Is Your Business Avoiding These Operating Pitfalls?
I have seen it time and time again. Two, or more, people want to start a business together. They have the financial means, the desire, the idea and/or product, a plan to become profitable, and both are on the same page, or so they thought. When it comes to forming a business, there is a lot to consider. This article will address three issues that are seen time and time again when forming a business.
1. Disagreement on the company’s path
You and your partners have a great product, you have the money to get going, you have your legal and accounting team in place, but you have a different idea regarding the path of the company than one of the other parties, and that partner has a different idea from another partner. This can be solved by drafting a business plan. The business plan will detail how the business will go about obtaining its goals and will enable your business to pitch to potential investors, obtain financing, show potential customers/clients what the company plans to do, where it plans to be, etc. You can never spend too much time on a business plan, and it’s best to have all partners work on the business plan together, so that there are no disagreements with the company’s path down the road.
2. Not having the right team in place
When starting a business of any sort, it is imperative you have your team in place. What do I mean by team? I mean legal and accounting. You and the other owners will operate the business, and presumably you all get along and have a strong desire to run a business. That is great. However, do not forget that every business needs a good lawyer and a good accountant. Spending money on these two key players in your business will save tons of money, time, and stress.
3. Lack of Defined Roles
A business idea/product is hard enough to come by, but now you realize you are not exactly sure what your role is in your own business. Worse, your partners do not know what their defined roles are in the business. This has been admitted to by founders of some of the biggest companies, one example is Reddit. So, how can this be solved? If it is an LLC then an operating agreement can help, if it is a corporation then bylaws should be prepared. This agreement will define how the business is run, it can give titles and duties to each manager/member, and can save a lot of time when two managers are doing the same thing, or when none of the managers are performing vital tasks because each one thought the other was doing it. These documents should be drafted by a lawyer when the business is formed.
Avoid the main challenges when forming your first or next business. Remember have your legal and accounting team in place, have your business plan prepared early, and have an operating agreement or bylaws drafted to determine the roles and operation of your business. Yes, having all of the three will cost money, but it will be a small amount compared to the time, stress, and money saved in the long run.
All information provided in this article is for educational purposes only, and does not constitute legal advice. Each situation is dependent on the specific facts and must be evaluated on a case-by-case basis. If you’d like to discuss the specifics of your situation, please call our office at (213) 784-3640