So, you’ve decided to start your own business, congratulations! You’re on your way to a fantastic experience as you build a successful enterprise. Here are a few key tips, documents, and warnings from commercial lawyers and someone who started their own $10 million dollar software company.
- Protect Yourself. Business is a risky proposition, and starting your own enterprise can put you at tremendous financial risk. Fortunately, the law provides a way to protect your hard work and safeguard your personal assets, should anything go dramatically wrong in your business. The entity I’m describing is a corporation, or limited liability company. Both of these constructs allow you to run a business but shield yourself from liability. It’s important to do several key things:
- Corporate ‘formalities’: You can’t start a corporation and then pretend it doesn’t exist, you have to run your business and maintain what commercial lawyers call “corporate formalities” – meaning you have to hold regular managers or shareholder’s meetings, and in all ways act as if it’s the company doing business, not you.
- Money, money, money: You must also separate your personal finances from the company’s. There can be no mixture of your personal funds and corporate funds. That means separate bank accounts, separate debit cards, tracking expenses, etc. If you fail to do this, and fail to maintain the corporate formalities described above, you open yourself to personal liability, which in turn defeats the whole purpose of having a corporation or limited liability company.
- Employment Agreements. Disputes with employees can be the kiss of death with newly formed companies. These disagreements can center around non-competition issues, salary, intellectual property, employee misconduct, and drug use. It’s important, therefore, to have a standard employment agreement with people you hire. Consider formalizing the following types of information: when and how much an employee will be paid, may the employee work for a competitor if they leave, what is the company’s drug use policy, how will the employee’s work performance be evaluated, when will the employee be considered for advancement or raises, etc.
- Accounting – It’s Not For Everyone. You’re an entrepreneur, you have great ideas, savvy business judgement and a burning desire to succeed. This doesn’t not make you the world’s most talented accountant. Successful businesses rely on solid expense tracking, flawless bookkeeping records, audits, and tax planning. Hiring a competent accountant to take care of these issues can go a long way towards your goal of running a successful company. My advice is to focus on what you do best and find others to handle the tasks that don’t necessarily need your constant attention. Remember, two (or three or four) heads are better than one.
Always remember: running a business is hard enough so removing as much risk and doubt from the equation as possible is a recipe for success. Find a mentor, rely on competent legal and accounting advice, and then you’ll be free to do what you do best – create a world class company!