Starting a new business can be an exciting experience. It can also be a little scary because there are always risks involved. Careful planning is essential for any potential new business venture. By doing your “homework,” and being prepared, you can avoid unforeseen situations and get your business off to a smooth start.
First and foremost, do your research! Knowing the industry that you are about to be involved in is key. You may think that your idea is the best thing since sliced bread; and it may well be. Market research, however, can be helpful in determining potential competitors as well as supply and demand. It would be crushing to sink your hard-earned money into a product or service only to realize that the market has been saturated or there really isn’t a need, making it difficult to attract business and make money.
It is also important to understand your target demographic. Is the consumer you are interested in need and/or want your product or service? Will you be able to offer a quality and affordable product or service to your target consumer and still make a profit? If consumers aren’t onboard with your idea, you may want to rethink your plan.
Certain legalities also come into play when starting your own business. The way your business is structured can dictate legal requirements, obligations and restrictions. Different types of business formations require specific licensees, registrations and filings. Depending on your business, you may need to apply for an Employer Identification Number (EIN), obtain a business license or get insurance. Some of these considerations vary by industry and state of operation.
There are also personal liability and tax ramifications that need to be explored before making a final decision. It is very important to know how the formation of your business affects your personal liability. If not, one bad situation could possibly wipe out what you have worked so hard for. Sole proprietors can fall into this category and need to make informed decisions.
Do you need a business plan? In a nutshell, yes! There are several reasons for a potential business owner to create a business plan. Quite simply put, a business plan is nothing more than a document outlining the basics of your business, i.e. products, services, finances, marketing, goals, timelines, feasibility and strategies. A carefully thought out business plan can help you stay on course. It serves as a “blueprint” to address every aspect of your business from inception to reality to, eventually, growth.
A business plan is especially important if you are considering bringing in partners, approaching investors and/or applying for a business loan. Banks, as well as potential business partners and investors, want to ensure that they are making a wise investment when loaning or investing money.
Is it necessary to hire an accountant? That depends. If you are a “hands-on” business owner and are involved in the day to day activity of your business, you may find that handling the finances can be a bit much. Often business owners find that they can save money by taking care of their own finances. That is true, but it is important to weigh the pros and cons. By doing your own accounting, however, you run the risk of not being able to give it your full attention.
By delegating this task to an accountant, you may actually save yourself money. An accountant’s sole purpose is to make sure that payroll and bills get paid but, just as important, that you get paid! A good accountant will also keep you apprised of your financial situation and can prepare “visuals” in the way of charts and reports to keep you informed of your company’s financial situation and cash flow.
Hiring an accountant immediately may not necessarily an absolute. You may be a whiz at the number game and find it manageable. If that is the case and it works for you, great! If not, it is best to leave it to someone in the accounting field. Remember, a good accountant can give you strategy tax advice that could save your business thousands of dollars.
These are just some of the considerations that should be on your radar when you are ready to start your own business. Again, it is always best to be prepared when venturing out on your own. Consulting with an attorney beforehand can set you on the track to “doing it right” the first time.
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.