Five Common Small Business Mistakes

Small Business Mistakes

Starting a small business or growing into a medium-sized business is an exciting opportunity. In the midst of the hopes and dreams of a brighter, more profitable future, addressing legal needs and planning for potential legal problems can take a back seat. Most business owners think lawyers are too expensive. Cheap alternatives and “this should be good enough” often become convenient excuses not to address real legal needs. Often a desperate business owner comes to my office wanting immediate help with a pressing problem because he or she did not take thought for legal needs up front. Only then, in their hour of need, do they see what they should have seen from the beginning. Born out of my experience in servicing these clients, I offer the following list of top five mistakes small and medium sized businesses make with respect to taking care of their legal needs.




By now many people are familiar with the fact that a single sheet of paper filed with the secretary of state, known as a certificate of organization, is the necessary step in forming a legal entity. The LLC form has become very popular and practical as an entity choice for almost all small businesses. A small business with multiple owners needs an operating agreement. An operating agreement does many things, but primarily it defines the relationship among the owners of the business and establishes fundamental issues such as control, decision making, ownership, and entrance and exist from the business. It is essential that business owners have this agreement in place or they will find down the road that what they thought was their handshake agreement is, in fact, something very different.


A small  business does not have the luxury of having a ready market to sell its shares like a publicly traded company does. Additionally, securities regulations make selling shares of a small or medium-sized business even more difficult. A buy/sell agreement resolves both of these problems by providing a way for a business owner to sell his or her interest in a business in the event of death or other significant circumstances. A buy/sell agreement is a must for a business with multiple owners.


Intellectual Property is one of the most important assets of your business, and yet is the most oft-neglected. Trademarks, service marks, trade secrets, and confidential information and documents are the core of your business and valuable assets. Small business owners can take steps to protect these assets. Registering a trademark or service mark with the United States Patent and Trademark Office provides significant value. Non-disclosure and non-solicitation agreements also protect your trade secret and confidential information. These agreements provide significant protection. When key employees leave your business, you can know that you have protection.


For many years in Idaho, enforcement of non-compete agreements was difficult to predict and courts addressed enforceability solely on the basis of reasonableness. However, in recent years, the legislature has statutorily defined specific enforceable provisions in non-compete agreements for key employees and key independent contractors. Now, much more certainty exists with respect to non-compete agreements and having them in place adds value to your business.


Much information is out on the Internet and many online businesses tout low costs for form contracts. But the average business owner has no way to evaluate fully what they are getting in such a contract. Importantly, most business owners I encounter have very specific needs  that a form contract downloaded off the Internet cannot offer. Consequently, having a lawyer draft a contract to meet the specific needs of your business adds value and protection.