A startup company is one that’s in its initial phase of business. Founders and co-founders establish the business. These individuals have the most at risk because they are usually the ones who put their own money on the line; they also typically toil for long hours to get the company going. If you’re an entrepreneur setting off on your own, you may seek to add a co-founder to your new business to provide vital complementary skills.
This article examines what founder should know and understand as they start a business. Startups are at high risk of failing (about 25% of businesses fail in the first 12 months), so make sure that you follow these tips:
Create a Business Model. Many founders are so keyed up to get going that they don’t spend the time on the prep work. That includes developing a well-thought-out business model. Many will still be experimenting and determining what might work. This takes considerable research and due diligence. A business model is a strategic plan that details the way in which the company will make money. This plan describes how the company will produce its product, present to the public, and produce sales. A business model will determine the type of products that make sense for a company to sell, how it wants to promote them, the best prospects to target, and the expected revenue.
Determine the Legal Structure and Do the Paperwork. This is a crucial aspect of building a startup. Ask an experienced small business attorney about the types of business organizations and which one will be the best fit for your situation. At the same time, settle on a business name. Plus, at this point, there are several tasks that you’ll need to research and/or accomplish:
- If you’re organized as a corporation, LLC, or partnership, apply for a Federal Employer Identification Number (FEIN) from the IRS. You’ll need this to open a bank account or process payroll;
- Find a bank and open the company bank account;
- Ask your business attorney about the required licenses and permits;
- Set up an accounting and record-keeping system; and
- Purchase business insurance
Estimate Your Startup Costs. If you calculate the costs of startup, it will help you when speaking with investors because they’ll want to know when you think your new business will start to become profitable. Some types of startup costs include one-time startup costs, such as
-
- New York state business registration and formation fees;
- Ongoing expenses, like payroll and benefits, supplies, and subscription services; and
- Overhead costs, such as monthly office rent, utilities, insurance, taxes, computer equipment and technology, and production costs.
Of startups that fail, 30% do because of lack of funds and/or cash flow problems.
Find Space. Your company may need to find space to operate, such as a retail space, an office, manufacturing center, or a warehouse. You’ll need to lease the space and get the utilities turned on and sort out the necessary equipment and/or furniture. If you plan on working from home, consider a virtual office address to protect your privacy.
Create a Team. Cofounders need to put together team. That’s one of the highest-priorities. Learning how to form a founding team that can cover the gaps is critical. A founder should assess their own strengths and weaknesses and try to hire complementary founding team members. A founder should consider when to make their first hire and whether there’s a benchmark level of revenue you should attain before hiring an employee? Also, do you know which positions to hire for first? You should outsource functions that don’t yet require a full-time employee, such as human resources and accounting. As your company scales up, you can consider bringing people on for these roles.
Get Funding. The founder is responsible for securing funding. The most common form of investment in ventures that are just starting is from friends, family, and angel investors. Founders will also offer equity or shares to their employees to start fundraising efforts and then try to attract other investors by sharing part of the company with them. When new capital is raised, equity is frequently distributed to investors as their source of return.
Keep Learning. A very important item that founders need to know is what they don’t know. It’s critical to be learning continually. This might mean educating yourself about a specific market, a growing need, or the competition. Find a mentor and get learning. Ask for feedback on your product or service. Speak to knowledgeable people and listen to what they say.
Contact Us
We love working with New York State small business and startup owners who are striving to make their businesses successful. In fact, 99% of all businesses in US are small businesses (e.g., under 500 employees). Small businesses are the backbone of our ecnomy.
Reach out to us with your legal needs and we’ll let you know the value we bring and the cost we charge. You’ll find that our motto of “Build. Not Billed.”® is true. We are here to help you Build your business, and not just Bill you for it.
If you liked this article, check these out as well:
Choosing Your Business Structure
Choosing the Right Entity for your Business
Francine E. Love is the Founder & Managing Attorney at LOVE LAW FIRM PLLC which dedicates its practice to serving entrepreneurs, start-ups and small businesses. The opinions expressed are those of the author. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
