Good planning is critical for the success of any entrepreneur. This article, the first of three in the “starting a business checklist” series, will guide you through the initial stage of starting a new business. After you are finished planning your business with this information, you'll be able to move onto the next step which is registration and incorporation.
I. Determine Whether the Business is ViableThe first steps for creating a new business aren’t legal in nature – they are business related. Determining whether the business has a reasonably good chance for success early on will save you from the pain of incorporating a company that will have a short, expensive life span.
1. Can you commit yourself to managing this business?Give this question some thought and be very honest with your answer. If you simply don’t have the time or you feel that your passion is elsewhere, then question whether it would be better to wait until another opportunity comes along. You need to truly dedicate yourself and maximize your efforts in order to persevere in a competitive world.
2. Perform a financial analysis of the business and determine your break-even point.How long will it take for you to earn back money that you plan to invest in the business? How much money can you ultimately make from this business? Will the long hours spent provide you with enough to cover your living expenses?
3. Create a business plan and, at the very least, an executive summary with financial statements.If you don't know how to create a business plan, you may wish to buy a business plan book. Typical financials include a forecast of profits and losses, analysis of cash flows, use of proceeds invested in the business and revenue projections against budgeted expenses. You’ll probably also want to take into consideration a marketing plan, which will be included within the numbers contained within the financial statements.
4. Determine the sources of funding for your business.Can you self-fund your business? Do you need “friends and family” money? Most startups don’t usually involve venture capital at this stage and will typically be financed by the founder, friends and family as well as some potential “angel” investors. Angels are individuals excited about the business and wanting to take advantage of the opportunity to get in on the “ground floor.”
II. Determine Which Type of Business Structure is Most SuitableThere are three basic types of business structures which can be chosen as a vehicle for doing business – the sole proprietorship (a single individual person), the partnership and the corporation. Each has its own particular advantages and disadvantages, usually making one business form preferable to another.
5. How many business owners will there be?Will the only business owner be yourself, a sole proprietor? Will it involve a partner or additional angel investors? Your choices may be limited based upon the number of investors in your new company.
6. What are the tax concerns you may have?State law varies with regard to how and at what rate business entities are taxed and the annual fees that an individual or corporation may be required to pay.
Would you prefer an easier “pass-through” of business earnings where you can report business profit and loss directly on your personal tax returns? A sole proprietorship, partnership and some corporate forms allow this type of tax reporting. In addition, corporate tax may influence you as to the state you wish to incorporate.
7. Are there any corporate fee concerns or other business requirements that might affect your decision to choose one business structure over another?State law varies with regard to the annual fees a corporation may be required to pay, such as franchise fees. In addition, some business structures have specific requirements, such as an unlimited number of owners (C Corporation) and the need to be a U.S. citizen (for Subchapter S corporation.)
8. How important is limiting your risk of liability?For many new business owners, the primary question they face is to determine what type of corporation they should incorporate since it is the only entity of the three that provides “limited liability” to the owners. Limited liability means that the money invested in the business is the total amount of risk they have invested – their personal assets such as their home and life savings cannot be seized in order to pay the debts of the business. In the majority of instances, incorporating your business and limiting your liability is worth the effort. For those with very limited funds, operating as an unincorporated “sole proprietorship” may work for some time.
9. Perform a more thorough review and comparison of the most popular business structures.This checklist provides a list of what to research when starting a new business and important supplemental information about different types of business entities. However, you’ll want to delve more into detail when it’s time to choose and potentially incorporate. You can speak to a lawyer or incorporation expert or do the research yourself. The most popular business forms are as follows:
- Sole Proprietorship
- Partnership (general and limited)
- Subchapter S Corporation
- C Corporation
- Limited Liability Company (LLC)
- Professional Limited Liability Company (PLLC)
- Professional Corporation (PC)
III. Naming Your BusinessThe branding and identity of your business is one of the most important and critical factors towards reaching success. Invest time and choose wisely since it is far more difficult to establish a business should you decide that a name change later on is in order.
10. Put together a list of acceptable names that is best suited for your new company.It is certainly possible and highly probable that some of your favorite business names will be unavailable or impractical for use. Chances are you’ll discover that many of the names you considered are already taken and you’ll be fortunate if are able to make a decision from a select few names that might be available.
11. Perform a search of your state’s business registry database to determine whether your company name is available.If another company has a name that is substantially similar to the one you propose to use, you may be precluded from using that business name. Also note that some types of names may be reserved, such as using the words “government” or “police” while others require licensing such as “bank” and “insurance.” You can usually find a state business registry database on your state's Division of Corporations, Department or Secretary of State website.
12. Perform research at any reputable domain name registrar to determine whether the domain name for your new company is available.Also search for plural versions of your proposed company name including obvious misspellings or alternate spellings that would likely cause confusion, such as AcmeAdvisors and AcmeAdvisers. You can perform searches for domain names at many popular registrars such as GoDaddy and Register.com.
13. Perform a trademark search at the USPTO, in order to determine if someone holds a trademark on the name you propose to use for your new business.The United States Patent and Trademark Office (USPTO) will provide you with a significant amount of information concerning whether a trademark exists and is officially filed, it's status if filed, as well as frequently asked questions and answers about trademark law and the trademark process. If someone else has registered your business name as a trademark, you may wish to choose another name. But if they have filed for a trademark after you have begun using your name in commerce, you may wish to file for your own trademark for your business and challenge the registration of the other party.
14. Is there a particular state whose laws and requirements may be preferable?Is having a business incorporated in another state practical? Are there specific licenses requirements? What is the tax rate in that state? If you are not physically present in a state you will likely need to pay for a registered agent to be able to accept service of legal papers.
Next Step: Business RegistrationNow that you have completed your research, it’s time to file your company with the state. Our next checklist will guide you through the business registration process.
- Business, Corporate & Nonprofit Law:
- Starting a Business
Starting a Business Starting a Business Checklist 1: Planning
By Michael M. Wechsler |
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