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Avoid common start up mistakes

  • Failing to select the proper type of business entity;
  • Failing to draft a solid business plan;
  • Poor financial planning;
  • Failing to complete regulatory and administrative requirements.

In order to avoid these mistakes, you should take time to plan your new business, starting with big picture concepts and working through practical considerations affecting the day-to-day operation of your new business.

Conceptual Planning

Initially, you should spend time conducting market research, writing a business plan, and securing funding.

  • · Conduct market research. Once you identify the products and/or services the business will provide, you should conduct market research to determine demand for those products or services in your market. To the extent possible, your market research should identify competitors and market risks. You should also identify the target demographic for your products or services and determine whether you will sell online or operate out of a physical location.
  • · Write a business plan. After you are satisfied with your market research, you should draft a business plan laying out your vision for the business. A business plan can be as simple as a one-page summary of the vision you have for the business or a report with multiple pages and sections. Regardless of the length of your business plan, your business plan should lay out your goals for the business, as well as your vision of how the business will accomplish those goals.
  • · Funding the business. Entrepreneurs commonly fail to fund their new businesses adequately. However, it is critical to the success of your new business that you adequately capitalize your business from the beginning. Your new business will incur startup costs including professional services fees, registration fees, and industry specific costs, such as inventory and equipment costs. You will need to plan for funding these startup costs. Prior to securing financing, you will need to consider how much money your new business will need during the startup phase. In order to get an idea of how much money you will need to fund the business, you should perform a break-even analysis and consult with tax and legal professionals. Your financial analysis will likely affect the types of funding available to you and may make certain sources of funding more appealing than other sources. Of course, you can always invest your own money in the business, but, in addition to investing your own money into the business, you may be able to borrow the money from a financial institution or obtain private financing. You should secure adequate funding before moving too far down the line of practical considerations included below.

Practical Considerations

Once you have completed the conceptual planning your business requires, you should identify the practical steps needed to bring the business into existence.

· Business name and choice of entity. The type of business entity you choose will affect taxation and affect legal liability variables. Prior to making any decisions, you should discuss the various kinds of entities and their impact on your proposed business with an experienced law firm that understands the risks and benefits of partnerships, corporations and limited liability companies. You should also seek accounting advice relating to your new entity prior to selecting a particular entity type. Failure to consider the tax implications of starting a new business is a common, and easily avoidable, error.

  • · Business registration. Once you decide on a name and a type of business entity, you will need to conduct a search for the name with the Secretary of State's office to determine if the name is available. Once you find an available name, your attorney can help you register your business by filing appropriate documentation with the Secretary of State.
  • · Governing Documents. In addition to registering your business and obtaining a federal tax identification number, you should finalize necessary governing documents for your new entity. The exact nature of the necessary documents will vary based on your choice of entity, but all new businesses require governing documents that govern the day to day operations of the company, tax matters, and, if you intend to own the company with any co-owners, restrictions on transfers of ownership interests, estate planning provisions, and other related matters. Further, financial institutions generally require that, in addition registering with the Secretary of State, your new entity have appropriate governing documents and proper authorization for individuals authorized to act on the new entity's behalf. The type of documents required varies based on your choice of entity. You should consult with an experienced attorney in order ensure that you put the right governing documents in place for your new business.
  • · Permits, banking and accounting. At this stage, you should obtain state and federal tax identification numbers, open a business bank account and purchase insurance. You will also need to apply for licenses or permits at the state, local, and federal level prior to offering your service or product to the public.
  • · Location. Your business will need a physical location, whether it be your home office, a commercial storefront, or an industrial facility. You should identify where you will create the product or provide the service, and what type of registrations, permits, and licenses your city and state will require for your proposed use. In some instances, government incentives or grants may be available if you locate your business. You should also research property zoning rules and the state, county and local rates of income tax, sales tax, property and corporate taxes.

You do not have to make the same mistakes as other new business owners. If you make time for conceptual and practical planning, then you will be more likely to avoid common startup mistakes and to get your business up and running successfully.

According to Forbes, there are a number of common missteps that occur when launching a startup:

  • Failure to think about the proper choice of business entity;
  • Failure to delegate tasks to others, doing it all on your own;
  • Neglecting to draft a solid business plan;
  • Poor financial planning, not including a funding reserve;
  • Taking on clients that are not aligned with your product or services;
  • Neglecting to complete regulatory and administrative requirements.

The good news is that The Small Business Administration offers detailed guides for those thinking about a startup. It may be helpful to sort tasks into planning, launch, management, and growth categories. Doing so will help you form a clearer picture of what you want the business to look like and identify potential areas of growth in coming years.

Conceptual planning

At the planning stage, you should think about market research, writing a business plan, and funding.

  • Conduct market research. Once you have a solid idea of the product or service you want to offer, find out whether a market for it exists where you live. What does your ideal client look like? Will you offer online sales or have a physical location? Identify similar businesses operating in your market area, and how much of the market is open to a new competitor.
  • Write a business plan. The business plan is a road map for the future. People may be intimidated by the process, but getting your information and goals organized is always a smart choice. A business plan can be as simple as a one page summary of the vision you have for the operation, or a report with multiple pages and sections.
  • Funding the business. How will you foot the bill for startup costs? Do you need a loan, or can you obtain private funding through investors? How much do you need to get started? Calculate a break even analysis and consult with accounting and finance professionals.

Practical considerations

At this stage you identify the practical steps needed to bring your vision into reality. How do you take everything from the planning stage and transform it into a working business?

  • Location. Identify where you will create the product or provide the service. Are government incentives or grants available? Research property zoning rules and the state, county and local rates of income tax, sales tax, property and corporate taxes.
  • Business name and choice of entity. The business entity will control taxation and legal liability variables and how the business is named. Discuss the details with an experienced law firm that understands the risks and benefits of partnerships, corporations and limited liability companies.
  • Business registration. Once you decide on a name and type of business entity, you need to register with the Secretary of State to find out whether the name is available. In North Dakota, once the name of your business is approved and filed, it is protected from use by others.
  • Permits, banking and accounting. At this stage you get state and federal tax identification numbers, open a business bank account and purchase insurance. Apply for licenses or permits on the state, local, and federal agency level to offer your service or product to the public.

Having a framework in which to organize your ideas and plans makes a huge difference. It also prepares you for an efficient meeting with a business attorney. There are many variables to consider, but you can start with the basics and build from there.

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