Over the course of 19 plus years practicing law in the State of Florida, the attorneys of PCC have had the honor of helping hundreds of entrepreneurs launch their businesses–some of which succeed and others of which fail. During this time, we have identified 11 key steps to the successful formation and operation of a business and it starts with a business plan. Most successful entrepreneurs follow these steps, while those who don’t often fail. The 11 key steps are:
- Develop and Use a Business Plan
Before launching a business, you should develop a business plan. Some of the best reasons are:
- a) Because businesses are about making money, a good business plan will express the purpose of the business and forecast the future in such a way to determine if the business will be profitable.
- b) A good business plan will force you to identify the resources you will need and how to best allocate them. Knowing how to use these resources will provide a good return on investment. Additionally you can show your business plan to investors to help raise money for your business venture.
- c) Because all successful businesses have a roadmap of where they want to go, and how they intend to get there, a business plan will help you focus your goals and develop sound strategies to achieve those goals.
- d) Successful businesses are good at implementing, evaluating, reflecting, and adjusting. Therefore, a business plan will be reviewed periodically to see what plans and strategies worked, and which ones did not work, giving you the opportunity to adjust your plans and strategies as your business grows and develops.
A good business plan includes many important issues for your business, including:
- a) a description of the business concept; i.e., what you intend to sell and what need you are fulfilling;
- b) a description of your initial capital requirements, supplemental capital requirements, projected income, expenses, cash flow, and your expected return on investment;
- c) the identification of key personnel and their qualifications (education, experience, skills, etc…) and their expected roles;
- d) a market analysis, describing the market for your products or services and any barriers to entry into the market;
- e) a marketing and advertising strategy describing how you intend to let your market know you exist and how you can help them and satisfy their needs;
- f) a description of the type of entity you will be using and how it will be structured;
- g) a description of your vision, mission, and goals for your business;
- h) a description of your strategies for achieving your goals, which will fulfill your mission and realize your vision.
- Choose the Right Legal Structure
Choosing the best legal structure for your business may be one of the most important decisions you make in the launching process. Typical options include: a sole proprietorship, a partnership (general or limited), a limited liability company, a corporation (C or S), or joint venture. Each form has its advantages and disadvantages. Choosing the wrong form can have devastating effects on a business. You should always consult with an attorney before choosing which structure is best for your business. Some issues to consider in the process are:
- a) whether the structure of the business will provide limited liability;
- b) how the business will be managed, and by whom;
- c) what happens to the business if the owner gets sick;
- d) which structure is the best for raising capital;
- e) what are the business’s growth plans, and whether the structure of the business allows for growth;
- f) the tax implications of each structure.
3. Form the Business Correctly
Often entrepreneurs have their accountants form their businesses, or they try to form it themselves by using an online service. Extreme caution should be taken when accountants or online companies try to sell you a Corporation of Limited Liability Company as they may be practicing law without a license (which is a crime in Florida and most states). But, more importantly, they may not be qualified to help you make the best decision or form the company properly so that you have the full benefits the entity. To properly and completely form a Partnership, Limited Liability Company, or Corporation, specific steps must be taken. If these steps are not taken, then the benefit of forming the entity could be in jeopardy. For example, if the entrepreneur forms a corporation using an accountant or online service and only filed the articles of incorporation, but does not hold an organizational meeting of the incorporators or initial directors, the corporation may not be properly formed. This exposes the entrepreneur to personal liability, as it can be a reason to pierce the corporate veil. Also, if the entrepreneur seeks investors to capitalize the business and all of the steps are not followed during the formation process, investors may lose confidence in the business and choose not to invest.
- Protect the Business’s Brand and Other Intellectual Property
Every entrepreneur should be concerned about his or her company’s intellectual property, including its brand, its marks, and its work product. The brand can be protected by registering the name, logo, or other mark which identifies the business. This registration can be with the state in which the business is located or with the federal government. Registering the mark with the federal government is usually better, which can be done through the United States Patent and Trademark Office. This process can be a bit complicated, so having an experienced attorney complete this process for you is a good idea. The other obvious intellectual properties include works of art, writings, songs, and products that are new inventions. These other forms of intellectual property may also be registered with the United States Patent and Trademark Office by filing an application to register a copyright and/or patent. Again, this process can be a bit complicated, so having an experienced attorney complete this process for you is a good idea.
- Obtain the Necessary Tax Identification Numbers
Aside from a sole proprietorship, every form of business is required to have federal tax identification numbers issued by the United States Internal Revenue Service. Before a bank account can be opened, this number must be obtained and provided to the bank with the company’s formation documents. Some businesses also need to register with the State’s department of revenue to obtain a sales tax number if they are required to collect sales taxes from their customers or if they have employees.
- Obtain the Necessary Licenses
To operate in a specific state, some businesses need a state license. Usually a state license is needed if the business will be engaging in a business that affects the public’s safety and welfare. For example, anyone providing medical services, legal services, dental services, and general contracting services are all required to obtain licenses from the appropriate state agencies. This is because the state has an interest in ensuring that people in these professions are qualified to provide the services they sell. It’s best to check with the state agencies, including the Department of Business and Professional Regulations, to determine if your business requires a state license. Even if your business does not require a state license, it will need to pay a business tax to the county in which it operates. If it is operating within the limits of a municipality, it may need to pay a business tax to the municipality as well.
- Obtain the Necessary Insurances
Not all businesses are required to have insurance, but many do. For example, if you have employees, you may be required to have worker’s compensation insurance; and, if you lease an office or store location, your lease may require that you have general liability insurance. Even if no insurance is required, obtaining general liability and errors and omission insurance to help reduce the risk of a catastrophic event (such as an auto accident, storm, or lawsuit) may be highly advisable.
- Choose the Right Workers: Employees vs. Independent Contractors
Many businesses don’t distinguish between employees and independent contractors. By categorizing every worker as an employee, your business may be paying more per worker than it may need to. However, by categorizing every worker as an independent contractor, your business may be opening itself up to penalties, taxes, and interest from the state and federal government for violating tax laws, and other liability to the workers for violating employment laws. Therefore, understanding the difference between the two categories of workers and classifying them appropriately is important. The key issue to think about when classifying the worker is whether the business controls the worker; for example, where to work, what to do, when to work, how to do the work, what to wear, etc. The more control the business has on the worker, the greater likelihood that the worker will be considered an employee. Regardless of the type of worker, the business should require each worker to prove that he/she has the legal authority to work in the United States, by having them complete the USINS Form I-9 and provide copies of the required documentation. Also, employees should complete IRS Form W-4, and independent contractors should complete IRS Form W-9, both of which will confirm their tax identification numbers.
- Use the Right Contracts and Agreements
Contracts or agreements govern most business relationships. They can be written or oral, and, while most contracts are not required to be in writing, having written contracts is usually a good idea. To be enforceable, every contract must have the following elements:
- a) a promise;
- b) the acceptance of that promise; and
- c) adequate consideration.
Therefore, by a worker promising to work for the business as a driver for $15 per hour (consideration) and the business accepting that promise, an oral contract is formed. However, because the contract is oral, if a dispute arises between the worker and the business, how do you determine what the other terms of the agreement are? To avoid these problems, we recommend having written contracts or agreements. This included contracts with employees, independent contractors, customers, vendors, partners, shareholders, and other stakeholders.
- Protect Intellectual Property from Current and Former Workers
It may seem strange, but workers steal from their bosses–some intentionally and others intentionally. The form of theft can be obvious, such as stealing supplies, money, etc. However, other forms of theft are not as obvious. For example, when a current employee constantly shows up late, takes long lunches, leaves early, and/or is on his/her mobile device or the web during work hours, he/she is robbing the business of productivity time–while expecting a full paycheck.
Per worker, the amount stolen from businesses can amount to thousands of dollars per year. Also, when a worker leaves the business to work for a competitor or to open his/her own business and competes with your business, all your business resources (contact list, customer list, vendor list, business systems, etc…) may be at risk of loss or misappropriation. So, businesses need to protect against these foreseeable risks.
Effective ways of protecting the business are to have the each category of worker sign agreements which put them on notice and prohibit these actions, including:
- a) non-compete agreements, prohibiting them from competing with the business while they work for the business and for a reasonable time after they leave the business;
- b) non-solicitation agreements, prohibiting them from soliciting the business’ customers, employees, and other workers;
- c) confidentiality and non-disclosure agreements, prohibiting them from disclosing your business’ records, information, plans, etc. to anyone else;
- d) trade secret agreements, prohibiting them from disclosing or using your trade secrets;
- e) minimum expectations agreements, putting them on notice that certain things will not be tolerated and that they are required and expected to meet certain expectations of the business;
- f) reimbursement agreements, requiring them to reimburse the business for losses caused by their action or inaction. Some of these issues are covered in procedure and policy manuals; however, they are more effective when the worker has to read, agree to, and sign an agreement.
- Be Prepared to Resolve Disputes
Every business deals with disputes with its stakeholders. Disputes occur with workers, with the business owners, and with each other. Customers and vendors normally have disputes regarding payment issues and quality of products or services. Partners also have disputes from time to time. Successful businesses recognize that such disputes are inevitable, so they design processes for resolving them internally and amicably before they become external. These processes can be as simple as creating a list of possible conflicts and a flowchart of how to resolve them when they arise. This way, the workers have an objective process to follow. Another approach may be to designate a person skilled in dispute resolution as a “go-to” person to resolve disputes. Regardless of the type of dispute resolution methods you use within the business, every effort should be made to resolve disputes internally. However, if the dispute cannot be resolved internally, the business should set up a process for external disputes which requires that the use of mediation and arbitration as an alternative to going to court, if permissible.
If you are interested in growing and developing your business plan, contact the Private Corporate Counsel program for a free consultation. Schedule your free 30-minute consultation now on our website.