar to a road map, your business may encounter roadblocks and detours requiring you to rethink the plan’s path, but ultimately an effective business plan will force the owner to think critically and objectively about the future of the business and should continuously serve as a compass for the company going forward.

Along with addressing overarching business matters, the development of the business plan presents a great opportunity to address certain legal matters that may seem minor today but can prevent major stress down the road.

One of the biggest decisions a business faces at the outset is determining how it will be structured. The chosen structure will have lasting implications related to business operations, liability protections, and tax strategies. The most common business structures are limited liability companies, corporations, and partnerships. The entity you chose will likely require state filing and may necessitate obtaining a tax identification number from the IRS and state Department of Revenue.

In addition to determining business entity type, an effective business plan must consider all applicable federal, state and local laws that may be applicable to its operations for each location it intends to conduct business. These considerations keep the business ahead of the curve when it comes to obtaining necessary licenses or permits to operate. The business must also consider local zoning ordinances for each physical location from which it will operate in order to ensure the location is suitable for the operation. Effective planning in these areas help avoid future hurdles that could delay expansion into a new market and hinder growth.

Finally, the business should consider contracts and legal agreements that may be necessary in its operations. While many of these documents will develop over time and need not be specifically addressed in the business plan, they should be given some forethought as the business considers its operations. Specific contracts that may require particular attention in the business plan are Confidentiality and Non-Disclosure Agreements. These documents are not absolutely necessary in every business venture, but in the right circumstances they can be crucial to the development or growth of the business. By entering into Confidentiality and Non-Disclosure Agreements the business owner will be able to talk freely about the innovative ideas and creative potential of the business without concern that the information will be stolen or publicly disclosed. The more sensitive the information the higher likelihood the business will require strong Confidentiality and Non-Disclosure agreements.

Ultimately, these are just a few of the issues a business owner must address and there are many other matters that should be taken into consideration when developing a strategic plan. A business owner need not develop the plan alone. They may consult with experts in tax, law, and business as well as trusted individuals invested emotionally or financially in their success. While the business plan will not address every detail that may impact the company, it should plot the road the business will follow. Establishing an effective plan for the business will pave a way that leads to success down the road.


ABOUT THE AUTHOR

Tom Loonan is a an attorney in our Banking & Finance and Business law groups. Tom regularly works with both individual and business clients assisting in business formation and business development. He may be reached at 651-439-2878 or tloonan@eckberglammers.com.

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