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Picking a Business Structure and Name: What Matters

startup planning

So you want to start a business.  You’re going to plan and research EVERYTHING carefully. That’s good advice, right?

 

Uh … maybe.

One thing I’ve learned is that there are worse things in business  – and life — than making a mistake.  What can be worse is losing an opportunity.  While I urge you to make smart informed decisions, it’s important to recognize what NOT to agonize over.

Speed off the launch is important to startups.  Why?  So you can make sales.  Sales are top priority for most startups.

With that in mind, here are three lessons I’ve learned, having started several businesses:

1.) Decide your business structure fast  - you can always convert later.  

You are not locked into a business structure permanently.

Let’s say you start out as an LLC. Then your hot new tech startup becomes the darling of Silicon Valley.  You decide to bring in outside investors, and you’re told that  a corporation would be a better structure because you can issue shares of stock to investors.  Having started out as an LLC is not a problem – you can convert to a corporation later on.   You can also convert in the other direction, i.e., from a corporation to an LLC.

Make the best decision you can on your business structure in the beginning.  Just make make it fast.  Here is the reality:  in most startups, you have much bigger issues to master at the start than paying taxes on your non-existent income or  shares of stock for your non-existent investors.

The biggest issue in most startups is sales.  Cash is king. Until you make sufficient sales to ensure your business survives, the rest won’t matter much.   (If you are one of those for whom structure and tax issues are critical matters from the outset, you know who you are and you probably already have advisors anyway.)

Get informed. Decide fast. And then turn to sales ASAP.

2.)  Keep it simple — incorporate or organize in your home state.  

When you’re starting a business, it might seem “important” to do a lengthy investigation into which state to incorporate or organize under.

For most startups, that is overkill.  We’re better off organizing or incorporating in the state the business is in.  States like Delaware or Nevada do offer certain advantages, including flexible incorporation laws and well-established precedents in the event of litigation.  However, those advantages tend to help big corporations or startups with special requirements (such as those with outside investors).  Of the 27+ million small businesses out there, only a tiny fraction fall under those special circumstances or will find the advantages of Delaware law to be a major factor.

Plus, incorporating in a distant state can have unforeseen downsides.  For example, you may be forced to file extra paperwork in your home state to do business as a foreign corporation.  As a foreign corporation you may find it harder to open a bank account in your home state.  Those kinds of complications can add an extra layer of fees, time and regulations to running your business — and slow you down.

For startups, your biggest priority is to get your business off the ground. Keep it simple by organizing in your home state, so you can focus on sales that much faster.

3.) Take extra time deciding on your business name.

Now I am going to get contrarian on you.  This is one case where it pays to take extra time to get your business name right from the outset.  A creative memorable name can help tremendously as you’re building your business.

Yes, you can always re-brand and change the company name later.  But when you do it’s like starting all over in the marketplace.  If you start out with a good name, you build brand that much faster and with less disruption later.  And that helps grow those all-important sales.

Where to start?  Spend some quality time compiling a list of possible names.  Brainstorming, speed thinking, and other techniques can be useful exercises.  This article at About.com has a good list of ways to think up a business name.

Once you narrow it down to a few top choices, run them past family, friends and others you trust to get added input.  Be sure to do a corporate name search.  Or consider filing a DBA for a “doing business as” name for your company.

Brand is more important than ever – take the steps to build it from day one.  It will pay off in increased sales if you do a good job.  And protect it.  Consider filing for a trademark to protect your brand as early as possible.

 *  *  *  *  *

Remember  – as a startup entrepreneur, your time is precious.  What you decide NOT to spend time on, is just as important as what you DO spend time on.  Keep your eye on the sales ball.

Note: this article is not intended to be legal advice — just practical insights from an entrepreneur who’s been there, done that.

Anita Campbell

Anita Campbell

Widely considered a “small business expert,” Anita Campbell serves as CEO of Small Business Trends LLC and Anita Campbell Associates Ltd, a woman-owned consulting firm helping companies and organizations reach the small business market. As Publisher of several online media properties and syndicated content, Anita reaches over 1,000,000 small business owners and entrepreneurs annually. She is the founder and Editor-in-Chief of Small Business Trends, an award-winning online publication. She hosts Small Business Trends Radio, where she interviews other small business experts. She also publishes Selling to Small Businesses. Anita was a contributing expert source to the Intuit Future of Small Business Report. She is a part-time instructor at the University of Akron. Anita’s expertise is often sought by the media. She is quoted in places such as the New York Times, Fortune and USA Today, all the way to publications of companies such as IBM, American Express and Merrill Lynch.

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