Demystifying the Law: Setting Up a Small Business (Part 1)
I’ve been self-employed for more than five years, but about a year ago, I decided it was time to reexamine my business structure. As part of the process, I spoke to a number of people – including accountants, bankers, lawyers and other small business owners. I picked their brains to decide what business structure was best for me and to ensure I didn’t overlook anything. If you’re thinking about starting a small business, this article will attempt to demystify the process.
First, let me offer a disclaimer: There’s no such thing as "one size fits all" when it comes to small businesses. Many factors will affect the decisions you make, including the industry you work in, the state in which you’re located, how much income you expect to generate, the degree of risk you’re willing to assume and the potential liabilities you may face.
In this article I’ll talk about issues you should consider and decisions you should make, but I’ll avoid making specific recommendations. What’s right for me isn’t necessarily right for you.
Do Your Research
I don’t think everyone is cut out to be a small business owner. You have to have an independent, entrepreneurial streak, you must be able to tolerate a certain amount of risk, and you probably have to feel comfortable selling yourself.
If you’re just getting started, do a lot of research. Talk to other small business owners who work in the same field. Talk to potential customers. Pick people’s brains. Take advantage of the information and services offered by the US Small Business Administration. Read books that are on-topic.
Write a Business Plan
All successful businesses – whether start-ups or well-established organizations – have a business plan. This is a living, breathing document that should be reviewed and updated regularly as your business grows and evolves.
There are several crucial elements to include in your business plan:
- A description of the business: What you’ll be doing, who your customers are and how you’ll be satisfying their needs.
- An analysis of the market: In what industry will you be working? Who are your competitors? Who are your potential customers? How does your product or service stack up against your competitors? What potential sales obstacles do you face?
- An organization and management overview: If you’re solo, this section will be easy, but you want to identify everyone who’s necessary to making your business successful.
- A sales and marketing plan: The greatest idea is worthless unless you know how to sell it to others. In this section, you want to look at how you’re going to market and sell your product or service, how you expect to grow your sales and what the sales process looks like.
- A description of your product or service: This is an in-depth look at your product or service offering.
- Financials: Assuming this is a new business, you’ll only be able to include projected financial data, but your financials section should have your budget for the next five years. Include projected income statements, balance sheets and cash flow statements. As you grow your business, you should update the financials section to include historical financial information.
Pick a Name
Will you work under your own name (common among professionals such as lawyers, CPAs and doctors) or a business name? If you’re using a business name, there are many factors to consider:
- Is any other business using the same name or a similar one?
- Does your name accurately express what your business does?
- Does the name limit you if you decide to expand into other product or service offerings or a different geographic areas?
- Is the most appropriate domain name available for purchase?
- What do your friends and family think of the name?
In next Thursday’s blog we’ll discuss the rest of the things you should do when starting a new business.
- Learn more about business law on Lawyers.com
- Find a business law lawyer on the Lawyers.com web site or your smart phone
- Discuss your issue on our business start-ups legal forum
- Lawyers.com Suggested Legal Books
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