Starting Your Own Business Step 1 - Planning and Formation
7/05
For those considering starting a business, there are many things to be considered. We will be covering some of these topics over the next few weeks in a four-part series in this column. Today’s column cover some of the legal formalities with starting your business. Step 2 will cover some of this issues pertaining to employees. Step 3 will cover accounting and taxes. This series will conclude with Step 4 which will cover marketing and advertising.
The first step to starting your own business is to formulate a business plan. This is an absolute necessity if you will be looking for outside financing from a lender for your start-up business. Even if you are financing your own start-up, the preparation of a business plan will make you focus on what will be required to turn your business venture into a success story. The business plan will address the products and services you have to offer and how you are going to get your products and services to your customers. A solid business plan will help you project where you business will be at certain points in the future. If your business is not going to be home-based, you will have to enter a lease and should have an attorney familiar with commercial leases review it. Keep in mind that most start-up business will require a personal guarantee from the owner of the business on any commercial lease. There are many books and web sites available to assist you with the formation of your business plan.
A preliminary question you must consider is what business form will your business take. The most simple business form is the “DBA” or “doing business as” business format. When you do not incorporate or file a formal business name, but call your business a specific name, such as “Joe’s Garage,” you are considered to be doing business under that name. You will have to file a Certificate of Doing Business with the County Clerk if you wish to be formally recognized and if you wish to open up a checking or other business account in your business’ name. This is a simple form that does not require an attorney’s assistance to file. Under the “DBA” format, you will have personal liability on all of your business contracts and if someone is injured in connection with your business or by one of your employees. Partnerships can be formed when there are at least two principals in the business and each partner would also have personal liability in connection with the business.
A safer method of starting a business is to have your business incorporated or to start it as a limited liability company. Generally, this will require the assistance of your attorney or accountant. The greatest benefit to these types of business formations is the protection of limited liability. If you have start-up capital of $20,000.00 which you put into your business and your employee injures someone and a judgment of $1,000,000.00 is obtained against your corporation, the judgment would only be enforceable against the assets of your business and not against your home, personal bank accounts or other personal assets. The biggest mistake that many small business owners make when forming a business is that they do not conduct there business in the corporate name. They sign their personal name to contracts and put money into personal accounts rather than signing in their corporate capacity and using separate business accounts. This is a simple mistake that can lead to personal liability.
Another item of which you must be aware is whether your business requires any type of licensing to operate. Your attorney can assist you with this question. This is a requirement in many business in which you go into customer’s homes such as contractors in the home improvement business. Most counties have Departments of Consumer Protection which handle the licensing for these types of businesses.