You may dream of starting your own business, but are hesitant due to the daunting statistics showing that only 50 percent of startups survive five years. Instead of giving up your dream, find ways to make it work. Many entrepreneurs lose their business because of errors they make that put them on the road to failure. Increase your chances of success by avoiding these most common mistakes.
Failure to Choose the Appropriate Business Structure
One major factor that may determine whether your business is a success is how you decide to structure it. You want to be sure you use a business format that will protect your personal assets from business liabilities and debts. Depending on how you structure your business will also influence your ability to obtain funding, the amount of taxes you pay and how your records must be kept. Some possibilities are:
- Sole proprietor: You are the sole owner of the business.
- Partnership: You and one or more partners own the business together.
- Corporation: There are several different ways to structure your business as a corporation.
- Limited Liability Company: This is a hybrid between a partnership and corporation and works well for many types of businesses.
A business law attorney will evaluate your situation and advise you on the ideal business structure that will best meet your needs.
Failure to Put Contracts in Writing
Businesses run on contracts.There are contracts between business partners, contracts with vendors, leasing contracts with property owners and employment contracts, just to name a few. One big mistake people often make is entering into a partnership on a handshake. You may have been best friends since fifth grade and rooted for the same sports teams and read the same books. That does not mean you will agree on how to conduct business.
You need a partnership agreement that will specifically articulate how the business will be run and how decisions will be made. Define the policies, business hours and what will happen if one partner dies, wants to leave the business or bring in another partner. Planning for all these contingencies and reducing the expectations to a written agreement will preserve not only the business, but also the friendship.
Failure to Delegate
Running a business is more than a full-time job. It can be overwhelming if you try to do everything yourself. Those who have been successful advise those who are just starting to remember that they cannot do everything themselves. One successful business owner reports that he almost lost his business due to his failure to delegate. Fortunately, he was able to turn it around around when he realized that he “did not need to know everything” and could delegate certain tasks to others so that he had more time to do the parts of the business at which he was more competent.
Failure to Adequately Research the Need for the Product or Service
You may think your idea is wonderful. You are absolutely certain there is a need for your product or service and that people will line up to purchase whatever it is you are selling. Hopefully, you are right. But, if you create a service or product for which there is no market need, your business will fail. You need to do market research to evaluate whether there is really a need that your business can fill.
In order to have the best chance of success, contact this office for guidance. As an experienced business attorney, I can assist you with determining the best structure for your business, draft necessary contracts and provide services that will help prevent future litigation.