If you’ve recently launched a new business or you’ve been contemplating starting your own company for some time, chances are you’ve put a considerable amount of thought into how you plan to achieve your dreams of business ownership. Most entrepreneurs are driven, energetic people who devote considerable time and effort to strategy and planning.
Despite the best intentions, however, the majority of new business owners fall victim to the same mistakes when starting out. Although this is by no means an exhaustive new business checklist, it is a solid overview of some of the most common things people neglect when starting down the road to being their own boss.
1. Business Structure Is Crucial
The way you structure your business is arguably the most important decision you will ever make as a business owner. The corporate structure of your business has far-reaching tax and personal liability implications that can make or break a fledgling business. Unless you plan on operating as a sole proprietor, the options generally come down to organizing as a limited liability company or as a corporation. Both entities involve complex legal analyses that require the in-depth knowledge of a business attorney who understands the pros and cons of each structure and how each could support your business. In summary, corporate structuring is not a decision to be made on a whim.
2. A Credit Line or Alternate Cash Flow
Cash flow is the lifeblood of business. Even a small start-up operating from a basement office has overhead costs. Late-paying customers or a series of unexpected expenses, may cause a drought in your cash flow. Having a backup funding source, such as a business line of credit, is crucial to keeping business finances afloat while waiting for income to begin flowing back in.
3. Profitability Takes Time
Most business experts recommend saving at least one year’s salary before launching a new business. Other advisers suggest saving for a minimum of two years before going out on your own. You shouldn’t rely on turning a profit right away. With money in reserve, you can focus on building your new business for the long term rather than worrying about how you will pay your everyday living expenses.
4. Employer Regulations
Hiring an employee is a monumental step that goes well beyond shaking a candidate’s hand over a resume. Employers must comply with the variety of federal and state regulations that govern everything from workers’ compensation insurance and income tax withholding to Social Security tax and OSHA regulations. Failure to observe the myriad of laws that govern the employer-employee relationship can result in severe (not to mention expensive) penalties for employers.
5. The Importance of Well-Drafted Legal Documents
Most business owners prepare for start-up costs. They have a plan for buying equipment, renting a location, and paying for advertising. Surprisingly, however, many new business owners cut corners and omit working with an attorney who can help them protect everything they are working so hard to build. When you’re starting your own business, that often includes personal assets as well as property owned by the business. From creating solid, operating agreements, personalized contracts and commercial lease agreements that anticipate contingencies to insulating your personal assets from the reach of business creditors, a business attorney will work one-on-one with you to reduce the long-term costs of doing business. Your operating budget may function on a shoestring, but your legal budget should be more robust. Your business will reap the benefits in the long run.
© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This information have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.