“Begin with the end in mind.” That’s a quote form Stephen Covey in his book, The 7 Habits of Highly Effective People. I’m going to borrow it, apply it in a different way and say this is what “Highly Successful Business Owners” do when they start a business.
You may have decided to start a business – or you’re starting another business – and you’re a little lost on where to begin. So I tell you to “begin with the end in mind” and you will know the direction to take. Read below and determine which group you are in:
Group A = Is this new business going to be your livelihood? Support your family? Are you staking your professional reputation on your success? Is this an all or nothing venture? Are you using every resource you have to get it going? Is this your life-long dream and you’re finally doing it? Can you “see” your success and know exactly what it looks like?
Group B = Or… are you just going to “try it and see what happens”? Do you have a Plan B? Maybe it is just a hobby and you don’t care if you make any “real” money? Is it going to be a “side-hustle” that’s just temporary until another job comes along/your promotion kicks in/or you save enough for that new car and then you’re done? Are you not sure what you want but you know you want to do something different?
It all comes down to one thing: How serious are you about this new business?
If you’re in Group A, then you’re serious and you’ll do what it takes. You want to do it the right way so that you set the foundation for your future success. Your startup will grow and you need it to be strong – not made of straw. You don’t want to have to deal with problems you created for yourself by taking shortcuts or skipping steps here at the beginning. Intentionally or not.
You want smooth sailing. You know there are so many things you don’t know. So how are you supposed to know what to do, what is most important and how to prioritize?
I remember how it was when I started my own business in 2015. I had been a business attorney for 12 years by that time, but I’d never been a business owner. I was overwhelmed by all I needed to learn. Luckily, I found good advisors and mentors to guide me in the right direction. I’m going to help you with that on the legal side.
Here’s a rundown for you to get the lay-of-the-land:
Step 1: There are documents you need to file with the state of Florida.
Step 2: There are forms you need to file with the IRS.
Step 3: There are documents you are required to have that don’t get filed anywhere. You just have to have them. Signed.
Step 4: There are documents that are not required and don’t get filed anywhere. It is smart to have them and good business owners do have them. Signed.
That’s what you have to DO, now here’s what you have to KNOW. I’ll call these my “Straight-To-The-Point Principles”:
There is no point in forming a new corporation or a new LLC if you aren’t going to do all the steps required. It will not provide you the protection you think it will.
Speaking of protection, the whole point in forming a Florida corporation or a Florida LLC is to protect yourself personally from business liabilities and obligations – just in case something goes wrong. You can never predict what can possibly go wrong.
Once you correctly form a corporation or an LLC, you still have to manage and administer it. If you ignore it and don’t keep it “healthy” then it’s dying on the vine and won’t protect you when you need it. If you don’t have the patience, bandwidth or appetite to manage the technicalities of your corporation or LLC, you need to delegate that out. Point made.
Your new business entity is a “separate person” in the eyes of the law. Don’t forget this very important point. You need to treat it as separate from yourself. Use your title every time (have a correct title) and follow the other “formalities” (click here for another blog article on those).
Decide how serious you are. This will tell you the amount of resources to invest.
Understand that this is going to be some work on your part to manage your new entity.
Acknowledge that forming a business has technical requirements and agree that you won’t take shortcuts.
Delegate out what you can’t or won’t do.
Don’t think you can do all this online. It’s not just online filings. It’s not just online documents. Get some professional help (but not an accountant).
So where do people go wrong sometimes? Here’s some common pitfalls we see once new clients come into our office and hand over a stack of papers and say “I started this on my own, please fix it” – and we do.
Pitfall #1: Only doing Step #1 and Step #2 above. Sometimes people think that the filings are all they need to do. They don’t realize that they are supposed to have document that aren’t filed anywhere. All the documents are important and they form the liability shield that you’re trying to create.
Pitfall #2: Using an online formation service like LegalZoom or any of the other online services. These companies collect a minimal amount of information from you and put it into a software system that then spits out very simple “template” documents for you. There are two problems with this: (1) they don’t get enough information from you to make sure you get what YOU need, and (2) even if they did get more information from you, they only have simple documents that are one-size-fits all. No business is alike and no business owner has the same needs. No business should have the same documents.
Pitfall #3: Finding free or cheap legal documents online and using them for yourself. Besides the one-size-fits-all reason I mentioned above, there is also a pitfall here with the law that applies to you. Each state regulates their businesses in their own way. There is no national standard or uniform law that applies to businesses across the country. So you could download documents that were created for businesses in North Dakota or California and you have a Florida business. That could create problems for you because they (1) may not be sufficient here in Florida and/or (2) they may not have the requirements you need here in Florida. For more of my soapbox about online forms, click here.
Pitfall #4: Hiring an accountant to form your new business entity for you. Don’t get me wrong. I love accountants. We have many CPA firms as clients and some of my close friends are accountants. They are experts at tax and accounting, both of which I know next to nothing about. But on the flip side, they know next to nothing about legal requirements and legal issues. Many times they will choose a type of business entity to form based solely on tax reasons – and they completely ignore the legal implications. I see this a lot when accountants form single-member LLC’s (Ugh!). They also don’t know the legal documents you need to have (those that are required and those that are recommended). I’ve seen corporations formed by accountants that have no bylaws! Are you kidding me? Or worse, they “pull” templates and create the documents without having any clue what they should say or actually do say.
So let’s recap, shall we?
1) Decide how serious you are. This will tell you the amount of resources to invest.
2) Understand that this is going to be some work on your part to manage your new entity.
3) Acknowledge that forming a business has technical requirements and agree that you won’t take shortcuts.
4) Delegate out what you can’t or won’t do.
5) Don’t think you can do all this online. It’s not just online filings. It’s not just online documents. Get some professional help (but not an accountant).
About Elevate Business Law: At ELEVATE, we help business owners do risk assessments. We aren’t coming from a “no risk is good” perspective because we know that some risk is necessary in business. Our main goal is to help business owners avoid unnecessary bad risks and make better business decisions.