Thinking about starting your own business but unsure where to begin? Here is a quick tutorial of essential considerations to help set you on the path to successful entrepreneurship.
01 – Form a business entity
A business entity is simply a legal vehicle formed to do business. While there are many benefits for doing business under a legal entity, the primary purpose is to protect the owner's personal assets from business liability. There are diverse legal entities to choose from when forming a business. Here are the most common legal entity types in which the companies used to run its operation.
Limited Liability Company
- Protect personal assets from business liability
- Fewer formalities and flexibility in how you want to manage the business
- Pay taxes once at the personal income level, which is known as the “pass-through” taxation.
- Owners of the LLC are called “Members.”
- Forming a corporation to run your business also supplies liability protection
- The management structure and governance are more formal than running a limited liability company
- Taxes are assessed at both the corporation and shareholder levels, known as “double-taxation.
- Owners of the Corporation are called “Shareholders.”
02 – Manage Risks
It's important to know the strategies to reduce the risk you face when running your own business. Here are some pointers that would save you a lot of headaches down the road.
.Obtain proper business documentation
You will need all legal documents to ensure that you do not face any fines or adverse consequences. Make sure to register your business and obtain a business license if your business needs one.
.Buy insurance coverage
Insurance helps cover the cost of property damage or liability claims. You never know when something can go wrong that would devastate your business. Insurance will make sure that these incidents do not detail your business.
.Engage corporate counsel and financial & tax professionals
Finding someone who can create a framework for protecting your business can be invaluable. The tip is to involve them as early as possible in your early planning phase. Competent professionals can provide clear guidance and roadmaps for launching your business and avoid common pitfalls that derail your plans.
03 – Organize your team
At the beginning of the startups, the founders tend to do everything to save costs. But having outside help can prove beneficial too. Suppose your business is formed as a corporation. In that case, you may want to set up a board of directors or a board of advisors to help make strategic decisions for the Company. The most significant difference between a Board of Directors and a Board of Advisors is that the Board of Directors owes a legal fiduciary duty to the shareholders of the Company. In contrast, the Board of Advisors' responsibilities is typically contractual.
In addition, you will also need staff to carry out various essential functions of the business, such as accounting, HR, marketing, and operational managers, to name a few. In hiring staff, the choices are either hiring them as employees or independent contractors. Remember that the employment types you choose to run the business will affect your bottom line, risk profiles, and tax implications. Discuss the pros and cons with a professional first before making this decision.
04 – Funding your venture
You will need startup capital to begin your business. Here are some possible methods.
- Loans through banks or credit unions
- Angel investors — a wealthy entrepreneur who supplies funding in exchange for ownership equity
- Friends, family, and acquaintances are always friendlier investors
- Bootstrap financing – Using your own money to fund the projects you want to get off the ground
- Venture capitalists – private investors that supply capital for ownership equity and a stake in your business, typically VCs will want some sort of control over your business as well
- Outside investors – these groups of investors can provide the capital you need but will want significant returns on their money
05 – Have a business plan
Finally, and perhaps the most important one — you will need a business plan. As tedious as it sounds, preparing a business plan will help you think through your business model and find the competitive advantage of your business as well as the area of market opportunities you see to grow your business. Additionally, if you are planning to raise money from others to fund your business, a well-constructed business plan with clearly articulated goals and projections will help you build trust with the people from which you wish to raise money and allow you to have an easier conversation with the potential investors and lenders.