Planning Checklist for First-Time Entrepreneurs
By Bradley S. Shear
As an attorney who provides outside general counsel
services to entrepreneurs and small- to medium-sized
companies, I have found my work to be extremely rewarding
and intellectually stimulating. I grew up in a family
business, so I understand many of my clients’ business
and legal challenges because I have personally experienced
many of them when I operated my family’s small
business.
During this current recession, I have encountered more
first-time entrepreneurs requesting my services than
ever before. Most of these clients have never previously
started their own businesses and are accidental entrepreneurs.
Some of these entrepreneurs have decided to start their
own ventures because they are unable to obtain another
job in their industry, while others have expressed that
they want more control over their professional lives.
Either way, many of them do not understand all of the
responsibilities that starting a new business entails.
When meeting with first time entrepreneurs, I discuss
some of the following topics:
Business Plan
During my initial meeting, I request a copy of the client’s
business plan because it may offer some information that
may not be discussed during our conversation. I advise
my clients who do not have a formal business plan to
create a concise, one-page memo that clearly identifies
the reasons for starting the business, whether it be
providing a much-needed service or selling a unique or
popular widget and how their business will differentiate
from their perceived competitors.
Choice of Entity
Each state has distinct rules regarding the various
forms of doing business. There are several different
types of entities, and each one has its advantages and
disadvantages. Some choices include a sole proprietorship,
a partnership, a C corporation, an S corporation, a limited
liability company, a limited partnership, and a professional
service corporation. It is important to listen to your
client’s vision for the new venture so you can
advise the proper entity type because changing legal
entities at a later date may have tax and liability implications.
Business Name
After a business name has been chosen, it should be
researched with both your state’s licensing department
and the U.S. Patent and Trademark Office to see if the
name is currently in use by another entity. Your client
should also check to see if his desired domain name is
available. I have several clients who have chosen their
business name based on the availability of a domain name.
Consistent branding is very important, so it is advisable
to recommend your client obtain a Twitter account, a
Facebook account, and any other web service account that
pertains to his industry.
Employer Identification Number/Federal Tax Identification
Number
The Internal Revenue Service does not require an Employer
Identification Number (EIN) for every entity, so it is
important to understand the IRS rules to know which entities
are required to have one. An EIN number may be obtained
online through the IRS website. The type of goods and
services your client provides may effect his tax obligations,
so I advise my clients to utilize the services of a certified
public accountant who can assist them with their accounting
and taxes.
Permits and Regulatory Licensing
Many businesses and service professionals need to have
some type of permit or a professional license to legally
operate. Some industries require federal permits, while
others require state and/or local permits as well. Be
aware of all pertinent regulatory requirements for your
clients because compliance issues may have serious financial
and legal consequences.
Location
Is the venture going to be a home-based business, an
online business, a brick and mortar business, or a combination
thereof? Local zoning laws may prohibit certain businesses
in both residential zoned neighborhoods and in some commercial
zoned areas, so it is imperative to know the relevant
zoning laws. If your client has a brick and mortar location,
you may want to review the lease to ensure that it is
flexible enough to fit your client’s needs. If
your client has a website, you may want to discuss copyright
and trademark issues, blogging and defamation issues,
website linking, terms of service, and website security
issues. Each location has its own set of legal issues
that should be proactively addressed.
Employees
Hiring employees creates another set of responsibilities
that an entrepreneur must understand. There are numerous
federal, state, and local laws that must be followed
before, during, and after an employee’s affiliation
with an entity. Some of these laws pertain to minimum
wage, employee benefits, working conditions, and discrimination.
The size of the business may determine if certain laws
apply.
Insurance
Insurance needs may depend on the type of business and
its location. For example, a home-based business may
want to consider home-based business insurance because
homeowners’ insurance policies usually do not cover
business-related activities. A brick and mortar entity
may want to consider commercial property insurance, general
liability insurance, and/or an umbrella policy. A professional
services provider may want to consider obtaining errors
and omissions/malpractice insurance. Federal or state
law may mandate some forms of insurance such as worker’s
compensation insurance, unemployment insurance, and health
insurance. I recommend my clients contact an insurance
professional to learn more about which policies best
suit their needs.
In the current economic climate, I have noticed that
some businesses view reducing or eliminating their insurance
coverage as an easy way to reduce their expenses. If
my clients have already explored lowering their insurance
premiums, I advise them against eliminating their insurance
coverage entirely because one incident has the ability
to destroy their financial position. Instead, I counsel
my clients to look into reducing other office expenses
or even their own salaries because these types of reductions
usually have only a short-term impact, whereas an uninsured
incident has the potential for long-term financial devastation.
Address the Important Issues
Starting your own business can be both exciting and overwhelming
at the same time. Addressing the above issues during the
initial meeting may help your clients determine if they
have the “right stuff” to become an entrepreneur.
Some clients may realize that entrepreneurship is not for
them after discussing these issues. Others, however, might
think that these new responsibilities sound easy compared
to their prior or current situation. In my experience,
a more informed client leads to a more successful attorney-client
relationship
Bradley S. Shear provides outside general counsel and
business consulting services to entrepreneurs and privately
held entities. His practice is located in Bethesda, Maryland
and he can be reached through his website at www.shearlegal.com or by email at bshear@shearlegal.com.
© Copyright 2009, American
Bar Association.
