According to the Small Business Administration, 33 percent of businesses with employees fail within their first two years and a little more than half within four years. This is vastly different from the urban legend that 50 percent of businesses fail their first year, so you can be encouraged by that. However, it’s still cause for concern and demonstrates the importance of going into owning your own business fully prepared and with your eyes wide open.
There are some basic steps you need to take before buying balloons and streamers and inviting the mayor to cut the ribbon on your opening day. As you will see here, hiring a competent business attorney from the outset to help you set up your business or audit what you have done on your own can fortify your business against the things that frequently cause young businesses to fail.
Here are just a few of the things your new business will need:
Sounds easy and straightforward, doesn’t it? Not so fast. The advent of the Internet has simplified this process in some ways yet made it infinitely more complicated in others. Among the things you may need to do are file an assumed name certificate (AKA fictitious name or D/B/A), register your business name, trademark your business name, and research your business name online to see if a complementary domain is available or if it’s already being used on social networking sites, like Twitter and Facebook. Read our article on naming your business for full details.
A Break-Even Analysis helps you determine how much you will need to sell to cover your costs of doing business. Once you know your variable and fixed costs for the business, you can determine your break-even point. You will also want to recalculate your break-even point before increasing your fixed costs, such as those resulting from moving or buying more equipment. To learn more, you’ll want to hire an experienced and competent accountant. Or you can check out the Small Business Administration website for a thorough explanation and a break-even calculator. You can also download this Excel template to do your own break-even analysis.
A solid business plan is more than a tool for getting funding; it’s the road map to your business’ future. It’s a tool for understanding and explaining to future employees and/or investors how your business is organized and positioned for growth. You can use it to monitor your progress, hold yourself accountable to your business goals, and engineer your business’ future.
According to the Small Business Administration, every business plan should include these elements:
- Executive Summary
- Market Analysis
- Company Description
- Organization & Management
- Marketing & Sales Management
- Service or Product Line
- Funding Request (if applicable)
To learn more about what to include in your business plan, visit the Small Business Administration’s article, Essential Elements of a Good Business Plan for Growing Companies. In addition to these resources, a good attorney can help you come up with a business plan or audit the one you have in place to maximize your opportunities for attracting potential investors and avoiding common pitfalls.
Form of Legal Ownership
What legal form of business should you choose? A Sole Proprietorship, Corporation, Partnership, LLC or LLP? Are you going to operate a for-profit business or a not-for-profit organization? These are important threshold questions that you need to answer before you do anything else because the answers dictate what steps you will take next. Read our article on things to consider before starting or buying a business for full details.
Tax ID number (EIN)
Similar in purpose to the Social Security Number assigned to individuals, Employer Identification Numbers (EINs) are used by employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts and estates, government agencies, certain individuals, and other business entities. The IRS uses this number to identify taxpayers who are required to file various business tax returns. Your business will need an EIN to pay employees and file business tax returns.
You can apply online for an EIN via the IRS web site. A wizard will guide you through the process, and your EIN will be assigned to you immediately. You can then download, save, and print your EIN confirmation notice. Or you can the download the SS-4 form (PDF) from the IRS website, fill it out, and mail it in.
After you have your Tax ID number, you can open a checking account for your business. Since all banks are not created equal, there are some basic questions you will want to ask:
- Does it have a minimum balance requirement (or minimum to open the account)? If so, how much?
- Does it charge monthly maintenance fees? If so, how much?
- Does it have a limit on how many monthly transactions you can do free of charge? If so, how many? And what is the fee per transaction after the maximum is reached?
- Do you feel comfortable with the bank’s online system?
- Are you familiar with all of the services your bank offers online?
- Does the bank offer a payroll and/or tax service?
- What merchant services does it offer, if any?
- Will it offer your employees discounted banking
- Is there a branch conveniently located?
There’s a helpful comparison service online, Find a Better Bank, that allows you to look at banks in your area and will rate them according to the criteria that you deem most important. Simply enter your zip code, indicate features that are important to you, and provide some details and expectations to help estimate yearly banking fees.
There has never been a better time to finance your small business. The Internet has put literally hundreds of resources at your fingertips. A savvy entrepreneur will explore a variety of funding alternatives, including self-funding, angel funding, venture capital, grants, conventional loans, and special loan programs specifically for small or minority-owned businesses.
A clear understanding of what you need and don’t need from a location will help you focus from the start, which will save you time and money. Before you start looking at properties with a broker, you’ll want to analyze your needs and wants and prioritize accordingly.
The old adage about the three most important things in real estate is often true: “Location, location and location.” Will your business depend on walk-in traffic, or will most contact with your customers be over the phone or via email? How much parking will you need? What about accessibility to public transportation? Where will your labor pool come from and how will they get there?
One of the first things you’ll want to do is to make sure your business location is zoned for your industry. You should never sign a lease for a business space without first knowing that you’ll legally be able to do business there. You will want a knowledgeable business attorney to look over your lease to make sure you have the rights and protections your business needs, or you could be stuck paying for a lease you can’t use. The USA.gov website provides a list of all cities and counties in New York, so you can look up the zoning laws that govern your prospective location.
For a more comprehensive list of considerations, the Small Business Administration has provided a checklist of things to think through when picking a location for your business.
Compliance with the plethora of federal, state, and local laws and ordinances, as well as the regulations that govern your particular area of industry (if applicable), is of the essence. Falling out of favor with the government on any level can jeopardize everything you’ve worked for. And, unfortunately, ignorance is not an excuse for deviating from the many boundaries within which companies are frequently required to operate. This is one of the most important considerations for which competent legal counsel should be sought.
To learn more about how to keep your business out of hot water, read our article on developing a compliance strategy. It touches on tax law, human resource law, and regulatory policy. It also includes a wealth of links to many resources for businesses operating in New York.
Are You Ready?
The Small Business Administration provides an assessment tool to help you determine if you’re ready to take the plunge to starting your own business. The best plan of attack is to familiarize yourself with this startup process as much as possible and consult a qualified accountant and attorney to help shore up the areas you feel shakiest in and comb through your documents to make sure your structure aligns itself seamlessly with your business goals. With the resources available to you, there’s no reason for your business to be a statistic.
Protect yourself and your business. Call (516) 280-7105 to arrange a free consultation or fill out our contact form.