You don’t want your business to be here today and then gone tomorrow. You want your business to create a legacy of success and wealth for you and your partners. In order to do this, you need to structure your business in the right way from day one.
Choose an Operating Entity Versus Sole Proprietorship
You can talk to your tax attorney or your CPA to determine the right operating entity. For many businesses, it is a corporation or LLC. These entities are the vehicles through which you will conduct business.
It is true that working as a sole proprietor is the easiest way to do business. However, a sole proprietorship is more about building income as opposed to building a business.
There are few cases where it makes sense for a person to conduct business in their name. However, conducting business as a sole proprietor exposes you to legal liability, the highest tax rates, and the lowest possibility of selling your business in the future.
Put Your Operating Entity into a Trust
Even the best-organized businesses can run into challenges. If you are not careful, these challenges will not be confined to your business but could actually threaten all the things that you own.
If you create trust, you put a barrier between your business and you as a person. If the trust is properly structured, you are in control of your assets and are taking on far less risk.
Forming a trust can be expensive. Expect to spend a few thousand dollars getting a good trust in place for your business. However, if you are serious about making your startup grow, you will view this as an excellent investment for the future.
Think about Organizational Design
Organizational development is the natural progression of any business. As a business grows, the processes and structures need to be adjusted.
An inflexible organizational design is a barrier to growth and efficiency. Small to medium-sized businesses that attempt to operate as a one-person shop will fail their customers, they will underperform, and they will frustrate their employees. If left unchecked, this can lead to an organization’s erosion, causing your startup to eventually become stagnate.
Make a Demarcation Line between Your Intellectual Property and Your Business
Does your business have a phone number? Do you use a website? If so, your business has intellectual property.
Think about this scenario. Your business is sued and in the lawsuit, you lose your phone number. Now, your competitor can take what you have and actually benefit from the reputation you built.
If your trust owns your intellectual property and licenses and your business ever faces any problems, you can still protect your intellectual property. Of course, creating a trust like this involves some legal and tax responsibilities that you will need to learn about.
Build a Solo 401(k) for Your Business
A self-directed 401(k) is a retirement account that is available only to small businesses. With this account, you can put away up to $50,000 per year and get unbelievable tax deductions. Also, from a legal perspective, this money is safe. There is almost nothing that can touch this money. If you are sued, if the IRS comes after you, or even if you file bankruptcy, this money is safe.
Choose a Business Name That Attracts Lenders
Banks take a lot of factors into consideration when deciding if they are going to lend money to a business. This is something to think about when choosing the name for your business.
There are countless examples of businesses that have names that make them less attractive to lenders. For example, banks are happier dealing with marketing or management companies as opposed to funding a real estate company. This is because of the inherent risk that is perceived in real estate.
This doesn’t mean that you should not get into a business that is risky. What it means is that the name you choose for your business should not emphasize that risk.
Conclusion
A successful startup is more than just two guys in a garage with a great idea that eventually becomes a multibillion-dollar company. It requires planning, structuring, and organizational design.
