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Business Basics 108 – Leaders

Sometimes a person can be a good manager but not a good leader, and vice versa. Managers work to produce order and stability, while leaders embrace and manage change. Leadership is creating a vision for others to follow, establishing corporate values and ethics, and transforming the way the organization does business, in order to improve its effectiveness and efficiency. Good leaders motivate workers and create the environment for them to motivate themselves. Management carries out the leader’s vision.

Leaders must communicate a vision and rally others around that vision. She should be open and sensitive to the concerns of followeres, give them responsibility and win their trust. To be a successful leader, she must influence the actions of others.

Leaders must establish corporate values, including concern for employees, customers, the environment, and the quality of the company’s products. When a company sets its business goals, it is also defining its values. The number one trait others look for in a leader is honesty, followed by the leader being forward looking.

Leaders must promote corporate ethics, including an unfailing demand for honesty and an insistence that everyone in the company be treated fairly. Ethical decision making is a key component of leadership.

Leaders must embrace change. The leader’s most important job may be to transform the way the company does business so that it is more effective and efficient, doing things better with fewer resources to accomplish the same objectives.

Leaders must stress accountability and responsibility. Leaders need to be held accountable and to feel responsible for their actions. A key word is transparent, presenting the company’s facts and figures in a way that is clear and apparent to all stakeholders.

Organizations need both leaders and employees who can help lead. Any employee can motivate others to work well, add to the company’s ethical environment, and report ethical lapses that may occur. There is no one set of traits that describe a leader, nor is there one leadership style that works best in all situations. Some of the more effective leadership styles include autocratic, participant (democratic) and free-rein leadership.

Autocratic leadership means making managerial decisions without consulting others. This style is effective in emergencies and when absolute followership is needed. This form of leadership is also sometimes effective with new, relatively unskilled workers who need clear direction and guidance. The participant (democratic) leadership style involves managers and employees working together to make decisions. Employee participation in decisions may not always increase effectiveness, but it usually increases job satisfaction. Organizations that value traits such as flexibility, good listening skills and empathy often favor the participant style of leadership. Employees meet to discuss and resolve management issues by giving everyone some opportunity to contribute to decisions. And in the free-rein style of leadership the managers set objectives and allow employees freedom to do whatever is appropriate to accomplish those objectives. This style is most successful in organizations in which managers supervise professionals, such as doctors, engineers and others. The traits managers need in such organizations include warmth, friendliness and understanding. There is a trend of more companies adopting this style of leadership with at least some of their employees.

Leadership is a continuum along which employee participation varies, from purely boss-centered leadership to employee-centered leadership. The best style for any particular organization depends on what its goals and values are, who is being led, and in what situation. For example, a manager may be autocratic but friendly with a new trainee, democratic with an experienced employee, and free-reining with a trusted long-term supervisor. There is no such thing as a leadership trait that is effective in all situations, or a leadership style that always works best. As such, a successful leader in one organization may not be successful in another. A truly successful leader has the ability to adapt her leadership style to what is most appropriate to the situation and employees.

Historically many organizations used the directing process of leadership, whereby leaders gave explicit instructions to workers, telling them what to do to meet the organization’s goals and objectives. This often included giving assignments, explaining routines, clarifying policies, and providing feedback on performance. Organizations that may still use this model include fast food restaurants and small retailers, where the employees do not have the skill or experience to work on their own, at least at first. More progressive leaders empower employees to make decisions on their own, giving employees the authority to make a decision without consulting the manager, and the responsibility to respond quickly to customer requests. Managers often resist the empowerment model, feeling reluctant to give up their decision-making power. However in companies that implement this concept, the manager’s role is less that of a boss and director and more that of a coach, assistant, counselor or team member. Enabling is the key to the success of empowerment, and gives workers the education and tools they need to make decisions. Without the right education, training, coaching and tools, workers cannot take on the responsibilities of decision-making roles that make empowerment work. Many high-tech and internet companies use the empowerment model.

Finding the right information, keeping it in a readily accessible place, and making it known to everyone in the firm together constitute the tasks of knowledge management, which is necessary in empowering employees. The first step of knowledge management is determining what knowledge is most important, after which the company sets out to find answers to those questions. Knowledge management tries to keep people from reinventing the wheel every time a decision must be made. Each person should ask what he still doesn’t know, and whom to ask for the information. It is as important to know what’s not working as it is to know what is working. The key to success is learning how to process information effectively and turn it into knowledge that everyone can use to improve processes and procedures.

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Business Basics 107 – Creating a Unified System

After planning a course of action, managers must organize the company to accomplish their goals, including allocating resources, assigning tasks and establishing procedures. The managerial heirarchy includes top management, the highest level such as the president and other key executives who develop strategic plans. This often includes the chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO) and chief information officeer (CIO), although it has become more commonplace to see companies eliminate the COO position.

The CEO is often also the company’s president and is responsible for all top-level decision making, including introducing change to the company. Her tasks include structuring work, controlling operations and rewarding people to ensure that everyone works to carry out her vision. The CFO is responsible for obtaining funds, planning budgets, collecting funds and such. The CIO is responsible to get the right information to other managers so they can make correct decisions, and is more important than ever to the success of the company given the crucial role that information technology has come to play in every business.

Middle management includes general managers, division managers and branch and plant managers who are responsible for tactical planning and controlling. Many middle management positions have been eliminated in recent years due to cost cutting and down-sizing, and the companies have given the remaining managers more employees to supervise. Middle managers are an important role to most businesses.

Supervisory management includes those directly responsible for supervising workers and evaluating their daily performance, and are often known as first-line managers or supervisors.

People are typically not taught to be managers, but due to their skill move up the corporate ladder and become managers. They tend to become deeply involved in showing others how to do things, helping and supervising them, and generally being active in the operating task. The further up the ladder she moves, the less important her original job skills. At the top of the ladder, the need is for people who are visionaries, planners, organizers, coordinators, communicators, morale builders and motivators. A successful manager must have technical skills, human relations skills and conceptual skills.

Technical skills involve the ability to perform tasks in a specific discipline or department; human relations skills involve communication and motivation and enable managers to work through and with people, and also include skills associated with leadership; and conceptual skills involve the ability to see the organization as a whole and the relationship among its various parts. Conceptual skills are required in planning, organizing, controlling, systems development, problem analysis, decision making, coordinating and delegating. First-line managers need skills in all three areas, but spend most of their time on technical and human relations tasks, such as assisting operating personnel and giving directions. On the other hand, top managers need few technical skills and spend almost all of their time on human relations and conceptual tasks. Thus a person who is successful as a supervisor might not be competent at higher levels and vice versa.

Staffing is a management function that includes hiring, motivating and retaining the best people available to accomplish the company’s objectives. To get the right kind of people to staff an organization, the company has to offer the right kinds of incentives. Many people will not work for companies where they are not treated well or get fair pay. They may leave to find a better balance between work and home. A company with innovative and creative workers can go from a start-up to a major competitor in just a few years. Staffing has become an increased part of each manager’s assignment, and all managers need to cooperate with human resource management to get and keep good workers.

More recently, social media manager has become one of the fastest growing careers. Social media continues to grow in importance as it presents the face and voice of an organization. Social media managers need to be curious, able to adapt quickly, and understand the role social media plays in the organization’s goals. They also need skills in writing, graphic and video design, public speaking, customer service and community engagement, behavioral psychology, analyzing social media metrics and budgeting. Being proficient in some of these areas is more important than being strong in all of them.

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Business Basics 106 – Management and Leadership II

Planning and Decision Making

The number one upper management function is planning – setting the organization’s vision, goals and objectives. Planning is often described as an executive’s most valuable tool. Let’s break it down. It is a continuous process that often follows a pattern, answering several fundamental questions: (1) What is the situation now? This includes a SWOT analysis of the organization’s strengths, weaknesses, opportunties and the threats it faces. Often opportunities and threats are external and can’t be aniticpated, while weaknesses and strengths are typically internal and can be measured and fixed. (2) How can we get to our goal from here? The answer to this question is typically the most important part of planning, and can take one of four forms: strategic, tactical, operational or contingency.

A vision is a broad explanation of why the organization exists and where it’s trying to go. It gives the organization a sense of purpose and a set of values that unite employees in a common objective. Top management typically sets the organization’s vision, and often works with others to create a mission statement. A mission statement outlines the organization’s fundamental purpose, and includes its self concept, philosphy, long-term survival needs, customer needs, social responsibility and nature of the product/services. The mission statement becomes the foundation for setting specific goals and objectives.

Goals are the broad, long-term accomplishments an organization seeks to attain. Setting goals is often a team process, aimed at buy-in from both employees and management. And objectives are specific, short-term statements detailing how to achieve the organization’s goals.

Strategic planning is done by top management and determines the organization’s major goals, along with the policies, procedures, strategies and resources it will need to achieve them. Policies are broad guidelines for action, while strategies determine the best way to use the resources. In strategic planning, top management decides which customers to serve, when to do so, what products or services to sell, and the geographic areas in which to compete, but it is important for them to engage those with potentially the best strategic insights, their employees. In today’s rapidly changing environment, strategic planning is becoming more difficult because changes are occuring so fast that plans quickly become obsolete. The idea is to be flexible and responsive to the market, allowing for quick responses to customer needs and requests.

Tactical planning develops detailed, short-term statements about what is to be done, who is to do it, and how it is to be done, and is typically a function of lower level managers. Operational planning is the setting of work standards and schedules needed to implement the company’s tactical objectives. It focuses on specific supervisors, managers and employees, and is the manager’s tool for daily and weekly operations. Contingency planning prepares alternative courses of action the company can use if its primary plans don’t work. In our ever-changing environment it is good practice to have alternative plans of action ready. Crisis planning is part of contingency planning and anticipates sudden changes in the environment. Rather than creating detailed strategic plans, the leaders of companies that respond quickly to changes in competition or other environmental changes often simply set a direction. They want to stay flexible, listen to their customers, and seize opportunities, expected or not.

Decision making means choosing among two or more alternatives, and is at the heart of all management functions. The rational decision making model is often followed to make intelligent, logical and well-founded decisions. Its six steps are as follows:

  • Define the situation
  • Describe and collect needed information
  • Develop alternatives
  • Decide which alternative is best
  • Do what is indicated (begin implementation)
  • Determine whether the decision was a good one, and follow up

Sometimes, however, managers have to make decisions on the spot and can’t go through this six step process. Problem solving is less forman than decision making and usually calls for quicker action to resolve everyday issues. Problem solving techniques include brainstorming, coming up with as many solutions as possible in a short period of time with no censoring of ideas, and PMI, listing all of the pluses for a solution in one column, all the minuses in another, and the implications in a third, with the goal to make sure the pluses exceed the minuses. Both decision making and problem solving require managers to use their best judgment.

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Business Basics 106 – Management and Leadership

Part 1 – The Manager

In the past, managers were called bosses and did their jobs by telling people what to do, watching over them to ensure they did it, and reprimanding those who did not. While some managers still behave this way, the role has evolved. Most managers today are more collaborative, emphasizing teams and team building. They tend to guide, train, support, motivate and coach employees rather than tell them what to do. They use cooperation rather than order giving and discipline. They give their employees enough independence to make their own informed decisions about how best to get the job done.

Managers must practice the art of getting things done through organizational resources, including workers, financial resources and equipment. They communicate strategy, help employees prioritize projects, facilitate cooperation and ensure that processes and systems align with company goals. Managers have evolved from years past. They are skilled communicators, team players, planners, organizers, motivators and leaders.

Management is the process used to accomplish organizational goals through planning, organizing, leading and controlling people and other organizational resources. These four functions are the heart of management.

Planning includes anticipating trends and determining the best strategies and tactics to achieve organizational goals and objectives. Planning is a key management function because accomplishing the other functions depends heavily on having a good plan. Organizing is a management function that includes designing the structure of the organization and creating conditions and systems in which everyone and everything work together to achieve the organization’s goals and objectives. Organizations must remain flexible and adaptable to meet changing customer needs, and it is the manager’s job to follow these trends and shift accordingly. Leading means creating a vision for the organization and communicating, guiding, training, coaching and motivating others to achieve goals and objectives in a timely manner. The trend is to empower employees by giving them freedom to become self-directed and self-motivated. Controlling is a management function that establishes clear standards to determine whether an organization is progressing toward its goals and objectives, rewarding people for a job well done and taking corrective action as appropriate.

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Business Basics 105 – Starting a Small Business

The Small Business Administration advises that one of the major causes of failure of small businesses is poor management. This could mean poor planning, cash flow management, recordkeeping, inventory control, promotion or employee relations, among others. It likely also includes poor capitalization. There are several key steps for starting and managing a small business, as follows:

You may come up with an idea and begin discussing it with your friends, family, professors, and other business people. At this stage you need a business plan, which is a detailed written statement describing the nature of the business, the target market, the advantages the business will have over its competition, and your (the owner’s) resources and qualifications. The business plan forces you to be quite specific about the products or services you intend to offer. It requires that you analyze the competition, calculate how much money you will need to start, and cover other details of the operation. It is also a must document for talking with banks and other investors.

A good business plan takes time to write, but you’ve got just five minutes, in the executive summary, to convince your readers not to throw it away. Next comes an outline of the comprehensive business plan. Remember, there’s no such thing as a perfect business plan, it will and should change as the business changes and grows. Getting the business plan into the right hands, finding funding sources, requires research. The time and effort you invest before starting your business will pay off many times later. Remember, the big pay off is survival.

The next step is financing your business. After your personal savings, friends and family are often the next source. Additional sources of funding can include banks and other financial institutions, angels, crowdfunding and venture capitalists, the Small Business Administration (SBA), the Small Business Investment Company (SBIC) Program, and a Small Business Development Center (SBDC). Once you have planned and financed your business, it’s time to get it up and running.

Step three is knowing your customers/market, which consists of people with unsatisfied wants and needs who have both the resources and willingness to buy. After identifying the market and its needs, fill those needs. Offer top quality at fair prices with great service. Not only do you want to get customers, but to keep them as well. Small businesses have the ability to know their customers better and adapt quickly to their ever changing needs. To best know your customers, LISTEN. Don’t let yourself get in the way of changing to meet the wants and needs of the customers.

As your business grows it becomes more difficult to oversee every detail, thus you must hire, train and motivate employees. Yet it is difficult to find good employees when you offer less money, skimpier benefits and less room for advancement than larger companies do. This is one of the reasons that good employee relations are a key to small business management. Employees of small companies tend to be more satisfied with their jobs than their counterparts in big companies because they find their jobs more challenging, their ideas more accepted, and their bosses more respectful. Employees who feel they are part of the team work to make that team, and thus the company, successful. Don’t fall into the trap of promoting employees simply because they have been with you the longest, or are family members, but aren’t qualified to serve as managers. You need to delegate to the most qualified individual(s). You may be best served to fire those who don’t meet your requirements, regardless of their tenure and regardless of family relations, so that you can recruit and groom employees for management positions who you can rely on as you delegate more of your responsibilities.

Small business owners often say the most important step in starting and managing their business was in accounting. Setting up an effective accounting system early will save you a lot of headaches later. Accurate record-keeping allows you to follow daily sales, expenses and profits, and also helps with inventory control, customer records and payroll.

Many businesses fail as a result of poor accounting practices leading to costly mistakes. A good accountant can help you with tax planning, financial forecasting, choosing sources of financing, and writing requests for funds. The key is to find an accountant experienced with small businesses. This critical advisor can help you to not only survive, but also to thrive.

Small business owners have learned, often the hard way, that they need outside advisors, especially early in the process. This includes legal, tax and accounting advice, and also marketing, finance and other areas. A necessary and invaluable advisor is a competent, experienced attorney who knows and understands small businesses. We can help with leases, contracts, operating agreements and protection against liabilities. A marketing advisor is also key and should help you make your marketing decisions long before you introduce your product or open your store. Market research can help you determine where to locate, who to select as your target market, and an effective strategy to reach it. Experience with small business marketing can be enhanced if this advisor also has experience with building websites and using social media. Two more critical advisors are a finance expert and an insurance agent. The finance guru can help you design a business plan and provide valuable financial advice, and an insurance agent will explain the risks associated with a small business, and in your industry, and how to cover them most efficiently with insurance and other means. And finally, don’t forget to seek out other small business owners and discuss and exchange ideas.

Both BauerGriffith attorneys and BG Consulting Group consultants serve as trusted advisors. Let us help you get your business off the ground.

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Business Basics 104

Part 4 – Corporate Expansion

A merger is when two companies combine into one, whereas an acquisition is one company purchasing the assets, or assets and liabilities, of another company.

A merger might be of two companies operating in different parts of related businesses, putting their businesses together for an increased percentage of the supply chain. Or it might be two companies in the same industry combining in order to achieve economies of scale, or dominance in the market. Or it might be two companies in unrelated industries combining to diversify their business operations and investments.

Sometimes, with or without the owners’ approval, employees, management or a group of private investors will attempt to buy out the stockholders of a company, typically by borrowing the funds needed for such purchase. This is known as a leveraged buyout and, if successful, the employees, managers or investors, as applicable, become the new owners of the company.

The franchise is a specialized type of business operation. Some people are uncomfortable starting a business from scratch, preferring to join a business with a proven track record. A franchise agreement is an arrangement whereby someone with a good idea for a business, the franchisor, sells the rights to use the business’s name and sell its products or services to another, the franchisee, in a given territory. The franchisee can structure her business in any of the ways discussed previously, a sole proprietorship, a partnership or a corporation.

Advantages of a franchise include management and marketing assistance, personal ownership, nationally recognized name, financial advice and assistance, and lower failure rate. A franchisee usually has a greater chance of succeeding than a non-franchise start-up because she has an established product or service to sell, help choosing her phsyical location, and assistance in all phases of promotion and operation. Franchisors typically provide extensive training to their franchisees, so it is like having your own store but with consultants whenever you need them. Some franchisors also help with local marketing efforts rather than having its franchisees rely solely on national advertising. In addition, franchisees have a built in network of other franchisees with whom they can share their experiences and discuss similar problems they may be facing.

A franchise business is still your business , you are still your own boss, but you must follow more rules, regulations and procedures as required by the franchisor. With an established franchise, you get instant recognition and support from a product group with established customers nationally, or even internationally. Franchisees often get valuable assistance and advice from their franchisor, including in two of the most problematic areas for small business owners – arranging financing and learning to keep good records.

There are also disadvantages to the franchise model, including large start-up costs, shared profit, management regulation, coattail effects, restrictions on selling, and fraudulent franchisors.

Most franchisors require a fee for rights to the franchise, which might be as low as a few thousand dollars up to over a million dollars. In addition to purchasing the franchise rights, the franchisee typically pays a royalty either as a large share of the profits, or a percentage commission based on sales, not profit. Management assistance often has a way of becoming managerial orders, directives and limitations. Franchisees feeling burdened by the franchisor’s rules and regulations may lose the drive to run their own businesses. However, franchisees will often band together to resolve their grievances with the franchisor rather than wage their battles alone.

Unlike independent businesses, the actions of other franchisees impact each franchisee’s future growth and profitability. If fellow franchisees fail, this coattail effect could force the franchisee out of business even if her franchise has been profitable. In addition, unlike the owner of an independent businesses, who can sell her company to whomever she chooses and on whatever terms, many franchisees face restrictions on the resale of their franchises. Franchisors often insist on approving a new owner to ensure he meets its standards and as a measure of quality control. Many franchisors are small, even obscure companies that prospective franchisees know little about. Although most are honest, beware of franchisors that deliver little to nothing of what they promise.

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Business Basics 104

Part 2 – How to Form a Business, Corporations

You don’t have to be a big business to form a corporation. A corporation, sometimes known as a C corp., is chartered with the secretary of state, and is a unique “person” with separate liability from its owners, known as stockholders. The biggest advantage of forming a corporation is that it limits the stockholders’ liability to the amount they’ve invested; they do not have personal liability for the debts or other problems of the company. A corporation also allows multiple people to share in the ownership, and hopefully the profits, of a business without the necessity of working there or other commitments to the company. Corporations choose whether to offer ownership to outside investors or to remain proviately held.

As previously stated, a corporation offers limited liability for its owners. Additional advantages include the ability to sell stock to raise money from investors; to borrow money from banks or investors; perpetual life, i.e. the company does not terminate with the death of its owner(s); ease of ownership change; ability to offer stock options to attract valuable employees; and to raise money separate from getting investors involved in management of the business.

The corporate heirarchy, from the top down, begins with the owners/stockholders who elect the board of directors, the board hires officers, the officers set the corporate objectives and hire management, the managers supervise the employees, and the employees perform the functions of the business. Thus the owners help dictate who runs the company, but not its day to day operations.

There are also disadvantages to corporate entities, including the initial set up costs; paperwork, both initially and ongoing; double taxation – first the corporation pays tax on its income before any is distributed to stockholders as dividends, then the stockholders pay income taxes on the dividends they receive; two tax returns, a corporate return and individual return; once started a corporation is hard to end; and finally the potential for conflict between directors and management.

While we are all aware of many large corporations, IBM, AT&T, Apple, many corporations are small business owners who typically do not issue stock to outsiders, focusing more on limited liability and possible tax benefits.

An S corp. is a regular corporation that elects to be taxed like a partnership, thus avoiding double taxation. Profits of an S corp. are taxed only as the personal income of the shareholders. In order to qualify to make this election, the company cannot have more than 100 shareholders, must have shareholders that are individuals or estates, and who are citizens or permanent residents of the United States, must have only one class of stock, and must derive no more than 25% of its income from passive sources. If an S corp. loses its status as such, it must wait five years to make another S election.

Finally, there’s an interesting hybrid known as a limited liability company. This entity does not have the formal requirements of a C corp. and has the tax advantages of an S corp. It offers limited liability to its members; is taxed as a partnership, though it can choose to be taxed as a corporation; does not have the same ownership restrictions as an S corp.; has flexible distribution of profits and losses, which do not have to be distributed in proportion to the money each person invests, but is by agreement of the members; anddoes not have to comply with the ongoing operating requirements of a corporation, such as annual meetings, minutes and written resolutions, though an operating agreement is a good document to put in place.

LLCs have disadvantages as well, including limitations on transferabiity of membership interests; a limited life span, which could be triggered by the death of a member; inability to deduct fringe benefits, thus few incentives available for employees; although less paperwork than a corporation, more than a sole proprietorship; and members must pay self employment taxes on their profits.

Determining the appropriate form for your business typically involves input from both a lawyer and an accountant to ensure you create the best opportunity for you and your company.

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Business Basics 104

Part 1 – How to Form a Business, Sole Proprietorship and Partnership

The form of your business can have a tremendous impact on its long-term success. The three major forms of business ownership are sole proprietorships, partnerships and corporations. Each has pros and cons.

A sole proprietorship is a business owned and usually managed by one person. When two or more people legally agree to become co-owners of a business, it’s called a partnership. While these two forms of organization are relatively easy to form, there are advantages to creating an entity that is distinct from its owners. A corporation is a separate legal entity with authority to act and have liability apart from its owners. There are several options for a corporate entity, the most popular being the limited liability company, or LLC.

Sole Proprietorship

This is the easiest to start and end, all you need to do is just start or stop, as the case may be. You may need a license from your local government, but this is typically a simple task. All of the sole proprietorship’s profits are taxed as personal income of the owner, and the owner pays normal income tax on that money. However, the owners do have to pay the self-employment tax (social security and medicare), and have to estimate their taxes and make quarterly payments to the government to avoid penalties.

On the down side, a sole proprietorship offers no protection to its owner in terms of liability. In fact, the sole proprietor has unlimited liability, including the risk of personal losses. The sole proprietor and business are treated as one, so any debts or damages incurred by the business are those of the owner. This is a serious risk to be discussed with a lawyer, accountant, insurance agent and others.

Partnership

A partnership is a legal form of business with two or more owners. It can be a general partnership, a limited partnership or a limited liability partnership, and while not always required, it is wise to put the relationship in writing. In a general partnership, all owners share in operating the business and assuming liability for the business’s debts. A limited partnership has one or more general partners and one or more limited partners. The general partner is an owner with unlimited liabiity and is active in managing the company. Every general partnership has to have at least one general partner. A limited partner is an owner who invests money in the business but does not have any management responsibility or liability for losses beyond her investment. Limited liability means that her liability for the company’s debts is limited to the amount she put into the company, and her personal assets are not at risk. The limited liability partnership (LLP) was created to limit the disadvantage of unlimited liability. It limits the partners’ risk of losing their personal assets to the outcomes of their own acts and omissions as well as those they supervise. A limited partner in an LLP can operate without fear that one of his partners might commit an act of malpractice resulting in a judgment that relieves him of his personal assets. Many states, however, do not extend this personal protection to contractual liabilities such as bank loans, leases or business debt of the LLP.

It may be easier to own and mange a business with one or more partner. While you might excel at marketing, your partner might be skilled at accounting. When two or more people pool their money and credit, paying the rent, utilities and other bills becomes easier. It is also easier to manage the day-to-day affairs of the business when you have partners. Having one or more partner can free up time for you away from the business, as well as provide different skills and perspectives. Partnerships tend to survive longer than sole proprietorships, and like a sole prop, the profits of parnerships are taxed as personal income of the owners.

On the flip side, conflict and tension are always possible when two or more people are involved. In addition, sharing risk also means sharing profits. Plus, each general partner is liable for the debts of the business, regardless of who caused the problem. A general partner is liable for her partner’s mistakes as well as her own so, like a sole prop, her personal assets are at risk. A partnership is also more difficult to terminate than the sole prop. Although you can quit, questions remain about who gets what and what happens next.