Starting and maintaining your own business is no small feat. According to the U.S. Small Business Administration (SBA), between 2005 and 2017, 78.6 percent of newly established businesses survived their first year, and almost four out of five businesses that began in 2016 were still around in 2017.
However, according to SBA, only about 50 percent of all businesses survive five years or longer, and only about one-third make it 10 years or more. Understanding the nuances of operating a business—taxes, liability, regulations, employee agreements—is crucial to celebrating several anniversaries rather than one.
To get your startup going—and staying—on the right track, and to reduce the chances of your new business becoming a failed-business statistic, ask yourself these 10 questions:
1. What am I selling?
Depending on what you’re selling—whether it’s a manufactured good or providing lawn care services—you will need to identify any chances of being sued (to put it bluntly) for damage, debts, etc. If there is a chance of a contract falling through or someone being injured/sickened at your business, you need to consider those potential liabilities when addressing Question 2.
2. Should I form a partnership, a corporation, or something else?
When selecting the type of business you should form—sole proprietorship, partnership, limited liability company (LLC), corporation, etc.—you need to consider what level of liability you and any business associates can tolerate. If your business would provide services to other businesses, what happens if a delivery is late or a service cannot be performed? What if your business didn’t have the capital for a refund? Who is liable for that amount? In a sole proprietorship, the owner is. In a corporation, the company is and the individual shareholders, generally, are not.
At the same time, you and any business partners should consider the tax benefits, or lack thereof, that come with each type of business. Corporations, for example, are subject to corporate taxes, meaning you may pay taxes on both corporate income as well as your personal income—otherwise known as “double taxation.” Sole proprietorships and partnerships, however, pass company income through to you and any partners, and that income is taxed solely as personal income.
In short, each type of business has benefits and detriments, particularly with regard to liability and taxes. If you understand each of these at the start, you can prevent your business from stumbling later.
3. Do I need employees?
Having employees in your business is not as easy as paying someone to complete a task. New York State has certain, specific requirements for businesses with employees, such as workers compensation, sexual harassment training and occupational safety regulations. You also need to consider your competition and whether those companies will try to steal your ideas by hiring your employees (see Question 5). This can often be mitigated with non-compete and non-disclosure agreements, but a comprehensive employment strategy is key to avoiding violations and lawsuits.
4. Do I need to lease property?
While business transactions are frequently completed online, driving businesses to increasingly opt for virtual presences rather than brick-and-mortar stores, you need to consider what kind of facilities your business will need, if any, and what your options are. Whether it’s a lease for a commercial storefront or an agreement with a space-sharing service, you should review the terms carefully and understand the restrictions on your business operations.
5. Do I—or will I—have any intellectual property?
There are four types of intellectual property (IP) that a small business may encounter: (1) patents; (2) trademarks; (3) copyrights; and (4) trade secrets. Each type comes with its own protections, sometimes at both the state and federal level. Understanding what types of IP your business may already have or will create is crucial to protecting your product and your business. When evaluating your business’s IP, you also need to consider what internal procedures can help protect your ideas from the competition and what to do if, somehow, your idea is stolen or your business is breached in a cyberattack.
6. Do I need an investment or a loan?
Many startups and existing small business owners need capital to launch their business, expand their market, or develop a new product line. Every business should seek advice from a proven financial advisor on these issues – but shouldn’t forget the legal side of things. Loans (federal, state, or private), investments from venture capitalists, and even crowdfunding present legal issues to businesses.
Providing equity ownership for an influx of capital, for example, can significantly change the ownership and control of your business. Similarly, loans may have certain requirements on how new funding is used. Your financial advisor can walk you through the monetary side of things, but, again, don’t forget the legal issues that can result.
7. What regulations govern my business?
Businesses have to comply with various state and federal regulations, and knowing what regulations apply to yours is critical to avoiding costly penalties while you grow your business. Construction companies, for example, need to comply with various federal and state regulations to protect their employees, the community, and the environment. Businesses utilizing emerging technologies, such as drones, need to be on alert for new regulations restricting the use or sale of these technologies.
Conversely, businesses need to monitor regulations for positive changes that can present new opportunities or profits if you are the first to adapt. Regulatory “sandboxes” are increasingly common around the world, providing startups and small businesses in the financial sector with more leeway in complying with regulations while they rapidly grow their businesses. Being mindful of proposed regulations in your industry sector could help your business mitigate any new restrictions or permitting requirements, and even allow you to protect your business by participating in the regulatory process with state and federal agencies.
8. Should I get a state or federal business certification?
Federal and state agencies offer several certifications for businesses owned by particular classes of individuals, such as minorities, women, and veterans. These status certifications can provide businesses with preferential treatment when bidding on federal and state contracts for products and services. However, each status certification has specific requirements and procedures for obtaining that preference. Understanding these specific requirements when you form your business and while your operating in New York could help your company successfully compete for government contracts.
9. How do I get out?
Successfully launching and growing a business can be one of the most rewarding accomplishments in life, but many business owners and entrepreneurs don’t plan for what happens when they want to move on or retire. Metaphorically, many business owners properly plan for, launch, and successfully set sail for new ventures, but, few think about how to successfully get back to the dock and off the boat, or pass the wheel and lines off to another captain. Succession planning is vital to maintaining a business’s success while transitioning to new leadership, whether internally or externally through mergers and acquisitions.
10. Do I need an attorney?
To set your new business on the path to success and lessen your chances of ending up with a failed business, it is advisable that a qualified business attorney guide you through launching and growing your business. An attorney can assist with answering Questions 1 through 9, and help navigate the many inevitable legal questions that will arise during the business lifecycle.