It’s an exciting moment when entrepreneurs decide to take the leap forward and start a small business. Once you discover your why, you’ll be ready to launch a startup that can solve problems for its customers and bring value to the community.
Before you start imagining all the fantastic things your startup will achieve, it’s important to understand how to keep your small business in compliance. Certain mistakes can cause a small business to fall into bad standing with its state of incorporation. Keep from making these mistakes by checking these items off your startup’s to-do list.
1. Deciding not to incorporate.
Technically, it’s not a requirement to incorporate or form a limited liability company (LLC) for a small business. The startup may use the default entity of a sole proprietorship.
Sole proprietorships, while affordable and requiring little paperwork, do not provide the business with limited liability protection. This type of protection is found in business entities like LLCs and corporations. Startups receive limited liability when they choose to incorporate as a corporation or LLC. Limited liability, as a quick primer, creates a separation between personal and professional assets. In the event of an unforeseen circumstance, like a lawsuit that negatively impacts the business, the business owner’s personal belongings would not be seized or impacted. Limited liability protects assets like houses and cars that belong to the business owner.
What else do small business owners miss out on when they choose not to incorporate? They may find it’s a bit more difficult to establish credibility as an incorporated business with consumers and may face more challenges when filing taxes. Incorporating helps ease some of these difficulties for entrepreneurs. There are also several types of business formations available to incorporate as. This ensures your business finds the right entity to match its needs.
2. Forgetting to conduct a trademark search.
After coming up with a unique trademark, generally most entrepreneurs are advised to file for trademark registration. However, it’s important that prior to registering a trademark you conduct a name search first.
Conducting a trademark search is pretty easy. You can use a trademark database, like the USPTO’s TESS system, to see if there are existing or pending trademark registrations. If you find that your mark is already registered or has been applied for, you’ll need to come up with a new mark. This keeps your business from infringing upon the existing mark. However, if your mark is available, you may then fill out a trademark application and pay a filing fee to file for trademark registration.
3. Not opening a business bank account.
Running a small business means opening a bank account for the business. This allows entrepreneurs to keep personal and professional finances separate. The finances of a small business are also better protected in their own account.
What do you need to obtain to open a business bank account? File for a tax ID, or employer identification number (EIN). An EIN is a nine-digit number issued by the IRS. It is used to identify and track employer tax accounts. You may also use an EIN to hire employees and build business credit.
Additionally, if the business plans to conduct business under a name that differs from their existing name, they will need to file for a doing business as name (DBA). A certified copy of a DBA is required by banks to open a business bank account to accept and receive checks under the DBA name.
4. Lacking a written business plan.
A business plan covers so many crucial aspects of a startup’s growth and development. This is the document where you take the time to detail areas like the following as they pertain to your small business.
- The viability of the business. Is there a need in the market for it? Can you competently offer it and match competing companies? Can the offering be monetized?
- Developing and creating the MVP (minimum viable product).
- Target market of the small business, its demographics, and how you will market to the interests of this audience.
- Analysis of competition and their strengths and weaknesses.
- Cash flow forecast and business finances.
- Crisis and pivot plans for the business.
A well-written business plan provides your business with clear direction and strategy moving forward. It allows you to see where the business may be in the next six months, year, and five years from now. And remember: this business plan may always be edited as you see fit for the business.
5. Working without breaks or balance.
Your MO for starting a business should not be to get so consumed in work that you are unable to develop work-life balance.
Take breaks regularly and create a work-life balance that works for your needs. Treat starting a business like a marathon, not a sprint. Make decisions with intention and watch as they pay off in the long run.