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By Sonny Chastain

We have become accustomed to having regular check-ups with our doctors. The doctor will analyze our current physical condition, including heart rate, blood pressure, cholesterol level, lung condition or otherwise. The doctor may order a treadmill test or a screening for a particular function. The doctor will also compare current test results to any prior tests to determine any changes to the body and mind resulting from the stress of our daily lives. The doctor considers any symptoms to determine whether risks associated with developing any particular disease can be reduced through diet, exercise, medication or other intervention. The goal is to stay healthy and fit. While the probing, pricking, injecting, and waiting are all uncomfortable, these activities are certainly better than a stay in the hospital or worse.

Our businesses should undergo a similar checkup or audit – to analyze risks that are connected to the business. Vital signs of the business should be examined to determine the current state of affairs. Similar to the condition of a body, after the business is formed, business owners are often just too busy competing in the marketplace to “take a physical.” The important and urgent items such as payroll, inventory, and sales are the immediate focus. Matters which are important, but non-urgent, including the “vital signs of the business,” get placed on the back burner. Business owners just do not take the time to pay attention to signs or symptoms. No different than a frog that dies because it does not realize the water is heating up, business owners do not pay attention to growth, market changes, etc., which have caused their own “water to heat up.”

Too many times the legal issues in a business are not noticed until after the business has had a “heart attack.” Steps should be taken to proactively consider areas in which the business may be vulnerable. Remedying problems which may be identified in any check-up are much easier to address before a legal issue arises. A legal check-up should be customized for the particular business, but should typically include: (1) review of the By-Laws or Operating Agreement to determine if they are current and appropriately govern the operation of the business; (2) review of insurance coverage to determine whether operational risks of the business are covered or not; (3) identification of any trade secrets and consideration of whether reasonable steps are really being taken to keep them confidential; (4) review of logos, slogans, or other indicia utilized as a trademark to identify the business and whether they are protected; (5) analyze whether the business owns a copyright in or has a license for any works that are integral to operations, like software, publications, drawings, etc.; (6) review of employee handbook and consideration of whether the business is operating consistent with it; and (7) analysis of whether certain employees should have to execute a valid non-compete or non-solicitation agreement. Similar to action items for the body like exercise, diet, or medication, intervention or remedies can be considered for any identified shortcomings of the business.

So, maybe it is time for a check-up — to pick up your head and work “on” the business and not just “in” the business. Maybe it is time to consider the applicable vital signs of the business so as to get the “house in order.” After all, there are three outcomes for a business: (1) it fails/dissolves, (2) it is inherited by the owner’s heirs, or (3) it is sold or transferred to a third party. Failing to check vital signs may contribute to the first possible outcome. Otherwise, appropriate business checkups and action items to keep the business healthy, wealthy and wise make the other two outcomes much easier to accomplish.

How healthy is your business? Is it fit, fat, or on the verge of a heart-attack or stroke? Maybe it is time to conduct a business audit to determine the current condition of the business. Much like a routine physical exam, a legal check-up by your attorney will help you address any troubling finding, and provide you with a full report on the health of your company.