On behalf of Walker & Reed, P.C. posted in blog on Thursday, August 24, 2017.
There are few investments as monumental as starting your own business. Whether it’s raising capital and finding investors, or the human cost of time that you’ll never get back, it’s a risky endeavor to start your own company. When successful, it’s also uniquely rewarding and financially satisfying – whether you’re in it for the long haul or to sell to new owners along the way.
Data from the Bureau of Labor Statistics shows that 20 percent of businesses last beyond their first year, and half of those don’t survive to their fifth anniversary. Over half of all business closings are because of financial issues.
Build a strong foundation
Because of the failure rates, it’s essential to cover any potential issues before you open. The foundation of the business is created before the first sale. A single hiccup – whether it’s bad publicity or a problem with a partner – can derail a business plan that’s already under stress.
Starting your own business is a complex endeavor. Even if you have a seemingly straightforward model, there are legal steps, licensing, insurance, taxes and partnerships to consider. The California Secretary of State has a five-step guideline online, but each of those steps has its own levels of nuance.
Oversights have high costs
Preparation and groundwork can make or break your business, which is why any business plan should include consultation with an experienced business law attorney to make sure that you’ve protected your interests wherever you can. The right legal base will help with unexpected circumstances that arise, such as a partner who wants out of the agreement, a customer lawsuit or challenges to intellectual property.
Most entrepreneurs are aware of the typical reasons why businesses close: underestimating funds, overconfidence in the idea, fierce competition or market collapse. While some are predictable, a business faces challenges from financers, clients, customers, landlords, competition and more. There are infinite threats, and they often come from unexpected sources.
Fast-casual restaurant Chipotle’s issues have been well publicized the past few years, but to illustrate how business formation matters, one of their recent court cases is not related to the ill-effects of customers who got sick at their restaurants. It’s from a group of shareholders who are unsatisfied with the company’s response.
A secure foundation matters
You’ve spent countless hours getting your business ready, but a single legal challenge can bring it to a stop quickly. Ownership models, succession plans and legal compliance are less glamorous that new products and press releases, but they will ultimately impact the success of your business.