Starting a new business can be a thrilling experience. Most people are enthusiastic about the process and want to get their new company up and running as soon as possible. While expediency is important, so too is proper planning.
Every new business comes with a significant degree of personal risk. Entrepreneurs can take steps during the business formation process to protect themselves from the most significant risks. Certain types of risk are industry-specific and may not apply to every new business owner. Others are more universal and are likely to affect the vast majority of entrepreneurs.
What steps should most entrepreneurs complete when starting a new company?
Conducting industry research
Even the best idea doesn’t necessarily translate to reliable profits for an entrepreneur. Whether there are already numerous other companies moving into that sector or looming issues with the supply chain for an industry, there may be factors that make a business model unsustainable. Aspiring entrepreneurs need to create a thorough business plan that includes a detailed evaluation of the economy in which they intend to market their business and the current competition. They may need assistance performing their due diligence to ensure their concept is a viable one.
Choosing the right business entity
There are many different types of businesses that people can operate. Sole proprietorships are perhaps the simplest, while corporations require the involvement of many people and quite a bit of paperwork. There are benefits and drawbacks to each type of business form, and entrepreneurs should consider each option carefully to ensure that they select the best option given their circumstances. It will then need to follow the proper procedures for filing paperwork with certain government entities.
Creating separate financial accounts
Commingling personal resources with business assets is a common mistake early in the business formation process. Too many entrepreneurs risk taking on personal liability because they fail to separate business resources from personal resources. The sooner someone starts a separate bank account and maintains independent financial records for a business, the more likely they are to insulate themselves from personal liability in the future.
Most entrepreneurs benefit from sitting down with a legal professional to review their business model and discuss possible sources of liability. Planning carefully can help minimize the risks inherent in a new entrepreneurial endeavor.