Common Mistakes to Avoid When Setting Up Your Business

This month’s Legal Brief we look at a few common business planning mistakes entrepreneurs might make when starting a business. Specifically, we look at entity selection, taxes, and finances.

Choosing the wrong entity for your business.

First, one of the bigger business planning mistakes. Every business needs a structure or “entity” that controls how the business works and what rights and protections that structure provides for the business. Most entrepreneurs gravitate towards a Limited Liability Company (LLC) when starting a business. However, depending on your goals and the size and organization of your business, this may not be the right entity. A partnership or corporation may better suit your new company. (Reference this post for some information about four of the more common business entities.) If you’re unsure which business entity suits your needs, consult one of the knowledgeable attorneys at Stone Law to set up your business correctly from the start. At Stone Law, we ensure your business is positioned for success now and as it grows.

The tax factor.

Second business planning mistake: not considering how different businesses are taxed. When starting a business it is also important to consider how taxes impact both you as an individual as well as your business. Some business entities may streamline taxes and potentially even reduce taxes in the long run. Stone Law recommends consulting with a Certified Public Accountant (CPA), in addition to one of our lawyers with expertise in business planning, so your business is set up properly under the correct entity and has the best tax advantages. Partnering with Stone Law ensures your new business is set up correctly from the start and allows it to grow over the years.

Under capitalization.

Our third business planning mistake is all about the money. Namely, having enough capital to operate your new business. Ensure your business planning addresses both what funds go out (purchasing, creditors, advertising, etc.) and how much you anticipate coming in (sales, investors, etc.). This is essential to make sure your business is viable. A key to success in starting a business is knowing all the hidden costs in setting up and running various types of businesses that sometimes come as a surprise to a new entrepreneur. Specifically, these unexpected costs may include things like unemployment and workers compensation insurance, business or professional licenses, and local taxes and fees.   

The amount of capital you need varies between businesses and the type and amount of work you are doing. Most businesses will need enough funds to maintain payroll for a few months, as well as cover the costs of a bookkeeper, taxes, licenses, and insurance at a minimum.

Other business related costs to consider:

• rent for a physical location;
• hiring a CPA and retaining and attorney;
• any necessary electronics or equipment;
• software programs to facilitate your work;
• paid subscriptions for things like email, newsletter, client management platform, etc.;
• marketing: including a website, advertising, and other materials like business cards and fliers.

Some of these costs may be monthly, quarterly or yearly. Keeping track of these expenses with the help of a budget and bookkeeper is crucial.

Your Local Chamber

Finally, building relationships within your community is a must do as part of business planning. Especially important if this is your first business. Your local Chamber of Commerce can be a great resource in providing classes and connections to jump start your business. Your Chamber might offer classes or resources to help you create a business and marketing plan. Further, a connection with your local Chamber may also help with networking. During monthly or quarterly meetings you may have opportunities to meet other business owners and build mutually beneficial relationships.

Need help with business planning? Want to ensure your business gets set up correctly from the start? At Stone Law our goal is helping you set up your business correctly from the start. Allowing you to focus on your business, while having peace of mind your business is set up to grow and flourish. Give Stone Law a call at 877-897-6591 today and get the ball rolling on your business venture.