Four Secrets to Starting A Successful Business, Part 2
So, you want to launch a small business or reposition your company as a managed service provider (MSP). What steps can you take to maximize your chances for success? I’ve written a four-part blog to cover that very question. Tune in each day this week for the next chapter. Here’s part 2: The two people you need to call before incorporating.
There are plenty of Web sites and starter kits that allow you to incorporate a business in a matter of minutes. But don’t go the cheap route. Spend the extra time and money meeting with your accountant and lawyer to discuss the pros and cons of various business approaches (Limited Liability Partnerships, S Corporations etc.).
Leverage those experts to understand how to research and pursue trademarks, track and cover your business expenses, set up payroll, write a partner agreement (assuming you’re going into business with a partner), etc.
Avoid the temptation to “save money” by setting up and managing items like payroll on your own. By outsourcing such items to a pro, you can spend more time building your business and pursuing more revenue — rather than trying to learn about tax withholdings for salaries employees, etc.
And don’t be afraid to ask difficult questions. My business partner (Amy Katz) and I had to cover a range of dark questions (What if one partner dies? What if there’s a family tragedy and a partner needs to leave the business? What if one partner screws the business?) while laying the foundation for our partner agreement with our lawyers.
I made the mistake of taking “legal” advice from my “accountant.” It wound up costing me about six months of lost time (to correct some early mistakes) and 3X the amount I would have paid had I taken the correct steps in the first place. I agree that you need both types of help and should find both an attorney and an accountant before starting your business.
Joe,
IMHO you’ve got the cart before the horse. Before you shell out your first dollar, tackle the difficult questions first:
– Ownership, day to day control
– How, when do people get paid?
– Investors (who and how do they get their money back)
– How big do you want to be (is this a lifestyle business or do you want to grow into a $10M business)
– Evil twin questions which you partially covered.
Then you can go visit a tax accountant to understand the money issues. Then you can go visit an attorney to codify your wishes. But hiring an accountant on an ongoing basis is a waste of money when you are starting out. You’re better off getting Quickbooks, a good bookkeeper and using SurePayroll (which takes care of all the tax and unemployment insurance requirements).
Then you need to have on call a corporate attorney for the business at large, a contracts attorney for all the correct forms and a litigation attorney for when things go south. And you need an HR consultant to write up policies and procedures and help with your employee strategy (hiring, retention, legal requirements).
It’s a three legged stool. But go for best of breed in each area you need help. And don’t forget to cover your state licensing requirements and liability insurance needs.
And here’s the short answer: if you’re doing a bootstrap lifestyle business by yourself, the answer is an LLC in your state. If you want to get big, a Delaware C Corporation is the only way to go (use NRAI as your agent). The cost is about $100 or so. But have your attorney help write your articles.
Bruce: Rewind a bit and you’ll see we already covered day-to-day control in part 1 of this post. Your thoughts are great, tho, and truly appreciated.
I think the most important legal point to determine before you get started is how people get out if they want out or someone else wants them out. This is almost never negotiated in advance, and turns into a big, expensive legal mess when you try to figure it out in the heat of the moment.
Mike Cooch
http://www.everonit.com
http://www.smbitpros.com
Mike: You raise an ugly but critical point. Amy (my business partner) had the smarts — and the guts — to raise these types of issues before we incorporated. What if one partner is incompetent and doesn’t deserve to continue on in the business? What if a partner wants tp leave? It’s not a fun conversation but it is an important one. And then, you need to put the exit strategies/agreements in writing — but in a balanced way so that both partners (A) are motivated to stay with the business and (B) have justifiable ways to leave the business if it isn’t worth their time. I’m leaving out a bunch of scenarios but I guess the key takeaway is that you need to sit down at a table and have an open conversation about “what if” scenarios (partner death, family emergency, incompetence, outside job offer, etc.).