Starting a new business is often exciting, and it’s easy for people to get ahead of themselves. Without careful planning and organization, you could leave yourself in a vulnerable position as a business owner or entrepreneur, or create issues that take a lot of time to resolve.
The following three steps can help you set up your business properly and avoid some of the most common pitfalls that occur during the business formation process.
Develop a business plan, and choose the right business form
Do you want to start a partnership with someone that you know professionally? Will you be the only owner of the company? Do you hope to expand it to a point where it could be a publicly traded corporation?
The model for your business and your long-term goals for the company will determine what type of business structure is right for your needs. Corporations and LLCs are popular choices, but some people find that simpler business models are a better fit for their plans.
Fund separate financial accounts before you complete any transactions
One of the biggest mistakes that people starting businesses make is the use of personal assets or bank accounts to fund early business operations.
Unfortunately, when you commingle personal assets with business resources, even if it is just at the start of the company, your income and assets will be vulnerable to claims by creditors or those who bring a civil suit against the business. It is crucial that you separate finances for the company as soon in the process as possible.
File business formation paperwork before you begin operations
Before you start hiring people, investing in prototypes for your product or negotiating a lease for your storefront, you want to have your business officially formed. Insurance is typically also an important investment early in the process to shield you from liability.
Landlords, suppliers and potential staff members will all take you more seriously when you have an officially formed business before you enter negotiations. The scope and focus of your company will influence what other steps you need to take.
You may require state licensing or special insurance. Having someone with experience in the formation of businesses review your business model and guide you toward the best form for your company and the right resources can set you up for success in your new enterprise.
