There were a number of questions I did not answer before taking the plunge into business. Some I never thought of, but others I foolishly ignored.  There were three that I learned have the biggest impact in the start of a new business.  They are:

1. Where is the money going to come from?
First off, I did not identify an income stream, or figure out how exactly I was going to make money. More specifically I did not have any customers. I had a few products I thought were pretty nifty, but I did not have any one waiting to buy them. However, I went ahead developing my products, and then manufacturing them. The result was I had a lot of money tied up in inventory nobody wanted. I thought about it, but naively I figured, “… if I build it they will come.” Well it is not the movies. The result was I had a lot of money tied up in inventory nobody wanted.

2. Do you understand the business and industry you are entering?
I grew up on a farm, earned a bachelors degree in agriculture, and was very successful in agriculture before starting a business in the automotive industry. I never even considered the fact I did not know anyone or anything about this industry. The first step in sales is using your rolodex; well I had no contacts in the automotive industry.  Sales are difficult for a new company to begin with, and when you add the fact that you do not know the industry or the people they become almost impossible.  I still do not understand the automotive industry and I have been at it for a year.  I have had to sell myself then my products to prospective customers adding more time and costs.  Staying in an industry I knew and had contacts in would have taken years off my startup time.

3. How are you going to efficiently manage your product or service system?
I never considered how I was going to manufacture these products. My first production run was haphazard to say the least I had four different companies fabricating or assembling items, as well as doing some myself. I was running up to 100 miles away with materials for machining, then taking pieces to another place to get fabricated and finished. Even if my products took off there was no way I could possibly produce the volumes needed to make any money with this system.

As an entrepreneur if you have identified your income stream, understand your industry, and have an efficient system, the key components are in place to be successful.  It still takes a lot of work, but at least you have a strong foundation to work from.  I have learned that first hand.

Avoiding High Legal Fees When Starting a New Business
by Garrett Coleman

Attorney’s fees can add up quickly when starting a new business. The unfortunate fact is making sure you and your business are protected are a must, but after receiving legal bills that almost made me pass out I learned a few ways to avoid the outlandish costs. It is important to remember as you read this, to always consult a knowledgeable attorney if you are unsure about a legal matter.

The legal topic that probably gets the most attention for new businesses is what type of business structure to use. I have screwed this one up too. Previously I was self employed as a contracted consultant. I ran this business like a sole-proprietor against the advice of my accountant. I chose a sole-proprietorship because it was the easiest and cheapest to start. Well my accountant showed me I would have saved over $4,000 in FICA taxes the first year if I had formed an S corporation like he had proposed. So using the correct business structure is very important. I have subsequently formed a corporation for another business that has worked very well, but remember each business is different and should be analyzed to determine the structure that is best for it.

There is a wealth of web pages and books with information explaining the pros and cons of each business structure. One of the best sources for this information is the Small Business Administration website. I would also check any advice you get about certain business structures for validity. There are tons of inaccurate beliefs and assumptions about business structures. Keep in mind that each state treats particular business structures differently, especially Limited Liability Companies. Check with your states laws, and learn as much as you can before making a decision.  Be careful if you call your states business hot line to ask questions.  Make sure any verbal answers you get can be verified by written information available or a written response.  People misspeak all the time, but the protection for you and your assets is too important to leave to chance. Links on the Resources page of smallbusinessblunders.com will help.

Forming the business after you have chosen the structure may seem overwhelming. It really is not, while filing the papers and forming the business yourself is a bit cumbersome it can be done, but if you are like most entrepreneurs you need to save time as well as money. I was the same way, so I used an online incorporation service to form my business, and would highly recommend it.  The service I used was from The Company Corporation, they were easy to work with, have a variety of packages to fill your needs, assign an incorporation agent to help you along in the process, and offer a Corporate Veil Guarantee. A close friend of mine incorporated at the same time using an attorney, he paid $1500 including filing fees, verses my $800 including filing fees, both for Pennsylvania Corporations. They also provide me a corporate seal, startup package, and registered agent services to keep the business in compliance. He has been on his own since the formation. If you are forming a unique business using an unusual structure it is worth it to hire a good attorney to set up your business, but for most situations a formation service will work great.  Do your research before choosing a formation service.  I chose The Company Corporation because unlike some online incorporation services they have been around a long time, and do so many formations that they are very familiar with forming businesses in each state.

The second legal area that new businesses focus on is drawing up contracts, warranties and other legal documents. This gets very expensive if you have an attorney do it. It is important that the documents used in your business are legally correct, and you can accomplish this without paying $200 plus dollars an hour for an attorney to draft them. There are two options to get legal documents without costing you a fortune. The first for routine legal forms and contracts is to use standard forms from a company like USlegalforms.com . All their documents are drafted by attorneys, but the cost to draft them is spread out over all the people who buy the form. So for a small price, usually less then $20, you can have the same document immediately that would cost a few hundred dollars if you had your lawyer draft it. The second option for more specific documents is to get contracts or forms from your competitors or other similar businesses and follow them to draft your own. Then take your document to an attorney to be reviewed. They will spend a lot less time reviewing the document and making a few changes to make sure it fits your needs then they will drafting a whole new document, saving you a ton of money.