Starting your own business is equally exciting and daunting: For every optimistic thought about the opportunity to pursue your passion, there is the corresponding concern about the chances for mistakes and ultimately failure.
Many new entrepreneurs have big ideas, but don’t know much about operating a business. And that lack of knowledge can have real consequences, as early-stage mistakes can have lasting negative impacts on businesses.
Forming your business involves more than setting up shop and churning out a product. As unpleasant as it may be, there are a lot of details and paperwork involved. And while none of those things can guarantee the success of your venture, they can prevent you from critical errors at the outset.
Make sure you don’t skip these first two steps to starting a business.
Step 1: Get a business entity
Forming a business entity is the first thing you should do when starting out. A business entity isn’t merely a measure of legitimacy for your operation; it’s a necessity to prevent you from losing everything.
Having a business entity of some type allows you to separate your business debt from your personal assets, protecting you personally if your business fails. Operating without an entity adds unnecessary risk to the already-risky venture that is entrepreneurship. For example, if your business is service-based — like walking dogs or caring for others’ pets or children — and one of your customers takes legal action because of a mistake, you can lose all your personal assets without a business entity to protect them.
Most people who aren’t lawyers or serial entrepreneurs can claim some degree of ignorance when it comes to business entities. Generally speaking, there are a few common types:
You might be a tempted to take a do-it-yourself approach to setting up your business entity. Don’t.
While you may balk at the cost of speaking to an attorney, the fees involved are worth the peace of mind you’ll get from knowing that your business is formed correctly and on a solid foundation.
Step 2: Take the insurance
Another critical area that’s often overlooked is having the right types of insurance for your business. It’s never a pleasant task to prepare for the worst, but having the necessary insurance will help prevent your business from halting or failing should disaster strike.
Policies for things like comprehensive general liability and key persons will alleviate the worry that you’ll be left with a bill you cannot pay. Such plans cover simple risks like a fire in the office or employee theft. Consulting with local business associations or startup groups can often yield group discounts on insurance premiums.
While these two first steps to starting a business aren’t glamorous, they are essential. Don’t jeopardize your business before it’s even off the ground. Form a business entity and take out the necessary insurance. Onward!