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9 - 12 : The Complete 35-Step Guide For Entrepreneurs Starting A Business

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9. Set Up a Good Accounting and Bookkeeping System

You will need to set up a bookkeeping/accounting system to keep track of your finances—income, expenses, capital expenditures, EBITDA, profit and loss, etc. This is important in order to understand your business’s cash flow situation and also for tax-filing purposes.

There are a number of online software solutions that can be helpful in this regard, such as QuickBooksZohoFreshBooks, and Xero.

10. Perform a Comprehensive Reference Check Before You Hire an Employee

Many employers conduct a limited and incomplete reference check when interviewing job candidates, which can result in hiring people who are unable to perform their required duties or who don’t work well with others. A comprehensive reference check includes:

  • Verification of job titles and dates of employment
  • Verification of educational degrees and dates of attendance at schools
  • Verification of starting and ending salary
  • Verification of prior job role and responsibilities
  • Inquiry as to why the applicant left the prior employer
  • Conversations with prior supervisors as to the applicant’s strengths and weaknesses
  • Inquiry as to the applicant’s ability to get along well with other employees and customers
  • Inquiry as to the applicant’s ability to take on the new role
  • Inquiry as to punctuality or absenteeism issues
  • Reference checks with other people not listed by the applicant as a reference

The purpose of these checks is to make sure that the applicant will fit into the company’s culture and to ensure that they have been truthful and accurate in their resume and employment application. However, the process is carefully regulated by the federal government (through the Fair Credit Reporting Act) and the laws of many states; failure to follow the highly technical process can lead to class action lawsuits. Consider consulting legal counsel and, for general information, see the EEOC’s Background Checks: What Employers Need to Know.

It is also useful to require all prospective employees to complete an employment application.

11. Use a Good Form of Employee Offer Letter or Employment Agreement

Oral agreements often lead to misunderstandings. If you plan to hire a prospective employee, use a carefully drafted offer letter, which the employee should be encouraged to review carefully before signing. For senior executives, a more detailed employment agreement often makes sense. A good offer letter or employment agreement will address the following key items:

  • The job title and role of the employee
  • Whether the job is full time or part time
  • When the job will commence
  • The salary, benefits, and any potential bonuses
  • Whether the position is “at will” employment, meaning either party is free to terminate the relationship at any time without penalty (although employers may not terminate employees for legally prohibited reasons, such as for age discrimination or retaliation from sexual harassment allegations, etc.)
  • Confirmation that the “at will” agreement may not be changed unless signed by an authorized officer of the company
  • Confirmation that the employee will need to sign a separate Confidentiality and Invention Assignment Agreement (described below)
  • If the company chooses, a statement that any disputes between the parties will be resolved solely and exclusively by confidential binding arbitration (also discussed below)
  • Any stock options to be granted to the employee and the terms of any vesting (details usually laid out in a separate Stock Option Agreement)
  • The supervisor to whom the employee will report
  • Protective language stating that the offer letter constitutes the entire agreement and understanding of the parties with respect to the employment relationship, and that there are no other agreements or benefits expected (unless additional provisions are laid out in a handbook, which should be referenced if applicable)

Companies should ensure that the employee and the company sign the letter, the Confidentiality and Invention Assignment Agreement, any Stock Option Agreement, and any first-day paperwork (such as the IRS W-4 Form for withholding and the I-9 form mandated by law).

For a good sample employee offer letter, see 13 Key Employment Issues for Startup and Emerging Companies.

12. Make Sure All Employees Sign a Confidentiality and Invention Assignment Agreement

Companies pay employees to come up with ideas, work product, and inventions that may be useful to the business. Employees have access to a good deal of their company’s confidential information, which can be very valuable, especially in technology companies.

One basic way to protect proprietary company information is through the use of a Confidentiality and Invention Assignment Agreement. This type of agreement deals with confidentiality issues, but can also ensure that the ideas, work product, and inventions the employee creates that are related to company business belong to the company—not the employee.

A good Employee Confidentiality and Invention Assignment Agreement will cover the following key points:

  • The employee may not use or disclose any of the company’s confidential information for their own benefit or use, or for the benefit of others, without authorization.
  • The employee must promptly disclose to the company any inventions, ideas, discoveries, and work product related to the company’s business that they make during the period of employment.
  • The company is the owner of such inventions, ideas, discoveries, and work product, which the employee must assign to the company.
  • The employee’s employment with the company does not and will not breach any agreement or duty that the employee has with anyone else, nor may the employee disclose to the company or use on its behalf any confidential information belonging to others.
  • Upon termination of employment, the employee must return any and all confidential information and company property.
  • While employed, the employee will not compete with the company or perform any services for any competitor of the company.
  • The employee’s confidentiality and invention assignment obligations under the agreement will continue after termination of employment.
  • The agreement does not by itself represent any guarantee of continued employment.

Venture capitalists and other investors in startups expect to see that all employees of the company have signed these kinds of agreements. In an M&A transaction in which the company is sold, the buyer’s due diligence team will also be looking for these agreements signed by all employees.

A sample form of Employee Confidentiality and Invention Assignment Agreement can be found at the Forms & Agreements section of AllBusiness.com.

Similarly, it will be appropriate that all consultants of the company also sign a Confidentiality and Invention Assignment Agreement. See Key Issues with Confidentiality and Invention Assignment Agreements with Consultants.

forbes.com

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