How to Start a Business
Starting a business can be easier than you think. With planning and a good idea, you are half way there. The rest is vision, perseverance, hard work and a bit of luck!
1. The Vision (idea)
Whether it is a service business, sales, manufacturing or some other venture, think the process through. How big do you want to be? Where do you want to do business? Can you work out of the house, an office or is it internet based? Come up with your plan, and think forward 3 – 5 years. Actually write it out in 4 quarters for each year.
2. Get Appropriate Advice in Key Areas
Setting up in business should be an exciting process. But without the right advice it can have many potential problem areas, particularly where legal and accounting matters are concerned. Don’t wait for the problem to arise. Be proactive and seek out qualified professionals. The main thing is to understand the risks and implement risk prevention. When the problem has already occurred the COST and TIME drain is already far too much. Think about enlisting help with legal, accounting, insurance, employee benefits, estate & succession planning, banking, intellectual property (trademark, trade name, patent, etc.), payroll and book keeping.
3. Setting up the Company (Corporation, LLC, Partnership, Sole Proprietorship)
Once you have decided to start a business, you need to determine the type of business entity. With some variations, there are 4 basic types: Corporation, LLC, Partnership, or Sole Proprietorship. Each type has pro’s and con’s. Each type has important tax considerations. Each type has varying costs. The structure of your business will be vital to its success as you start up and expand. Should you trade in your own name or through a company, for example? If you are going into business with others, you need to make sure you get a fair return for your effort, so you might need a shareholders’ agreement or partnership arrangement. Your attorney can help you and explain the options and help you decide on the best one. They can also help you properly set up the entity you chose.
4. Dealing with Finance and Tax Issues
How will you finance the start up? With your own money? With a bank loan? With finance partners? Or, with all or some of the above. Your financial advisers or attorney can help you here. For example, should you mortgage the family home? Are the banks demanding unfair terms? You will also want to start from the beginning with a strategy to keep your taxes as low as possible. Also, when you start your tax year is an important decision you will need to make. The financial advisers (accountant, tax specialist, etc.) or attorneys can help you here.
Your business may expose you to any number of risks relating to premises, employees, assets and visitors. What if your products or workers injure someone, for example? What if someone is injured while working for you? What if you are legally responsible for an employee who misuses the internet? Most of these risks you can and should insure against. Some you don’t need to, depending upon a number of factors which vary upon the above. Start with an insurance professional and then confirm the plan with your attorney.
6. Cash Flow
Cash flow is critical to any business. It is the actual money that goes in and out of the business doors each month. You may have lines of credit or receivables, but actual cash in the bank is needed on a regular basis to pay the monthly obligation. Cash flow is the lifeblood of any business. The biggest danger to cash flow is bad debt or aged receivables. Dealing with collections early and often is vital to your success.
7. Business Equipment, Goods & Services
When buying or selling goods and services, it is important to know your legal duties. What contract terms are you agreeing to? Should you enter into long term agreements when the business is new (like copiers, postage machines, furniture)? The rule of thumb in the early years is to purchase or commit to the least amount possible until your business is established.
8. Protecting your Ideas (Intellectual Property – Patent, Trademark, Copyright, etc.)
If applicable to your business, you need to protect your ideas, inventions, trade secrets, etc. This area is extremely complicated and requires the assistance of qualified professionals. Not just any attorney will work here. You need one experienced in these specific areas. If you get into an intellectual property dispute, it can ruin your business financially!
Do you need a license to do business in your locale? City, County, State licensing may be required. Check with your local governmental office to ensure compliance here. Also, make sure you have a tax id number (for an entity) through the California Secretary of State.
10. Employment Issues
Employment law in California is a complicated area and is constantly changing. Most employment disputes are caused by the employer’s lack of understanding of the intricacies of California law. They can also be caused by poorly drafted employment contracts or termination procedures that violate the law. Have your attorney review and approve all contracts of any importance, especially employment contracts. Be very careful when trying to classify workers as “independent contractors” as this area is watched closely by the IRS and violation penalties can be stiff.
11. Final Thoughts
Plan ahead. Deal with problems right away. Don’t be afraid to enlist the help of qualified professionals. Understand all aspects of your business and HAVE FUN!