Whether you’re a real entrepreneur or just feel you have a business model that will work, you want to take a couple of important steps before opening your doors.
The first consideration is what form of business entity you want to have. There are lots of options. You can be a sole proprietorship, a partnership, a corporation, an LLC or an LLP. All of those have different tax and liability consequences and you’ll need to consult with an experienced business attorney and accountant to help you make the right decision.
Next, what about financing? Do you have enough money to get you started and to sustain the business until you start to become profitable? Some lucky people do, but most don’t. If you are going to seek financing, whether from bank, private investor, friends and family or some other source, you will need to explain to them what your business is, how it will work, how you will pay them back and how you will make the business grow and become successful. That’s called a Business Plan. There are sources on the internet and even software you can buy that will help you create one, and if you are going to seek financing, a Business Plan may not be required but having one puts you miles ahead of the competition. But you aren’t ready to put one together yet. First you need to make some more decisions and gather more information. More information about putting together a Business Plan can be found in our guide, “How To Finance A Small Company".
What about operating the business? How will it work? Is it something you can run from your home or do you need a storefront, office or warehouse type space? You need to plan out your business’s life both long term and on a day-to-day basis. And keep in mind that the business’ needs will change over time. If it grows, you may need to expand. If for various reasons it takes more time to get off the ground than you initially thought, you might need more capital to sustain that first stage, or you might even need to contract a little.
OK, so you’ve done your homework. You know what it will take to run your business for the first few years, and how much money you will need to find. Now it’s time to actually file the papers to create your business entity.
From consultations with your attorney and accountant, you should already know what form you want to be. Put your lawyer to work getting the filings done. If there are more than one owner, you’ll want a partnership agreement, shareholder agreement or operating agreement, depending on what entity form you have chosen. Chances are you and your partner(s) are getting along just fine now and are in agreement on most things, so this is the time to pin down the economics of the relationship and to try to craft solutions to potential problems that may arise between you down the road. This is also where you can accommodate what may be the different needs of the partners, as well as defining rights and responsibilities to each other and to the business. Again, time for your lawyer to go to work.
OK, so you have filed your papers, signed your agreements, signed a lease (or decided on whose house is going to be the main office) and have your financing lined up. It’s time. Get ready for the adventure of your life. There will be good times and bad times, but you will be a business owner, and will be working for yourself.
Congratulations and good luck!