8 FREQUENTLY ASKED QUESTIONS ON STARTING A BUSINESS

Having been a start-up lawyer and entrepreneur, I have been asked many of the following questions over the years from entrepreneurs when starting their company. Sometimes there isn’t an easy answer, and as lawyers often like to say, “it depends on the circumstances.” But, here are my short-hand answers to the frequently asked start-up questions:

1. Should I form my company as C corporation, an S corporation, an LLC, a partnership or a sole proprietorship? Start it as an S corporation, unless you have to issue both common stock and preferred stock; in that case start it as a C corporation. And an S corporation can easily be converted later into a C corporation. LLCs are popular, but can get overly complicated. Partnerships and sole proprietorships are to be avoided because of the potential personal liability to the owners of the business.

2. Where should I incorporate my business? The standard answer to this is Delaware because of its well-developed corporate law. My answer is that it should be the state the business is located, as this will save you some fees and complexities. You can always reincorporate later in Delaware.

3. How much should I capitalize my business with at the beginning? As much as you can reasonably afford, and in an amount to at least carry you for 6-9 months with no income. What you will find is that it always takes you longer to get revenues, and that you will experience more expenses than you anticipated.

4. How can I come up with a great name for my business? This is difficult. First brainstorm with a bunch of different names. Then do a Google search to see what is already taken, and that will eliminate 95% of your choices. Make it easy to spell. Make it interesting. Don’t pick a nonsensical name where people won’t have a clue as to what you do. Do a trademark/tradename search on the name. Then make sure you can get the domain name.

5. What are the biggest challenges to starting a business? The answers are:

Shortage of capital and cash flow
Having a good business plan
Coming up with a great product or service
Sticking to it
Working more than you expected
Getting through the frustrations of being constantly rejected by customers
Hiring good employees
Knowing when to fire bad employees
Having to wear so many hats
Managing your time
Maintaining some kind of work/life balance

6. What kind of business should I start? A business that:

You are passionate about
Doesn’t take a kazillion dollars to fund
Has the potential to grow into something big in a reasonable time frame
You have some experience in

7. What are the biggest mistakes made by start-up entrepreneurs?

Not starting with enough capital
Thinking that success will come quickly
Not carefully budgeting
Not focusing on the quality of the product or service
Underestimating the importance of sales and marketing
Not adapting quickly enough
Not understanding the competitive landscape
Ignoring legal and contract matters
Hiring the wrong employees
Mispricing the product or service

8. Where can I get money for my business? Many books and articles have been written on this subject as well. Here is a summary of the most effective sources of capital: