Business Formation Checklist: 5 Things to do When Getting Started
Learn the five key steps of business formation that will set your company up for success in the future.
The steps that you take early on, when forming your business, will have a great impact on your business’s long-term success. You may be tempted to hit the ground running as soon as you have a promising business idea. However, you’re often better off slowing down, stepping back, and taking the time to cross your “t’s” and dot your “i’s” as you form your business. Here are five steps every future business owner should take while getting started.
1. Create A Business Plan
Lack of a detailed, realistic business plan is one of the top reasons why businesses fail. Your business plan will outline the goals your business hopes to achieve, how it will meet those goals, problems that may be encountered along the way, and how those problems will be solved.
Some of the key elements to include in your business plan are:
- The problem in the marketplace that your business hopes to solve
- How your business will solve that problem
- How your business brings value to clients or customers
- Whether you’ll have any partners in your business
- The roles each partner will play in the business
- How each partner will be compensated
- When and how you will attend to grow your business
As you formulate your business plan, it is important to do detailed research. Examine how other businesses have attempted to solve the same problem. Where have those businesses fallen short? Where have they succeeded? How might you improve on their approach? Your research may inspire you to re-orient and change your business’s goals or approach, so be open to that possibility. If you need to pivot, it’s easier to do so early on.
2. Choose A Legal Business Structure
Once you have a strong, detailed business plan, you’ll need to choose a structure for your business. For many small business owners, an LLC is the right choice. Structuring your business as an LLC creates a legal separation between you and your business. It protects you and your personal assets from your business’s liabilities and debts.
There are, however, several types of LLCs. For example, a single-member LLC is structured differently from a multi-member LLC or a manager-managed LLC. An attorney who specializes in business formation can recommend the best business structure for your needs and also make sure you understand the nuances of that particular business structure.
3. Choose And Register A Name And Location
Choosing a name is a more involved process than many new business owners realize. Your business’s name needs to be distinguishable from others — especially your competitors. It cannot infringe on any registered trademarks. Hiring an attorney to do a trademark search of both federal and state records is a good place to start. This way, you can ensure your business’s name is truly unique and available before attempting to register that name with the state.
In addition to deciding on a name, you will also need to choose a physical address for your business. For some businesses, this means buying or renting a physical space. However, there is an increasing number of businesses that are run remotely out of the owners’ homes. In such cases, you still need to look over your HOA bylaws and local zoning ordinances to ensure you can legally operate your business from your address. A business lawyer can look into the details for you. Once you’ve chosen your business’s location and name, you’ll need to apply for a business tax certificate through your city and county.
4. Consult Professionals
As mentioned above, hiring a business attorney is an important part of the business formation process. There are three other professionals who you’ll want to consult with during the early stages of your business. Working with these professionals from day one can prevent a lot of headaches later on.
- CPA/Accountant: A CPA can guide you in establishing and keeping proper financial records. They can review your tax obligations and make sure you’re making legal and responsible financial choices for your business.
- Banker: You will need a separate business bank account from day one in order to avoid commingling your business and personal funds. Meeting with a banker is an easy way to determine what sort of accounts your business needs and how to manage them.
- Financial Advisor: A financial advisor can help you make wise plans not only for your business’s future, but also for your own financial future. They can guide you through steps such as setting up a retirement plan and calculating your own salary.
Beginning to form relationships with these professionals early on will give you a huge advantage as a business owner. If at any point during your business ownership you have a question about tax law or finances, you’ll be able to turn to professionals who are already familiar with your business.
5. Create Contract Documents
Good contracts are the key to a good business. It’s wise to work with a business law attorney when creating your contracts. This will help you avoid disputes, misunderstandings, and litigation later on.
There are three key types of contracts most new business owners need to create:
- Client or Customer Contracts: These are the contracts you’ll present to those who wish to pay your business for its services. Each industry has its own standards and nuances. Your attorney can often help you create a general client contract with key terms you can modify for each new client or service.
- Vendor and Supplier Contracts: Many businesses purchase goods or services from other companies. You’ll either need to establish a new contract with each of your suppliers, or have your lawyer look over the contracts your suppliers have asked you to sign.
- Employee and Subcontractor Contracts: If you’ll be hiring employees, you need to make sure your employment contracts follow all labor and employment laws. You also need to ensure the contracts don’t open you up to litigation from current or past employees.
If you’ll be working with independent contractors, you’ll need separate contracts drawn up for those workers. Your attorney will ensure those contracts meet the legal requirements for independent contractors so you don’t cross boundaries that would require you to classify them as an employee.
While your new business may not need or use all of these contracts right away, having them drawn up early in your business formation is advantageous. You’ll then have the documents in place to hire new employees, secure a new supplier, or take on a new client when the time is right.
Starting a new business is always exciting, but you don’t want to get so caught up in the excitement that you forget to plan and think ahead. Smart business formation leads to long-term success. If you’re a new business owner seeking legal counsel, please contact Munizzi Law Firm. We offer reliable, scalable legal services for small to mid-sized businesses in Central Florida, and we’d be pleased to help set your business up for success.