New data suggests aging baby boomers are leading the surge in entrepreneurship. In a recent article, the Fortune Small Business unit reports how a recent study found that the number of middle-aged Americans starting their own business is surging.
According to the U.S. Bureau of Labor Statistics, the ranks of the self-employed aged 55 to 65 rose 33 percent in 2006; the number of self-employed 25- to 35-year-olds fell 2 percent.
In a quarterly survey by outplacement firm Challenger Gray & Christmas (challenger-gray.com) of its clients – mostly managers and executives – the number starting firms or turning to self-employment rose 29 percent in the first quarter of 2007 over the first three months of 2006. Of those, a staggering 88 percent were 40 and older.
You can find the U.S. Bureau of Labor Statistics study (in PDF format) here.
Buying into a franchise is one method an entrepreneur might undertake to start his or her own business. Franchises provide the entrepreneur with name-recognition, training and operational support from day one in exchange for an initial franchise fee and continuing franchise royalty payments. While the initial franchise fee is a one-time lump sum payment, the amount of a franchise royalty payment is usually paid monthly or quarterly and can be determined a few different ways.
Percentage of Revenue or Profits. This is the standard way to calculate a royalty. Multiply total revenue by a royalty percentage (typically 2%-10%) every period. Under this method, the royalty fee fluctuates and allows the franchisee to reduce his or her royalty fee expense when sales are slow. Alternatively, this allows the franchisor to collect a larger fee when a franchisee’s sales are great. Sometimes profits are used to determine the royalty fee, but trying to determine “profit” makes using profits unappealing.
Fixed Sum. Increasingly, franchisors are moving towards fixed royalty fee amounts. The benefit of the fixed royalty fee is that both franchisor and franchisee know exactly what the royalty fee will be, allowing both parties to develop more accurate financial forecasts. An additional benefit is that the fixed fee eliminates the need to audit a franchisee’s reported sales. The fixed fee tends to hurt the franchisee when times are bad, as the franchisee will still be responsible for the $X royalty fee when sales are $0. But when times are great, the franchisee will benefit as the royalty fee is essentially capped.
Fixed Sum Based on Square Footage This is a variation of the fixed sum royalty payment and it is determined by the square footage of the franchisee’s store. Basing the royalty fee on square footage provides the franchisee with incentive to take a smaller space, which can be good if the franchisor wants to maintain a boutique-like atmosphere.
As an employer, you make countless investments in your employees. Whether your employees realize it or not, you commit major financial resources, time and training to make your staff a company asset. How do you protect your asset from being looted by a former employee? Consider adding an “anti-raiding” clause to your employment agreements.
Continue reading When to Use an Anti-raiding Provision
You have many choices when selecting a lawyer to assist your startup company…us lawyers aren’t exactly an endangered species. But one decision you should never make is to draft legal documents yourself. These documents are just too critical to be drafted and–more importantly–issue spotted without legal education and experience.Because entrepreneurs are resourceful and capital tends to be scarce, they have a natural tendency to do their own legal work (Hello Google!). Entrepreneur, resist this urge. Continue reading Please Do Not Hire Google, Esq.
In a couple of previous posts, I discussed the value of buy-sell agreements for businesses with 2 or more owners and also one of the two major types of buy-sell agreements, the cross-purchase plan. This post is dedicated to the other main variation of the buy-sell agreement, the stock redemption plan.
Under a stock redemption plan, the corporation redeems the shares of the withdrawing stockholder. Retirement, death and disability tend to be the three most common withdrawal events found in buy-sell agreements, but corporations are not limited to those three and are free to mix and match as they see fit.
Continue reading Buy-Sell Agreements: The Stock Redemption Plan
Most–if not all–entrepreneurs know that their website plays a vital role in the marketing and branding of their startup company. But do most entrepreneurs understand what they are really paying for when they hire someone to design and/or host their website? (OK, if you are a tech startup you can skip to my next post.)
Continue reading Do You Own Your Website?
The folks at Bootstrapper have published a list of 100 Daily Must-Reads for Entrepreneurs. The list is organized by categories such as capital raising, managing debt and risks, staff management, venture capital, small business issues and marketing.
I haven’t had the time to visit all 100 blogs yet, but so far I’ve been impressed with what I’ve seen. Thank God for the RSS Reader!
The cross-purchase is one of the two main ways (“stock redemption” the other) a buy-sell agreement can be structured to provide your company with a succession plan.
Under a cross-purchase plan, each company shareholder agrees in advance to buy the shares of the withdrawing shareholder while the withdrawing shareholder agrees to sell his or her shares to the remaining shareholders. The corporation is not involved in the transaction.
Continue reading Buy-Sell Agreements: The Cross-Purchase
A buy-sell agreement is a document that preserves continuity of business ownership when specific events occur, such as death or disability of a business owner. It is a contract between shareholders or business partners concerning the future ownership of the business and can be drafted as part of the company’s shareholder agreement or as a separate agreement.
The buy-sell agreement typically controls events triggering shareholder buyout, persons that may purchase the departing shareholder’s stock, the valuation of the departing shareholder’s stock and how the buyout will be funded.
The advantages of a buy-sell agreement are that it sets out a strike price well in advance for the departing shareholder’s stock, creates a market for the business interest (which can be extremely difficult in closely held corporations) and assures business continuity for the remaining active owners, employees, customers and creditors.
The tech staff at FORTUNE recently published a blog article about the long-term prospects of the venture capital industry.
Indeed, the venture capital industry is currently facing pressures (potential higher taxes on gains, competition from angel investors because of startup’s reduced capital needs, etc.). But these headwinds are temporary obstacles rather than the beginning of the end of the venture capital industry. My hypothesis derives from my infatuation with the Solow Growth model which was pounded into my head by various professors of economics before law school.
In Solow, technology plays a gigantic role in long-term economic growth and I just can’t imagine venture capital, being such a facilitator of technology, getting the permanent squeeze.