I devote a significant part of my law practice to representing small businesses and the families that own them. I am always excited to meet with clients who have decided to start their own business. The formation and planning stages of starting a business are my favorite. Here are a few tips I have learned over the years, not only from starting and operating my own small business, but also helping many do the same.
CHOOSE YOUR BUSINESS PARTNER MORE CAREFULLY THAN YOU CHOOSE YOUR SPOUSE.
One of my mentors always advised clients to carefully select their business associates. He always recommended that prospective business partners frankly discuss how they would wind down a business first – before committing to a long-term relationship without an exit strategy. My experience has been that dissolution strategies are easier to discuss and formulate when relationships are positive and on a high. Consider exploring issues such as personal compatibility, beliefs regarding work hours, thoughts on borrowing money, and what expenses the business will pay.
BUILD A GOOD TEAM.
Consider assembling a trusted group of advisers to assist you in developing your business plan and forming the business entity that meets your needs the best. The best practice is to consult with a lawyer, an accountant, and a banker. Although no one likes to pay attorney fees, bookkeeping and accounting costs, or interest, you need the help of all three. The three should meet with you and your prospective business associates early and often. Give these three professionals the authority to contact one another and discuss issues relating to your business as the need arises. These meetings allow you to make sure all the elements necessary in forming and operating a business are in place.
DEVELOP A BUSINESS PLAN.
Take time to brainstorm and identify the purpose of your business. What are your goals? What kind of location is required? What budget is needed for startup? Identify possible competitors and the impact competition plays on your new business. Consider your advertising and social media strategies. Develop a networking group through your local chamber of commerce or civic clubs. With all of these considerations in mind, write out a business plan.
ASSESS YOUR FINANCES.
Capital and cash flow are essential to the operation of a successful small business. Once you have formulated your business plan, you must have an idea of what amount of money you need to start and operate. Will you self-finance? Borrow? Include investors? These questions are all considerations to be directed to your team. Your accountant and banker can guide you. I always recommend a line of credit for new business startups to help through the lean times. You may never need it. but it’s a great business tool and gives you peace of mind when cash is short.
SELECT THE BEST BUSINESS ENTITY FOR YOU.
Is your business best suited to operate as a sole proprietor? A partnership? A corporation? Most small businesses operate as sole proprietorships, with one individual who is entitled to all business profits but also is responsible for all business debts. Partnerships generally involve one or more people who share profit, debt, and liability equally. Corporations can be one or more individuals who assign operations responsibility and profit sharing differently but limit the individual liability of the participants. Consult with your team regarding the best entity for you keeping in mind tax considerations, liability issues, and licensing requirements.
REGISTER WITH ALL THE APPROPRIATE GOVERNMENTAL AGENCIES.
Depending on the business entity you choose, you may be required to register with both state and federal agencies. Registration may be as basic as filing appropriate formation documents with the Secretary of State and obtaining an employer identification number (EIN) from the IRS. If you are involved in a specialized business you may require additional licensing with the state or municipality where you operate. Always consult with your team on these issues.
AND FINALLY…PROMOTE AND GROW YOUR BUSINESS.
If you have question or need help forming a business, call Phil Outhier at 580-234-6300.