The Dos and Don’ts of Starting up a Business

					The Dos and Don’ts of Starting up a Business
By Sonjui L. Kumar and Naeem I. Ramatally
October 2011

                                                 A very necessary by-product of the faltering
                                                 U.S. economy has been an increase in business
                                                 start-ups. Many of the long-time unemployed or
                                                 underemployed have taken themselves out of
                                                 the competition and decided to strike out on
                                                 their own. According to the Small Business
                                                 Administration, small businesses are the
                                                 creators of most of the new jobs in this
                                                 economy. Becoming your own boss has a
                                                 number of advantages, but also some pitfalls.
                                                 Here are some of the business basics that any
                                                 new or existing business owner should be
                                                 mindful of.

                                                    1. Do Establish Goals for Yourself and Your
                                                    Partners. Whether you are a sole owner, a two-
                                                    man shop, or have multiple partners, you should
have a clear vision of why you are setting up the business and where you are headed. At a
minimum, goals should be set for revenues, marketing, human resources and finances. Goal
setting will require that you identify the goal, give yourself a deadline for achieving it, and
identify the people, resources, skills and steps you will need. Time spent early on planning can
save a lot of time that would be needed later to change gears.

2. Do Put it in Writing. Although everything that you have agreed to with a third party does not
need to be written down, the most important terms certainly should be. Many disputes can be
avoided if the agreements are written down in advance and clearly. A common mistake is to
believe that you do not need an agreement with family members or friends. Lawsuits among
family members and best friends are an everyday occurrence. One area that frequently results in
problems is that of partnerships set up without a written agreement. Most state laws require that
certain contracts must be in writing. Typically these are sales of real estate, agreements for
services that last more than a year, and commitments to lend money. Although verbal contracts
can be and are enforced, it is harder to prove the terms. Even with the best of intentions, there
can be miscommunications and misunderstandings. There are many resources that can be used to
obtain form agreements including government agencies such as the Secretary of State and
Department of Labor, pay-as-you-go websites or your local business lawyer.

3. Do Separate Yourself From Your Business. A frequent problem among first-time business
owners is failing to separate themselves from their business entities. The main reason for
creating a separation is to make sure that the debts and obligations of a business cannot be
applied to your personal assets. The first step is to make sure that the business is separately
organized by establishing a corporation or a limited liability company and then operating that
entity separate and apart from your personal assets and liabilities. This prevents a third party
from “piercing the corporate veil.” Closely held businesses are the most susceptible to mixing
the business and personal. Some basics:

(a) Don’t commingle your personal assets with those of the corporation. Examples of
transactions that involve commingling: a car that is leased by the company being used primarily
for personal use; or a company bank account being used to buy groceries or pay the home

(b) Don’t divert corporate assets for your personal use, such as paying a non-working family
member’s salary out of the company account.

(c) Don’t engage in activities with the intent to defraud creditors. An example would be to
remove all funds from an operating business into another company or into a majority
shareholder’s account, leaving the company without funds to pay its bills.

(d) Don’t conduct transactions with officers, directors, and shareholders that are not arm’s
length, such as loaning funds or allowing use of company property without payment or

There are multiple risks associated with starting your own business, but at least a few of the
common ones can be avoided by being aware of the basics outlined above.

Published by Khabar Magazine, Business Insights section October 2011 issue.

Description: Learn the do's and don'ts of starting a business from this article by Sonjui L. Kumar and Naeem I. Ramatally from Khabar Inc. Originally published on Khabar Magazine's Business Insights section, October 2011 issue.