You’ve got the idea, put aside some cash, decided on the name and bought the domain name. You’re a business! Well, maybe not quite yet. Over and over I see these three mistakes show up in new business owners.
1. Deciding on the type of entity and doing the filing yourself. It seems so straightforward – just apply for a business license and away you go.
Unfortunately, it is rarely so clear-cut. Setting up the wrong type of entity for what you want to do – both now and in the future – can be a troublesome and expensive problem to fix down the road. It’s important to get experienced and trusted advice on whether you should become a sole proprietor, LLC, corporation, nonprofit, partnership, or something else.
There are different processes in place for different types of entities, and those variations are not always clear. In some cases, there are optional liability protections that are not immediately apparent, and require additional filings to take advantage of. This can be hard to navigate without some knowledgeable help.
And finally, services like legalzoom don’t customize their papers for your business, industry or particular situation, so often their agreements contain lots and lots that does not apply to you, and very little that does. This can be confusing and ineffective if those agreements are called upon down the line. It’s better to spend a little to have your business set up properly the first time, with the appropriate protections and processes in place to ensure you are compliant and protected from the very beginning.
2. Spending too much money too early. Before you open your doors (or sell your first unit or meet your first customer), you need branded t-shirts, a logo on your car, a professional website, stickers, new office chairs, a second cell phone, and a new coffee machine —- right?!
It’s easy to get wrapped up in all the bells and whistles people promise will make you the most successful business ever, but it’s not all necessary. Make a list off the bat of all the things you think you will need to purchase or invest in before opening, then prioritize it by importance and focus on the top 10 items. Wait on the rest until you have some customer traction and revenue.
No customer is going to stop working with you or buying your product because you don’t hand out free branded stickers.
3. Waiting to set up a separate bank account. Don’t Wait!! As soon as you have your business papers in hand (state registration, business license, necessary agreements), go to the bank and set up a separate account. If you can, deposit an amount (formed as a capital contribution or as a loan) that you expect can cover you until you can start turning a profit. That way, from the very first instance of having a business, you can train yourself to make purchases out of the correct account.
This is another one that is easy to do right the first time, and such a tangled (expensive) mess to try to retroactively separate.