The Do’s & Don’ts of Starting a New Business
By Andrew Phelps, Partner, Fort Phelps PLLC
The United States economy has been sputtering since 2008, searching constantly for a path to reignite the flames of growth, job creation, and the expansion of wealth. Current economic conditions have forced some individuals or families to start their own business, others have ventured down the path of entrepreneurship out of boredom or spite. Regardless of motive, starting a new business can be one of the most exciting, terrifying, inspiring, and enjoyable experiences of a person’s life. It doesn’t matter if you are middle aged and recently laid off, a retiree with disposable income, a technological superstar, or a millennial confused as to why your college degree and mountain of debt hasn’t qualified you to be CEO of the universe, there are certain do’s and don’ts everyone needs to know before chasing a dream.
Initial words of advice, do not resist the temptation of a professional service provider. Not every lawyer chases ambulances, and beans aren’t the only things counted and studied by accountants. Doing it yourself is recommended for a lot of things in life, but when it comes to your personal assets and liabilities, it is wise to at least consult a professional before taking the plunge. As with any professional, choose wisely and make sure before engaging an accountant and or lawyer that they are duly qualified and experienced in forming new businesses. There are many steps to forming and registering a company in Kentucky, as in any other state in the union, and services such as legal zoom do not provide the full package. Professional service providers are professionals for a reason, letting them assist you in your journey will provide you the necessary protection, peace of mind, and someone to blame if things go wrong.
In conjunction with the proceeding words of wisdom, nothing is more important in starting a new business than making sure it is formed in the most advantageous manner. The number one issue we encounter when working with entrepreneurs are people who start companies with multiple owners where each owner has a different vision, goal, and ethical standard. Regardless of whether your 10 year plan includes launching an IPO or just becoming an anchor retail store in your local neighborhood, if the wrong people are involved in ownership and decision making then your shop may fold before the first dollar is ever earned. Not every business can function with just one owner, but before splitting up the pie, ensure everyone coming aboard can be trusted, is on the same page, and understands the purpose of the company.
Finally, before paying the Secretary of State $40 and securing an employee identification number from the IRS, understand and select a corporate structure that best suits your vision. Rule 1 through 10, and please abide by it, never form a S corporation. The limited liability company was established to replace the S corporation and all its advantages can be utilized by either forming a LLC or C corporation. Unless projected revenues are substantial and your business plans to bring on investors through a series of investment rounds, the LLC offers anyone and everyone the quickest and most flexible path to beginning one’s own company. Picking the wrong structure isn’t the end all be all, but getting it right from the beginning will save everyone crucial time and necessary funds.
Almost 60% of employed Americans receive their paychecks from small businesses. Beginning in 1970, almost 70% of new jobs have come from new and small companies. Entrepreneurs are the foundation and backbone of the American dream and our country will continue to recover on the shoulders of the dreamers. Forming your new business may only take a couple of days, but the successes and failures of it may last a lifetime. Take the leap and take the risk, become an entrepreneur, just remember to put the odds in your favor by getting it right from the start.