Here’s a great article from Forbes.com on common mistakes that growing companies make. Check out the excerpt below:

1. Wait until your company is up and growing before you formalize it. Some entrepreneurs can’t decide if they want to be a Limited Liability Corporation (LLC) or a C-corporation, or they don’t have the money, so they put off doing anything until the first venture capital round, or until the first lawsuit occurs. The simple answer is to do something, and start simple. In almost every state, you can incorporate as an LLC with a minimal effort, and a cost in the hundred dollar range. This step shows everyone you are serious, and limits your liability on any mistakes. It also forces you to pick a name for your company and put other intellectual property stakes in the ground.  It’s not that hard to change later to a C-Corp. Company and product naming may also seem simple, but should be a key early effort, because mistakes can be very costly. You may recall the Chevy Nova, a compact car from GM. Pundits in Latino countries quickly pointed out that the name, ‘no va’ means ‘does not go’ in Spanish. Professional advice in this area is highly advised. Cultural and religious implications must be very carefully considered.

2. Rely on informal agreements with partners. You may all be friends, or spouses, today, but things do change quickly in the stress of a growing company. The same principles apply to strategic partners. Early co-founders often drop out of the picture due to disagreements, and you forget about them, but they don’t forget about the verbal promises you made. Later, when your venture is trying to close on financing, or even going public, that forgotten partner surfaces, demanding their original share. This problem can be avoided by incorporating immediately after early discussions, and issuing shares to all founders.  I know two former friends who are still killing each other financially years later over an unwritten agreement, remembered differently by each.

3. Quick to hire and slow to fire. If you are growing quickly and desperate for help, you may skip on the homework of a proper job description, or validating applicant credentials are a fit before you proceed to interview. The message here is that if you don’t know exactly what help you need, you probably won’t get it. Hiring after one interview is like hopping a red-eye to Vegas to get married after one date. Equally bad, you may know what you want, but you are trying to force-fit the candidate into the position.  Maybe she’s related to the boss, or you are confident that the candidate will be a good helper, and can learn a lot from you. Helpers are expensive, since it often takes longer to jointly do a job than it would take one qualified person to do it alone. On the other end of the process, don’t hesitate to pull the trigger fast when a new hire isn’t working, but don’t forget to be human and follow all the steps. Carrying a non-performing employee probably triples the costs, since you are paying two people to do the job, and at least one other is de-motivated by the inequity.

4. Only hire people who like you or think like you. Flattery feels good, but it doesn’t pay the bills.  Look for the thoughtful challenge to your ideas, and practice active listening, when you are selling your vision. High three-digit intelligence has value. Some executives think they can mix business with pleasure, with inter-office relationships.    We all have our favorite story on this one. Make it a rule to not fraternize with your employees, and choose your partners wisely.

5. Be super-conservative on your cash needs. Double-check both the money you need before funding, and the size of investor funding requests.  You will be amazed at how many items you forgot to cover, and how fast the cash disappears. You should buffer the first by 50%, and the second by 25%. Severe cash flow problems are a big mistake, and may not be recoverable. When you have people and their families depending on you for their paychecks, and you are strapped for money, there certainly won’t be any money for growth. Even if you can find someone willing to help, it may be a very expensive proposition.  Cash is more important than profit.

Read the full article HERE.

How often do your two favorite subjects come together? Very rarely do mine: Baseball and Delaware Law. You may know what I am referring to when I say that, but in case you are not a sports fan like I am you may not know that the Los Angeles Dodgers one of baseball’s more storied franchisees filed for Chapter 11 bankruptcy protection in a Delaware Court this summer.

According to the bankruptcy petition, Los Angeles Dodgers Holding Company LLC a Delaware Company headed by Frank McCourt are in financial hardship right now and are carrying as much as $500 million in liabilities and is unable to fund its current operations.

A Boston real-estate developer Frank McCourt purchased the Los Angeles Dodgers in 2004 for $430 million. In a recent article from Jason Fell from Entrepreneur.com he said, “Despite the large size of the organization, the financial downfall of this storied baseball franchise can offer a number of important lessons for small-business Owners.

A Los Angeles-based bankruptcy attorney Leon D. Bayer, said “If this can happen to the Dodgers, it can happen to a small business.”

Bayer went on in the article to offer three big lessons small-business owners can learn from the Dodgers bankruptcy filing:

1. 1.     Keep personal and business finances separate. Between 2004 and 2009, the McCourt family is said to have taken $108 million in personal distributions from the team to help fund personal mortgages and real estate. A business owner should never remove so much capital that a business cannot maintain its ongoing operations, Bayer says.
2. 2.     Understand the power of a franchisor. Some franchise agreements contain “onerous provisions” that might make potential franchisees leery of buying in, Bayer says. In the case of the Dodgers, Major League Baseball Commissioner Bud Selig last week blocked a $3 billion television deal between the Dodgers and Fox. In a statement, Selig said McCourt’s “ideas and proposals,” including the deal with Fox, “have not been consistent with the best interests of baseball.” 
3. 3.     Don’t overstaff. Among the Dodgers’ creditors (it has as many as 10,000, according to the bankruptcy petition), former slugger Manny Ramirez is owed the most at almost $21 million. Next up is another former player, Andruw Jones, who is owed more than $11 million. While baseball player salaries can be debated, the lesson for small-business owners is not to hire too many employees, and not overpay the ones you do hire, Bayer says.

What lesson can we all take away from this? Well there are many but the biggest one is that Delaware protects your personal assets in bankruptcy better than other jurisdictions. I will keep you posted on how it works out for the Los Angeles Dodgers.

To read the full article click HERE.

If you are thinking about making a tax-deductible donation to a small charity, you may want to make sure it is still a charity.  A few recently lost their tax-exempt status for failing to file documents with the IRS.  Charities, membership groups, and trade associations without tax-exempt status are not allowed to receive tax-deductible contributions and may now have to pay taxes on any income they receive.

On June 8, 2011, the IRS posted a list of approximately 275,000 groups that did not file informational reports for three consecutive years.  Tax-exempt groups other than churches and certain church-related organizations making less than $50,000 a year were required to file the form for the first time in 2007 (after Congress passed the Pension Protection Act of 2006, giving the IRS a way of tracking these organizations.)

The IRS has posted the list on www.irs.gov/autorevocationlist.  Information included gives the name, employer identification number (EIN), type of organization, and last known address. The list is searchable by state. They will also post monthly updates with additional information about organizations whose filing dates have come due.  Donations made prior to an organization being added to this IRS list remain tax-deductible.

Publication on this list of organizations whose tax-exempt status has been revoked is intended to serve as notice to donors and others that they should not rely on a prior listing or publication.  The IRS believes that the vast majority of tax-exempt groups have filed their forms and are unaffected by the revocation listing, and many on the list are simply no longer in existence.

The tax agency said procedures have been set up to help those groups who seek to have their tax-exempt status reinstated.  They must fill out an application and pay a user fee, regardless of whether they originally needed to file such an application.  Information on the reinstatement process can be found on IRS.gov