With the recent economic downturn and the “jobless recovery,” an increasing number of people are opting to hang up a shingle and start their own businesses. If you are among these entrepreneurial Midwesterners–regardless of whether you are starting a tanning salon or a technological research and development firm–the following is a checklist of things to do:
□ Draft a Business Plan. As with all things, it is best to start with a plan. A business plan should cover basic topics such as your company’s goals, management structure, services/products, target clients and marketing strategies. A business plan provides internal guidance and increases external confidence in your business, making it more likely to secure funding.
□ Obtain Good Insurance. Prepare for the best, plan for the worst. At a minimum, there are several types of insurance essential to all companies:
(1) General business liability insurance and business errors and omissions insurance for directors and officers. The need speaks for itself. Consult with an experienced insurance agent to match your specific business needs and risks with insurance coverage.
(2) Unemployment insurance. This is actually a tax that you must pay to the State if you have employees. If you don’t pay it when you should, the State will come seeking its just dues.
(3) Workers’ compensation insurance. In Wisconsin, an employer may be required to get insurance if it has just one part time employee to whom a surprisingly small sum is paid in a quarter; similar laws apply to employers in Minnesota and North Dakota.
□ Make an Informed Decision – To Be a Business Entity or Not? There are significant benefits to forming a Limited Liability Company (“LLC”) or corporation with regards to taxation and protection of personal assets. Consult with a CPA to determine which business entity, if any, will lead to the most financially positive outcome. An LLC or corporation can also serve as a powerful shield to you personally in the event the business incurs debts or other liabilities. But this protection can be lost (it’s called piercing the corporate veil) if you don’t treat your business as a legitimate business, e.g. adequate capitalization, observance of corporate formalities and strict adherence to separate bank accounts. For example, if you own a retail store, don’t grab $40 from the cash register to fill up your gas tank on the way home and don’t pay the rent with your personal bank account. For some small businesses, being a sole proprietor may make sense. There are costs associated with forming a business entity – drafting and filing Articles of Organization, Membership Agreements, Annual Reports, etc., and the necessity to hire an attorney to represent the business in the event of litigation in District Court in Minnesota or Circuit Court in Wisconsin. Moreover, in the case of many start-ups, lender and business partner insistence that the members of an LLC sign personal guaranties obliterates much of the personal protections offered by a business entity.
□ Secure Necessary Permits & Licenses. Licenses are not just required to sell liquor and permits are not just required to operate a nursing home. Before commencing any business, check with your State regulatory agencies to ensure that you have the authority to proceed.
□ Protect Your IP. It is easy for start-ups to neglect protecting their intellectual property rights – it seems a far-flung, abstract consideration when compared to pressing, pragmatic needs such as securing funding, hiring staff, procuring business, etc. But many companies later bemoan not having the foresight to register their business name (a bonus to forming a business entity), purchase Internet domains names that match their business identity or apply for appropriate trademarks.
□ Attain Good Counsel. There are many considerations that must be taken into account when undertaking a start-up, only some of which are discussed here. Thus, the only prudent plan is to consult with experienced attorneys, accountants and businessmen knowledgeable about your industry. Armed with this knowledge and support, you will be in the best position to achieve success.
□ Commit to It. Starting a business is not for everyone. It involves hard work, a fair amount of risk and more hard work. However, with the right amount of foresight, fortitude and good fortune, it can be an extremely rewarding endeavor.
Taking the effort to do the aforementioned at the outset of a new business venture is an investment that will pay off over time.