Starting a business entails understanding and dealing with many issues—legal, financing, sales and marketing, intellectual property protection, liability protection, human resources, and more. But interest in entrepreneurship is at an all-time high. And there have been spectacular success stories of early stage startups growing to be multi-billion-dollar companies, such as Uber, Facebook, WhatsApp, Airbnb, and many others.
In this article, I give an overview of 35 key steps for entrepreneurs who are starting a business, with links to additional articles addressing some of the topics in more depth.
1. Understand the Commitment and Challenges Involved in Starting a Business
Starting a business is a huge commitment. Entrepreneurs often fail to appreciate the significant amount of time, resources, and energy needed to start and grow a business.
Here are some of the biggest challenges to starting and growing a business:
- Coming up with a great and unique product or service
- Having a strong plan and vision for the business
- Having sufficient capital and cash flow
- Finding great employees
- Firing bad employees quickly in a way that doesn’t result in legal liability
- Working more than you expected
- Not getting discouraged by rejections from customers
- Managing your time efficiently
- Maintaining a reasonable work/life balance
- Knowing when to pivot your strategy
- Maintaining the stamina to keep going even when it’s tough
2. Protect Your Personal Assets by Forming the Business as a Corporation or LLC
Never start a business as a “sole proprietorship,” which can result in your personal assets being at risk for the debts and liabilities of the business. You will almost always want to start the business as an S corporation (giving you favorable flow through tax treatment), a C corporation (which is what most venture capital investors expect to see), or a limited liability company (LLC). None of those are particularly expensive or difficult to set up. My personal preference is to start the business as an S corporation, which can then easily be converted to a C corporation as you bring in investors and issue multiple classes of stock.
Many business owners, however, are under the mistaken impression that they are completely protected from personal liability by filing a Certificate of Incorporation for a corporation. This is not true. The mere process of incorporating does not completely protect the business owners. To lessen the likelihood of such personal or shareholder liability, you should make sure to adhere to certain procedures:
- Always use the corporate name. The name of the corporation should be used in full, including “Inc.” or “Corp.” on all contracts, invoices, or documents used by the corporation. This clearly indicates the existence of the corporation as a separate entity.
- Always use proper signature. This means that you will sign on behalf of the corporation, using the name of the corporation and your title. You should typically use the following format when signing contracts on behalf of the corporation:
Your name – authorized signing officer and corporate title
- Follow all corporate formalities. This includes following bylaws, issuing stock properly, holding meetings of the Board of Directors, recording the meeting minutes, and following other corporate formalities.
- Make sure to keep funds separate. Corporate funds and the funds of individual shareholders should not be in the same accounts or combined for any reason.
- Make sure to keep taxation separate. The company taxes should be paid entirely from corporate accounts and separate tax returns filed for the corporation.
- All transactions made by the corporation should be clearly separate from any individual transactions. Essentially, by never blurring the line between individual shareholders, owners or the Board of Directors, and the company (which stands as a separate entity), you run less risk of any personal liabilities for the debts of the business.
See An Overview for Incorporating a Business and 10 Key Issues in Setting up an LLC.
3. Come Up With a Great Name for Your Business