I am coming to you today to talk about annual checkups for your business – it’s not just something that you do for your own health, or taking your children to their annual checkup – it’s something you should be doing for your business as well. Since January is a time for recentering, refocusing, resolutions, January is a perfect time to review the systems in place in your business. Just as your doctor would check your blood pressure, do blood tests to check your cholesterol, and check your breathing, we should be doing this for our business. We should be checking the five major foundational pieces of your business every year to make sure that your business is running at optimum health.
So the first thing you really need to think about is your entity. If you’re a sole proprietor, in January it’s a great time to go back and review your profit and losses, your tax liability, and your exposure to risk to see if maybe it’s time to form an entity – either as an LLC or a corporation – so that you can get that legal liability separation and protection from the debts, obligations and risks of your business from your personal assets.
If you are an entity – awesome, love that! But you still have things you have to do every year. Corporations have to have an annual meeting of shareholders and the shareholders need to vote and appoint their board of directors. Then the board of directors need to have an annual meeting and vote to appoint or reaffirm the officers that are in place.
If you are a single shareholder Corporation, you’re going to do all of this on paper and whether you’re a multiple shareholder corporation, or a single shareholder, you do need to keep a record of these votes and the minutes of the meetings.
You also have to file an annual report every year as an LLC or Corporation and when this is due may vary from state to state but in general LLCs will file their annual report on or before the anniversary of their organization (so it may not be January, if you formed in July your annual report would be due in July). For corporations, it’s often tied to the fiscal year. So for example, in Massachusetts a corporation has to file their annual report within two and a half months of the end of their fiscal year. This would mean if your fiscal year ends on December 31st your annual report is due on or before March 15th. If you file after that Massachusetts does charge a late fee.
If you are an entity, or not an entity, you really need to discuss with your CPA if it’s time and appropriate for you to make any certain tax elections, like a subchapter S-corp election. If you’re going to do that, an S-corp election has to be done and filed with the IRS by March 15th and there are steps that you have to take to become an S-corp including putting yourself on payroll, so January is a really good time to start looking back over the previous year’s profits and losses, and expenses and see if making that S-Corp election fiscally makes sense with the tax situation that you’re currently paying versus what you might pay as an S-corp. You would review that information with your CPA, your enrolled agent, or your accountant.
The next system you’re going to want to review is your insurance. You want to make sure that the current policies that you have in place are up to date, that you’ve paid your premiums, and also that they are still sufficient to cover your risk of exposure for your business as it runs now – because the business that you’re running this January might not be exactly the same as the business you were running last January. You might have employees, you might have more revenue, you might have more equipment. You want to make sure everything’s covered. You may need a personal umbrella policy.
These are all things to talk about with your insurance agent to make sure that everything is really covering you to the fullest extent possible while still making sense. You don’t want to just buy every policy out there and have an enormous insurance bill for coverage you don’t need, so it’s always important to review annually with your agent.
Your copyright notice on your website should be updated every year just down at the bottom of your home page or wherever it appears. You’ll have the little C in the circle and the year. Now, it should say 2023 as of January. If you haven’t updated it since 2019 this is your reminder go do it now!
Your Agreements or Contracts
Then the last system to review is if you are a service based business you need to have your contract updated and reviewed annually to ensure that it’s reflecting your policies: pricing, refunds, postponements, and any other policies that you have in your business that apply to your clients. If you have, over the course of the year, noticed that clients give pushback on a certain clause or term or you have noticed that clients are just breaching these contracts you may need to really shore them up and clear them up to make your policies clearer. Make the ability to enforce them a little bit easier on you by including things clauses that allow you to collect legal fees and costs if you’re chasing someone for payment or if you prevail in a lawsuit.
You may want a dispute resolution clause in there so that you have a mechanism in place to resolve any problems with your clients.
If you’re not using client contracts you absolutely need to get something in place! This is the year, this is the time, this is your reminder to do it now.
So, hopefully you’ll find this helpful to give your business a check up. Make sure you do this with the right professionals: local counsel in your state, your trusted CPA, accountant or EA, and your insurance agent. These are all members of the team who are there for you to make sure your business is running at optimal health in 2023. We here at in tIn The Know Legal wish you the best of luck and great success this year.