Do you have an idea that you believe in? It might be a passion project, or even a truly disruptive idea that can truly change the game, or maybe just level up your own game. The start of a startup is such an exciting time for any entrepreneur.
Make sure that you are keeping your business on the right path to be able to avoid some key mistakes.
1. Create the right entity.
LLC or corporation? S election or partnership?
These questions can trip you up right that the outset of embarking on the journey to fulfill your dream. As you research the pros and cons of each entity type, you’ll begin to realize that it makes more sense if you know where you plan to go.
For example, if you plan to stay on a more traditional small business route, then an S-Corporation structure could help you save thousands each year in payroll taxes. However, if you plan to grow rapidly, like hockey-stick growth, and likely raise venture capital, then an S-Corporation or an LLC with S-election may not make the most sense, because you may blow your S-Corporation status as soon as you get an investor. And if you expect to have losses and not gains the first couple of years of your business, the payroll tax savings doesn’t kick in anyway. Regardless of what your plan is for your business, don’t just go along with what your buddy or CPA suggests you do, and make sure you consult an attorney that is experienced with the type of business that you plan to build.
2. Establish the rules of your co-founder relationship.
I hear all the time from founders that they would rather punt the creation of a founder agreement. Maybe they are family members, best friends, or they just get along really well, and they can’t see themselves having the type of challenges that such an agreement would help them solve.
I also see very often former friends, family members, etc., where they heavily regret not having that agreement in place, because it might have saved the business and the relationship. Remember, the contract you put in place for governing your business will set forth the rules of the relationship. It can also be healthy to encourage a little conflict as you walk through these challenging questions with your partners and your new company’s attorney. With little risk, you get to see how each of you is able to navigate conflict, and you get to establish some guidelines and boundaries for solving problems together in the future, where the risk will be potentially much greater.
3. Protect and leverage your IP.
Your intellectual property (IP) is your secret sauce, the crown jewels of the business. It is your unfair advantage in the marketplace over your competitors. Patents, trademarks, copyright, etc., are examples of IP, but beyond that you are creating intellectual capital in your branding, your customer lists, your marketing and sales processes. You better believe that you have IP, though you may need the help of an attorney to get you to see just what it is.
And if you don’t have much now? It will come. Make certain that your business owns the IP it pays to create, meaning that you need to develop the legal forms to have employees, contractors, and vendors that you pay to create IP (website, anyone?) sign, to ensure that those crown jewels can’t be raided.
4. Create processes for forming and documenting your agreements.
As you go further into your business, you will come to find that certain transactions can be repeated over and over, and others will require customizing each time. Make sure you identify the guidelines you want to set so that you can standardize the pieces of your business that can be standardized. Perhaps those same pieces can and should even be automated, so that you press a button and it just happens.
You make so many decisions in your business, which can be draining if you are not careful. Any decisions you can standardize, you should, to give yourself more energy to put toward accomplishing other important objectives. And the attorney you work with should be willing and able to assist you with standardizing what can be standardized, and help you to streamline processes so that your conversion rates go up, your onboarding processes go more smoothly, and you begin to feel more satisfaction in what you are creating with your business.
5. Get the right help from the right people at the right time.
At different times in your business’ lifespan, it is appropriate to lift up the hood to let experts in to inspect. You can get so focused on pushing on the gas pedal that you don’t notice that something is starting to rattle inside. You’ll need a bookkeeper, CPA, financial advisor, and an attorney. Sometimes you may need more than one of each.
For a small or early-stage company, an attorney who can become a trusted advisor is a relationship that you absolutely need to begin cultivating right away. Make sure you pick the right one, meaning not only that he or she knows how to help you grow your business, but also that you find one that you get along with, that communicates well with you, and that is willing to go deep with you to truly understand your business.
If you love your business, please take it seriously. One key to do that is to schedule a time to chat with one of our experienced attorneys, and we can help you develop that solid platform on which you can build your business and achieve your goals. Contact us today to get started.