Starting a small business is the dream of many Americans, but it is also a financial risk. To ensure success, there are some pitfalls you should avoid to prevent or mitigate a failure, including:
- Failing to establish the right legal structure. An improper or no business structure can expose you and you family’s assets to your business’ creditors. Each legal structure has different strengths and benefits, and selecting the right structure can have long-term financial, tax and legal consequences.
- Not protecting what’s unique to your business. Recipes, formulas, brand names, logos, trademarks, slogans, and other proprietary information may be the secret to your business’ success, but if not properly protected it can be lost to others even if you devoted substantial resources to its development. Some protections for your confidential, proprietary, trade secret, or other business information include patents, trademarks, copyrights, non-disclosure and confidentiality agreements, and other actions designed to protect your business.
- Not having an ownership agreement. A business with multiple owners can end for many reasons, and an agreement between owners to address the situation can protect the business and its owners, prevent the introduction of unwanted new owners, provide an exit strategy for current owners, and allow the business to continue after a departure.
- Not vetting outside lenders and investors. Be sure you know the costs, risks, and consequences of non-owner lenders and investors, and how they can control or limit your business.
- Not preventing personal liability. Avoid or limit personal guarantees, obtain appropriate liability and other insurance, maintain the integrity of the business’ legal status, do not commingle funds, obtain proper legal and financial advice, and sign documents only in your representative capacity.
- Not paying taxes. Failure to pay federal payroll and other withholding taxes is not only a major source of business failures but can lead to personal liability of its owners.
The attorneys at Brooks, Tarulis & Tibble, LLC have substantial experience in advising and representing small businesses and start-ups, as well as counseling owners through growth, disputes, document creation, mergers, and sales. Please contact us if we can assist you..