Start-up Secrets: 5 Tips to Give Your Startup the Foundation to Succeed
Starting up a new business venture is exciting and yet it should be a cautious process. With nearly 9 out of 10 startups failing over time, it's essential to give your business what it takes to not only get through those first 12 grueling months, but to do so with a strong financial foundation. In fact, the right organization and management can actually be the make-or-break component of your business.
What can you do to give your company more than just a fighting chance? It starts at the foundation. Focus on these five areas of key opportunity:
Number 1: Select the Right Business Entity
The legal structure of your startup is a critical element. The business entity is its legally recognized structure. Most small business startups should incorporate due to the limitations of risk placed on personal assets once you are a corporation. However, there are various incorporation options including S-corps, LLCs, and C-corps.
- Limited Liability Corporations are best for smaller businesses, including sole proprietorships looking for liability protection.
- S-corporations are the most common form used by many small to mid-sized businesses who will still report income on personal taxes.
- C-corporations are often used for high-profile ventures and high-value investments.
With the legal entity of your business established, your personal assets become less at risk. Additionally, you define how income and expenses will be reported to the government. The right formation can actually help reduce business costs in the form or lower taxation.
Number 2: Absolutely Hire a Professional
Perhaps the most important first step to take when establishing a startup is to hire a tax advisor. This person's job is not just to complete your yearly taxes or to ensure you are getting every deduction possible though they will do that for you as well. Most importantly, you need to know:
- How to structure your business for the most affordable taxation
- What steps to take to reduce tax liability
- What requirements the IRS places on a business like your own.
You can turn to your tax advisor with questions about investments, sales, revenue, employee compensation and much more. Your advisor can aid in creating and monitoring key performance indicators (KPI). These qualitative and quantitative benchmarks allow you to compare how well your company is doing at any point. Doing so can help you avoid costly mistakes down the road.
Number 3: Create a Clear Image of Profitability
Along with your tax advisor's help, sit down and develop a profitability forecast for your company for the next year, two years, and five years. Answer questions like these:
- What is a realistic expectation of profitability in the first year considering investments and establishment costs?
- When do you feel you will become profitable, and more so, what revenue level defines that profitability?
- What specific elements do you believe (and have proof of) that will build this profitability?
With the help of market research and your team, you need to develop clear financial goals for your organization so you consistently know where it stands.
Number 4: Establish a Clear Accounting System
Believe it or not, one of the most common reasons company's fail is because they have no idea where they are spending money, who they owe money to, and how they will monitor costs. Without a properly implemented accounting system, you are putting your business at risk. Smaller companies may wish to keep bookkeeping services in-house to lower costs. However, there are affordable accounting software programs such as QuickBooks that can still provide you with the important steps and information you need to manage those books.
A better option is to work with a tax and accounting professional. Even as your business just gets off the ground and begins to sell, you need to have a system in place to carefully monitoring income and expenses, track employee-related costs, and to provide reports on revenue and profit at any given time. You also need a tax professional that can provide advice on how to make changes when necessary.
Number 5: Invest the Time
Establish a process. Aside from accounting, you need the right processes in place to record sales, collect taxes, track employee hours and track expenses. Software programs have made this step much easier now than it used to be. Nevertheless, you simply cannot overlook the value of tracking from that first sale moving forward.
Doing it right at the start can make your business a success. If you fail to do so, on the other hand, you put your business at risk for significant loss. The good news is, with the right help from professionals, you can give your company the foundation it needs to grow and prosper.