Editor’s Note: The following post is by the attorneys at Hamer Law Group, the presenting sponsor of our See Jane Write Magazine Launch Party! So many women involved in See Jane Write are aspiring entrepreneurs and I hope you’ll find this information useful.
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Many people have heard tales of successful businesses being born on the back of cocktail napkins, and ask, “Does that really happen?” In all likelihood, it absolutely does. In its infancy, a business typically starts out as an idea. It may be a solution to a problem, a lifelong dream or an intellectual collaboration. And yes, even a drunken epiphany at an adequately stocked watering hole. The next question is usually, “My napkin is complete, now what?” Quite simply, it’s time to get to work.
Here are five steps to consider when starting a new business.
1. Develop a plan.
One of the most critical steps when starting a business is going beyond the napkin and forming a plan. It seems like common sense, however, some entrepreneurs are so eager to dive into their new business this step is given little to no consideration. This is by no means an exhaustive guide, but should serve as a gentle reminder to actually form a plan. Here are a few things to consider:
Practical Considerations:
• Revenue Streams – How do we make money? (i.e. products, services, subscriptions)
• Customers/Client – Who’s buying what we’re selling? (i.e. businesses, individuals, government)
• Competitors – Who are we up against? (i.e. local, national, multi-national)
• Competitive Advantage – Why are we better than the competition? (i.e. price, location, quality)
• Projections – How much money are we going to make [or lose]? More importantly, how much money do we need? (revenue, cost of goods, operating expenses)
• Capitalization – How are we going to fund the business? (personal savings, investors, debt)
Legal Considerations:
• Relationships between owners and/or investors
• non-disclosure agreements
• licenses, permits and regulatory concerns
• franchise/supplier agreements
• lease agreements and/or real estate purchase agreements
2. Make a name for yourself…literally.
Choosing a name for a business is a big deal. For some, it may be as easy as a person’s name and a description of the business (i.e. Joe’s Plumbing or Hamer Law Group). Others find it exceedingly difficult to come up with or agree on a name. A few things to consider when selecting a name:
Practical Considerations
• Related to the industry, business or owners
• Allows customers to easily identify with products and services
• Catchy or memorable
• Easy to spell (more important than you may think)
• Not offensive or misleading
• Logos
• Domain name/website availability
Legal Considerations
• Statutory Requirements (i.e. “Inc.”, “LLC”, etc.)
• Copyright/trademark Issues
• Trade Dress
• Trade Names
3. Get organized as a business.
Once you’ve decided you’re going to form a business, it’s time to determine what type of entity is necessary to protect the owners and provide a solid structure for the business to grow. The default entities of sole proprietorship and partnerships offer little protection from personal liability for the owners. Corporations, LLCs, LLPs, and other limited liability entities are desirable to protect the individual assets of owners and investors.
Practical Considerations
• Number of owners/investors
• Type of owners/investors
• Splitting of profits and losses
• Management structure
• Operation of the business
• Purpose/Nature of the business
Legal Considerations
• Limitation of liability
• Tax considerations
• Relationships between owners/investors
• By-laws, operating agreement, etc.
4. Track your progress.
Just like a fifth grader’s report card, a business’ performance should be tracked and measurable to ensure success and maximize profitability. Properly categorizing and accounting for items and transactions allows a business owner to gauge performance, detect problems, and make corrections. Tracking is incredibly important.
A business owner should always remember that its financial statements are only as good as the data is put in them. Due care and time should be spent to ensure that financial statements are up to date and accurate as possible.
Practical Considerations
• Accounting method: accrual/cash basis
• Accounting software
• Hire a good accountant
• Learn to read a PNL/balance sheet
• Do NOT get behind in your bookkeeping
Legal Considerations
• Tax related matters
• Duties to other investors and owners
• Proper Due Diligence
• License and regulatory issues
• Reporting requirements
5. Get help!
It’s unlikely that you will have all the answers when starting a new business. Often times you’ll have to rely on consultants, accounts, and lawyers to guide them through areas of uncertainty. Forming a strong relationship with professionals you can trust early in the development of your business can help you build a comfort level with the unknowns of starting your business. Building relationships often helps build knowledge.
Additionally, similar businesses, competitors, and trade organizations can act as an excellent resource for industry specific questions regarding the operation of the business.
Disclaimer: This list is provided as general information and does not constitute legal advice.
