There is an inherent amount of risk involved in almost every activity you do in your life and if you’ve chosen the entrepreneurial path, you're entering life's riskiest arena. You might feel like you're the Alpha in the Wolf Pack but everyone is going to try and take you as a sheep.
Starting a business involves a tremendous amount of risks that come in many different forms. The best way to deal with them is through examination and preparation.
From my experience and struggles of starting a consulting business and following its evolution over the last five years, I’ve found a few critical items that I believe should top the list of essential investments for all entrepreneurs starting a business.
There are many aspects of a business start up that will require you to rely on others and this is one of the most important ones. Whether you’re starting small catering company with a friend, creating a non-profit, applying for a patent, or seeking millions in investment through seed funding, you need to bring on the appropriate legal team to help you iron out all the details.
When starting my company, where I provide marketing consulting, photography, and filmmaking services to hospitality businesses, I opened myself up to a whole range of different types liability.
What happened if a client decides not to pay? How do I get my money? What happens if someone decides to sue me? Am I personally liable or just the business? How do I setup my business structure? LLC, S-Corp, Sole Proprietorship?
Your Initial Startup Complexities Will Be Mind-Numbing
The complexities of the initial business startup are mind-numbing and expose you to a whole range of liabilities. An attorney, well versed in your area of business, will be able to help you navigate through the many requirements of establishing your business in a way that protects all parties involved.
I’ve personally had to take past-clients to court for non-payment and having the guidance of my attorney before, during, and after, made the process significantly easier. Before I had to take the client to court, I was protected with a contract that clearly stated what our initial agreement was and the responsibilities for each party.
Next, due to their lack of payment, a clear breach of realized and the judge quickly ruled in my favor. Finally, and a very important point for any new entrepreneur to know, just because you receive a judgment in your favor for someone who owes you money, the real challenge comes when you try to collect on the judgment.
This is where you can let your legal team do the heavy lifting and follow the tedious process of collections. Trust me, let your legal team handle that part and you focus on running your business.
Handshakes are great for networking events and for people who you have to appear to like. Contracts are the security you need to be able to sleep at night. They give you the confidence you need to close deals. They show you’re professional and understand your business. But most of all, they protect you and they protect your clients.
If you don’t have one right now, have an attorney draft up some contracts. Next, (many people skip this step) have them explain each word to you in detail so you can understand the purpose and meaning of every part of your contacts so you can explain this to your future clients.
What Does A Contract Mean?
What does this contact mean? What does it require from each party? How does it protect each party? What happens if someone doesn’t hold up their end of the bargain?
In the case of any future disagreements, contracts can always be the bad cop and you can be the good cop. Contacts give you the legal ability to enforce certain things, but not necessarily the requirement to. This is where contracts give you leverage.
Legal Advice Isn't Cheap
While legal advice may not always be cheap, nor should it be, it’s a necessary investment to ensure that many of the complex aspects of your business have been completed properly and you understand them 100%. This knowledge is invaluable. I’d recommend to ask around to other business owners and receive a referral to a small business attorney or a firm that has experience in startups or your specific industry.
Follow Strict Accounting Practices
Knowing where your business stands financially is one of the most important things to know and should be on the top of your priority list as a business owner. Think you’re good enough to track your small business finances in a notebook or just in Excel? Think again.
There is a range of inexpensive and user-friendly accounting systems out there designed for small/medium sized businesses, such as Quickbooks, Freshbooks, or Quicken. Do yourself a favor and invest up front some time to learn how to use these tools to their maximum capabilities.
This will save you hours and hours later on when you’re trying to file quarterly tax payments and are sorting through paper invoices and searching for receipts. I use Quickbooks Online and the mobile app is great for tracking expenses.
You can take photos of receipts and link them to transactions then throw them away (No more keeping a wallet full of receipts!) It even has a GPS tracker so you can easily keep track of personal/business mileage to easily claim a deduction on your taxes!
If your company that is growing quickly or taking on money from investors, this is the time to have an accountant on staff or hire a CPA firm to manage these systems. Receiving guidance from a tax attorney isn’t a bad idea either.
The IRS doesn’t play around. Cross your T’s and dot all your I’s, or make sure you pay someone to else to handle the details. Work closely with your accounting team to make sure you understand your P&L statement inside and out.
Good accounting and financial tracking/history will be an essential part of your business's potential growth and expansion. Do you think the bank is giving out expansion loans to someone who rocks up with a shoebox full of receipts? Nah….
Insurance is a Necessary Evil
Insurance is one of those “you’re damned if you do and damned if you don’t” situations. You pay for it in the hopes of never having to use it. An important way to insulate yourself and your business from some of the associated risks of entrepreneurship is to have the proper type and amount of insurance for your type of business. The types and amounts of insurance available and/or potentially required vary greatly from industry to industry but some are pretty standard.
A General Liability plan can cover/include Property Insurance for your owned/rented office space, equipment, and if a client slips and falls at your office and decides to sue. It’s important for entrepreneurs who work from home to realize that most Home or Renters Insurance policies will not cover your business activities or property/assets. You’ll need to look at getting a General Liability plan that covers your home office separately.
Professional Liability coverage can protect your business against negligence claims due to harm that results from your company's mistakes or failure to perform. For example, if you were to speak at a conference and someone used some of the recommendations you made and they sue you for damages from them following your advice.
Business Interruption Insurance is there to protect your business in case of a disaster or catastrophic event that affects your ability to operate your business. This could be because of a lawsuit or because a car comes crashing into your retail business and destroys the place. This type of insurance can provide compensation to your business for loss of incomes during these kinds of situations.
If you have employees, you’ll need to be well versed in Workers Compensation Insurance. Every State in the US has different laws and regulations regarding what is commonly known as Workers Comp. Insurance. Your attorney will be able to help guide you in the right direction and you should start a relationship with an insurance agent sooner than later.
Product Liability Insurance will provide coverage in the case that your company is smacked with a lawsuit claiming your product caused some kind of damage. If you make a product that is distributed to the general public, no matter how much safety testing you do on your product, this is a must-have policy.
If your company has and kind of vehicles in use during the course of business, you’ll want to get some Vehicle Insurance to protect the company in case of an accident. You can get basic coverage that will cover injuries and damages to third-parties, but you can get a comprehensive policy that will also cover the company vehicle, as well.
All of these types of insurance are not applicable to all kinds of businesses and levels of coverage will greatly vary depending on your individual business. Speaking with a licensed insurance agent should be high on the list of meetings you need to schedule if you don’t already have any kind of business insurance.
“Success is where preparation and opportunity meet.” -Bobby Unser