Checklist for a New Business
Opening a business certainly requires perseverance and hard work, but even that may not be enough to sustain an enterprise. Preliminary due diligence and groundwork can go a long way in ensuring the long term success of a new business.
Forbes has predicted that 50% of all workers will be self-employed by 2020. Starting a business or buying an existing business can be an exciting lifestyle change. However, it is also a time to be cautious. Even seasoned business owners can be taken by surprise when entering a new business. In our profession, we meet with many business owners who have thought about the detailed logistics of starting up, but not the big picture of opening a new business. So here is our entrepreneur’s big picture checklist.
1. KNOW-HOW/TRAINING. Whether you are buying an operating business or starting from the ground up, either you or someone you are ready to hire must understand how the business works. Often, buyers will rely on the prior owners to train them, but this type of assistance is usually limited once a transaction has closed. You must be willing to pay the prior owners to remain employed or link payment of the purchase price to their continued assistance. New businesses should hire experienced managers or buy into a franchise which will support them through the start-up and training process.
2. DOCUMENTATION. Don’t ignore the paperwork. Although, it may be time consuming, having agreements in place can prevent future disputes that often drain a new business of time and money. The most important ones to focus on are Partnership agreements among owners, Employment documents for key personnel, and Nondisclosure agreements that protect the Company’s trade secrets and other confidential information.
3. INSURANCE. Even though it may seem like an unnecessary cost in the beginning, there is a reason that all franchisors, landlords, lenders, and even some customers require businesses to carry liability insurance. Businesses that have retail clientele or employees who travel must definitely make sure that they are adequately insured. Worker’s compensation insurance is also critical and often overlooked by new business owners.
4. MARKET RESEARCH. Often a business is purchased or started because it was the owner’s dream or something they have always wanted to do—all well and good, provided there is a market for whatever is being sold. We have all seen the cute novelty shop or unique restaurant that seems like a good idea but closes up in a few months. Due diligence of the industry, location, customer base, and competition has to be conducted well before any monetary commitments are made.
5. FUNDING. The rule of thumb is to have at least 12 months of funding in place before venturing into a new enterprise. Although cash does not necessarily need to be in the bank, arrangements such as lines of credit or small business loans should be made in advance in case there is a need for working capital.
6. BRANDING. If your business has something unique, confidential, or proprietary, it is important to protect it early and properly. Filing Trademarks (for the business name or logo) and patents (for any innovative products, designs, or processes) with the US Patent and Trademark Office may be necessary. Additionally, any employees or contractors who work on the company’s products should sign contracts that assign any inventor’s rights over to the company.
7. REGULATIONS. Many businesses are subject to federal, state, or local regulations. Even small businesses such as a gas station require multiple licenses and permits to operate. Every business, even a home-based one must have a county or city business license. Owners must familiarize themselves with and comply with all regulations applicable to their operations. It may be necessary to hire experts if environmental laws, customs and duties rules, or other complex rules are involved.
Business Insights is hosted by the Law Firm of KPPB Law based in Atlanta with new offices in Princeton, NJ, Fairfax, VA, and Houston, TX.
Sonjui L. Kumar is a founding partner of KPPB Law, and a corporate transactional lawyer representing companies in all aspects of corporate law, including cross-border transactions.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
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