Creating a business from scratch and running it is an enormous undertaking filled with complex variables and decisions, and there’s no way you can be expected to know everything before you begin. However, by focusing on five key factors that will shape your business for its entire existence, you can be several steps ahead of the competition and put your company in a position to thrive early.
Choose the Right Business Entity for Your Needs
It turns out that one of the first big decisions you have to make will also be one of the most important, and it will have ramifications on your company and your finances for years to come. As you begin your enterprise, you have the option to choose any type of business entity available, from doing nothing and operating as a sole proprietorship to creating an entity with strict legal protections such as an LLC or C-corporation.
Treat this decision with the care and respect that it deserves, because it may be complicated to change later. It’s quite simple to create a new business entity – see this guide for example on how to form a corporation in California – but this is the time to do your research and find out which type of entity makes the most sense based on your business structure and goals.
For example, if you have partners and prioritize flexibility in your operating agreement, then you might want to look into the benefits of an LLC. Conversely, if you think you may want to court outside investment and issue stock shares, a corporate structure may benefit you more.
Coordinate Effectively With Your Partners
Business partners can be creative fountains bursting with ideas. They may provide critical financing or intellectual property to the venture, and they may be your rock when times are tough and you need support. They can also be unreliable or leave you liable for the consequences of their negligent actions and cause friction when responsibilities aren’t well defined. Obviously, you should choose your business partners carefully, but there’s a bit more to managing the relationship than that.
You also have to communicate effectively with your partners and insist on complete honesty and transparency. Specify the roles and duties that each partner will take on in order to minimize confusion amongst all of you, and down the chain of command in the organizational chart.
Be Vigilant With Your Intellectual Property
One of the most common mistakes that new entrepreneurs make is that they fail to put a comprehensive IP protection plan in place until it is too late. There are a number of potential pitfalls related to IP that await entrepreneurs who neglect to prepare for them, covering everything from logos and copyrighted text to software code that was improperly brought into the company from an outside entity. Your strategy needs to be broad and proactive in order to ensure your IP is protected.
Safeguarding your IP involves many measures, but there are a few specific steps you can take early in the life of your company in order to mitigate your risk. Consult with an IP attorney, even before you think you need one. Ensure that all writers or contractors you work with assign the rights to their work to the company, and only commission works for hire. Finally, when you bring new employees or partners on board, have them acknowledge in writing that they are not bringing any protected IP from their previous employer.
Maintain Separation Between Your Business and Personal Lives
Business entities such as LLCs and corporations exist to offer business owners certain protections for their personal assets, but that protection only goes so far and generally requires the owner to operate the business according to certain laws. One of the easiest ways for an entrepreneur to get on the wrong side of the law in this way is by failing to separate personal and business life rigorously.
Commingling business and personal funds, overstepping your official role within the organization, and sharing company assets are all things you should avoid doing in order to maintain appropriate separation. Don’t use company money to pay your personal expenses, and keep diligent records of every transaction and decision so that you have proof that you operated in good faith if you ever need it. If the courts find that you acted illegally or unethically in these cases, they have the power to “pierce the veil” of company protection and come after your personal assets.
Know When to Seek Professional Advice
In the short run, seeking out advice from professional services experts such as attorneys and accountants may cost a little more than trying to rely on your own research, but the investment can significantly pay off in the long run. When revenue is just beginning to trickle in early in the company’s existence, it’s understandable that entrepreneurs are reluctant to pay for services that they consider inessential – but not seeking expert advice early can prove costly later on.
The ideal time to meet with an accountant is before you’ve even earned any revenue, not when your taxes are due. Similarly, consult with a lawyer before running into any legal issues instead of waiting until you get served with a lawsuit. There is plenty of good advice out there that can help you set your company up for success for years and decades to come. It’s up to you to actively seek it out and then heed it.