5 TIPS FOR NEW SMALL BUSINESS OWNERS
5 TIPS FOR NEW SMALL BUSINESS OWNERS
January is the start of a new year, new beginnings, new opportunities, and for some of you, a new business. If January 2018 marks the beginning of your first small business, welcome to entrepreneurship! Your business can be successful at any size, but often the complexities and nuances of running a startup hinders many business owners from making it pass year-one. After a few years of managing a company, seasoned business owners could probably write a very entertaining memoir titled, “50 Things I Wish Someone Told Me About Owning a Business.”
Luckily for you, I am going to condense those “50 things” into the top 5 tips that will give you a jumpstart to making better organizational decisions and help you avoid common pitfalls. Even if you are a sales-genius and inventory is flying off your shelves right now, those sales will not be sustainable if you haven’t established a solid foundation. The tips provided below will aid you in building the proper framework to manage and sustain the most essential particles of running a successful business.
1. Start with a Plan.
This piece of advice may seem obvious, but you would be surprised by the number of business owners who hang their shingle without a clear plan in mind. You do not have to write an elaborate, 100-page business plan that includes a sophisticated market analysis and profitability forecast. However, you need to establish a clear, written plan that is subject to change. Why did I say your plan needs to be “subject to change”? In the famous words of the Greek philosopher, Heraclitus, “the only thing that is constant is change.” That statement not only applies to everyday life, but also the daily management of your business.
Therefore, outline a plan that considers common, but often overlooked, particles such as how will you make a profit, should you seek out investors or a partner, how much capital or inventory do you need, should you hire employees, how will you manage employee issues, what terms need to be in your lease agreement to secure the best commercial space, and should you outsource crucial tasks like accounting, marketing or contract negotiating to a professional if those areas are not your strong suit.
2. Protect Yourself and Your Family.
Many small business owners start their companies as sole proprietorships, meaning there is no legal distinction between them as a person and their company. The primary disadvantage to running your business as a sole proprietorship as opposed to an incorporated entity is the unlimited liability to which you expose your personal assets. As a sole proprietor, you are the business. In other words, you and your business do not legally exist separate and apart from each other. Therefore, if the business is liable for a debt, contract gone wrong, or personal injury you caused while delivering flowers to a customer, you are personally liable.
This means that an injured party, creditor or the government can look to your personal bank accounts, stocks, real estate and other properties to settle a debt or claim. Formally registering your business as a corporation or LLC shields you and your family from personal liability for actions and debts against the company.
Depending on the business structure you select for your company, you also can take advantage of many tax benefits afforded to legal entities. In addition, if you need to raise money or fund a new business venture, as a sole proprietor you will be limited in your ability to raise capital. In most cases, sole proprietors are unable to sell shares or interests in their business, which limits their ability to entice others to invest in their business or new product. Ultimately, these advantages are simply not available to those running their business as a sole proprietorship.
Take a closer look: Find out how to choose the best entity structure for your small business: LLC or S-Corp – Which One is Best for My Business; The Rules of Partnerships.
3. Put all Formal Business Activities in Writing.
Whether it’s hiring, firing, board meetings, vendor agreements or adding a new partner — all formal business activities should be documented. Creating a paper trail is the best way to protect yourself should there be a question or disagreement about the terms of a transaction down the road. Documenting business transactions and internal decisions is especially important when doing business with family members, friends or a significant other. It’s a common practice to work with people you know and trust, but loose understandings and casual agreements can fall to pieces when personal feelings and passions flare.
Sit down with a professional to consider a number of scenarios, preventive measures and solutions that can safeguard your business from shutting its doors. If you already have some written or informal agreements in place, allow a professional to evaluate how well those agreements truly cover you in the event of a disagreement or lawsuit. Lastly, encourage those who are being required to sign “on the dotted line” for the first time that it’s in everyone’s best interest to have a clear, unequivocal understanding of their rights and responsibilities.
4. Hire the Right Employees and Professionals.
p>Some small business owners may have the capacity to hire employees right away. If you’re thinking about hiring your first employee or independent contractor, you should carefully consider what you can and cannot legally ask during an employment interview; decide whether you need full-time or part-time employees; and whether you need a worker with specialized skills to sign a non-compete, non-disclosure and/or non-solicitation agreement.You should also determine whether the worker you want to hire is truly an employee versus an independent contractor. This distinction is crucial because the IRS can impose steep penalties on businesses that do not properly withhold taxes and workers compensation premiums for workers who are considered employees as defined by law.
Take a closer look: Learn more about the primary factors the IRS considers when making a determination that a business owner has misclassified a worker as an independent contractor rather than employee. Also, know your payment and tax withholding obligations for each worker: Employee vs. Independent Contractor: How to Hire the Right Professional.
5. Stay out of Court.
There’s no such thing as ignorant bliss when it comes to legal issues. “Ignorance of the law is no excuse” – this may be a cliche statement, but it’s also true. No one is asking you to be a legal expert. If you’re the best brisket smoking restaurant in Atlanta, be the best brisket smoking restaurant in Atlanta. However, you should familiarize yourself with some basic legal concepts that are common to most business operations, and you should lean on a trusted legal consultant or business law attorney to help you with the details of maintaining a successful business, such as:
– Commercial negotiations and contracts
– Business mergers and acquisitions
– Employment relations issues
– Intellectual property rights, such as trade secrets, trademarks and copyrights
– Local laws, ordinances, and zoning permits
– Business formation
– Partnership agreements and breakups.
Being able to call on a legal expert will help you avoid spending business hours and money defending lawsuits in court. I cannot tell you how many of my clients wished they had sought legal counsel to assist with implementing preventative measures before finding themselves in court. Sure, many small businesses have gotten by for awhile breaking some rules intentionally or inadvertently. However, legal fees can tally up to the thousands and sometimes millions when defending a lawsuit. So, do what you can from the onset to partner with the right attorney to resolve or plug issues early and stay out of court.
Your thoughts: If you were writing a book titled “50 Things I Wish Someone Told Me About Owning a Business,” what’s one piece of advice you would give to a new ,business owner?
This article is intended to provide you with general information; it does not constitute any type of legal advice. For recommendations related to your specific matter, we encourage you to review our Practice Areas page for additional information and then contact us to discuss your company’s legal needs.