Transferring your business to a partner is a great way to ensure that the reputation and values of your business remain intact. By transferring the business to a partner you’ve worked with, you have the chance to hand off the reins to someone you can rely upon to continue the business in the way you’ve conducted it. Executing the transfer correctly is important to ensure that you get a good value for your interest in the business, and your partner’s interests are protected when you cash out of the business.

The first thing to consider when you’re deciding whether to sell your interest in the business is if that’s the option you really want to take. Once you sell the business, even if you’re able to still work there in some capacity, you won’t have nearly the influence on decisions that you did when you held an ownership stake. Also, if you announce you’re selling the business to a partner and then change your mind, you risk alienating the partner and causing turmoil for your business and your employees. If you’re just feeling somewhat fatigued by running the business, you may want to take a brief sabbatical before announcing your intent to transfer the business to your partner.

If you’re sure that this is the course you want to take, you should first approach your partner and inform him or her of your plans. You’ll need to talk finance, because your partner’s financial health plays a big factor in whether you’ll be able to execute the transfer, as some partners may not be able to afford to buy out your stake. You’ll need to discuss financing for the buy out and a timeline for your departure.

Next, you’ll need to have the business valued. A business valuation takes into account the current and future earnings of the business. You could do the valuation yourself using your records, but it may be advisable to have a financial professional do the valuation, to prevent possible disputes between you and your partner. A business valuator can also help you navigate the tax implications of selling the business. Once the business has been valued, you can calculate the value of your share of the business and begin negotiations with your partner over price.

Chances are that your partner will have to secure some type of financing to purchase your share of the business. How you structure this deal depends on your needs and the wishes of your partner. You may choose to allow your partner to make an upfront payment and then pay you a portion of the business’ profits over a period of time to purchase your interest. You may choose to go the route of a traditional bank loan, with your partner borrowing the amount necessary to purchase the business and paying you all at one time. It’s up to you and your partner to work out a plan that works out best for you both. Having a financial professional or attorney on hand to answer questions and set terms can be extremely helpful.

Once you’ve got the terms of the deal settled, you’ll need to firm up the timeline for your departure and transfer of ownership. This includes giving your partner full access to any company assets, files, property, etc. he or she may not have had access to before. You’ll also need to provide training on any aspects of the business that you’ve handled exclusively on your own up to this point. As the date of your departure draws closer, you’ll need to settle all unfinished business requiring your attention to ensure a smooth handover.

Also, once the time of your departure is settled, you’ll need to inform your employees of the upcoming change to allow them to begin to adapt to the transition. Springing a big change such as this on employees unexpectedly can cause morale problems and disruptions in the operation of your business.

After the business is transferred, you may want to work out a deal with your partner to be retained as a consultant to help insure the post-transition period runs smoothly and to answer questions your partner may have once he or she assumes full control of the business.

A well-planned and well-executed transfer can help you reap the financial benefit of your years of hard work and also ensure that your business legacy remains in trusted hands.

Purchasing new facilities or large equipment is a big step for new and existing small businesses. Each move requires an act of faith on the part of the business owner predicated on the belief that the business will prosper. Making sure that belief becomes a reality could depend on how you fund the purchase.

Here’s a few ways to secure funding for capital projects:

Collateral loans: If your business already owns property, you can put this property up as collateral to secure a loan for your new capital needs. You can also put up other assets as collateral for a loan. For example, if you have a pretty large amount of account receivables, you may be able to put these up as collateral for a loan. If a bank is unwilling to make a loan, you can turn to an asset-based lender, although these lenders are likely to charge higher interest rates.

Refinancing existing loans: If you have a significant amount of equity in your current property, you may be able to refinance your loans to borrow additional money for a new facility. There’s a risk involved, as adverse circumstances that make you unable to pay the loan could put you in risk of losing your current property, but with good management, your equity in your current location can provide an excellent avenue to pursue for financing for new facilities or equipment.

SBA loans: Loans backed by the Small Business Administration can be extremely helpful. Businesses who can obtain SBA backing will have an easier time securing loans because of the reduced risk associated with a government-backed loan. The Obama administration has expanded SBA programs in recent years to help put more capital in the hands of small business owners to expand their businesses.

Many SBA sponsored loans are specifially for business expansion and capital purchases and many are awarded based on certain factors, such as minority ownership of the business or location in an economically disadvantaged area.

Legislation passed in 2010 upped caps on SBA loans and also allowed for the refinancing of loans to help pay for commercial real estate development.

When considering making capital improvements to your business, it’s also worth your while to talk to your accountant or financial advisor concerning any tax advantages you may realize by building new facilities or buying new equipment. Tax law changes from year to year, but lawmakers routinely try to incentivize certain activities by business, and your improvements may be tax-advantaged. Checking with your financial advisor can help you determine if now is the right time from a tax standpoint to make improvements, or if by waiting a few months you can take advantage of pending tax benefits.

Finding financing for your capital needs is key to the growth of your business. By careful evaluation of your options and the advice of a financial professional, you can find an option that’s well-suited to your business.

Contracts are a fundamental part of the business world. Contracts are legally binding and enforceable documents that are made among businesses, employees, suppliers, service providers, the government and others.

Essentially, a contract is an agreement among two or more parties that creates a legal obligation. They can be made orally or in writing, although oral contracts are tougher to litigate in court.  If a contract is breached, the party that breaches the contract can be forced to pay damages, in the form of a specific action or a monetary award.

In business, contracts are used to ensure that agreements are acted on, and to enforce the terms of the agreement. Business contracts typically comprise independent contactor agreements, basic sales contracts, leases and rental agreements, selling or buying a business, franchising, joint ventures, partnerships, non-disclosure agreements, etc.

Elements of a contract

There are four basic elements of a contract: the offer, acceptance, intention to create legal relations and consideration.

The offer and acceptance of a contract are the key principle of the legal concept of contracts. Agreement is composed of an offer to another party that he or she is willing to enter a contract on specified terms. The contract comes into existance when the offeree accepts the contract.

This formula rests on the idea that the contract is formed when the parties involved are all of one mind regarding the terms of the contract. However, legal concepts such as promissary estoppel, misleading conduct, unjust enrichement and misrepresentation can be used as arguments in court that the contract is invalid.

The offer and acceptance do not always have to be verbal or in writing. Implied contracts may exist in some cases when the agreement or its terms have not been expressed in words. For example, a contract may be implied in fact when circumstances give credence to the belief that two parties have come to an agreement even when they have not done so expressly in writing or in an oral contract. For example, a patient going to a therapist has an implied contract with the therapist that he or she will pay a fair price for the services offered. If the patient does not pay, he or she may have breached a contract that has been implied in fact.

A contract in law offers courts the opportunity to remedy situations where unjust enrichment may have occured. For example, if a business were installing swimming pools at several homes along a street and mistakenly installed one at a home that did not request installation, and the homeowner allowed installation knowing that he or she did not order the pool and later refused to pay for the pool, a court could hold that a quasi-contract existed and hold the homeowner liable for the cost of the pool.

Intention to create legal relations is primarily the difference between social obligations and obligations at law. An agreement to give your brother a ride in exchange for gas money is a social obligation, an agreement to transport products for another business that’s made orally or in writing is more likely a legal relationship.

Consideration is basically something of value offered by the offeror that will be exchanged for something else of value from the offeree. For example, a product or service may be exchanged for another product or service or a payment.

Requirements for forming a contract

In order to form a contract, five legal requirements must also be met. Each party must have the capacity to contract. That is, the person signing the contract must have the standing and authority to do so. The purpose of the contract must be lawful. Contracts for unlawful purposes are not valid and are not enforcable in court. The form of the contract must also be legal. The two parties in the contract are required to have the intent to form a legal relationship when they agree to the contract. Lastly, each party involved in the contract must consent to the contract.

Contracts with customers and suppliers

Contracts can come in a variety of forms, non-disclosure agreements concerning business secrets, non-competition agreements with former employees or other businesses, employment contracts with independent contractors, etc. However, the most common contracts small businesses will sign are contracts with customers and suppliers.

The following are some tips for understanding contracts and making sure you don’t get trapped in a contract that is impossible to complete or is extremely disadvantageous:

- Make sure the contract is a specific as possible. The very best contracts for small business are clear and specific and focused on a limited number of issues. Terms of the contract such as number of products or services, delivery times, repeat service, etc. should be very clearly defined and unambiguously spelled out in the contract.

- Clarify all questions. Don’t automatically assume that conditions of the contract are implied. Always clearly answer every possible question the other party may ask in the language of the contract.

- Make sure it’s legal. Contracts for illegal actions are not enforceable. For example, if you sign and agreement to rent a facility to a business, and later find out that city regulations prohibit that business from operating there, your rental agreement may become invalid as a result.

- Read and understand the language of the contract. Make sure you understand all conditions of the contract, especially language detailing dates, services to be rendered, etc.

- Hire an attorney. When drafting your run-of-the mill service agreement, ask for an attorney’s advice on the document to ensure it’s legal and that all your bases are covered. If  your business is negotiating a big contract, it’s also probably worthwhile to have an attorney review it before you sign it.

Workers’ compensation laws and requirements vary from state to state, with some states requiring the coverage if you have just one employee, while others may not require workers’ compensation coverage unless you have four or more employees. States also differ on their rules about coverage for part-time help and rules about reporting injuries.

How it works

Workers compensation insurance operates like any other insurance policy, insured businesses are charged premiums based on the assessed amount of risk their employees pose to the insurer. For example, a low-risk business such as a tax-preparation service will likely have lower premiums than more high-risk fields such as construction or an agricultural business.

Because workers’ comp is state-mandated, states offer government-run insurance programs to help employers obtain coverage, as many insurers may not be willing to offer coverage to small companies with few employees. In North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia, and Wyoming, workers’ compensation policies are available exclusively from state-run agencies.

The amount of workers’ compensation insurance you will have to buy also varies from state to state. In fact, states often use their workers’ comp laws as a competitive edge in luring business to their area as industries are often drawn to states that offer low workers’ compensation insurance requirements.

When purchasing workers’ compensation coverage, your inital rate will typically be based on your payroll and the average rates charged to other businesses in your industry. After maintaining coverage for a few years, insurers will typically begin offering discounts and you also may be able to renegotiate your premiums.

According to small business experts, state-run workers’ compensation insurance programs are often inefficent and costly. Experts recommend that larger companies acquire private coverage, however smaller companies may be forced to use state-run plans as insurance companies may not always extend coverage to companies with small employee pools.

Complying with the rules regarding workers’ compenation insurance is important, as fines, penalties and even criminal action may be levied against business owners who violate the law.

Keeping costs down

Businesses can keep their workers’ compensation insurance costs down by limiting workplace injuries. By following safety regulations set by state and federal authorities, as well as having good safety rules appropriate to your business in place, you can reduce workers’ compensation cost by curtailing the number of on-the-job injuries that occur at your business.

Having a competent HR staff can help you greatly in keeping workers’ comp costs down. Having a good corporate infrastructure and adequate staff to agressively manage workers’ comp claims can help keep insurance premiums down and lower the cost of resolving claims.

Also, if you’re in a state that offers private insurance solutions for workers’ comp insurance, you can get a better deal by diligently shopping around before purchasing a workers’ comp policy.

The need to make sure your legal bases are covered begin before you even make your first sale. When establishing your business, you’ll likely need to establish a legal structure for it, choosing to be a sole proprietorship, partnership, limited liability corporation or corporation. Each type of legal structure has advantages and disadvantages with regard to tax and other issues, so you should research these choices carefully before choosing one.

It’s also important to ensure that your new business does not infringe upon the intellectual property of others. Before starting your business, make sure you or your partners don’t have non-compete agreements with other companies that could hinder your new business, check copyrights and trademarks to ensure you’re not infringing upon an existing business’ protected material and also make sure that no other legal agreements exist that could expose you to legal action if you start your new business.

Personal injury suits make up a large portion of the legal actions taken against small businesses. Making sure your business place is free of hazards that could give rise to lawsuits is important to heading off these legal actions. Make sure your business complies with all state, local and federal safety standards.

Contract suits are also a potential legal hazard to businesses. Small business owners should be cautious when entering into contracts with other businesses or customers, making sure to understand all aspects of the contract and having a realistic expectation of being able to abide by the terms of the contract before signing.

Licensing and permitting are another legal area small businesses need to be aware of. Small business owners should work to ensure that their small businesses comply with zoning ordinances, as well as licensing and permitting laws.

Employee lawsuits can also be burdensome for businesses. To avoid suits, be sure to have policies regarding employee hiring and termination, as well as conduct and sexual harassment in place and make sure these policies are enforced.

One of the best ways small businesses can make sure they’re on solid legal ground is to consult with an attorney on legal issues. For routine matters, a copy of Black’s Law Dictionary can also be helpful.

For businesses that use vehicles as part of their business, purchasing adequate auto insurance coverage is necessary to repair or replace vehicles damaged in the course of your business, or to pay for claims that may arise from parties injured in an accident with a company vehicle.

Even if you’re a one-person business, if you’re using your vehicle for business purposes, you may need to purchase commercial auto insurance as your auto insurer may not provide coverage for a vehicle used for business purposes.

Commercial automobile insurance is necessary for a wide variety of businesses. If you’re involved in a business that makes deliveries or use company vehicles for frequent business trips or visits to a client’s home or place of business, you’ll likely need commercial auto insurance to protect your vehicle and your business.

What Commerical Auto Insurance Covers

Commercial auto polices can provide the standard collision, comprehensive, uninsured/underinsured coverages that traditional auto insurance policies provide, but they also provide other coverages specific to commercial policies, such as:

Employer’s non-ownership liability – This provides coverage to employees running errands or performing other tasks for employers on non-company vehicles.

Hired auto – If your business needs to rent additional automobiles for a big job or project that requires vehicles other than your business’ existing fleet, this provision in your commercial auto policy will provide coverage for these vehicles.

Costs and Other Considerations

When choosing to purchase commercial auto insurance, you’ll need to consider a number of factors, such as how many employees will be using the company vehicle, the number of vehicles you’ll need to insure and the amount of coverage and deductible thresholds you want for the policy.

When quoting a rate for your business, insurers will examine a number of factors, including the number of employees and vehicles you want to insure and the nature of

your business. The riskier a prospect you seem to them, the more the insurer will charge you for insurance.

Many insurers have specific rules about coverage, including rules about employees driving records and the proper use of business vehicles. To ensure that you get a competitive rate for coverage, and to make sure that coverage isn’t denied in an accident because you’ve run afoul of the rules, it’s important to study your business auto insurance policy carefully and make sure that you and your employees comply with your insurer’s rules.

Coverage amounts for commercial auto insurance policies are typically higher than that of personal auto insurance. Most small businesses carry at least $500,000 in coverage, but amounts of $1 million or more are also common.

Business auto insurance is tax deductible only if you use the actual expense model for deducting vehicle expenses. If you deduct mileage, you may not deduct insurance premiums from your taxes.

Don’t rely on individual insurance

If you’re a one-man band and use your vehicle for business purposes, don’t automatically assume your individual insurance policy will provide coverage for your vehicle if it is damaged in the course of your business activities. Individual policies are crafted to provide coverage for personal use, not business use, as they are evaluated by most insurers as separate and distinct risks. If you’re using your personal vehicle for business uses, your insurer may cancel the coverage if it gets wind of your activities or it may deny claims, even if the claim arises from a non-business activity.

If you’re using your own vehicle for business, check your insurance policy to see if personal use is excluded from coverage. If it is, you’ll probably want to inquire into getting a commercial policy to make sure you’re covered in the event of an accident.

Saving on commercial auto insurance

If you’re interested in saving on commercial auto insurance, there are a few proactive measures you can take to reduce your bill, including:

- Limiting the number of employees who are authorized to drive company vehicles. The fewer people driving your vehicles, the less risk you pose your insurer. As a result, your insurer will charge you lower premiums.

- Hiring employees who are experienced drivers and providing training for your drivers. If your drivers are operating big trucks or other specialized vehicles, hiring drivers experienced in the use of those vehicles can score you a substantial discount. Some insurers also offer discounts for employers who require their employees to take driver’s safety and other driving training courses.

- Bundling with other policies. Many insurers provide discounts for customers who also purchase their commercial general liability and other business insurance from them. By buying an insurance package from one insurer, you may achieve substantial savings. Small business owners may also realize a benefit from insuring their personal and business vehicles with the same insurer.

- Reducing coverage limits. Most states have minimum coverage limits for vehicles. For example, in Alabama, the minimum liability coverage amounts a vehicle owner must have is $25,000 in bodily injury coverage for one victim per accident, $50,000 for multiple victims per accident and $25,000 in property damage coverage per accident. By reducing your coverage amounts down to the minimum, you’ll reduce your premium, but you will also reduce the amount of coverage your insurer will have to provide if you’re company vehicles are involved in an auto accident.

- Raising deductibles. By increasing your deductibles, you’ll save on monthly premiums but will pay a higher price should one of your vehicles get involved in an automobile accident. While it may be wise to raise the deductibles somewhat, don’t raise them to a potentially ruinous point.

- Shopping around. It’s a free market. Insurance rates may vary greatly from insurer to insurer. By shopping around, or hiring an insurance broker, you may be able to find a great deal.

By properly insuring your business vehicles, you protect a valuable asset to your business. Exercising a few prudent shopping and policy management suggestions can help make small business auto insurance coverage affordable.

If you’re just running a part-time, home-based small business (for example, a home-based sewing business), you may not need to purchase business insurance. However, if your small business expands, or if you’re running a home-based business that provides professional advice, you may need to purchase business insurance that provides coverage from potentially expensive claims that may arise. Even if your business never puts a foot wrong, you may at some point be hit with a frivolous lawsuit that can be expensive to defend.

Most insurance policies provide coverage of not just damage awards, but legal costs that arise from lawsuits. Remember, even if you obtain a favorable judgment, you may be stuck with large legal bills from the costs of your defense, making insurance a good investment.

Most small businesses, particularly stores and service-based businesses, purchase a commercial general liability policy. These policies provide coverage for bodily injury, property damage, personal injury or advertising injury that may occur at your business or at a client’s site. The policy also obliges the insurer to defend the client in court, indemnify the client from damage awards up to policy limits, to settle reasonable claims. Failure to meet these three requirements can lead to a bad faith judgment against the insurer.

Commercial general liability policies allow businesses to continue to operate while facing legal action, and prevents lawsuits from financially breaking businesses.

A good example of a covered claim under a CGL policy would be a claim arising from a client being injured at a store. Unless the circumstances of the injury are specifically excluded from coverage under the policy, the insurer will be obliged to defend the insured against the claim in court, settle the claim if there’s a clear claim or indemnify the insured up to policy limits if the case goes to trial and a jury or judge finds in favor of the plaintiff.

CGL policies typically cost about $500 per year, but prices can vary depending on where your business is located, how much coverage you buy, the nature of your business and the track record of its management. For example, management that has faced frequent lawsuits in the past may pay a higher rate than management with a relatively clean record.

Commercial general liability policies provide coverage for many of the pitfalls a small business can run into but not all. There are a variety of other insurance policies that can help small businesses reduce risk.

- Theft insurance is a good policy for stores and businesses with significant physical inventory or assets to have. Theft insurance can indemnify insureds from losses that occur from outside theft or employee theft.

- Business auto insurance provides coverage to business owners from property damage or injury that may occur as a result of the use of vehicles owned by the business. Pretty much any vehicles, including cars, trucks, tractors or forklifts owned by your business needs to be covered. You’ll likely want to purchase collision and comprehensive coverage and also buy uninsured driver coverage as more than 10 percent of all drivers are uninsured, and an accident with an uninsured driver may leave you with a large repair bill if your coverage doesn’t pay for the accident.

- Property coverage will provide your business with coverage for damages that may occur to your business’ real property and the contents inside the business. The good thing about this coverage is that it will pay for replacement costs, not the depreciated value of your property.

An example of property coverage in action would be providing coverage for damage to your business property after a fire. Your property coverage, unless an exclusion exists, would cover losses that resulted from the fire.

- Employers liability coverage provides protection to the business owner from employee-brought suits, such as suits for discrimination, wrongful termination, sexual harassment, etc. Businesses that have a significant number of employees should purchase this coverage, as these suits can be costly and are typically not covered under CGL policies.

- Life insurance policies for key personnel provide benefits to the business should the owner or a key employee die. This provides funds for keeping the business open while inheritance or other issues caused by the death of a key player die. Life insurance policies are advisable for sole proprietor businesses, or partnerships where one partner would need to buy out the other partner’s stake in the business in the event of a death.

- Business interruption coverage provides coverage of interruption of business due to a covered event such as a natural disaster or terrorist attack. This provides business owners with income while their businesses are closed because of a covered occurrence. An example would be the aftermath of a major hurricane which left a business destroyed or inoperable. A business interruption policy would provide monetary compensation to the business owner to make up for lost income.

- Umbrella coverage provides additional coverage for claims that exceed the coverage amounts of underlying insurance policies. Consider it a firewall in case a suit or series of suits or other damages exceed the coverage amounts of your CGL or other policies.

Seek Professional Help

If you’re a first-time business owner, it may be worthwhile to seek the advice of an insurance professional when you shop for insurance. An insurance broker can help evaluate the insurance needs of your business and suggest options. Unlike agents, brokers are not bound to specific insurers, and can help you shop around to find the best policies at the best prices.

Things To Remember

Many business owners purchase insurance policies and never review them again. This is a mistake. Policies have set periods and exclusions that could leave you exposed to risk. Periodically review your insurance policies to make sure they’re still in force and to ensure that they provide coverage for all reasonable risks that your business may face.

It’s also a good idea to be aware of your policy limits. Most policies provide coverage only to a certain dollar amount, so if upon review your policy limits seem likely to be inadequate to cover possible damages, you may want to increase your coverage. Also be sure to understand whether the limits to coverage are lifetime limits or are per year limits. It’s recommended that most businesses have at least a $1 million limit CGL policy.

Permits and regulations

Even if you’re just running a small, home-based business, you may need to get a home occupation permit before starting operations. If your home is located in an area zoned for residential use only, the type of buisness activities you’re allowed to conduct may be severely limited. Restrictions may be in place regarding what you can store at your home and how much traffic can go in and out of your residence.

Professions that are most likely to be allowed to operate home-based businesses in residential areas include attorneys, accountants, music instructors, insurance salesmen, architects and similar occupations. Retailers, repair shops, manufacturers, restaurants and bars are typically not allowed to operate from home-based businesses.

Some areas may ban home businesses altogether. Mixed-use neighborhoods offer more business options.

Even if the law allows you to operate a home business, private agreements such as neighborhood covenants, or rental leases may forbid businesses from being operated from your home.

To find out about local zoning laws, visit your municipality’s planning department or take a look at its website. Ask questions about home businesses and their legality in your neighborhood and also pick up any necessary permit application.

If your local zoning laws do allow your home-based business to operate in your neighborhood, you still may face some restrictions, such as rules dictating that only residents of your home may be employees, rules limiting traffic in and out of your home, rules concerning the percentage of your home’s area allowed to operate as a business, signs outside your home advertising the business and parking restrictions.

Gray areas and dealing with neighbors

If you’re operating in a potential gray area with regard to your neighborhood’s zoning laws, it’s best to keep a low profile. Keep traffic and noise to a minimum. Most zoning enforcement actions are complaint-driven, so if you’re not bothering your neighbors, chances are you won’t attract a zoning complaint.

Prior to opening up shop, you may want to let neighbors know that you’re going to operate a small-homebased business, and assure them that your business won’t interfere with their quality of life. Communicating with your neighbors about your plans may help head off any potential conflicts.

Most small businesses don’t last after the first generation of owners die. If you’re starting a family business, or if you have a partner and want the business to be able to continue after you or your partner die, purchasing life insurance can be extremely helpful.

For example, let’s say you and two partners own a business and each of you has a family. Now let’s say one of the partners dies unexpectedly, and the other two partners want to purchase the deceased partner’s interest in the business from his or her spouse. Having a life insurance policy on each partner worth the value of each partner’s share in the business will help surviving partners purchase the deceased partner’s share without undue financial hardship on the business or the surviving partners’ personal finances.

Here’s another example of how life insurance can be beneficial to small businesses. Let’s say your small business has a key employee who performs tasks that require unique training or experience. Now let’s say that employee dies. A life insurance policy on that employee can help provide your business with the money it needs to stay afloat if the employee dies and projects he or she were working on must be outsourced to other businesses and while you search for a replacement.

Prior to purchasing a life insurance policy on proprietors, partners or key employees, it is important to value the worth of your business.

Valuing your business

Business valuations are made based on the current value of cash flows the business is expected to have in the future. Regardless of what method you use to value your business, the basic premise remains your business’ ability to generate cash flow.

Two of the most commonly used business valuation models are the cash flow multiple method and the price earnings multiple method.

The Cash Flow Multiple Method works well for most small businesses and is nicknamed the Main Street approach. In the cash flow multiple method, a multiple is applied to the expected adjusted cash flow stream of a company. The multiple usually ranges between 3 and 6, and is usually determined by an evaluation of a company’s potential for risk and growth.

Historical cash flow data is usually the basis of calculating the business’ future cash flow stream. For example, if your business has had EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of about $1 million, and a multiple of 3 is applied, the business’ value would be $3 million.

The Price Earnings Multiple Method is better suited for larger businesses, such as publicly traded companies. In this method, the business valuation is determined by taking the net after tax profit of a business and applying a market driven factor as a multiplier. For example, a numerical value may be assigned to high growth rates, financial resources, strong market position, etc. As a result, most businesses using this method may have multiples of 10 or higher.

Once you have a good idea how much your business is worth, or is likely to be worth, you should purchase a life insurance policy for you and your partners eqivalent to each partners’ share of the value. For life insurance policies for valued employees, you and your financial advisor may want to use a policy based off the business’ value or another calculation regarding that employee’s contribution to the business.

The benefit of purchasing life insurance policies for partners is that it can head off the succession squabbles that often kill small businesses. By immediately having the wherewithal to buy out a partner’s share in the business, you can avoid costly court wrangles with heirs that can be harmful to your personal finances or to the ongoing operation of your business.

Even single proprietor businesses can benefit from a life insurance policy for the proprietor, as it can provide some financial cushion for your heirs as they learn how to run the business or allow heirs who are better suited to run the business to buy out the interest of other heirs.

Succession planning isn’t something you should put off, as the unexpected can happen at any time. To get a better idea of the options most appropriate for your company, contact a financial services professional and a life insurance agent or broker.

Intellectual property essentially covers the patents, trademarks, copyright and trade secrets of a person or business. If your business is based on an invented product, or deals with providing original content such as articles, music or images, protecting your intellectual property is important to keeping someone else from ripping off your idea and making a killing off your gold mine. Even taking steps to protect the name or logo of your company is important, as there is a considerable amount of money to be made from selling the image of a popular company.

Theft of intellectual property is a huge problem for businesses. According to national and international law enforcement organizations such as the FBI and Interpol,  counterfeit or pirated goods make up about 7 to 8 percent – or about $512 billion – of all world trade. U.S. businesses are estimated to take losses of up to $250 billion each year as a result of intellectual property theft.  The economic impact of this theft is estimated to cost 750,000 jobs each year.

According to business experts, manufacturers, consumer goods makers, technology companies and pharmaceutical companies are among the industries hardest hit by intellectual property theft.

Business experts agree that intellectual property theft has become a major problem for all businesses, and may be particularly bad for small businesses because they may not have the expertise or resources to protect their intellectual property that larger concerns have.

For example, according to the United States Patent and Trademark Office, less than one-fifth of small businesses in the U.S. that do business abroad are aware that then need to also file for intellectual property protection in the countries where they do business to safeguard their IP.

Protections Available

There are various types of intellectual property protection available to the various types of intellectual property. Patents cover, “new or useful processes, machines, manufactures, or compositions of matter, or any new and useful improvement thereof.” In short, if you create something, devise a method of making something or create a machine that makes something, you can seek patent protection from the United States Patent and Trademark Office.

To protect words, names, sounds, symbols or colors that give your products or services a distinct identity (such as your company logo), you need a trademark, which is also available from the United States Patent and Trademark Office.

For written works, music, movies, artistic or dramatic works, business owners should secure a copyright, which is available from the U.S. Copyright Office.

Owning a copyright, trademark or patent gives you legal rights should a competitor produce a product that you believe copies your product or logo or infringes on your rights.

Most patents last for 20 years after they are filed, but periodic fees must be paid to keep them in force over this time period. After the 20 years is up, the patent expires and cannot be renewed, except in certain rare cases. Trademarks can have an indefinite life, so long as it is used in business and its owner defends it against infringement. Copyrights generally last for 70 years after the death of their owner, while the copyright of works for hire last 90 to 125 years.

How Intellectual Property Laws Are Enforced

Intellectual property law, by and large, is a federal matter, and federal courts typically handle all patent and copyright-related suits, as well as trademark and unfair competition cases. Federal law provides patent, copyright and trademark holders with the option of pursuing civil suits against those who may have infringed upon their rights. These cases are filed in federal district court.

Some intellectual property offenses may also carry criminal penalties in state and federal law. The majority of these prosecutions occur as a result of a copyright, patent or trademark holder informing law enforcement of a possible criminal violation of intellectual property law. Agencies investigating these claims are usually the FBI, the U.S. Attorney’s Office, the U.S. Immigration and Customs Enforcement office or the U.S. Department of Justice. Large-scale pirating operations, such as the manufacture and sale of large amounts of pirated DVDS, is an example of a potential criminal intellectual property case.

Protecting IP Overseas

If your venture plans on doing business overseas, you may need to take steps to protect your intellectual property in the nations where you’re doing business. You can find out more about filing patents overseas at the World Intellectual Property website.

If you’d like to protect a patent in many countries, you should consider filing under the Patent Cooperation Treaty, a 126-nation accord which allows businesses and individuals to file patents in each of the 126 nations. This can be a lengthy process, however, as each of the countries must examine your application.

Special Programs for Small Businesses

The U.S. Patents and Trademarks office has a variety of programs intended to help small businesses and individuals obtain patents and trademarks.

Inventors who qualify as a small entity, that is an individual inventor or small business, can get up to half off on the cost of filing a patent or trademark. Also, the USPTO has several online tutorials aimed at helping small businesses file applications and provides a variety of resources to help all customers research patents and trademarks to ensure their proposed patent or trademark does not infringe and existing patent or trademark.

Although it can be costly, small businesses may want to consider hiring an attorney specializing in patents and intellectual property to help file patents and other paperwork, as they have more experience and can help craft a more airtight patent or trademark for your company.

The intellectual property of small businesses are worth protecting from counterfeiters and pirates. Filing the appropriate patent, trademark or copyright can protect your investment and guard against infringement by unscrupulous competitors or unintentional infringement.