A budding entrepreneur with a great business idea is full of optimism and chomping at the bit to get started. Enthusiasm has to be tempered, though, by having the discipline to reduce the business plan to writing. This process includes a candid assessment of risk factors and what can go wrong. If you can't put a game plan down in writing, your business is not likely to survive in the long run.
Don't Use Professional Advisors
Every person going into business should have an accountant, a lawyer, a banker and an insurance agent lined up before the grand opening. Their fees and costs should be factored into the operating budget. If you can't afford them up front, you certainly are not going to be able to afford them down the road when you run into trouble.
Don't Have A Written Agreement With Your Co-Owners
If there are going to be co-owners in your business venture, it is essential to reduce to writing your respective rights, duties and obligations. One of the easiest ways to do this and to mitigate potential personal liability exposure at the same time would be to incorporate or form a limited liability company through which to operate the business. It is also extremely important to be clear on who is required to contribute what -- including not only capital contributions, but also time devoted to the business. A buy-sell agreement is always a good idea.
Don't Read The Fine Print On Your Long-Term Obligations
Oftentimes, it is only when the business starts to go badly that owners first realize that they have personally obligated themselves on leases, bank financing or other long-term obligations. This is why many new business owners find themselves in bankruptcy when things don't turn out as they planned. As one of the risks of starting up a new business, for example, you can always anticipate that your landlord or your bank is going to require a personal guaranty. Thus, these are risks that need to be weighed carefully before opening your doors.
Don't Pay Your Taxes
Another common mistake of new businesses is failing to pay careful attention to tax obligations. Payroll taxes are a prime example since they can be a substantial burden on any new business with employees. Gross receipts tax would be another example. Many businesses go under because they fail to pay these tax obligations. In many instances, personal liability can also attach to the business owners.
Additional resources provided by the author
For further information, Mr. Pedreira has been a panelist in business law at lawyers.com since 2001 where he has responded to hundreds of questions from business owners, many of which deal with problems they encounter. Over and over, their questions deal with the same problems that arise when they fail to do their homework before starting up their business. He has also posted numerous articles on the website for the Mikkelborg law firm where he has been Of Counsel since 2002.