Checklist for Starting a Business
You have designed an innovative product or developed a groundbreaking service that will change the face of your industry. You have written a business plan and just maybe you have gotten some of your friends or family to agree to invest in your new venture. You are exuding confidence that you are going to start reeling in the customers just as soon as you can open your doors for business. You are ready to start your business, but you are faced with numerous implementation challenges.
This blog post provides a checklist for starting a business. You will need to address each of these issues for your startup. At first, this checklist for starting a business may seem daunting, but if you take each issue in hand and work through your contacts and business associates, you may be able to resolve these issues more quickly. What you really want to do for your startup is to develop the many systems that will support your new business so that you have time and energy to focus on growing the business. I am going to mention each of these questions but not in any particular order of priority. You need to start making a list and attacking each of these implementation questions one at a time.
Find a small business attorney
A small business attorney will be able to provide advice and support on a number of issues that you will immediately face as a small business owner. I understand that many entrepreneurs starting out simply download a form, hoping that the form will meet the needs of their startup. That may be fine if there are no issues down the road. But if the business is successful then there will likely be issues with investors, with partners, with government agencies. The more complex the structure you want, the more assistance you will need. If you plan on a single member limited liability company that will have only one asset such as a piece of real property, the legal work necessary will be minimal. But if you have a startup with both inside and outside investors, you will likely need more legal support for startup formation.
Whether you retain the services of Rosten Law here in the District of Columbia, or another small business attorney, you will be well-advised to have good legal representation to guide you through the labyrinth of issues that your startup will face. You may want to review some of these issues that you will have to address under our business formation practice area, which discusses the issues in forming limited liability companies (LLCs), corporations and partnerships in DC and elsewhere, and our business transactions practice area, which discusses business legal services for small businesses.
Tax advisers can save you money
As you are about to develop the structure of your business, you will have to take into account the tax ramifications of various possible corporate structures. The structure may affect the individual investors in different ways, depending on whether they are active or passive investors, whether they are employed by the business, whether they are investing anything other than cash into the business, and other considerations. The best person to help guide you through the tax ramifications of starting your business is a tax adviser, who usually is an attorney or an accountant.
Business advisers: will they be compensated?
You may have business advisers who know something about the industry in which your new business will operate. Some startups have informal boards of advisors, who may or may not be compensated for their time and effort on behalf of the company. Other companies may create an outside board of directors to oversee the management of the company. An outside board of directors is very important in the governance of nonprofits. A limited liability company may also have a board, which may function under flexible rules and policies depending on the operating agreement.
Banks can be a new business’ friend
After you have formed your company, you will need to open a bank account. You should not open an account simply at the closest bank. Banking services can vary widely and not just in fees. Some banks are more suited than other banks to working with startups. You may have heard that banks are around to lend you money when you don’t need money and are not available if you should need money. Although that may be partially true, some banks are more flexible in dealing with startups than other banks. You should not expect that a bank will open an unsecured line of credit with a new business. Usually the bank will require a personal guarantee from one or more of the owners until the small business develops a credit history and has assets to pledge for a secured line of credit. Whether your startup is looking for a loan from a bank or a loan from investors, the small business owners should be prepared to provide personal guarantees. If you plan on taking funds over your website, then you will likely have to open a merchant account and you can hold this account either at your primary commercial bank or another bank.
Credit card for the business
You will likely have a corporate form under which you are doing business. This can be a partnership, limited liability company or corporation. To maintain the separateness of your business, you will have to maintain separate accounts, not personal accounts with your various vendors. This may be the lease that you will enter into for your business space or it could mean a separate business credit card. Many of the banks will offer you a credit card for your business, and most all of them will require a personal guarantee. The banks will issue the credit card under your personal social security number even though the card is for the business and has its own employer identification number (EIN). Some credit card companies will allow you to transfer a business card to someone else, such as a new business owner; others will require that the new business owner take out a new card. For many businesses, especially those without a loan from the Small Business Administration (SBA), the credit card may be the only form of credit that the business will initially have.
Bookkeeper: garbage in, garbage out
All bookkeepers are not created equal. Some entrepreneurs decide to do the books themselves and others will hire a bookkeeper. And once your business starts to grow, and depending on how many transactions you have, you may have to hire a full-time bookkeeper. You will also have to decide which accounting software program you plan on using for your business. The industry standard is QuickBooks but there are other competing programs such as Xero and Peachtree, each of which has its own advantages and disadvantages. Your bookkeeper may have his or her favorite, but you as the business owner will have to be comfortable using the software to generate management reports. Remember that the management team of a startup is responsible for understanding the financial information of the business; this is not the responsibility of the bookkeeper, although many bookkeepers may have strong views on how the business should be run. Once you are comfortable with the financial information that is available, then the bookkeeper can generate periodic reports for the management team and directors.
Space: where are the entrepreneurs going to spend those long days and nights in the office?
If you plan on opening your new business in your home or garage, then you may not need to worry about leasing space. But if you have a startup and need space, you are going to have to figure out quickly how much space you are going to need and for how long you are willing to enter into a lease agreement. Some startups look into an incubator such as 1776 here in Washington, D.C. for the initial phase of their growth. The incubator will generally provide space and resources. If you locate your business in a commercial space, then you will have to figure out and negotiate the length of the lease and other critical provisions. And as mentioned above, many landlords wary of dealing with new businesses will require a personal guarantee from one or more of the small business owners.
Insurance to allow the small business owner some piece of mind
Just as you would not drive a car without auto insurance, you shouldn’t run a business without insurance. There are many different kinds of insurance such as a general liability policy that will protect your small business in case someone has an accident on your premises. Most landlords will require evidence of your insurance and require that they be named as an additional insured. There is also directors and officers coverage to protect managers or your advisers from alleged wrongful acts. And don’t forget workers’ compensation insurance. One kind of insurance that is cheap and is often overlooked is an umbrella policy for the owners, just in case someone is able to pierce the corporate veil. Even though you may have some protection against liability because of the corporate form you choose, you still want to make sure that you are protected from events that may be beyond your control.
Information technology is more than just buying a couple of computers
You now have your new shiny office even purchased the furniture and equipment for your startup. That is a good start, but you now are faced with a number of IT issues. The easy part is ordering the computers, monitors and printers. You are going to be faced with a dizzying array of software solutions for sales and marketing, for bookkeeping (discussed above), for word processing and email software. You may have used Gmail for your personal email but may find that Outlook is a better solution for your business. The challenge is that many of these programs are now inter-connected and your decision to go with one solution may have an impact on your business for other software packages. And there is now the decision of whether you are going to keep all of your business’ documents and other files on the cloud. Are you planning on getting an internal server? If you have a website, where is the website going to be hosted? And each business will have those software packages that are germane to that industry. For example, if your business is dependent on sales, then you will want to consider custom relations management software.
Communications for your new business
All of the telephone companies now have various packages. Some of the telephone companies may be known for aggressive sales and passive customer service. The telephone company that you think is the worst may not be the worst when you switch to a new carrier. And switching carriers midstream is not an easy endeavor, especially even minor issues like migrating a telephone number to a new carrier can be a challenge. A major issue these days with improvements in technology is whether you want to have a voice over IP telephone (VOIP) or stick with a landline. There are advantages and disadvantages and cost considerations for both options.
Website issues for your startup
Every business these days has a website and the first thing your customers or business associates will do in whatever business you are in will be to look at your company website. You have already chosen a name for your startup that will not get you into trademark problems and you have reserved the URL (Uniform Resource Locator) that will direct people to your website.
Related article: Finding a Name for Your New Business
If you and the other founders of your startup are the only employees, then your human resources challenges are substantially reduced. Nevertheless, as part of your business formation, you should have discussed how each of the founders will be compensated for his or her time, whether by way of a salary or deferred compensation, additional equity or a number of other solutions. Even the small startup generally will have to hire outside employees. You will have to consider who will do the payroll for the company, usually either an accountant, sometimes a bookkeeper, or one of the large payroll companies. And of course, like any good entrepreneur, you can take the responsibility yourself if you are doing the books, although usually your time is better spent on other endeavors in the new business. If your startup is employing new workers, you are going to have to determine how to compensate them, what are their benefits and development a human resources program. The startup will most certainly have to decide which individuals are employees and which are independent contractors (also known as 1099 employees). There are major ramifications for each and if you categorize your employees incorrectly, your business may be looking at an action from the U.S. Department of Labor for violation of the Fair Labor Standards Act (FLSA). Your startup should have at the very least a standard employment agreement or consulting agreement with confidentiality provisions. Your startup will need an employment handbook. Some companies also develop a company policy or procedure manual.
Focus on growing the business
Setting up the systems to support your business is not a sport for the short-winded. The entrepreneur is usually strapped for cash and there are not enough hours in the day to master each of these areas. Knowing what you need to tackle may make the journey less burdensome. But each of these issues is critical to get your startup up and running on a sound footing. And a final word of caution. This checklist for starting a business may not be exhaustive, but it provides some of the critical decisions that you as the entrepreneur will have to make to put your new business on firm ground.