Subscribe now

Book a Meeting with Mike

Most small business owners have never heard of it.

The short version: states can now require you to collect and remit sales tax even if your business has no physical presence there. No warehouse. No office. No employees. If you hit certain sales thresholds in a state, that state has a legal claim on a portion of every transaction — and if you haven’t been collecting it, the liability has been accruing in the background since the day you crossed the threshold.

That’s the nexus time bomb. It’s boring. It’s complicated. It has nothing to do with anything your customers would notice. And it’s bigger than most people think.

What Nexus Actually Means

Nexus is the legal term for the connection between your business and a state that gives that state authority to impose tax obligations on you. Before Wayfair, nexus required physical presence. That was settled law for decades.

Wayfair changed it. Economic activity alone is now enough for sales tax. Most states moved quickly to set thresholds — typically $100,000 in annual sales or 200 separate transactions in the state. Cross either one and you have nexus. The obligation starts the day you crossed the threshold, not the day you found out.

Nobody sends you a notice. No light turns on. You just have it.

And here’s what most businesses miss: sales tax is only one piece. Income tax nexus and service taxability have been expanding quietly alongside it, creating a layered exposure that goes well beyond the Wayfair conversation.

Email Mike

The Service Business Blind Spot

A lot of service business owners assume sales tax isn’t their problem. That assumption is increasingly wrong.

Most states don’t tax services by default — but they tax specific ones, and the list has been growing. Repair and maintenance services, landscaping, janitorial, computer and IT services, consulting, staffing, advertising — each state has its own enumerated list, and it changes. Four states (Hawaii, New Mexico, South Dakota, and West Virginia) tax services broadly, with exemptions for specific categories rather than the other way around.

If you provide services in multiple states — including remotely — you need to know how each state treats what you do. The fact that your home state doesn’t tax your service is irrelevant to the analysis in the state where your customer is.

Digital businesses face a parallel problem. SaaS, digital products, streaming subscriptions, downloaded software — states have been racing to address taxability for these categories, and the rules vary sharply. Some states tax SaaS as a service. Some treat it as a software sale. Some don’t tax it at all yet. The analysis is a two-step exercise: first, do you have nexus in the state; second, is what you’re selling taxable there. Getting only one of those right is not enough.

Income Tax Nexus: The Problem Nobody’s Talking About

Sales tax gets most of the attention. But crossing state lines can also trigger state income tax and franchise tax obligations — and the threshold for that exposure is lower than most businesses expect.

Under traditional rules, income tax nexus required physical presence. That standard has eroded in two directions simultaneously.

First, remote employees. Having even one employee working remotely in a state may be sufficient to create nexus and make the business liable for income tax there. When a remote employee works from home, that presence is attributed to the employer — the employee’s home office effectively becomes a company location in the eyes of the state’s tax authority. This means a business that hired one remote employee in Colorado or New Jersey for operational convenience may now have a corporate income tax filing obligation in that state — even if the business has never crossed the sales tax threshold there.

Second, economic nexus has extended beyond sales tax. Some states have applied Wayfair-style logic to income tax, franchise tax, and gross receipts tax — so even if you don’t owe sales tax, you could still owe other types of taxes if you cross economic thresholds.

Service businesses have an additional limitation to understand. Public Law 86-272 is a federal rule that protects businesses from state income taxation when their only in-state activity is soliciting orders for tangible goods. Modern business models — SaaS, digital products, consulting, subscription services — are often not protected by that rule at all. If your business sells services or digital products, the traditional safe harbor that product companies have relied on may not apply to you.

Book a Meeting with Mike

Crossing State Lines Without Realizing It

The common thread across all of these is the same: the exposure isn’t something you decide to create. It’s a consequence of normal business decisions.

You hire a talented developer who lives in another state. You run digital ads that bring in customers from across the country. You service clients remotely in states you’ve never visited. You store inventory through a national fulfillment partner. Each of these decisions makes operational sense. None of them come with a tax notice.

The states aren’t forgiving accumulated exposure — but most have voluntary disclosure programs that allow businesses to come into compliance with reduced back liability. Those programs require you to initiate the process proactively. Once a state finds you first, the leverage shifts.

What the Exposure Actually Looks Like

When a state audits a business and finds unreported sales tax liability, the exposure is the uncollected tax — which you may not have charged customers and will be paying out of margin — plus interest, plus penalties, typically covering three to four years.

Income tax exposure follows a similar pattern: back filings, interest, and penalties for the years the business had nexus but didn’t file. In states with responsible-party statutes, owners and officers can be personally on the hook, not just the entity.

And the law keeps moving. States adjust sales tax thresholds. They add service categories. They update their positions on digital goods. An analysis that was accurate two years ago may not be accurate today. This is not a set-it-and-forget-it compliance area.

Getting Your Arms Around This

Start with a geography audit. Where are your customers? Where are your employees and contractors? Where is your inventory? Those three questions map your potential nexus footprint across sales tax, income tax, and payroll tax simultaneously.

For sales tax, check the economic nexus thresholds in states with significant customer volume — and check whether what you sell is taxable there. Those are separate questions.

For income tax, look at where your remote employees are located. If you have people in high-scrutiny states like California, New York, or New Jersey, understand what that means for your filing obligations.

If you’ve already crossed thresholds in states where you haven’t been filing, talk to a CPA or tax attorney about voluntary disclosure before the state finds you. The proactive path is almost always better.

Sales tax compliance software — Avalara, TaxJar, and others — can automate the collection and remittance side. But software handles the mechanics of compliance. It doesn’t tell you whether you have nexus, whether your service is taxable in a given state, or whether you have income tax obligations you haven’t addressed. Those questions require judgment, not just automation.

The Same Pattern, Every Week

Over four weeks we’ve covered cyber hygiene, contractor classification, operating agreement gaps, and now multi-state tax exposure. The through line is the same every time.

None of these are dramatic failures. They don’t announce themselves. They accumulate quietly — as a consequence of ordinary business decisions made without full information — and they surface at the worst possible moment.

The businesses that find these problems first are the ones that go looking. The ones that don’t tend to find out the hard way.

Email Mike

Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.

Most LLC owners have one. Most haven’t read it since the year they formed the company.

It’s sitting in a folder somewhere along with the articles of organization and other formation documents that felt important at the time and have been ignored ever since.

That agreement probably made sense when you signed it. The ownership split reflected the deal. The exit provisions seemed fine, maybe because nobody was seriously thinking about exit.

That was years ago. The business has changed. The people have changed. The agreement almost certainly hasn’t.

This is where it gets expensive.

Book a Meeting with Mike

Subscribe now

The Document Is a Contract. Treat It Like One.

Your operating agreement is a legal contract among the owners of your business. It governs how decisions get made, how profits flow, what happens when someone wants out, and what happens when owners can’t agree.

Like any contract, it means what it says — not what you remember discussing, not what you intended, not what everyone understood at the time. What it says.

And if what it says is years out of date, or silent on questions that have since become live ones, or built around an ownership structure that no longer reflects reality — you have a problem. You just don’t know it yet.

Most business owners find out in one of three ways: a co-owner dies, a co-owner wants to leave, or the co-owners stop agreeing on something that matters. None of those are good times to discover the governing document is inadequate.

Outdated Ownership Terms

Here’s a pattern that comes up constantly.

Two or three founders sign an operating agreement reflecting their initial ownership split. Over the years, the economics shift. One partner contributes significantly more capital. Another steps back from day-to-day operations but stays on as an owner. A key employee is promised equity and receives it informally — maybe through an email or a handshake — without any amendment to the operating agreement.

Now the document says something different from what the parties actually believe the arrangement to be.

When things are going well, that gap is invisible. Everyone knows the real deal, and nobody bothers to formalize it. But when things stop going well — when a buyout conversation starts, when a lender asks for documentation, when a new investor does due diligence, when an owner dies and their estate tries to figure out what they owned — the document controls.

Or it creates enough ambiguity that the dispute resolution is expensive, slow, and unpredictable.

The informal promises don’t disappear when the agreement says something different. They become claims. And claims require litigation to resolve.

Email Mike

The Deadlock Problem

Most people assume deadlock is a 50/50 ownership problem. It’s not.

Even when one member holds a clear majority, operating agreements frequently require unanimous or supermajority consent for major decisions — selling the company, taking on significant debt, admitting a new member, making a large capital expenditure. Those clauses make sense when everyone is aligned. When they’re not, a minority owner suddenly has veto power over decisions that matter, regardless of what the ownership percentages say.

So you can own 70% of the business and still be stuck.

The moment owners stop agreeing on something material — whether to take on a large contract, whether to sell, how to handle a key employee — you can have a genuine deadlock with no mechanism to break it. Some agreements address this. Many don’t. And the ones that do often rely on mechanisms nobody has thought through: mediation before litigation (useful, but it doesn’t resolve the underlying impasse), or a forced buyout trigger (fine in theory, but at what price, on what timeline, with what financing terms?).

In many states, a genuine deadlock in a closely held LLC can lead to judicial dissolution — a court ordering the business wound up. You’d generally rather have a private resolution mechanism than leave that outcome on the table.

Exit Gaps

Most operating agreements have transfer restrictions — provisions limiting a member’s ability to sell or transfer their ownership interest without the consent of the other members. That’s typically a good thing. You don’t want your business partner’s creditor or ex-spouse becoming your new co-owner.

What they often lack is a workable exit path.

What happens when a member wants to leave and the others can’t or won’t buy them out? What happens when the departing member thinks their interest is worth $X and the remaining members think it’s worth half that? What happens when a member dies — does the estate stay in the business, or does it have to sell, to whom, on what timeline, at what price?

If those questions weren’t answered when the agreement was drafted — or were answered in a way that no longer fits — the gap exists whether or not anyone has noticed yet.

Email Mike

What to Actually Do

Pull out your operating agreement. If you can’t find it, that’s its own problem — try your formation attorney, or whoever prepared it originally.

In family businesses especially, there’s pressure not to formalize things because formalizing feels like distrust. It isn’t. The operating agreement is the document that lets you have the difficult conversation now, when nobody is under pressure, rather than later, when everyone is.

Then read it with these questions in mind: Does the ownership structure reflect current reality? Is there a workable mechanism for what happens when an owner wants to leave? Is there a way to break a deadlock — not just for a 50/50 split, but for any decision requiring unanimous or supermajority consent? Is there a buyout process with a valuation method, a timeline, a funding mechanism?

If the answer to any of those is “I’m not sure” or “we never really addressed that” — that’s your signal.

Here’s where it gets nuanced. An operating agreement isn’t a fill-in-the-blank exercise. The questions it has to answer — how do you value a departing member’s interest, what triggers a forced buyout, how do you break a tie without blowing up the business — don’t have standard answers. They have answers that are right for your business, your ownership structure, and your relationships. Vague language is often worse than a gap, because it creates disputes about what was meant rather than a predictable state-law default.

Tax law adds another layer. Changes in how LLCs are taxed — distributions, entity classification, buyout treatment — can affect whether your agreement is still working the way it was intended. An agreement drafted under one tax environment may need to be revisited when the rules change. That’s not a reason to panic, but it’s a reason for periodic review, not just crisis-driven attention.

The good news: amending an operating agreement when all members are willing and things are going well is not a complicated or expensive exercise. The expensive part is trying to reconstruct what everyone intended after the relationship has broken down.

Same pattern as every week in this series. The risk isn’t the dramatic failure. It’s the quiet accumulation — an arrangement that looked fine on the surface, built on a document nobody has read in years.

Book a Meeting with Mike

Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.

You bring someone on to do work. You call them a contractor. You send them a 1099 at the end of the year. You don’t withhold taxes, don’t pay benefits, don’t run them through HR. Clean. Flexible. Off the payroll.

Except the IRS, your state tax authority, the Department of Labor, and potentially a plaintiff’s attorney are all looking at the same arrangement — and they may not agree with your characterization.

That’s the contractor misclassification time bomb. For a lot of small and family businesses, it’s been sitting on the desk for years.

Subscribe now

Email Mike

The Label Doesn’t Do the Work

Here’s the thing most business owners don’t fully internalize: calling someone a contractor doesn’t make them one.

The legal test — at the federal level and in virtually every state — is based on the actual nature of the working relationship, not what your agreement says, not what the 1099 says, not what both parties agreed to call it.

The core question, simplified: does your business control not just what work gets done, but how it gets done?

If you set the hours, direct the methods, require the person to use your tools, prohibit them from working for others, or treat them as an integrated part of your operation — those facts push toward employee, regardless of the label. It doesn’t matter if they signed an independent contractor agreement. It doesn’t matter if they wanted the 1099 arrangement. What matters is the economic reality of the relationship.

And that reality has a way of surfacing at the worst possible moments: an audit, a workers’ comp claim, an unemployment filing, a lawsuit.

The Multi-State Problem Nobody Talks About

The federal test is already complicated. Then you layer in the states, and it gets worse.

California uses something called the ABC test — one of the strictest frameworks in the country. Under it, a worker is presumed to be an employee unless you can demonstrate, among other things, that the work they perform is outside your usual course of business. That last requirement alone disqualifies arrangements that would hold up fine everywhere else.

Other states have adopted similar frameworks. The result: a contractor classification that’s defensible in Texas may be indefensible in California. And if that contractor lives in California, works remotely, and performs services that benefit your business, you may have a California problem even if your company has never set foot there.

This is the multi-state creep. You hired one remote contractor for a project. They’re in a state with aggressive classification rules. Now you have potential payroll tax liability, benefits exposure, and a workers’ comp question in a jurisdiction you weren’t thinking about. Multiply that by three contractors in three states and the exposure multiplies with it.

Book a Meeting with Mike

What’s Actually at Stake

When a contractor is reclassified as an employee — by an audit, a claim, or a court — the exposure typically includes:

Back payroll taxes. The employer’s share of Social Security and Medicare that should have been withheld and remitted, often going back two to three years.

Interest and penalties. These accrue from the date the taxes should have been paid. They don’t negotiate themselves away.

Benefits claims. If your company provides health insurance, retirement contributions, or paid leave to employees, a reclassified worker may have a claim for the value of those benefits for the period they were misclassified.

Overtime. Contractors aren’t subject to FLSA overtime rules. Employees are. A reclassified worker who regularly worked more than forty hours a week may have a wage claim that goes back years.

Workers’ comp. If an uninsured contractor is injured and gets reclassified, the liability exposure can be significant — and your general liability policy may not cover it.

None of this requires bad intent. You can genuinely believe someone is a contractor, document it reasonably, act in good faith, and still face all of the above. The test is objective, not based on what you thought you were doing.

The time bomb doesn’t care about your intentions. It just cares about the facts.

The Honest Assessment

Not every contractor relationship is a problem. If you hire a graphic designer to build a website, pay them a flat fee, they set their own hours, use their own tools, and work for multiple clients — that arrangement should hold up fine.

The ones that create risk look like employment in practice: a fixed weekly schedule, ongoing work without a defined project end, direction about how the work gets done, integration into your team’s daily operations, economic dependence on your business as a primary income source.

Go through your contractor roster with that lens. If someone has been with you for three years, works for you exclusively, logs into your systems every day, and takes direction from your managers — that arrangement deserves a harder look. The question isn’t whether you’ve been doing something wrong. The question is whether the structure still matches the reality.

Email Mike

What You Can Actually Do

Audit your arrangements. Pull your 1099s from the last two or three years. For anyone with a significant or ongoing relationship, ask: would this hold up under the economic reality test? Under your state’s version of it?

Check where your contractors live. If they work remotely, know which states they’re in. California, Massachusetts, and New Jersey apply stringent standards. If you have contractors there, understand what that means.

Consider reclassification proactively. If an arrangement looks like employment, converting the person to employee status — even if they prefer the contractor arrangement — is almost always cheaper than defending a reclassification after the fact.

Look at your agreements. A well-drafted contractor agreement doesn’t fix a misclassified relationship, but it documents intent and reflects the factors that support contractor status. If yours is a one-page form you downloaded a decade ago, it’s worth updating.

The pattern here is the same one we talked about the last couple of weeks. Not an obvious failure. A quiet accumulation of exposure from an arrangement that looked fine on the surface — until someone looked harder.

The good news: this one is fixable, often without drama, if you catch it before someone else does.

Book a Meeting with Mike

Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.

Most businesses took that as a green light. Hire the person you’ve been watching. Move faster. Don’t worry too much about what someone signed at their last job.

Here’s the problem: the risk didn’t disappear. It changed shape.

Subscribe now

What’s Still There

The non-compete headline misses what actually creates liability in these situations. First, in many states, including Indiana, non-competes are very much enforceable. Also, even where non-competes are not enforceable, trade secret law hasn’t changed,. Non-solicitation agreements haven’t changed. Confidentiality obligations haven’t changed. The basic legal reality is that an employee who takes protected information from their former employer and deploys it at your company creates liability — for them, and potentially for you — regardless of whether a non-compete clause exists at all.

Courts that won’t enforce a broad non-compete will still take trade secret misappropriation seriously. The Defend Trade Secrets Act gives federal courts jurisdiction over these claims. Non-solicitation agreements covering clients and employees are routinely enforced even in states that refuse to touch non-competes. And a well-drafted employment agreement at a sophisticated company has multiple layers — the non-compete is only one of them.

The risk hasn’t been legislated out of existence. It’s been redistributed into legal theories that may actually be easier to pursue. Meanwile, if you’re in Florida, the landscape just got materially worse: the CHOICE Act, effective July 2025, extended enforceable non-compete periods to four years and now allows courts to enjoin the new employer directly — meaning you can be named in a lawsuit over a hire you made in good faith, before any merits are decided.

Book a Meeting with Mike

The Three Questions You’re Not Asking

Every competitive hire carries three questions most businesses don’t ask until it’s too late.

First: what did this person agree to? Not just whether they signed a non-compete — but what else is in the package. Non-solicitation of clients? Non-solicitation of employees? Confidentiality obligations that outlast the non-compete period? If the non-compete is unenforceable, the rest of the agreement may not be.

Second: what did they have access to? Customer lists, pricing strategies, product roadmaps, vendor relationships, proprietary processes — all potentially protectable as trade secrets or confidential information. The relevant question isn’t what they took with them. It’s what they know, and whether using that knowledge in their new role constitutes misappropriation of something their former employer has a legitimate interest in protecting.

Third: what are you asking them to do? Hiring a competitor’s sales director is different from immediately deploying them to call on accounts they managed at the prior employer. The former is talent acquisition. The latter starts to look like using someone as a vehicle to reach protected client relationships — which is exactly what non-solicitation and trade secret claims are designed to address. The overlap between what they knew and what you’re asking them to do is where the exposure lives.

How It Usually Starts

It doesn’t start with a lawsuit. It starts with a letter.

“We understand you recently hired [name]. We want to bring to your attention that [name] is subject to certain ongoing obligations to [former employer] and that we believe their role at your organization may implicate those obligations.”

Now you’re in it. Lawyers get involved. The new employee gets anxious. The business relationship you were building has friction before it’s ever produced results. Even if you ultimately prevail, you’ve absorbed real costs — legal fees, distraction, and a chilling effect on the hire’s productivity in the months it takes to resolve.

None of that requires bad intent. You can make the hire in good faith, believe the agreements won’t hold up, and still spend six figures finding out whether you’re right.

Email Mike

What You Can Do

The due diligence here doesn’t require a full legal review before every competitive hire. It requires a pause — a structured moment before the offer goes out to ask the three questions above and actually look at the answers.

Ask the candidate whether they have restrictive covenant agreements and get copies. Have someone assess whether the role creates meaningful overlap with what they agreed to and what they knew. Document clearly — in writing — that you are not asking the new hire to bring confidential information from their prior employer, that you don’t want it, and that their value is their skills and experience, not the contents of someone else’s systems. That documentation is evidence of good faith if a dispute arises.

Define the role carefully in the first six to twelve months. There may be ways to structure the onboarding that get you what you’re looking for without creating unnecessary friction.

The broader lesson is the same one running through this series: when the rules change, risk doesn’t disappear — it moves. Your job isn’t to chase headlines. It’s to understand where it moved, and make sure you’re not standing there when it lands.

Book a Meeting with Mike

Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.

Let that sit for a moment.

The leaked materials described Mythos as “currently far ahead of any other AI model in cyber capabilities” and warned that it “presages an upcoming wave of models that can exploit vulnerabilities in ways that far outpace the efforts of defenders.” In other words, the same technology transforming how we work is simultaneously turbocharging how criminals attack us.

This is not the moment to panic. It is the moment to pause — and ask yourself an uncomfortable question: is there a ticking time bomb sitting inside your business right now? For a lot of small and family businesses, cyber is exactly that. And most owners don’t know it until it goes off.

Subscribe now

Taleb Had a Word for This

Nassim Taleb’s Antifragile draws a line most people miss. Fragile things break under stress. Robust things survive it. But antifragile things actually get stronger from it. The goal isn’t just to weather the storm — it’s to be better after it than before.

Cybersecurity is a perfect test of that framework. A business that ignores it is fragile: one decent phishing email, one compromised password, and you’re handing a stranger access to your client list, your bank accounts, your contracts. And when that happens, the conversation quickly moves from “how do we fix this” to “who is liable for this.”

But here’s what often gets missed in that conversation: the fallout doesn’t have to be catastrophic to be costly. You don’t need a data breach headline or a six-figure ransom demand to feel real pain. A mid-sized phishing incident — one that gets caught before serious data walks out the door — can still consume days of your time, your attorney’s time, your IT vendor’s time, and your team’s attention. Notifications to clients. Forensic review to confirm what was and wasn’t accessed. Internal process overhaul. Insurance claim paperwork. That’s a week of your life and real money, even in the best-case scenario.

The time bomb doesn’t have to detonate fully to do damage. The shockwave alone is expensive.

A business that treats cyber hygiene as a checkbox is merely robust. But a business that builds security into its culture, trains its people, and reviews its practices regularly? That’s antifragile — and it’s in a far better legal and financial posture when something does go wrong.

Email Mike

The Phishing Problem Has Changed. Seriously.

Here’s what I want you to tell every person in your office: the era of “Nigerian prince” emails is over. AI has killed it.

For years, small business owners used bad grammar as their spam filter. If an email had typos and awkward phrasing, it was probably a scam. That heuristic no longer works. AI has made sophisticated, targeted phishing attacks more likely in 2026, with models capable of penetrating corporate and government systems with “wild sophistication and precision.”

What does this look like in practice? An email that reads exactly like it’s from your bank, your title company, your largest client — personalized, professional, urgent. It references a real deal you’re working on. It asks you to click one link. Modern AI can draft that email in seconds, customized for your industry, your company name, and your role. CrowdStrike’s 2026 Global Threat Report found an 89% increase in AI-assisted attacks year-over-year.

From a legal standpoint, this matters beyond the obvious. If a fraudulent wire transfer goes out because someone on your team clicked the wrong link, your bank may not be on the hook. Your insurance carrier may not be on the hook. You may be. The duty of care your business owes to its clients — and to itself — includes reasonable steps to prevent foreseeable harm. AI-assisted phishing is now very foreseeable.

Book a Meeting with Mike

This Is Not One-Size-Fits-All

Before you start pricing out enterprise security software, take a breath. Not every business needs the same defenses. A solo practitioner running a lean operation has different risks than a family business with fifteen employees and an outside bookkeeper accessing your systems remotely. Your job is to right-size the response.

Ask yourself three questions: Where does your sensitive data live? Who has access to it? What happens to your business — and your obligations to third parties — if that access gets compromised tomorrow?

For most small businesses, the answers are simpler than you think. The threat model isn’t usually a nation-state attack. It’s someone clicking the wrong link, reusing a password, or losing a laptop. The legal and operational exposure from those mundane failures, however, can be anything but small — especially when you factor in not just the breach itself, but the response: the hours spent, the professionals engaged, the clients notified, the processes rebuilt.

The Non-Negotiable Floor

There is a floor. These aren’t optional regardless of your size:

Multi-factor authentication (MFA) on everything. Your email, your bank portals, your practice management software, your cloud storage. Courts and regulators are increasingly treating MFA as a baseline reasonable precaution, not a best practice. If you don’t have it and something goes wrong, that gap will be noticed.

A password manager. One tool, properly used, solves most credential hygiene problems and demonstrates the kind of documented security practice that matters if you’re ever defending a claim.

Regular backups, tested and offline. Ransomware encrypts your files and demands payment. A clean, offline backup gives you options. Without it, you’re negotiating with criminals — or paying them. Either way, you’re losing time you don’t have.

Cyber liability insurance — and actually comply with it. Review your policy carefully. Many general business policies exclude cyber incidents entirely. More importantly, cyber policies specify minimum security requirements as conditions of coverage. Claims get denied not because the attack was excluded, but because the insured hadn’t implemented the basic controls the policy required. Read it like a contract — because it is one. And remember: even a covered claim means weeks of your time managing the response. Insurance reimburses money. It doesn’t give you back the hours.

Train your people. Once a year, sit everyone down and show them what a phishing email looks like today — not five years ago. Build a culture where flagging a suspicious link is rewarded. Document that you did it. In a coverage dispute or a negligence claim, that documentation is evidence of reasonable care. It also makes your team part of the defense rather than the vulnerability.

Email Mike

The Opportunity in the Chaos

Here’s what the Mythos story actually tells us: the same capabilities that make AI models dangerous in the wrong hands make them invaluable for finding and fixing flaws in important software. The technology cuts both ways.

For your business, that means AI tools are increasingly available to help you defend — better spam filters, smarter fraud detection, more capable security software within a small business budget. But none of that matters if you haven’t handled the basics. You cannot build something antifragile on a foundation that a single phishing email can crack.

More practically: you cannot afford the time bomb. Not because every incident is catastrophic — most aren’t — but because even the non-catastrophic ones cost you weeks of your life and real money. Prevention is almost always cheaper than response.

The Anthropic leak was a misconfigured checkbox. The most sophisticated AI company in the world, exposed by a toggle. Your own risks are probably simpler — and more fixable — than that.

So this week, pick one thing off the list above. Not all of them. One. Next week, pick another.

That’s how antifragile gets built. That’s also how you defuse the time bomb before it goes off — or at least make sure that when it does, the damage stays contained.

Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.

Let me tell you about a client who ran a small service business for fifteen years. Great work, loyal clients, healthy margins. Then one day, they got hit with a several thousand dollar fine because they’d been misclassifying freelancers as independent contractors. They had no idea they were doing anything wrong.

Here’s the kicker: they’d been operating this way for over a decade without any issues. So what changed? A disgruntled former employee who didn’t get the raise they wanted filed a complaint. Suddenly, regulators were combing through years of records. That’s the nightmare scenario we’re preventing today—because you can get away with non-compliance for years until someone decides you shouldn’t.

One other note before we begin, your feelings about the rules doesn’t affect your compliance. You may think that this rule or that regulation is stupid or that you won’t get caught. If the rules say you have to comply, then you have a compliance obligation.

Leave a comment

Subscribe now

What Compliance Actually Means

At its core, compliance means operating your business according to all applicable laws, regulations, standards, and ethical practices. Simple definition, right? The problem is that “applicable” part. Your neighbor’s restaurant has completely different compliance requirements than your marketing agency, even though you’re both small businesses on the same street.

General compliance covers the basics every business needs: registering your business entity, paying taxes, following employment laws, maintaining proper insurance, and adhering to general safety standards. These are your table stakes. But if you stop there, you’re potentially exposing yourself to serious risk.

The Real Challenge: Your Business Isn’t Generic

Here’s what most compliance advice gets wrong: it treats all businesses like they’re the same. But your business has unique characteristics that trigger specific compliance requirements. Miss even one, and you could face fines, lawsuits, loss of business licenses, or worse.

And here’s the uncomfortable truth: your competitors know this. When business gets tight, some competitors will start looking for violations they can report to regulators. Disgruntled employees—current or former—will do the same. I’ve seen it happen repeatedly. Someone gets fired or loses a contract, and suddenly the authorities receive an anonymous tip about violations you’ve been committing for years. The problem isn’t whether you’ll get caught; it’s that you can’t predict when or who will report you.

Think of compliance like a custom blueprint. You wouldn’t use the same architectural plans for a restaurant and a warehouse, right? The same applies here. Your business’s compliance needs are shaped by your industry, location, business model, size, and the specific services you provide.

Book a Meeting With Mike

Licensing Requirements: More Than You Think

Most business owners know they need basic business licenses. What they miss are the industry-specific, professional, and activity-based licenses that apply to their unique operations.

Start with professional licenses. Does anyone in your business provide services that require individual licensing? Contractors, real estate agents, accountants, and many other professionals need specific credentials. Even if you have yours, make sure every employee or contractor working for you has theirs too.

Then look at industry-specific requirements. A business that handles food needs health permits. One that provides security services needs special licensing. If you’re in marketing, financial services, healthcare, or dozens of other regulated industries, you might need licenses for certain types of activities depending on your state.

Zoning compliance is where many businesses stumble badly. Every aspect of your business must be permitted by the zoning code in the location where you render services. This isn’t just about your office—it’s about client sites, pop-up locations, home offices, and anywhere else you conduct business activities. Running a home-based business in a residentially-zoned area? You might be violating zoning codes even if you have all your business licenses. Operating a commercial activity in an industrial zone or vice versa? That’s a violation. Before you sign a lease, launch a home office, or set up operations anywhere, verify the zoning allows your specific business activities.

Email Mike

Non-Governmental Compliance: The Hidden Requirements

This is where many small businesses get blindsided. Not all compliance requirements come from government agencies. Industry associations, certification bodies, and even your clients can impose mandatory standards.

If you’re in a regulated industry, membership in professional associations might not be optional—it might be required to work with certain clients or bid on projects. Many service businesses need to demonstrate compliance with specific industry standards and certifications to win contracts.

Professional certifications matter more than you think. Being ISO certified, having specific software certifications, or maintaining industry-recognized credentials can be the difference between winning and losing contracts. Some clients won’t even consider vendors without specific certifications.

Trade association compliance can also be mandatory if you want to maintain good standing in your industry. These organizations set ethical standards, best practices, and sometimes technical requirements that members must follow.

Insurance requirements often fall into this non-governmental category too. While some insurance is legally mandated (like workers’ comp), many contracts require specific coverage levels, policy types, or additional insured endorsements. Clients frequently require proof of general liability, professional liability, cyber liability, or other specialized coverage before they’ll work with you. Even if the law doesn’t require it, your business relationships might make it non-negotiable.

Transportation and Logistics Compliance

If your business moves anything—products, equipment, people—you’ve got transportation compliance to consider. This goes way beyond just having a valid driver’s license.

Commercial vehicle requirements kick in faster than most people realize. If you’re using vehicles for business purposes, you might need commercial plates, special insurance, DOT numbers, or even commercial driver’s licenses depending on vehicle size and what you’re hauling.

If you’re shipping products, you need to understand hazmat regulations even if you think your products aren’t hazardous. Many common business items—batteries, aerosols, certain cleaners—have shipping restrictions. Get this wrong and you could face substantial fines.

Interstate commerce adds another layer. The moment your business crosses state lines—physically or even just contractually—you may need to comply with regulations in multiple states. Different states have different rules, and you may need to follow all of them depending on how you’re conducting business. Each new state can also bring new tax compliance issues: income tax nexus, sales tax collection obligations, and state-specific filing requirements. What starts as a simple client relationship in another state can quickly become a compliance maze.

Book a Meeting with Mike

Other Critical Compliance Areas

Employment compliance changes as you grow. At certain employee thresholds, new requirements kick in: FMLA, ACA, EEO reporting, and more. Know these thresholds before you cross them.

Environmental regulations might apply even if you don’t think you’re in an environmental industry. Businesses that generate certain types of waste, use specific chemicals, or consume resources above certain levels can face environmental compliance requirements.

Data privacy and security compliance is increasingly non-negotiable. If you collect customer data—and almost every business does—you need to comply with privacy laws. California’s privacy regulations (CCPA and CPRA) are particularly important to understand because they can apply to your business even if you’re not located in California. If you have California customers or clients, you may need to comply with some of the strictest privacy laws in the country. Depending on your other clients and where they’re located, you might also need to address GDPR, HIPAA, or other frameworks.

Tax compliance extends beyond just paying your taxes. Sales tax, use tax, payroll tax, and industry-specific taxes all have their own compliance requirements and filing schedules.

How to Actually Figure Out What Applies to You

Stop guessing. Here’s your action plan:

Start with industry research. Find your industry association and download their compliance checklists. Most have them, and they’re goldmines of specific information.

Talk to peers. Other business owners in your industry and location have already navigated this. Ask them what compliance requirements they follow.

Hire a compliance consultant or attorney who specializes in your industry. Yes, it costs money upfront, but it’s far cheaper than fines or lawsuits.

Create a compliance calendar. Once you know what applies to you, track renewal dates, filing deadlines, and recurring requirements. Missing a renewal can shut you down.

Review annually. Compliance requirements change. Laws evolve. Your business grows. What didn’t apply last year might apply now.

The Bottom Line

Compliance isn’t about checking boxes—it’s about protecting everything you’ve built. Your specific business has specific requirements, and “I didn’t know” has never successfully defended anyone against fines or legal action.

Take the time now to understand exactly what compliance means for your business. Create systems to maintain it. Build it into your operations from day one. The peace of mind alone is worth it, and the money you’ll save by avoiing penalties will fund your growth instead.

Don’t wait for the several thousand dollar surprise. Do the work now.

Want a complete compliance checklist you can use to audit your business? I’ve created a comprehensive checklist covering every compliance area mentioned in this article—plus more. Reply to this email with “CHECKLIST” and I’ll send it to you immediately.

Email Mike

Need help identifying what compliance requirements apply to your specific business? I work with small business owners to audit their compliance gaps and create actionable plans to protect what they’ve built. Reply to this email or reach out directly—let’s make sure you’re covered before someone decides to look for violations.

Book a Meeting with Mike

Got compliance questions specific to your business? Hit reply—I read every email and often turn common questions into future articles.

As we approach 2026 contract renewals, it’s time to stop accepting automatic price increases as inevitable. Here’s how to push back effectively and protect your margins.

Subscribe now

Book at Meeting with Mike

Why Vendors Keep Raising Prices (Even When Inflation Doesn’t)

Let’s start with the uncomfortable truth: many vendors implemented “temporary” inflation-based price increases in 2022-2023 and simply never rolled them back. They’ve discovered that most clients won’t challenge these increases, especially if they’re framed as modest 3-5% annual adjustments.

But here’s what’s changed: the economic justification for those increases has largely evaporated. Vendor costs for labor, materials, and logistics have stabilized. Yet inertia is powerful, and vendors won’t voluntarily reduce prices just because their cost pressures have eased. They’re counting on you not to ask.

This creates an opportunity. Armed with current economic data and a clear negotiation strategy, you can reset these relationships on more favorable terms.

Step 1: Audit Your Vendor Contracts Before Year-End

Start by pulling together every significant vendor agreement you have. Focus on contracts over $5,000 annually—these offer the most meaningful savings potential. For each one, document:

• Current pricing and when it was last negotiated (not just renewed)

• Automatic escalation clauses and their percentages

• Contract end dates and notice requirements for renegotiation

• Your actual usage versus what you’re paying for

Many small and family businesses discover they’re paying for capacity they no longer use. That software license for ten users when you only have six? That premium tier when you primarily use basic features? That’s low-hanging fruit for immediate savings.

Step 2: Build Your Economic Case

The strongest negotiating position starts with facts, not feelings. Before you contact any vendor, gather current economic data that supports your position. Inflation rates have moderated significantly—use this concrete information to challenge outdated pricing models.

Your argument should be simple: “When you raised prices 8% in 2023, you cited rising costs from inflation. Inflation has since normalized, but our pricing hasn’t adjusted to reflect this new reality. I need us to revisit our pricing structure to align with current economic conditions.”

This isn’t aggressive—it’s reasonable. You’re simply asking vendors to apply the same economic logic they used to justify increases.

Step 3: Identify Your Leverage Points

Every vendor relationship has leverage points you can activate. Before entering negotiations, identify yours:

Length of relationship: If you’ve been a client for years, you’ve demonstrated stability and consistent revenue. That’s worth something—vendors hate customer acquisition costs.

Payment reliability: Small businesses that pay on time are increasingly valuable. Late payments plague many industries. If you have a clean payment history, mention it.

Growth potential: Even if you’re not growing dramatically, vendors don’t know your plans. A hint that you’re considering expansion—and would need to choose between scaling with them or finding better pricing elsewhere—creates urgency.

Competitive alternatives: Research what competitors are charging. You don’t need to threaten to leave, but knowing market rates gives you confidence to push back when pricing seems inflated.

Book a Meeting with Mike

Step 4: The Renegotiation Conversation

Timing matters. Reach out 60-90 days before contract renewal, not two weeks before. This gives both parties room to negotiate without feeling rushed.

Start the conversation collaboratively: “I’m reviewing our vendor relationships for 2026, and I wanted to discuss our pricing structure. You’ve been a solid partner, and I’d like to continue working together, but I need our agreement to reflect current market conditions.”

Then present your case using the economic data you’ve gathered. Be specific about what you’re requesting:

• For contracts with automatic escalators: “Given that inflation has moderated to around 2-3%, I’d like to cap future increases at 2% rather than the current 5%.”

• For contracts that increased significantly in 2022-2023: “I understand why we adjusted pricing during high inflation, but those conditions no longer apply. I’m requesting we roll pricing back 5% to reflect stabilized costs.”

• For service contracts: “I’d like to move to usage-based pricing rather than fixed monthly fees, so we’re paying for actual value received.”

Most importantly, be willing to walk away—or at least be credible about considering alternatives. Vendors can sense when you’re bluffing versus when you’ve genuinely evaluated other options.

Email Mike

Step 5: Get Creative with Contract Terms

Price isn’t the only negotiable element. If a vendor won’t budge on rate, consider:

• Extended payment terms: Net 60 instead of Net 30 improves your cash flow

• Volume discounts: Commit to a minimum spend in exchange for better per-unit pricing

• Multi-year locks: A two-year contract at current pricing protects you from future increases

• Added services: If they won’t reduce price, what additional services can they include?

• Performance guarantees: Tie pricing to specific outcomes or deliverables

Small and family businesses often overlook these levers because we’re focused solely on the bottom-line number. But terms can be just as valuable as price.

Step 6: Build Flexibility Into Future Contracts

Here’s the lesson most businesses learn the hard way: today’s renegotiation shouldn’t be your last. As you finalize new vendor agreements for 2026, insist on contract language that allows for future adjustments based on changing economic conditions.

Consider adding provisions like:

Economic adjustment clauses that work both ways: Instead of one-sided escalators that only go up, propose language that ties pricing adjustments to actual inflation indices. If CPI increases 4%, pricing can adjust upward by 4%. But if inflation drops to 1%, pricing should adjust downward proportionally. This creates symmetry and fairness.

Annual review triggers: Include a clause requiring both parties to review pricing annually against market benchmarks. This normalizes the conversation and prevents you from being locked into above-market rates for multi-year terms.

Performance renegotiation rights: Build in the right to renegotiate if your usage drops by more than 20-25%. If you’re paying for five licenses but only using three consistently, you shouldn’t need to wait until contract expiration to right-size your agreement.

Cap provisions: Even if you agree to automatic escalators, cap them at specific percentages or tie them to publicly available economic indicators. A clause that reads “annual increases shall not exceed the lower of 3% or the prior year’s CPI” protects you from arbitrary pricing decisions.

The key is treating these provisions as standard business practice, not special requests. You’re simply ensuring the contract remains fair under various economic scenarios. Any vendor resistant to mutual flexibility is telling you something important about how they view the relationship.

What to Do When Vendors Won’t Negotiate

Sometimes vendors genuinely can’t or won’t adjust pricing. Maybe they’re locked into their own cost structures, or they’ve decided to move upmarket and price out smaller clients. That’s fine—it’s a signal to diversify your vendor relationships.

Create a watch list of vendors who refuse to negotiate. These are relationships to actively replace over the next 12-18 months. Don’t do it vindictively or hastily, but recognize that vendors who won’t work with you during stable economic times certainly won’t be flexible during the next crisis.

Email Mike

The 2026 Mindset Shift

The biggest barrier to successful renegotiation isn’t vendor stubbornness—it’s our own reluctance to have tough conversations. Family business owners often prize relationship stability above financial optimization. That’s admirable, but it can be costly.

True business partnerships involve mutual accommodation. If your vendors expect you to accept their pricing decisions without question, that’s not a partnership—it’s a one-way relationship that will slowly erode your margins.

As we head into 2026, commit to treating vendor negotiations as a normal business practice, not a confrontation. The vendors who value your business will engage constructively. Those who don’t have revealed something important about how they view the relationship.

Your business deserves partners who understand that economic conditions change—and pricing should change with them.

Email Mike

Book a Meeting with Mike

Subscribe now

Whether you’re negotiating a supplier contract, a partnership agreement, or a business acquisition, hitting an impasse can feel like running full speed into a brick wall. The momentum stops. Frustration builds. And suddenly, a deal that seemed promising looks dead in the water.

But here’s the truth: most impasses aren’t permanent roadblocks. They’re signals that something in the negotiation needs to shift. Understanding why they happen and how to break through them is essential for any business owner who wants to close deals and grow their company.

When Impasse Strikes

Impasses don’t follow a script. Sometimes they hit you right at the beginning of negotiations, before you’ve barely started talking numbers. Other times, you’ll work through 90% of a deal only to get completely stuck on that last, most difficult issue.

I’ve seen deals crater in the first meeting because neither party trusted the other enough to share real information. I’ve also watched negotiations sail smoothly for weeks, only to collapse when it came time to allocate risk or determine who controls key decisions. The timing varies, but the underlying dynamics are surprisingly consistent.

Why Negotiations Reach Impasse

Understanding the root causes of impasse is half the battle. In my experience working with small and family businesses, most deadlocks trace back to four core issues:

Lack of Trust: When parties don’t trust each other, they withhold information, assume the worst about intentions, and interpret every move as potentially adversarial. Trust is the lubricant that allows negotiations to move forward. Without it, everything grinds to a halt.

Lack of Information: Sometimes both sides are operating in the dark. You might not understand their constraints, their real priorities, or what pressures they’re facing from their stakeholders. They don’t understand yours. Everyone’s negotiating based on assumptions rather than facts, which leads to positions that seem incompatible but might not actually be.

Lack of Motivation: If one or both parties doesn’t really need the deal, they won’t work hard to make it happen. When the pain of walking away is less than the pain of compromising, people walk away. This happens frequently when market conditions shift during negotiations or when internal priorities change.

Ineffective Use of Leverage: Leverage is about alternatives and options. Some negotiators don’t recognize the leverage they have. Others overestimate their position. And some simply don’t know how to use leverage constructively to move negotiations forward rather than just trying to bludgeon the other side into submission.

Email Mike

Breaking Through: A Practical Framework

When you find yourself at impasse, here’s a framework I’ve used successfully to get deals moving again:

1. Understand Their Perspective

This sounds obvious, but it’s rarely done well. Most negotiators spend impasse time reinforcing their own position rather than genuinely trying to understand the other side.

Take a step back and ask yourself: What’s really driving their position? What pressures are they under? What does success look like for them? What are they afraid of?

Better yet, ask them directly. “Help me understand why this point is so important to you” is one of the most powerful questions in negotiation. People want to be understood. When you demonstrate genuine curiosity about their perspective, you often discover that what seemed like an intractable position is actually rooted in a concern you can address in other ways.

2. Gather More Information

Impasse often means you’re missing critical information. What data or context would help you both see the situation more clearly?

This might mean sharing financial projections, bringing in technical experts to clarify feasibility, or conducting market research to ground the discussion in facts rather than opinions. Information reduces uncertainty, and uncertainty is often what keeps people locked in defensive positions.

Email Mike

3. Question Your Own Position

Here’s an uncomfortable question: Is this point really worth holding up the deal?

We all dig in on positions that, if we’re honest with ourselves, aren’t actually that important. Maybe it’s about ego. Maybe it’s about precedent. Maybe we told our team we’d never accept certain terms, and now we’re stuck defending that position even though the situation has changed.

Do a gut check. If you got everything else you wanted in this deal but had to compromise on this one sticking point, would the deal still be good for your business? If yes, you might be letting pride or stubbornness kill a profitable opportunity.

4. Evaluate Your Alternatives

This is where rubber meets road. What’s your Plan B if this deal falls through? Is it actually better than what’s on the table?

Many negotiators overestimate their alternatives. They think, “I can just go to another supplier” or “There are other buyers out there” without really testing whether those alternatives are realistic, available, and superior to the current deal.

Do an honest assessment. If your alternative is weak, that might mean you need to be more flexible. If it’s strong, that might give you confidence to hold firm or walk away.

5. Assess Their Alternatives

Now flip it around. What are their options if they walk away? What leverage do they have against you?

If their alternatives are better than what you’re offering, you’ll need to sweeten the deal or accept that it might not happen. If their alternatives are weak, they might be posturing or might not fully realize their own position.

Understanding both sides’ alternatives gives you a realistic view of the negotiating landscape. You can’t force a deal that doesn’t make sense for both parties, but you can identify whether you’re really at genuine impasse or just perceived impasse.

Book a Meeting with Mike

6. Build and Use Leverage Strategically

Finally, ask yourself: Can you improve your position? Can you strengthen your alternatives, bring in additional value, or change the dynamics in ways that give you more leverage?

This might mean:

• Bringing in another potential partner to create competition

• Demonstrating value in new ways that change their calculation

• Addressing their underlying concerns so their need for the deal increases

• Timing your negotiations better to align with when they’re more motivated

Leverage isn’t just about power—it’s about creating situations where both parties want the deal to happen. The best leverage makes the deal more attractive to everyone, not just to you.

Moving Forward

Here’s the fundamental truth about negotiations: deals only get done when you’ve convinced the other side that doing the deal is their best alternative. Not when you’ve forced them. Not when you’ve out-maneuvered them. When they genuinely believe that saying yes is better than saying no.

That’s why understanding alternatives—yours and theirs—is so critical. And it’s why knowing your negotiation goals is essential to navigating impasse. When you’re clear on what you really need from a deal, you can distinguish between the points worth fighting for and the ones that are just slowing you down.

Back to our government shutdown example: the impasse continues because trust is low, both sides believe their alternatives are acceptable, and neither feels sufficient motivation to compromise. Each side is trying to use leverage, but mostly to force the other side to capitulate rather than to create mutual value.

Your business negotiations don’t have to follow that pattern. Most of the deals I’ve seen break through impasse do so because someone had the wisdom to step back, reassess the situation with fresh eyes, and look for the path forward rather than just defending their position.

Impasse is uncomfortable, but it’s also an opportunity. It forces you to think more deeply about what you really need, what they really need, and whether there’s a creative way to bridge the gap. The deals that survive impasse often end up stronger because both parties have stress-tested their assumptions and found solutions that genuinely work.

The next time you hit a wall in a negotiation, don’t just push harder. Ask better questions, gather better information, and look for the leverage points that can get everyone moving in the same direction again.

That’s how deals get done.

Email Mike

Let me walk you through the essential steps to position your business for financing success.

Book a Meeting with Mike

Subscribe now

Understanding Bank Underwriting: See Your Business Through a Lender’s Eyes

Bank underwriters are professional skeptics. Their job is to find reasons why a loan might fail, not reasons why it will succeed. Understanding this mindset is your first step toward preparation.

Underwriters evaluate three core elements: your ability to repay the loan (cash flow), your collateral (assets that secure the loan), and your character (track record and compliance history). They’ll scrutinize your financials with a level of detail that might surprise you, looking for inconsistencies, unexplained variances, and red flags that suggest risk.

The benefit of knowing this upfront? You can address problems before the underwriter discovers them. Every issue you resolve proactively is one less negotiating point, one less condition to satisfy, and one less reason for the bank to reduce your loan amount or increase your rate.

Getting Your Financials in Order

Your financial statements are the foundation of any loan application. Banks typically require at least three years of business tax returns, year-to-date profit and loss statements, and current balance sheets. For many lenders, you’ll also need personal financial statements and personal tax returns from all business owners with 20% or more ownership.

Start by ensuring your financial statements are prepared or reviewed by a qualified accountant. While not always required, having CPA-prepared statements significantly enhances credibility. If your business has been operating on cash accounting, consider whether accrual-basis statements would present a more accurate picture of your financial health—many banks prefer accrual accounting for businesses with inventory or significant receivables.

Pay special attention to reconciliation. Your business tax returns should align with your financial statements. Unexplained discrepancies will trigger questions and slow your process. If there are legitimate reasons for differences—such as book-to-tax adjustments—document them clearly with your accountant’s explanation.

Review your debt service coverage ratio, which measures your ability to cover loan payments from operating income. Most banks want to see a ratio of at least 1.25:1, meaning your cash flow exceeds debt payments by 25% or more. If you’re falling short, you have time to improve profitability or reduce discretionary expenses before applying.

Don’t overlook personal finances either. Banks will pull personal credit reports for all guarantors. Check your credit now and address any errors. If your personal balance sheet includes assets like real estate or investment accounts, gather current statements showing values. The stronger your personal financial position, the more confidence you inspire.

Email Mike

Solidifying Your Collateral Base

Collateral gives banks a secondary repayment source if your business cannot service the debt. The stronger your collateral position, the better your loan terms—and the higher the loan amount you can secure.

Begin by inventorying all potential collateral: real estate, equipment, inventory, accounts receivable, and intellectual property. For each asset category, determine its current fair market value and its potential liquidation value. Banks lend based on liquidation value, not what you paid or what you think assets are worth.

Understand typical advance rates, which vary by collateral type. For real estate, banks commonly lend up to 75-80% of appraised value. Equipment might support 50-80% depending on type and marketability. Inventory advance rates range from 50-70% for finished goods to as low as zero for work-in-progress or specialized inventory. Accounts receivable typically support 70-85% advances on current receivables under 90 days.

If you’re planning to use SBA financing, note that SBA 7(a) loans can go up to 90% loan-to-value on owner-occupied real estate and typically require collateral on all business assets. The SBA mandates that loans over $350,000 must be secured by available collateral to the extent it’s available, though lack of collateral alone won’t disqualify an otherwise strong application.

Calculate your total collateral value using conservative advance rates. If you’re short, consider whether additional collateral sources exist—such as pledging business owner’s personal real estate or liquid securities. Having this analysis done before you meet with lenders shows sophistication and gives you realistic expectations about loan sizing.

Book a Meeting with Mike

Cleaning Up Real Estate Collateral Issues

If you own the real estate where your business operates, it’s likely your most valuable collateral. Banks will order a formal appraisal, but you should understand your property’s value and condition before they do.

Start with title work. Order a preliminary title report to identify any liens, easements, or encumbrances that might affect the property’s value or the bank’s lien position. Old mechanic’s liens, unresolved judgment liens, or gaps in the chain of title can delay closings for months. Address these issues now, not when you’re under contract pressure.

Environmental concerns are increasingly important. For commercial and industrial properties, banks often require Phase I environmental assessments. If your business involves manufacturing, auto repair, dry cleaning, or gas stations, environmental issues are almost certain to arise. Consider ordering your own Phase I early—if problems exist, you’ll need time to develop a remediation plan or negotiate environmental insurance.

Deferred maintenance hurts both appraisals and lender confidence. Walk your property with a critical eye. Does the roof need replacement? Are HVAC systems functioning properly? Is the parking lot deteriorating? A property showing neglect signals management problems. Budget for necessary repairs before the appraiser’s inspection.

Verify your property’s zoning and conforming use status. If your business operates under a non-conforming use or grandfather clause, document this clearly. Some banks hesitate to lend against properties with use limitations, so you’ll want to address concerns early in conversations.

Addressing Non-Real Estate Collateral Problems

Equipment, inventory, and receivables each present unique challenges that require attention before underwriting begins.

For equipment, gather serial numbers, purchase dates, and original costs for all significant assets. Banks will order equipment appraisals, but you should have your own sense of fair market value. Equipment that’s fully depreciated on your books may still have substantial collateral value—or alternatively, equipment with significant book value might be worth far less than you think. Older specialized equipment, obsolete technology, or built-in fixtures typically have limited collateral value.

Ensure you have clear title to equipment. If you have existing equipment loans or leases, pull the agreements and verify what’s owned versus what’s financed. Banks need to know what they can secure a first lien against. Missing titles or documentation for vehicles and titled equipment should be resolved by ordering duplicates from the DMV or manufacturer.

Inventory collateral requires accurate counts and proper valuation. Conduct a physical inventory and reconcile it to your books. Banks discount inventory that’s obsolete, slow-moving, or specific to custom orders. If your inventory includes raw materials, work-in-progress, and finished goods, separate these categories—banks value them differently. Consider whether a perpetual inventory system would provide better tracking and credibility than periodic counts.

For accounts receivable financing, prepare an aged receivables report. Banks focus on current receivables (under 90 days) from creditworthy customers. Receivables from related parties, affiliates, or foreign customers often receive zero advance rates. Clean up your receivables by writing off uncollectible amounts and resolving disputed invoices. If concentration exists—where one or two customers represent a large percentage of receivables—be prepared to explain the relationships and creditworthiness of those customers.

Email Mike

Ensuring Compliance with Taxes, Licenses, and Regulations

Compliance problems are deal-killers. Banks cannot close loans when businesses have unresolved tax liabilities, expired licenses, or regulatory violations.

Start with tax compliance. Verify that all federal, state, and local tax returns are filed and current. This includes income taxes, payroll taxes, sales taxes, and property taxes. Request tax transcripts from the IRS showing your filing history and confirming no outstanding liabilities. If you have payment plans for back taxes, document these agreements and demonstrate consistent payment history.

Payroll tax issues are particularly serious. Banks view payroll tax delinquencies as evidence of severe cash flow problems—these are trust fund taxes that should never be “borrowed” from. If you’ve fallen behind on payroll taxes, resolve this before approaching lenders. The consequences are too severe to overlook.

Review all business licenses and permits. Operating licenses, professional licenses, health department permits, liquor licenses, and industry-specific certifications should all be current. Expired licenses suggest operational disorganization and may technically mean you’re operating illegally. Create a compliance calendar tracking all renewal dates to prevent lapses.

For regulated industries—healthcare, transportation, food service, childcare, financial services—verify you’re meeting all industry-specific requirements. Many banks require compliance certificates or third-party audits confirming regulatory adherence. If your industry requires bonding, insurance, or specific capital reserves, ensure you’re meeting these thresholds.

Business entity compliance matters too. Confirm your corporation or LLC is in good standing with the Secretary of State. File any overdue annual reports or franchise tax returns. Verify your registered agent information is current. These are simple administrative matters that nonetheless can delay loan closings.

The Proactive Advantage

The businesses that secure financing efficiently and on favorable terms share one characteristic: they prepare before they need the money. They treat loan preparation as a six-month project, not a two-week scramble.

This proactive approach delivers concrete benefits. You’ll negotiate from strength rather than desperation. You’ll avoid the cost and delay of fixing problems mid-underwriting. You’ll present your business as well-managed and bankable. And perhaps most importantly, you’ll sleep better knowing that when opportunity or necessity requires financing, you’re ready to move quickly.

Start preparing today, even if you don’t need financing until next year. Your future self—and your banker—will thank you.

Leave a comment

Book a Meeting with Mike

Mike Lang provides weekly actionable guidance for small and family business owners. Have a topic you’d like covered? Reach out anytime.

Earlier this month, Zions Bancorporation disclosed in an 8-K filing that a major loan relationship involving investment funds tied to the Cantor Group had gone bad. Zions expects to take roughly a $50 million charge-off. That kind of filing isn’t for routine matters — it means the event was material to the bank’s financial position.

To be clear, I’m not taking a position on whether anyone is legally at fault. But it’s fair to say Zions’ expectations weren’t met, and the fallout will be significant. And for clarity, the Cantor Group referenced in news reports is not related to Cantor Fitzgerald.

While most of us aren’t making $50 million loans, many business owners will recognize the same dynamics: you strike a major deal, place trust in a counterparty, and put meaningful capital or business risk on the line. The lessons scale down directly to buying or selling a business, taking on a big customer, or locking in a long-term supplier contract.

Subscribe now

Email Mike

1. Know Your Deal Partner — and What Drives Them

At the outset, every deal looks logical. You’ve modeled the numbers, you trust your contact, and the paperwork feels solid. Zions likely felt the same way. But as the bank later learned, the entities and relationships behind the deal were more complicated than they appeared, and the protections they thought they had didn’t hold.

Before you sign a major agreement, go deeper than the glossy pitch deck:

• Who exactly are you dealing with? Do you understand the ownership structure and who actually controls performance?

• What motivates them? Are they in it for the long term, or a short-term win?

• What’s the plan if you’re not getting full payment or performance at signing? If your deal relies on future execution, you’re effectively underwriting the other party.

• Did you have someone senior and qualified do that underwriting? Did your accountants, lawyers, or other advisors review the structure and assumptions?

A background check or third-party verification isn’t a sign of mistrust — it’s how you validate that the person across the table truly has the ability and incentive to perform.

Book a Meeting with Mike

2. Even If You Trust Them, Will You Still Be Dealing with Them Later?

Sometimes the deal itself changes hands. People leave, funds sell, and decision-making moves up the ladder. In Zions’ case, it appears some of the entities involved were part of a larger network, and the people at the negotiating table weren’t necessarily the ones in control when things went wrong.

That’s not unique to banks. In smaller transactions, it’s just as common: you sell your business to a private equity group and your trusted buyer gets replaced; or your biggest customer merges, and your contract gets re-interpreted by new lawyers.

Ask yourself:

• Is your deal with a person, or with an institution?

• What happens if leadership changes or the company is sold?

• Have you clearly defined who has ongoing obligations and decision authority?

• Has someone really thought through your deal — how it could break, and how someone could work around their obligations?

Email Mike

It’s not cynicism; it’s stress-testing your agreement before someone else does.

3. Protect Yourself If You’re Wrong

Even when you’ve done everything right, people and markets change. Zions surely had seasoned professionals and documentation in place — and yet it still took a major loss. The lesson isn’t that diligence fails; it’s that risk never goes away. It only shifts.

The question is whether you can shift it away from you.

• Escrow funds until key conditions are met.

• Require a letter of credit or guarantee to back up future payments.

• Hold back a portion of the price until post-closing targets are met.

• Buy insurance where it’s available — for representations and warranties, key contracts, or even business interruption.

In other words, if you turn out to be wrong, can you limit the damage to something survivable?

The Takeaway

Zions’ $50 million write-off isn’t about bad luck or missing a clause in the fine print. It’s a reminder that even large, sophisticated players can see their expectations collapse when counterparties act in ways they didn’t anticipate.

For small and family businesses, the same rules apply — just with fewer zeros.
Know your partner. Stress-test your deal. Protect your downside.

Those habits don’t just keep you out of trouble — they make you the kind of business owner who can do big things safely.

Book a Meeting with Mike

Subscribe now

Email Mike

While most business owners are still coasting through fall, the savvy ones are doing something different. They’re treating October like a dress rehearsal for January—cleaning up the mess, tightening the bolts, and setting themselves up for a stronger finish to the year.

If you’ve been putting off the “boring” parts of running your business, this is your permission slip to tackle them now. Not in December when you’re drowning in holiday chaos. Not in January when you’re trying to execute new plans. Right now, when you still have breathing room.

Here’s your October reset checklist.

1. Dust Off Your Financials

Let’s start with the most neglected part of most businesses: the books.

Don’t wait until January to discover missing receipts, miscategorized expenses, or invoices that never got sent. The longer you wait, the harder it becomes to remember what that random $347 charge was actually for, or which client that draft invoice was meant for.

Start with a basic financial audit. Reconcile all your bank and credit card accounts through September. Make sure every transaction is accounted for and properly categorized. It’s tedious work, but it’s also the foundation of every other decision you’ll make about your business.

Next, check your receivables. Make sure all invoices are sent and collected. Nothing kills cash flow faster than forgetting to actually bill for work you’ve already done. If you have outstanding invoices, now’s the time to follow up—before everyone disappears for the holidays.

Finally, verify that your payroll and contractor payments match your records. Discrepancies here can create serious tax headaches later, and they’re much easier to fix now than during tax season.

If you work with a bookkeeper or accountant, schedule a Q3 review meeting this month. Don’t wait until they’re buried in December deadlines. A calm, focused conversation in October is worth three frantic emails in January.

Book a Meeting with Mike

2. Revisit Contracts and Renewals

Here’s a money leak most entrepreneurs don’t notice: the quiet auto-renewals.

Fall is peak season for vendor and service contracts to automatically renew, often with subtle price increases tucked into the fine print. When was the last time you actually looked at what you’re paying for software subscriptions, insurance policies, or professional services?

Pull out your contracts—yes, all of them—and look for three things. First, hidden price increases that kick in at renewal. That $99/month software might be about to become $149/month, and if you’re not paying attention, you’ll only notice when your annual budget stops adding up.

Second, automatic renewal clauses that trap you for another year. Some contracts make it deliberately difficult to cancel, requiring 60 or 90 days’ notice. If you miss that window, you’re stuck paying for another full year of something you might not even need.

Third, services you no longer use. We’ve all been there: the marketing tool you tried once, the insurance policy that’s redundant now, the consultant retainer you forgot to cancel. These zombie expenses quietly drain your profit margin month after month.

Set a reminder on your calendar for next October to do this exercise again. Fifteen minutes of contract review each fall can save you thousands of dollars and countless headaches.

3. Audit Your Customer and Vendor Relationships (and Get Your W-9s)

October is the perfect time to take a hard look at who you’re doing business with—and whether those relationships still make sense. But there’s also a critical compliance task hiding in this review: getting your tax paperwork in order.

Start with your customer list. Not all revenue is created equal. Some clients pay on time, respect your boundaries, and are genuinely pleasant to work with. Others are perpetually late on payments, demand constant exceptions, and consume a disproportionate amount of your mental energy. Pull your client profitability report and ask yourself: Are there any customers I should fire?

It sounds harsh, but keeping problem clients is expensive. They don’t just cost you money—they cost you opportunity. The time you spend managing a difficult client is time you can’t spend serving good ones or growing your business. If someone consistently makes your life harder, October is the month to plan your exit strategy or renegotiate terms for next year.

On the flip side, look at your best clients. Are you showing them enough appreciation? A simple thank-you note, a surprise discount, or early access to a new service can go a long way. Your best customers are your biggest asset—make sure they know it.

Now do the same exercise with vendors and contractors—but add one crucial step: collect W-9 forms from everyone you’ve paid $600 or more this year. You’ll need these to issue 1099s in January, and trust me, chasing down tax forms during the holidays is nobody’s idea of fun. Do it now while you have time and leverage.

While you’re at it, evaluate whether you’re still getting value from everyone you’re paying. Are there suppliers who consistently underdeliver or create more work than they save? Just like with clients, vendor relationships need regular evaluation. Sometimes loyalty becomes inertia, and inertia becomes expensive.

This isn’t just about being organized—it’s about staying legally compliant. Getting your W-9s now means you won’t be scrambling to meet the January 31st 1099 deadline. And that vendor audit? It might reveal misclassified workers or contract terms that need updating before they become legal headaches. A little proactive cleanup in October can prevent expensive problems down the road.

Email Mike

4. Tighten Up Operations

While you’re in cleanup mode, tackle the small operational fixes that never feel urgent but always pay dividends.

If you have employees, update your employee handbook and HR policies. Employment laws change, your business evolves, and those outdated policies can create liability. A few hours of updates now can prevent expensive problems later.

Back up your critical data and client files. When was the last time you actually tested your backup system? Don’t wait for a catastrophic failure to find out your backups haven’t been working for six months. Make sure everything important is stored securely and redundantly.

Review your cybersecurity practices, especially before the holiday shopping season when cyber threats spike. Update passwords, enable two-factor authentication, train your team on phishing awareness, and make sure your payment systems are secure. Think of it as your business’s version of changing the smoke detector batteries—unglamorous but potentially lifesaving.

5. Reflect on What’s Working—and What’s Not

The October reset isn’t just about administrative cleanup. It’s also about strategic clarity.

Take an hour—just one hour—to honestly assess your business. What’s one product, service, or process you should stop doing? We all have something we’re hanging onto out of habit, guilt, or the sunk cost fallacy. Maybe it’s a service that’s more trouble than it’s worth, a client segment that drains your energy, or a marketing channel that’s never produced results. Give yourself permission to let it go.

Then ask the opposite question: What’s one thing that’s been quietly working well that deserves more focus? Often, our biggest opportunities aren’t new shiny objects but double-downs on what’s already proving successful. Maybe it’s a product that sells itself, a referral source you’ve been undervaluing, or a process that’s more efficient than you realized.

This kind of honest reflection is hard to do in the middle of execution. October gives you the space to think clearly before you start planning for next year.

Email Mike

Bottom Line

A few focused hours in October can make your December far less stressful and your January far more strategic. Instead of scrambling to close your books, renew contracts at the last minute, and wonder why you’re still paying for that thing you cancelled six months ago, you’ll start the new year with clean books, clear priorities, and a business that’s actually set up to execute on your plans.

The entrepreneurs who succeed aren’t necessarily the ones with the best ideas. They’re the ones who handle the boring stuff consistently, so they have the bandwidth to focus on what actually grows their business.

Don’t wait for January to get your house in order. Do it now, while you still have time to do it right.

Book a Meeting with Mike

Quick note: I usually send this newsletter on Mondays, but this week got away from me. Thanks for your patience—back to our regular schedule next week.

Recently, a client paid me for two hours to help get their LLC reinstated after administrative dissolution. The reason? They didn’t file their annual report. The report would have taken 15 minutes online. Instead, they paid reinstatement fees, my hourly rate, and dealt with weeks of uncertainty about their business status.

Completely avoidable.

Small business owners juggle everything from payroll to product development, and administrative details slip through the cracks. The frustrating part isn’t just the money—it’s that these mistakes are entirely preventable once you know what to watch for.

Subscribe now

Book a Meeting with Mike

The Filing and License Trap

The mistake: Missing deadlines for annual reports, tax returns (income, sales, franchise), or letting business licenses and professional certifications expire. Or never getting the required licenses in the first place.

The cost: Many states skip the late fee and go straight to administrative dissolution. Once dissolved, you’re paying reinstatement fees ($200-$500), potential penalties, legal fees, and dealing with business disruption. For tax returns, penalties and interest compound quickly into hundreds or thousands.

For licenses, continuing to operate with an expired license or without the proper license isn’t just administrative—it’s often a crime. Misdemeanor charges, fines, voided insurance, shut-downs, and penalties for every day you operated illegally.

How to avoid it: Set three reminders for every deadline: 60 days out, 30 days, and 7 days. Better yet, file early when you’re thinking about it. Keep a master spreadsheet of every recurring deadline: annual reports, tax filings, licenses, certifications, insurance renewals, domain registrations.

When you receive any license or permit, immediately calendar the expiration date with a 60-day advance reminder. Don’t wait for renewal notices—many jurisdictions don’t send them. If you’re licensed (contractor, real estate, cosmetology), check your state board website quarterly to verify your status is current.

If you’ve expanded services, verify you have all required licenses for what you’re actually doing now, not just what you did when you started.

Book a Meeting with Mike

The Sloppy Contract Problem

The mistake: Using incomplete contracts, verbal agreements, or outdated internet templates.

The cost: Simple contract disputes cost $2,000+ in legal fees. More complex issues run tens of thousands. The $500 version: hiring contractors without clear scope, engaging vendors without written payment terms, bringing on partners with handshakes.

Generic templates don’t include your state’s requirements, don’t address your business model, and haven’t been updated in years.

How to avoid it: Every business relationship involving money needs a written agreement. Period. A one-page document clearly stating who’s doing what, when, payment terms, and what happens if things go wrong beats nothing every time.

Invest in attorney-drafted templates for your common scenarios: client agreements, vendor contracts, independent contractor agreements, partnership terms. Costs $500-$2,000 upfront but you’ll use them for years.

Never leave these terms vague: scope of work, payment schedule, deadlines, ownership (especially intellectual property), and termination rights.

Contact Mike

The Registered Agent Problem

The mistake: Not maintaining a proper registered agent or failing to update your address.

The cost: Miss legal notices because your registered agent information is wrong, and you face default judgments, tax penalties, or administrative dissolution. Reinstatement runs $200-$500.

Your registered agent is how the state and legal system contact your business for official matters. Wrong address means you miss critical tax notices, legal summons, and compliance deadlines.

How to avoid it: Use a registered agent service and pay the annual fee, or if serving as your own agent, update your address with the state immediately when you move. Check your state’s business registry online quarterly—takes five minutes.

Book a Meeting with Mike

The “I’ll Do It Later” Tax

These mistakes share one thing: they’re boring tasks pushed to the bottom of the list. Something’s always more urgent or interesting.

But these $500+ mistakes add up fast, accompanied by stress, embarrassment, and time fixing problems that shouldn’t exist.

If you’re thinking about selling your business someday, remember: every dollar of lost EBITDA reduces your business value by some multiple of EBITDA. Waste $2,000 annually on avoidable mistakes at a 3x multiple? That’s $6,000 off your sale price. At 5x, it’s $10,000. Small mistakes compound into real value destruction.

The good news? These are the easiest business problems to solve. You don’t need specialized expertise or capital. You need systems.

Block two hours next week to audit your compliance. Pull your formation documents, check license status, review policies, verify state filings are current. Set up calendar reminders to keep you out of trouble.

Your future self—and your bank account—will thank you.

Contact Mike

But while family and friendships can be the strongest bonds in our personal lives, they can become the most fragile when money, contracts, and risk enter the picture. As a lawyer who has spent nearly two decades helping entrepreneurs, I can tell you this: the legal issues are usually solvable. It’s the human issues that do the damage.

In this post, I’ll walk you through the hidden costs of mixing business with family and friends, and give you strategies to protect both your relationships and your company.

Subscribe now

Book a Meeting with Mike

The Emotional Tax

The first hidden cost isn’t measured in dollars — it’s measured in strained dinners, awkward holidays, and friendships that suddenly feel transactional. When family and friends become business partners, every decision carries extra weight.

• Disagreements feel personal. A dispute over inventory isn’t just about inventory; it’s about whether your brother respects your judgment.

• Success gets complicated. If the business does well, questions about “who deserves what” can creep in.

• Failure hits harder. A failed venture with a stranger is just a lesson. With family, it can feel like betrayal.

This emotional tax can be even greater when your spouse or romantic partner is also your business partner. Disagreements at work often follow you home, blurring the line between professional and personal life.

And here’s one of the hardest questions few people consider: what happens when you need to reassign a family member or close friend to a different role — maybe one they see as a step down — because that’s what the business needs? Even if it’s the right call for the company, it can feel like a demotion to them, straining both the business and the relationship.

These emotional costs often outweigh any financial gain.

The Financial Risks

When you mix business with family and friends, the lines between personal and professional finances blur quickly. Some common risks:

1. Personal Guarantees
   Banks often require small business loans to be personally guaranteed. If you and your cousin both sign, and the business fails, the bank doesn’t care who’s “responsible.” They’ll chase whoever has assets.

2. Using Personal Credit
   Many small businesses are jump-started on personal credit cards. If a friend or sibling agrees to “help out” with theirs, you’ve just entangled their financial health with your risk.

3. Co-Mingled Funds
   Informal loans or “I’ll cover this month’s rent” often go undocumented. That makes it nearly impossible to track who invested what, or to prove your position if the business is sold or wound down.

These money issues don’t just threaten the business — they can impact your ability to buy a home, pay for college, or retire.

The Legal Hazards

Too often, friends and family operate on trust instead of contracts. That works until it doesn’t. Some common legal pitfalls include:

• Undefined Ownership. If your brother put in $10,000, does that make him a co-owner or just a lender? Without an operating agreement or loan contract, it’s up for debate.

• Decision-Making Deadlock. Two equal owners who disagree have no way forward unless you’ve planned for tie-breaking mechanisms.

• Unclear Exit Strategies. What happens if your best friend wants out in two years? Can they sell to anyone? Do you have to buy them out?

Courts are filled with cases where verbal promises between friends and family became multi-year legal battles.

Email Mike

The Opportunity Costs

Finally, there’s the cost you don’t see until much later: the opportunities you miss because you locked yourself into a structure that doesn’t work.

For example:

• You may not be able to bring in outside investors because ownership is tied up among relatives who don’t agree.

• You may pass on growth opportunities because you don’t want to strain family relationships with higher risk.

• You may lose credibility with lenders or vendors if your internal disputes spill into your operations.

In other words, mixing business with family and friends can limit your future options in ways you don’t anticipate at the start.

Book a Meeting with Mike

Best Practices for Protecting Relationships and Business

So how do you pursue business with the people you care about while minimizing these hidden costs? Here are a few strategies:

1. Put Everything in Writing

Contracts aren’t about mistrust — they’re about clarity. At a minimum, you need:

• An operating agreement (for LLCs) or shareholder agreement (for corporations).

• Clear records of who invested what and how returns are distributed.

• Written loan agreements if money is borrowed.

2. Define Roles and Responsibilities

Don’t assume that “we’ll both do whatever needs done.” Spell out who is in charge of operations, finances, sales, and compliance. Clarity reduces resentment.

3. Plan for Exit Scenarios

Decide in advance:

• How can someone leave the business?

• How is their share valued?

• Who has the right to buy them out?

4. Treat Loans and Investments Differently

If your aunt wants to “help out,” be clear: is it a loan with repayment terms, or an equity investment with ownership rights? Mixing the two is a recipe for conflict.

Email Mike

5. Keep Communication Professional

It’s tempting to talk business at family gatherings. Don’t. Keep business discussions in scheduled meetings with agendas, minutes, and follow-ups. That separation preserves both the family dynamic and the business relationship.

A Real-World Example

I’ve seen countless examples where one person provides the capital and another person provides a lot of the labor. A lot of disputes arise about who “deserves” what. Each person has a perspective, and much of it is driven not by the deal at the beginning, but by how the business relationship and contributions change over time.

Often, no new capital goes into the business after the initial setup. But as the company grows, one person may be pouring in the blood, sweat, and tears to keep things moving. They start to feel like they deserve a bigger share of the profits or a bigger say in how things are run — even though that wasn’t the original deal.

The lesson: plan for those changes. Don’t assume the deal you make today will still make sense in three years.

Five Questions to Ask Before Mixing Business with Family or Friends

If you’re considering starting a venture with someone close to you, here’s a quick gut check:

1. What exactly are we each putting in?
   (Money, time, skills, equipment — write it down.)

2. What do we each get in return?
   (Salary, profit share, repayment, ownership interest — be specific.)

3. Who gets to make decisions — and how are ties broken?
   (One manager? Majority vote? Outside advisor?)

4. What happens if someone wants out, can’t contribute anymore, or passes away?
   (Spell out buyout rules and succession plans.)

5. Are we willing to risk the relationship if the business fails?
   (If the answer is “no,” reconsider whether this is the right partnership.)

The Bottom Line

Starting a business with family or close friends can be rewarding — you get to share the highs and lows with people you care about most. But it also carries hidden costs that, if ignored, can ruin relationships and businesses alike.

The good news? With intentional planning, clear agreements, and healthy boundaries, you can protect both your venture and your bonds.

If you’re considering going into business with family or friends, do yourself a favor: treat it like you would with a stranger. Put everything in writing, define the rules, and make space for both the business and the relationship to thrive.

Because at the end of the day, the only thing worse than a failed business is losing the people you care about most along with it.

Email Mike

If you filed for an extension on your business entity’s tax return, today's your deadline. But whether you're scrambling to file or already done, now's the perfect time to focus on smart tax planning for the remainder of 2025. The decisions you make in these final months can significantly impact your tax bill and cash flow heading into next year.

Here are the key strategies every small and family business owner should consider before December 31st.

Subscribe now

Book a meeting with Mike

Maximize Your Equipment Purchases with Section 179 and Bonus Depreciation

One of the most powerful tools in your tax arsenal is the Section 179 deduction combined with bonus depreciation. For 2025, you can immediately deduct the full cost of qualifying business equipment, furniture, and software placed in service on or after January 20, 2025, thanks to 100% bonus depreciation.

This means if you've been putting off that new computer system, office furniture, or manufacturing equipment, now's the time to act. Instead of depreciating these purchases over several years, you can write off the entire amount in 2025, reducing your taxable income dollar-for-dollar.

The Section 179 limit for 2025 is $2,500,000, with a phase-out beginning at $4,000,000 in total equipment purchases. For most small businesses, this provides enormous flexibility to make necessary investments while minimizing current-year taxes.

If you've purchased real estate for your business, don't overlook the potential for Section 179 deductions on building components. A cost-segregation study can identify elements that may qualify for immediate Section 179 treatment rather than the longer depreciation schedules typically required for real estate. This strategy can unlock significant additional deductions you might not have realized were available.

Consider timing your purchases strategically. If you know you'll need equipment in early 2026, buying it by December 31st could provide immediate tax benefits. Just ensure the equipment is actually placed in service before year-end – simply ordering it isn't enough.

Email Mike

Evaluate Your Entity Election for Next Year

Now's also the time to think about your business structure for 2026. If you're currently operating as a single-member LLC or partnership, you might benefit from making an S Corporation election. This election must be filed by March 15, 2026, to be effective for the entire 2026 tax year.

The S election can provide significant self-employment tax savings if your business is profitable. Instead of paying self-employment tax on all your business income, you'd pay yourself a reasonable salary (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment tax).

However, this strategy isn't right for everyone. S Corporation status comes with additional compliance requirements and costs, including payroll processing and filing a separate tax return. The savings need to outweigh these additional expenses and administrative burden.

Similarly, if you've been thinking about other structural changes – perhaps moving from a partnership to an LLC, or vice versa – start planning now. These transitions often require careful timing and coordination with your tax professional.

Book a Meeting with Mike

Stay Current with Your CPA and All Tax Obligations

One of the costliest mistakes I see small business owners make is falling behind on their tax obligations. Late filing penalties, late payment penalties, and estimated tax underpayment penalties can quickly add up to thousands of dollars – money that could be better invested in your business.

Schedule a meeting with your CPA before November 1st to review:

• Your 2025 estimated tax payments and whether adjustments are needed

• Fourth-quarter estimated payment due January 15, 2026

• Any missed filings or outstanding compliance issues

• Payroll tax deposits and quarterly returns

• State and local tax obligations, which vary significantly by jurisdiction

Don't wait until the last minute to address these issues. Many penalties are avoidable with proper planning, but once you're behind, your options become limited and expensive.

Strategic Capital Gains and Loss Planning

If your business has investments or you're considering selling business assets, the final months of 2025 offer important planning opportunities. This is especially relevant if you have significant capital gains or losses from earlier in the year.

If you have capital losses exceeding your capital gains, consider whether realizing additional gains before year-end makes sense. Conversely, if you have substantial capital gains, look for opportunities to harvest losses to offset them.

For business owners considering selling equipment, real estate, or other assets, timing can make a significant difference. Installment sales might allow you to spread the tax impact over multiple years, while like-kind exchanges could defer taxes entirely in certain situations.

Remember that different types of assets receive different tax treatment. The sale of business equipment might qualify for favorable Section 1231 treatment, while other assets might be taxed as ordinary income or capital gains.

Accelerate Deductible Expenses

Consider accelerating deductible business expenses into 2025 if you expect to be in a higher tax bracket this year than next. This might include:

• Prepaying professional services, insurance, or software subscriptions

• Making charitable contributions from your business

• Paying bonuses to employees before December 31st

• Purchasing necessary office supplies and materials

• Scheduling and paying for equipment maintenance

Just ensure these expenses serve a legitimate business purpose and aren't simply tax-motivated transactions that might draw IRS scrutiny.

Review Your Retirement Plan Contributions

Don't overlook retirement planning opportunities. If you have employees, consider whether implementing or enhancing a retirement plan makes sense. SEP-IRAs and Solo 401(k)s can provide substantial deduction opportunities while helping you save for retirement.

For 2025, you can contribute up to 25% of compensation to a SEP-IRA, with a maximum of $70,000. Solo 401(k)s allow even higher contribution limits if you're self-employed without employees.

These contributions can typically be made up until your tax filing deadline (including extensions), providing flexibility even after year-end.

Email Mike

The Bottom Line

Effective tax planning isn't just about minimizing your current tax bill – it's about optimizing your overall financial strategy. The moves you make before December 31st can impact your cash flow, growth opportunities, and long-term wealth building.

Don't try to navigate these decisions alone. Work with a qualified CPA who understands small business taxation and can help you implement these strategies properly. The cost of professional advice is almost always less than the cost of missed opportunities or compliance mistakes.

Remember, tax laws change frequently, and what works for one business might not work for another. But by staying proactive and planning ahead, you can ensure your business takes advantage of every legitimate opportunity to minimize taxes and maximize profits.

Need Help Structuring These Strategies?

If you're looking for guidance on how these tax strategies fit into your overall business protection and deal structure, I'd be happy to discuss how proper planning can strengthen both your tax position and your business agreements. While your CPA handles the technical tax implementation, I can help ensure your contracts, entity structures, and business deals are aligned with your tax strategies.

Feel free to reach out – sometimes a quick conversation can save you thousands in taxes and protect your business from unnecessary risks.

Start these conversations now – your future self (and your bank account) will thank you.

Book a Meeting with Mike

Tax Disclaimer: This article is for informational purposes only and should not be considered as tax advice and cannot be used to avoid any tax penalties. Tax laws are complex and subject to change, and individual circumstances vary significantly. Always consult with a qualified tax professional or CPA before implementing any tax strategies discussed in this article. The author is not a tax professional and does not provide tax advice.

I hate to be the bearer of bad news, but LLCs aren't magic. While they're incredibly valuable tools for asset protection and tax planning, they have significant limitations that every business owner needs to understand. Think of an LLC like a good raincoat—it'll keep you dry in a light drizzle, but it won't save you in a hurricane.

Let me walk you through the five biggest gaps in LLC protection that could leave you personally exposed, despite your best planning efforts.

Subscribe now

Email Mike

1. Personal Actions Don't Get LLC Protection

Here's the harsh reality: if you personally do something wrong, your LLC can't protect you. The LLC only shields you from liabilities arising from the business entity itself, not from your individual actions.

Let's say your construction LLC owns a work truck. If that truck has faulty brakes due to poor company maintenance, the LLC might protect your personal assets from a resulting lawsuit. But if you're driving that truck and cause an accident because you were texting, you're personally liable. The LLC doesn't create a magical barrier around your personal conduct.

This extends to professional services too. If you're a consultant and give bad advice that costs a client money, you can't hide behind your LLC. Courts regularly "pierce the corporate veil" when owners try to use business entities to escape personal responsibility for their own negligence or misconduct.

The takeaway? Your LLC protects the business from you and you from the business—but it can't protect you from yourself.

2. Tax Liabilities: The IRS Doesn't Care About Your LLC

Tax debts are perhaps the most dangerous blind spot for LLC owners. The IRS and state tax authorities have broad powers to pursue business owners personally for certain taxes, regardless of how your business is structured.

Trust fund taxes are the biggest threat. These include payroll taxes withheld from employee paychecks—Social Security, Medicare, and income tax withholdings. The IRS views these as money held "in trust" for employees and the government. If your business fails to pay these taxes, the IRS can pursue you personally under the "trust fund recovery penalty," even if the business is an LLC.

Here's what makes this particularly serious: the federal and state governments don't view unpaid trust fund taxes as just another business debt you owe. They consider this their money that you've collected and failed to turn over. In extreme cases of willful non-payment, business owners can face criminal charges and jail time.

I've seen business owners lose their homes over unpaid payroll taxes from failed businesses. The IRS doesn't just go after business assets—they'll freeze your personal bank accounts, place liens on your house, and garnish your wages. Your LLC structure provides zero protection.

Sales taxes present similar risks in many states. If you collect sales tax from customers but don't remit it to the state, you can be held personally liable for the unpaid amounts, plus penalties and interest.

Book a Meeting with Mike

3. Environmental Liabilities Follow You Everywhere

Environmental cleanup costs can be astronomical, and LLCs provide surprisingly little protection against these liabilities. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund, liability can attach to anyone who is an "operator" of a contaminated property.

Courts have ruled that active business owners who make operational decisions can be considered "operators" regardless of the LLC structure. If you're involved in day-to-day operations and environmental contamination occurs, you could be personally liable for cleanup costs that can easily reach millions of dollars.

This is particularly concerning for businesses involving chemicals, fuel, dry cleaning, manufacturing, or any operations that could potentially contaminate soil or groundwater. Even if you didn't cause the original contamination, purchasing contaminated property through your LLC might not protect you from cleanup obligations if you're actively involved in running the business.

The defense against environmental liability starts with thorough due diligence. Always conduct Phase I environmental assessments before purchasing commercial property, and consider Phase II testing if any red flags appear. Environmental insurance can also provide crucial protection for ongoing operations.

4. Personal Guarantees: Your Signature Trumps Your LLC

Sophisticated lenders and landlords know that most LLCs have little credit history or assets to secure loans. That's why they routinely require personal guarantees from LLC owners.

When you sign a personal guarantee, you're essentially saying, "If the LLC can't pay, I will." Your signature on that guarantee completely bypasses your LLC protection. The bank can come after your house, your retirement accounts, and your other personal assets if the business defaults.

This isn't limited to traditional loans. Personal guarantees are common for:

• Commercial leases (landlords want assurance of payment)

• Equipment financing

• Business credit cards

• Vendor accounts with payment terms

• Government contracts and licensing bonds

I regularly see business owners who carefully set up LLCs for protection, then unknowingly sign away that protection with personal guarantees. Always negotiate to limit these guarantees when possible, and never sign them without understanding the full implications.

Email Mike

5. Professional Liability and Licensing Issues

If your business requires professional licenses—whether you're a doctor, lawyer, accountant, real estate agent, or contractor—your personal professional obligations can't be transferred to an LLC. State licensing boards hold you personally accountable for professional misconduct, regardless of your business structure.

Professional malpractice claims typically name both the business entity and the individual professional. Even if your LLC carries malpractice insurance, you can still face personal liability for claims exceeding coverage limits or for intentional misconduct that insurance won't cover.

Additionally, many states don't allow certain professionals to limit their liability through LLCs for malpractice claims. The public policy reasoning is that professionals shouldn't be able to escape accountability for their professional judgment and conduct.

6. Insufficient Capitalization and Commingling Assets

Courts will "pierce the corporate veil" and hold LLC owners personally liable when the business isn't operated as a true separate entity. The two biggest culprits are inadequate capitalization and commingling personal and business assets.

If you form an LLC with no meaningful assets and use it to enter into large obligations, courts may view it as a sham designed to avoid liability. Similarly, if you regularly mix personal and business funds, pay personal expenses from business accounts, or fail to maintain proper business records, you risk losing LLC protection entirely.

The Bottom Line: LLCs Are Tools, Not Magic Shields

Don't let this reality check discourage you from using LLCs—they're still incredibly valuable for asset protection and tax planning when used correctly. But understanding their limitations helps you make smarter decisions about insurance coverage, business operations, and contract negotiations.

The key is layering your protection. Use your LLC as one component of a broader risk management strategy that includes adequate insurance, careful contract review, and smart operational procedures. When you understand what your LLC can and can't do, you can build a more robust protection plan for your business and personal assets.

Remember: the goal isn't perfect protection—it's smart protection. Know your risks, plan accordingly, and never assume any single strategy will cover all your bases.

Email Mike

Book a Meeting with Mike

That story would have been unthinkable ten years ago. Back then, transferring schools meant sitting out a season, and players were barred from making a dime off their own likeness. The rules of the game were simple—and stacked against the athletes.

But everything has changed.

Subscribe now

Book a Meeting with Mike

Last week, I introduced four elements that shape every negotiation:

1. Information gathering tells you what game you’re playing.

2. Goal prioritization tells you how to win.

3. Trade-off thinking tells you what moves to make.

4. Leverage awareness tells you when and how hard to push.

This week, let’s use college football’s NIL and transfer portal revolutions as a case study. The lessons for small and family businesses are closer than you might think.

Email Mike

The Old System: Limited Player Freedom

For decades, players operated in a tightly controlled world:

• Transfers required a year on the sidelines.

• NIL opportunities were banned, even while schools, TV networks, and conferences built billion-dollar empires on player performance.

Scholarships had value, but the system gave universities and coaches the overwhelming share of leverage.

The New World: NIL and the Transfer Portal

Two reforms have flipped the landscape:

• NIL Rights: Players can now earn money from endorsements, social media, appearances, and sponsorships. For stars at big programs, NIL deals can reach six or seven figures.

• The Transfer Portal: Players who want a new opportunity can enter a centralized database and become immediately eligible to play elsewhere. It’s essentially free agency, with no mandatory waiting period.

This shift has created an environment where players, schools, and businesses must constantly adapt. Now let’s analyze it through the four negotiation principles.

1. Information Gathering: Know the Game You’re Playing

In the old system, choices were locked in early. A freshman quarterback might regret committing to a school, but transferring meant losing a year. There was little incentive to gather information beyond the initial recruiting decision.

Today, the smart player—or businessperson—treats information as currency. A recruit needs to ask:

• Which schools have strong NIL collectives and booster support?

• Where is the best mix of exposure, coaching, and financial opportunity?

• Which teams develop players for the NFL most effectively?

In business, the same rule applies: you cannot negotiate well without knowing the landscape. Laws change, markets shift, and competitors adapt. Before you commit, understand the rules of today’s game, not yesterday’s.

Book a Meeting with Mike

2. Goal Prioritization: Define What Winning Looks Like

Not every player has the same definition of success.

• Some prioritize immediate playing time to showcase talent.

• Others chase financial security now, maximizing NIL value.

• Still others want a championship pedigree to raise their long-term profile.

Programs also face competing priorities: should they build long-term culture through high school recruits or maximize short-term wins through transfers?

In business, this is the same discipline of setting goals before you enter a deal. Are you negotiating for stability, for growth, or for immediate cash flow? If you do not define your win condition, you risk chasing the wrong outcome.

3. Trade-Off Thinking: Choose Your Moves Wisely

Every choice in this new system carries immediate and long-term trade-offs.

• Immediate trade-offs: A player in the transfer portal may accept less NIL money in exchange for guaranteed playing time, or flip that equation by chasing the bigger paycheck. A school may choose to invest heavily in one star, knowing it could limit resources for depth.

• Long-term trade-offs: A player who transfers too often may damage their development or reputation with NFL scouts. A school that leans too heavily on transfers may weaken culture and loyalty among recruits.

This is pure trade-off thinking: you cannot maximize every variable at once. In negotiation, the real art is recognizing not just what you gain in the moment, but how today’s choice shapes tomorrow’s opportunities.

4. Leverage Awareness: Know When and How Hard to Push

Perhaps the clearest change in college football is leverage.

• In the old system: Coaches and schools held nearly all of it. A player had few options after committing, and sitting out a transfer year discouraged movement.

• In the new system: Players—especially quarterbacks—often hold the cards. A starter who enters the portal can trigger bidding wars for both scholarships and NIL deals.

But leverage can be overplayed. Take former Tennessee quarterback Nico Iamaleava. After securing one of the biggest NIL packages for a freshman, he reportedly pushed for even more backing from Tennessee boosters. When the school didn’t meet those demands, he transferred to UCLA.

According to ESPN, his deal at UCLA is actually worth less than what he had at Tennessee. And his debut this past weekend wasn’t encouraging—UCLA stumbled badly in its opening game.

That’s a classic negotiation misstep: assuming leverage is unlimited. Nico’s talent gave him power, but by pressing too hard, he ended up with a smaller deal and a shakier start.

For businesses, the lesson is clear: leverage is real, but it’s never permanent. Use it wisely. Push too early or too hard, and you may weaken your own position. Timing and perception matter as much as raw bargaining power.

Email Mike

Lessons for Small and Family Businesses

You may never enter a transfer portal, but the lessons translate directly:

• Stay updated: Rules and norms change. What worked ten years ago may be obsolete today.

• Set your priorities: Define your “win” before you sit down at the table.

• Balance short- and long-term trade-offs: Every deal has costs in the moment and consequences down the line.

• Use leverage wisely: Don’t underplay it, but don’t overplay it either. Timing is everything.

College football may look chaotic right now. Some call it unfair, others call it overdue justice. But underneath the headlines, it is a live classroom in how negotiations evolve when information, priorities, trade-offs, and leverage all shift at once.

Your business may not fill a stadium, but the same four questions apply:

• Do I know the game?

• Do I know what winning looks like?

• Have I weighed both my immediate and long-term trade-offs?

• Do I understand my leverage—and am I using it wisely?

Answer those, and you’ll walk into every negotiation better prepared than your counterpart.

Leave a comment

Book a Meeting with Mike

Last week, I promised we'd dive deep into document negotiation strategies—those specific techniques that help you secure better deals while keeping your business relationships intact. As a small or family business owner, you can't afford to win a negotiation but lose a valuable partner in the process.

Subscribe now

Today, we're covering the four foundational pillars that will transform how you approach every contract, agreement, and business deal that crosses your desk.

Book a Meeting with Mike

1. Information Gathering: Your Foundation

Before you even think about making demands or concessions, you need intelligence. Not corporate espionage—just good old-fashioned homework.

What you need to know about the other party:

• Their typical deal structure and standard terms

• Recent business pressures or opportunities they're facing

• Their decision-making timeline and process

• Who else is involved in approving the deal

• Their past negotiation patterns with similar agreements

What you need to know about yourself:

• Your true walk-away point (not just your wish list)

• Internal approval processes and timelines

• Resource constraints that might affect implementation

• Alternative options if this deal falls through

Action step for this week: Create a simple one-page "deal intelligence" template. Use it for every negotiation moving forward. Include sections for their business situation, your situation, key decision makers, and timeline constraints.

The businesses that consistently get better deals aren't necessarily better negotiators—they're better researchers. Information is leverage, but only if you gather it systematically.

Email Mike

2. Master the Art of Trade-offs

Every negotiation involves some sort of offer-concession back and forth. It's simply part of the process. Even if you think you can move straight to your best and final offer, the other side will still believe there's something to pick away at.

Understanding this dynamic is crucial: you need to build in room to make concessions while still achieving your core objectives.

No deal is perfect. Anyone who tells you otherwise is either lying or has never negotiated a real agreement.

The question isn't whether you'll make trade-offs—it's whether you'll make them strategically.

The trade-off framework:

• Value trades: Give up something that's low-cost to you but high-value to them

• Risk trades: Accept certain risks in exchange for compensation or reduced other risks

• Timing trades: Flexibility on when something happens in exchange for better terms on what happens

• Structure trades: Different ways of achieving the same underlying goal

Case study: A small business was negotiating a lease where the landlord wasn't requiring a personal guaranty. During negotiations, we were more conservative about pushing hard on some of the other terms because we didn't want the landlord to start thinking they were taking on more credit risk and decide to ask for a guaranty after all. Sometimes what you don't ask for is as important as what you do.

This week's challenge: In your next negotiation, for every concession you're asked to make, respond with: "I can consider that if we can work together on [something you want]." Don't give anything away for free.

Email Mike

3. Know Your Goals and Prioritize Them Ruthlessly

Here's where most small business owners go wrong: they negotiate everything as if it's equally important. It's not.

You need three lists:

• Must-haves: Non-negotiables that make or break the deal

• Want-to-haves: Important terms that improve the deal significantly

• Nice-to-haves: Items you'd accept if offered but won't fight for

Useful Strategy. When you make your first offer, make sure you add in some nice to haves or some items that really don’t matter to you at all so that you have low value items that you can easily concede. But remember, the other side is likely doing the same thing, which is why you need to have information on what’s important to them.

Your weekly exercise: Take your current biggest negotiation. Write down every term you care about. Now force-rank them. If you had to give up half your demands to get the deal done, which half would you keep? Those are your real priorities.

Most negotiations fail not because the parties can't reach agreement, but because they can't distinguish between their needs and their wants.

Book a Meeting with Mike

4. Understanding Your Leverage

Leverage is your ability to walk away or make the other party's life difficult. But here's the thing about leverage—the threat is often more powerful than actually using it.

Types of leverage small businesses actually have:

• Scarcity: You offer something unique or hard to replace

• Timing: They need this deal done by a specific date

• Relationship: The cost of replacing you exceeds the benefit

• Information: You know something they need to know

• Alternatives: You have other viable options

The leverage paradox: The more willing you are to use your leverage and potentially damage the relationship, the less likely you are to need to use it. People can sense desperation, and they can also sense confidence (or arrogance).

Critical warning: Before applying pressure, always ask yourself: "If I push on this point, what are the chances it damages my long-term relationship with this party?" Sometimes the short-term win isn't worth the long-term cost.

Your leverage audit: Write down your current negotiation situation. What leverage do you actually have? What leverage do they have? Are you underplaying your strengths or overestimating your weaknesses?

Putting It All Together

These four strategies work together like a system:

1. Information gathering tells you what game you're playing

2. Goal prioritization tells you how to win

3. Trade-off thinking tells you what moves to make

4. Leverage awareness tells you when and how hard to push

Remember: The goal isn't to crush the other party. It's to create a deal that works for both sides while ensuring you don't leave value on the table.

Your homework for this week:

• Create your deal intelligence template

• Priority-rank the terms in your current biggest negotiation

• Identify three potential trades you could offer

• Honestly assess your leverage position

Strong deals protect your business. But strong relationships grow your business. The best negotiators figure out how to do both.

Next week, we’ll look at the news and see negotiation strategies at work.

Subscribe now

Share

Book a Meeting with Mike

Subscribe now

Book a Meeting with Mike

Whether you're forming an LLC, a traditional partnership, or any business structure where multiple people own equity, the agreement governing your relationship isn't just legal paperwork—it's your business insurance policy, your conflict resolution system, and your exit strategy all rolled into one.

Understanding the Flexibility You Actually Have

Here's something most business owners don't realize: when your entity is taxed as a partnership, governance and economics don't have to match. You might own 60% of the economics but only have 40% of the voting control, or vice versa. You can even give a minority owner veto power over specific decisions that matter most to them—like major capital expenditures or changes in business direction.

Even better, you can create different classes of partners with distinct rights. Maybe Class A partners get voting control and management authority, while Class B partners receive higher profit distributions but limited governance rights. This flexibility lets you craft custom solutions instead of settling for cookie-cutter arrangements that don't fit your actual business dynamics.

This flexibility gives you significant competitive advantages, but only if you use it intentionally from the start.

Capital Contributions: Equity, Loans, or Both?

One of the first decisions you'll face is how partners should contribute capital. Should they buy equity, make loans to the company, or use a combination approach? This isn't just a financial decision—it's a strategic one that affects control, tax treatment, and exit scenarios.

Always consult your CPA before structuring capital contributions. The tax implications can be significant, and what seems like a good deal on paper might create unexpected tax burdens later. Some partners benefit from loan structures that provide regular interest payments and easier exit paths, while others prefer pure equity plays for long-term growth potential.

Consider hybrid approaches where partners contribute both equity and loans. This gives you flexibility in distributions and creates options for partial exits without diluting ownership percentages.

Authority and Management: Who Can Actually Run the Show?

Nothing kills partnerships faster than confusion about who can make decisions and bind the company. Your partnership agreement must clearly spell out management authority at different levels:

• Day-to-day operations: Who handles routine business decisions, vendor contracts, and operational issues?

• Significant transactions: What dollar threshold requires partner approval? Who can sign major contracts?

• Strategic decisions: What requires unanimous consent versus majority vote?

I've seen partnerships paralyzed because partners assumed they could each bind the company, only to discover their agreement required multiple signatures for routine transactions. Conversely, I've watched partnerships explode when one partner committed the company to major obligations without consulting others, believing they had that authority.

Be specific. Don't just say "major decisions require approval"—define what "major" means in dollar terms and transaction types.

Email Mike

Minority Protections: Important, But Don't Go Overboard

Minority partners deserve protection, but here's where many partnerships go wrong: they create so many protective provisions that minority partners become equal partners in everything but economics. This defeats the purpose of having majority control.

Smart minority protections focus on fundamental issues:

• Preventing majority partners from changing the nature of the business

• Protecting against dilution without consent

• Ensuring access to company financial information

• Requiring approval for transactions that benefit majority partners personally

Avoid giving minority partners veto power over routine business decisions. If you wanted equal partners, you should have structured equal ownership.

Planning Partner Exits Before You Need Them

Every partnership will end eventually—through retirement, career changes, death, disability, or disputes. Planning these exits upfront, when everyone's getting along, prevents disasters later when emotions run high and stakes are personal.

Your agreement should address:

Voluntary exits: How does a partner sell their interest? Do remaining partners have right of first refusal? What's the valuation method and payment terms?

Involuntary exits: What happens if a partner dies, becomes disabled, or violates the partnership agreement? How quickly can remaining partners buy out the departing partner's interest?

Valuation methods: Will you use book value, fair market value, or a formula approach? Who pays for appraisals, and what happens if parties disagree on value?

The key is establishing these mechanisms when everyone's aligned on goals, not when someone's already heading for the door.

Deadlock Resolution: When Partners Can't Agree

Even the best partnerships face deadlocks on major decisions. Your agreement needs mechanisms to break ties without destroying the business or relationships.

Consider these approaches:

Escalation procedures: Require good-faith negotiation periods before triggering more drastic measures.

Buy-sell agreements: Give deadlocked partners the option to buy each other out through predetermined mechanisms.

Shotgun clauses: One partner names a price for the entire business; the other partner can either buy at that price or sell at that price. This ensures fair pricing because the naming partner doesn't know if they'll be buyer or seller.

Third-party resolution: Binding arbitration or mediation with industry experts who understand your business.

Baseball arbitration: Each side submits their preferred solution, and the arbitrator must choose one or the other—no splitting the difference. This encourages reasonable proposals since extreme positions are likely to lose.

Book a Meeting with Mike

Your Action Items This Week

1. Review your current partnership agreement (if you have one) or create a timeline for drafting one (if you don't). Look specifically at the management and authority provisions—are they clear enough that a stranger could understand who can do what?

2. Schedule a conversation with your CPA about capital contribution structures. Discuss the tax implications of different approaches for your specific situation.

3. Draft a simple exit scenarios worksheet with your partners. List the top five reasons a partner might leave and brainstorm how you'd handle each situation. This isn't legal drafting—it's business planning that will inform your legal documents.

4. Identify your deadlock triggers. What decisions could paralyze your partnership? Write them down and start thinking about resolution mechanisms that fit your business culture.

Partnership agreements aren't just legal documents—they're business tools that can strengthen relationships and protect everyone's interests when crafted thoughtfully. The investment in proper planning pays dividends every time you avoid a dispute or navigate a transition smoothly.

Book a Meeting with Mike

Next week, we'll dive into document negotiation strategies and the specific techniques that help you secure better deals without destroying business relationships in the process.

Email Mike

Subscribe now

Book a Meeting with Mike

As a small business owner, you've probably invested countless hours training employees, sharing proprietary methods, and building relationships that drive your success. Without proper employment agreements, that investment can walk out the door and directly into your competitor's hands. Let's explore how to craft employment agreements that actually hold up when it matters most.

Employee vs. Independent Contractor: Getting the Classification Right

Before drafting any employment agreement, you must correctly classify your workers. The distinction between employees and independent contractors isn't just semantic—it's a legal minefield that can severely damage your business if you get it wrong.

The IRS uses three primary factors to determine worker classification: behavioral control, financial control, and the relationship type. Employees work under your direction and control, use your equipment, and are integrated into your business operations. Independent contractors, on the other hand, control how they complete their work, use their own tools, and typically work for multiple clients.

Misclassifying employees as contractors can result in back taxes, penalties, and liability for benefits. Conversely, treating contractors as employees unnecessarily burdens your business with additional compliance requirements and costs.

When in doubt, err on the side of employee classification. The short-term savings of contractor classification rarely justify the long-term risks of IRS audits and labor law violations.

FLSA Exempt vs. Non-Exempt: Understanding What You Can Require

The Fair Labor Standards Act (FLSA) governs overtime requirements and employee classifications. Understanding exempt versus non-exempt status is crucial for structuring job duties and compensation, but the requirements for exemptions can be complex and should be reviewed carefully for each position.

Exempt employees must meet specific criteria: they must be paid on a salary basis, earn at least $684 per week, and perform exempt job duties in executive, administrative, or professional capacities. However, these requirements involve detailed analysis of actual job responsibilities, not just job titles. Exempt employees aren't entitled to overtime pay and can be required to work beyond standard hours when business needs demand.

Non-exempt employees must be paid overtime for hours worked beyond 40 in a workweek. Your employment agreements should clearly state overtime policies and approval procedures for non-exempt positions.

Avoid the common mistake of assuming a salary automatically makes someone exempt. Job duties, not payment method, determine FLSA classification, and the analysis can be surprisingly complex. Misclassifying employees can result in significant back-pay liability for unpaid overtime, making careful review of each position essential.

Book a Meeting with Mike

Salary Expectations: Avoid Binding Guarantees

Employment agreements should explicitly address compensation while avoiding commitments that could financially hamstring your business. A common mistake small business owners make is guaranteeing future bonuses, merit increases, or automatic salary adjustments.

Never promise specific bonus amounts or guaranteed annual raises in your employment agreements. Market conditions fluctuate, business performance varies, and economic downturns can make previously reasonable commitments financially devastating. Instead, use language like "may be eligible for" or "at the company's discretion" when discussing potential bonuses or increases.

Include language about salary reviews and performance evaluations, but make clear that any adjustments are based on business performance, individual merit, and market conditions. This preserves your flexibility while setting employee expectations appropriately.

Consider including a probationary period clause that allows for salary adjustment or termination within the first 90 days. This protects you from costly hiring mistakes while giving new employees clear performance expectations without long-term financial commitments.

Vacation Payout: Know Your State's Requirements

Vacation payout policies vary significantly by state, and your employment agreement must comply with local laws. Some states treat accrued vacation time as earned wages that must be paid upon termination, while others allow "use it or lose it" policies.

California, for instance, requires employers to pay out all accrued vacation time, treating it as vested compensation. Indiana, however, allows employers to forfeit unused vacation if the policy is clearly communicated and consistently applied.

Include specific language about vacation accrual, maximum carryover, and payout policies. Consider implementing a "vacation cap" system where employees stop accruing additional time once they reach a maximum threshold, encouraging regular time off while limiting your financial liability.

FLSA Exempt vs. Non-Exempt: Understanding What You Can Require

The Fair Labor Standards Act (FLSA) governs overtime requirements and employee classifications. Understanding exempt versus non-exempt status is crucial for structuring job duties and compensation, but the requirements for exemptions can be complex and should be reviewed carefully for each position.

Exempt employees must meet specific criteria: they must be paid on a salary basis, earn at least $684 per week, and perform exempt job duties in executive, administrative, or professional capacities. However, these requirements involve detailed analysis of actual job responsibilities, not just job titles. Exempt employees aren't entitled to overtime pay and can be required to work beyond standard hours when business needs demand.

Non-exempt employees must be paid overtime for hours worked beyond 40 in a workweek. Your employment agreements should clearly state overtime policies and approval procedures for non-exempt positions.

Avoid the common mistake of assuming a salary automatically makes someone exempt. Job duties, not payment method, determine FLSA classification, and the analysis can be surprisingly complex. Misclassifying employees can result in significant back-pay liability for unpaid overtime, making careful review of each position essential.

Confidentiality Clauses: Protecting Your Business Secrets

Confidentiality agreements are essential for protecting proprietary information, but they must be carefully crafted to be enforceable. Overly broad confidentiality clauses can be struck down by courts as unreasonable restraints on employment.

Define "confidential information" specifically: customer lists, pricing strategies, marketing plans, proprietary processes, and financial information. Avoid vague terms like "business information" that could encompass publicly available data.

Include important exceptions required by law: employees retain the right to report suspected violations to government agencies, file whistleblower complaints, and discuss working conditions with labor organizations. If not properly drafted, confidentiality provisions could be considered an unfair labor practice, even if never signed.

Consider including a return of materials clause requiring employees to surrender all company property, including documents, devices, and access credentials, upon termination.

Email Mike

Non-Compete Agreements: What's Actually Enforceable

Non-compete clauses remain one of the most contentious aspects of employment law. While the Biden administration's proposed federal ban on non-competes never took effect, many states have implemented their own restrictions.

For non-compete clauses to be enforceable, they must be reasonable in scope, duration, and geographic area. Courts typically uphold agreements that protect legitimate business interests without unnecessarily restricting an employee's ability to earn a living. However, enforceability varies significantly by state. For example, in Indiana, non-competes are not enforceable for some physicians.

Focus on protecting specific business interests rather than eliminating competition entirely. Non-solicitation clauses preventing former employees from poaching clients or staff are generally more enforceable than broad restrictions on working in your industry.

Consider non-disclosure agreements and non-solicitation clauses as alternatives to comprehensive non-competes. These targeted restrictions often provide adequate protection while facing fewer legal challenges.

Geographic restrictions should align with your actual market area. A local bakery cannot reasonably enforce a statewide non-compete, but a regional consulting firm might justify broader geographic limitations.

Implementation and Enforcement

Even perfectly drafted employment agreements are worthless without proper implementation. Ensure all employees sign agreements before beginning work, and update existing employee agreements when promoting or changing job responsibilities.

Maintain confidentiality consistently—if you routinely share "confidential" information with unauthorized personnel, courts may find your confidentiality claims invalid.

Document violations carefully and respond promptly to breaches. Delayed enforcement can weaken your legal position and suggest the agreement terms weren't truly important to your business operations.

Email Mike

Moving Forward

Next week, we'll explore partnership agreements and how to structure business relationships that protect all parties while fostering growth. I'll share the specific clauses that prevent partnership disputes and the exit strategies that preserve business relationships even when professional partnerships end.

This article is for informational purposes only and does not constitute legal advice. Employment law varies by jurisdiction, and specific situations may require different approaches. Consult with a qualified employment attorney before implementing any employment agreements or policies. The author assumes no responsibility for actions taken based on this information.

Subscribe now

Schedule a Meeting with Mike

Here's the hard truth: Most small business customer agreements are either non-existent or so weak they're practically useless when trouble hits. Today, I'm sharing the six essential elements that will transform your agreements from legal paperwork into genuine business protection.

1. Payment Terms: Get Specific, Get Paid

Vague payment terms are business killers. "Net 30" isn't enough—you need clear language that eliminates ambiguity.

What to include:

• Exact payment amounts and due dates

• Late payment penalties (typically 1.5% per month)

• When work stops if payment is delayed

• Who pays collection costs and attorney fees

Sample language: "Payment is due within 15 days of invoice date. Invoices not paid within 30 days will incur a service charge of 1.5% per month. Work may be suspended on accounts more than 45 days past due, and Client agrees to pay all collection costs including reasonable attorneys' fees."

This isn't about being aggressive—it's about setting clear expectations that protect both parties.

Schedule a Meeting with Mike

2. Security: Your Insurance Policy for Getting Paid

If you're delivering before getting paid in full, you need security. Don't rely on trust alone—even good customers can face cash flow problems.

Effective security options:

• Progress payments: Break large projects into milestones with payments due before proceeding

• Deposits: Collect 25-50% upfront, especially for new customers

• Personal guarantees: Most corporate or LLC clients will be impossible to collect from if they fail. You need a real person standing behind the payment obligation—get the owners or key executives to personally guarantee payment

• Liens and security interests: For contractors and manufacturers, secure your right to file liens against the work performed

Pro tip: Always run credit checks on new commercial customers. A simple Dun & Bradstreet report can save you thousands by revealing payment patterns and financial stability.

3. Ensuring Credit-Worthy Customers

Not all customers are worth having. Screen them before signing agreements, not after you're chasing unpaid invoices.

Red flags to watch for:

• Reluctance to provide financial references

• Pressure to start work immediately without proper documentation

• History of disputes with other vendors

• Recently formed companies without established credit

Smart screening practices:

• Require credit applications for accounts over $5,000

• Check trade references, not just bank references

• Use credit reporting services for commercial accounts

• Start new customers with smaller orders to test payment behavior

Remember: It's easier to say no upfront than to collect money later.

4. Limitation of Liability and Waiver of Consequential Damages

This is where small businesses get destroyed financially. Without proper liability limitations, you could be on the hook for damages far exceeding your contract value.

Essential protective language:

• Cap your total liability at the contract amount (or less)

• Exclude consequential damages like lost profits or business interruption

• Specify that your liability is limited to direct damages only

• Include mutual liability limitations when possible

Sample clause: "In no event shall Provider's liability exceed the total amount paid under this Agreement. Provider shall not be liable for any indirect, incidental, special, or consequential damages, including but not limited to lost profits, business interruption, or loss of data, regardless of the form of action or the theory of recovery."

Important note: Some states limit the enforceability of liability caps, so check local laws or consult an attorney familiar with your jurisdiction.

Email Mike

5. Customer Sign-Off: Your Shield Against Scope Creep and Blame

The most expensive phrase in business is "That's not what we agreed to." Protect yourself by requiring written approval at key decision points.

Require customer sign-off for:

• Project specifications and scope

• Material selections and designs

• Change orders and modifications

• Completion of project phases

• Final acceptance of work

Critical language to include: "Client acknowledges that Provider is relying on specifications, requirements, and information provided by Client. Client agrees to review and approve all specifications in writing before work commences. Provider is not responsible for results arising from inaccurate or incomplete information provided by Client."

Practical tip: Use email confirmations for smaller decisions, but get wet signatures for major approvals. A simple "Reply with 'APPROVED' to authorize this change" creates a clear paper trail.

6. Insurance Requirements: Protecting Both Parties

When your work could create liability exposure, require appropriate insurance coverage and coordinate policies to avoid gaps.

When to require client insurance:

• Construction and renovation projects

• Work involving potential property damage

• Services that could impact business operations

• Any situation where your work might create third-party liability

Essential insurance provisions:

• Minimum coverage amounts: Specify general liability limits appropriate for the project scope

• Additional insured status: Require the client to add you as an additional insured on their policy

• Waiver of subrogation: Prevent the client's insurance company from suing you after paying a claim

• Primary and non-contributory coverage: Ensure the client's insurance pays first, before your policy

Sample language: "Client shall maintain general liability insurance with minimum limits of $1,000,000 per occurrence and shall name Provider as an additional insured. Client's insurance shall be primary and non-contributory to any insurance maintained by Provider."

Coordination tip: Don't assume insurance will cover everything. Review both policies with your agent to identify potential gaps, especially for specialized work or unique project risks.

Subscribe now

Putting It All Together: Your Action Plan

These six elements work together to create a comprehensive protection strategy. Here's how to implement them:

1. Review your current agreements - Do they include all six elements?

2. Create templates - Standardize language across all customer agreements

3. Train your team - Everyone should understand when to get sign-offs

4. Track compliance - Monitor payment terms and customer approval processes

5. Update regularly - Laws change, and your agreements should evolve with your business

Schedule a Meeting with Mike

The Bottom Line

Strong customer agreements aren't about being difficult—they're about being professional and protecting the business you've worked hard to build. Every clause serves a purpose: clarity prevents disputes, security ensures payment, screening eliminates problem customers, liability limits prevent catastrophic losses, sign-offs stop scope creep, and proper insurance coordination protects against unexpected risks.

The small amount of time you spend strengthening your agreements will save you countless hours and dollars in the long run. More importantly, clear agreements actually improve customer relationships by setting proper expectations from the start.

Next week, we'll tackle employment agreements that protect your business secrets and prevent key employees from becoming your biggest competitors. I'll share the specific non-compete and confidentiality clauses that actually hold up in court.

Email Mike

What's your biggest challenge with customer agreements? Hit reply and let me know—I read every response and your questions help shape future topics.

Disclaimer: This article provides general business information and is not intended as legal advice. Laws vary by state and situation. Always consult with a qualified attorney before implementing contract terms or making legal decisions for your business.