Are you ready to embark on the exciting journey of starting your own business? Before diving into the process of setting up a legal entity, obtaining business licenses, signing leases, and securing loans, it’s crucial to conduct a thorough self-assessment. Consider your strengths and weaknesses, your ability to take risks, problem-solving skills, independence, persuasion, negotiation skills, and the support you have from others. Also, evaluate your financial readiness to invest the requisite time, money, and effort into this venture without a steady income source.
Nobody ever said starting and running a business was easy, however, the ability to navigate through the aforementioned assessments before making the leap will undoubtedly help set you and your business up for success. To assist you with your journey, our DHW Small Business Team offers up the following guidance for you to consider as you craft your business plan and unleash your entrepreneurial spirit:
Research and Market Analysis: One of the most critical questions to ask yourself is, who is going to buy my product or service? In short, it involves identifying the feasibility of your business idea, which involves determining your potential customer base and their characteristics, analyzing market trends, competition, and the demand for your product or service. From there, you can begin to define what sets your business apart from competitors, develop a unique value proposition that appeals to your target audience, and craft acquisition strategies such as customer loyalty programs.
Capital Needs and Funding Sources: One of the biggest pain points we see new business owners struggle with is the lack of capital and/or the inability to properly estimate how much they’ll need to sustain operations once the business starts. And as much as costs have skyrocketed over the past few years, there is an increased emphasis on the importance of accurately calculating startup costs, including facilities, equipment, and licenses, as well as supporting operations in the early stages when revenues are potentially low. Also, while assessing your ability to fund the business, make sure you explore all available financial resources. Friends, family, and credit cards are nice to fall back on, but exploring financial resources with a trusted advisor that can assist you with quantifying costs and qualifying your entity for various loan programs and business financing tailored to your needs is a highly recommended approach.
Select Professionals: Over the course of my career, I’ve encountered numerous instances where clients have attempted to save money by doing something on their own rather than having a professional assist them. Whether it be setting up the entity, structuring it, or filing taxes, the cost of checking the wrong box, placing a number on the wrong line, or obtaining the wrong license or identification number can be costly. In most cases, we can fix what has been done but, this added cost only reduces profit and drains other resources such as your time and the shear anxiety of having to address a state or federal notice. It’s fine to manage something on your own if you’re confident and comfortable doing so, however, the lack of knowledge or “guessing” on a formal application can lead to an unfavorable legal or tax situation and unnecessary costs down the road. As such, increase your chances of success by consulting professionals such as attorneys for legal advice, CPAs for accounting and tax guidance, bankers for funding options, and small business resources offered by various federal, state, or local institutions.
Business Structure: It’s important to understand the various types of business structures that are available prior to setting your entity up. Each comes with various traits, rules, and regulations for factors related to risk, taxes, control, privacy, continuity, and organizational costs. Some offer more flexibility than others, while some are very strict in terms of operations. As such, it’s important to discuss these options with a trusted advisor prior to setting up your entity to determine which structure best fits both your current and long-term needs.
Employees and Management: If you plan to hire employees or contract with outside labor, it is critical that you understand your responsibilities in connection with labor laws, such as distinguishing between subcontractors and employees and how they are treated for payroll taxes and other factors. Compliance with payroll and unemployment taxes can bring added complexities and we highly recommend new business owners seek assistance when setting up payroll accounts, identification numbers, and preparing and filing the requisite tax forms associated with employees. We also recommend a strong on-boarding program and investment in training to foster a positive workplace culture that encourages employee engagement.
Taxes: As a new business owner, you may quickly find out that there are many other taxes that you or your entity may be subject to than just ordinary income taxes. Taxes in connection with employment, sales and use, property, franchise, excise, and various others can apply to your entity depending on what you’re selling, when you’re selling, and where you’re selling your products or services. As such, it’s critical that you familiarize yourself with the various federal, state, and local taxes that may apply to your entity, how they are charged, remitted, collected, and how to remain in compliance with each. The last thing a new business needs is to be blindsided by a tax obligation that could have been prevented with some upfront consultation with a professional or research on your own. This can prove costly as the associated penalties and interest with late payments and/or underpayments can add up quickly and drain cashflow.
Legal Compliance: Engaging legal counsel can be very beneficial when setting up and structuring your entity however, it can also assist with understanding and complying with local, state, and federal regulations, and assist with obtaining necessary permits and licenses for your specific industry. This guidance can play a critical role in protecting you and your entity from risk, especially if it will operate in a highly regulated industry or one that offers a consumable product as examples. In addition, if your entity will create any intellectual property, such as trademarks, patents, or copyrights, legal counsel can help identify and protect it from infringement.
Technology and IT Infrastructure: As the world economy becomes more data-driven and e-commerce continues to grow, the need for a reliable, safe, and efficient IT infrastructure will no longer be luxury, but a requirement to support operations, facilitate transactions, provide key data for operations and of course, keep your data and your customers data safe from cyber criminals. As such, we recommend investing in a reliable IT infrastructure for communication, data storage, and online presence, and contracting with a reliable IT and/or cybersecurity resource that can evaluate the technology requirements for your business to provide peace of mind and protection for your entity.
Insurance: Much like an attorney or CPA, a trusted insurance partner can play a key role in keeping your entity protected from various types of risks and unexpected events that may arise. A qualified insurance professional can work with you to identify the types of risk that your entity may be subject to and then tailor the requisite coverage and level of protection for areas such as general liability, auto, cyber, business interruption, and other areas where your entity may have risk.
Summary
Starting a business is a dynamic process that requires a multifaceted approach. In my experience, success often comes from a combination of careful planning, adaptability, and continuous improvement. As such, I recommend business owners regularly revisit these considerations, at least annually, to ensure their business remains resilient, positioned for growth, and competitive in the ever-changing business environment. To learn more about these concepts or to discuss your new business venture, please contact Tim Reynolds at tim@dhw.cpa or 828.322.2070.