Ten Things to Consider When Starting a New Business
1. Develop Your Business Plan
Before launching your business, you should develop a written plan for making your new venture successful. Your business plan should describe the purpose and major objectives of the business, as well as the strategies for achieving those objectives. A business plan typically will also include a market analysis, a description of the management team, financial projections (including any investment objectives), and various risk factors. You should also keep in mind that a written business plan often serves as the initial document presented to prospective investors or other funding sources.
2. Determine Your Start-Up Funding Strategy
Do you plan to self-fund your new business or will you need to seek investors or a business loan? How much money do you need to operate your new business until it becomes cash flow positive and where will this money come from? It is critical from the outset that you carefully evaluate your sources of funding with respect to your anticipated start-up costs and break-even point.
3. Select the Best Legal Structure for Your Business
There may be several options to consider for structuring your business, including a sole proprietorship, partnership, C corporation, S corporation, limited liability partnership (LLP), and limited liability company (LLC). The most suitable business structure for you may depend on a number of factors, including: the number of owners in your business, tax issues, whether you intend to raise capital from investors, and the level of protection you desire for your personal assets. A business attorney can explain the benefits and disadvantages of forming one entity over another, help you to choose an appropriate entity, and assist you in properly forming your legal entity in compliance with applicable federal, state and local laws.
4. Choose Your Business Name
Before selecting a business name, you should conduct some research to make sure you are not infringing on someone else’s name. As a starting point, you should conduct some online searches for businesses with the same or similar name. You should also check with your county clerk’s office and Secretary of State’s office for any businesses operating under an identical or similar name. Be sure to also check state and federal trademark registration databases for companies who have filed registrations for the same or similar business name. Also, check to see if your business name is available as a domain name. Failure to conduct proper research before selecting your business name could result in costly legal disputes with other companies down the road, after you’ve invested substantial amounts of money in your business name and related marketing and branding efforts.
5. Protect your Intellectual Property
You should protect your legal rights with respect to the name of your new business. If you are conducting business under a name that is different from your legal name (whether you are operating as an individual or a legal entity), you may be required to file a fictitious name statement. You should consider filing appropriate registrations at the federal and/or state levels to protect your trademarks, service marks, logos, copyrights and any other intellectual property you own. For instance, if your business involves software products, you should consider filing federal copyright registrations to take advantage of the many benefits of the U.S. Copyright Act against third parties who may copy your software. If you have any valuable business secrets, such as databases, software source code or formulas, this information may be considered trade secrets under state law. You should implement company procedures to protect your trade secrets, including the use of nondisclosure agreements (e.g., before hiring employees or before engaging in discussions with potential business partners).
6. Find a Location for Your Operation
Depending on the nature of your business, numerous factors should be considered in deciding where to establish your headquarters, including your space and fixture requirements, your rental budget, the location of your competitors and customers, and zoning requirements. Before you sign any commercial lease, you should carefully review the lease terms to confirm that the contract is actually consistent with your discussions with the landlord and doesn’t include any “surprises.” For additional information on lease issues, see “Ten Things to Look for Before Signing Your New Lease.”
7. Obtain Necessary Licenses and Permits
To legally conduct business, you may be required to apply for a local business permit with your city or county. If you are selling retail products, you should obtain a seller’s permit from your state. You may also be obligated to obtain other local permits or variances. Depending on the nature of your business, you may be subject to regulation by a state licensing authority. It is best to consult an attorney to make sure you have obtained all the necessary licenses and permits to avoid possible fines or other liabilities for violating applicable laws.
8. Purchase Insurance Coverage
As a business owner, there is potential liability everywhere. Are you or any employees using vehicles for company business? Will customers or clients be visiting your office? Even if you are working at home, you could still have business-related injuries or have company assets damaged or stolen. You may need to purchase commercial general liability insurance, property insurance, automobile insurance, worker’s compensation insurance, and other types of coverage depending on the activities of your business and any contractual insurance coverage obligations you may have (e.g., under a lease or independent contractor agreement). You should discuss these insurance coverage issues with a qualified insurance broker, and you may need to confer with an attorney concerning your legal obligations to purchase certain types of insurance.
9. Set up Your Bookkeeping and Tax Reporting
We recommend that you meet with a certified public accountant to familiarize yourself with the tax requirements, and potential tax benefits, pertaining to your business. For instance, you should decide whether to use the cash or accrual method of accounting and to select a fiscal year. Another reason to meet with a CPA before launching your business is to identify all of the business expenses and other tax write-offs that may be available to you. If you are operating under a corporation, LLC or other legal entity, keep in mind that it is important to avoid any commingling of your business funds and your personal funds, and that any transfer of funds between your business and personal bank accounts should be properly documented as a loan or additional capital contribution, as appropriate.
10. Set Up Your Standard Contracts
It is often advisable to develop a set of standard contracts to use for your anticipated business transactions. A well-drafted standard form of consulting agreement, services agreement, distribution agreement, manufacturing agreement, or other form of agreement to use in your day-to-day transactions may protect your intellectual property and other rights, minimize your business exposure to potential liabilities, give you rights you otherwise would not have, and ensure that you and your customers or business partners have a clear understanding of your relationship and responsibilities from the outset.
© 2011 Donahue Fitzgerald LLP