6 Mistakes to Avoid When Starting a New Business
Deciding to start your own business is an exciting experience. Thoughts immediately begin swimming in your head about being your own boss, becoming a success and maybe impressing all those doubters at your next high school reunion. Taking the steps to start your own business, on the other hand, can be not so fun. Mistakes are inevitably made when you let yourself get carried away in the thrill of it all and forget to cross all your “t’s” and dot every single “i” imaginable. Below are the six biggest mistakes new business owners make that end up tying them in litigation and disrupting the success of their business:
- Forget to Create an Operating Agreement
An operating agreement is a key document to protect your business’ limited liability status, giving members protection from personal liability to the LLC. If your company has multiple founders, this is especially important. Even if you’ve orally agreed to certain terms, misunderstandings or miscommunication can take place, so it’s best to have operational conditions and other business arrangements in writing to reference in the event of a conflict.
- Fail to Create a Partnership Agreement
Starting a company with your best friend? Come up with an awesome business idea with your brother-in-law? Doesn’t matter, you should always create and sign a business partnership agreement. Even if there’s no problem, a partnership agreement ensures miscommunications and legal problems that may arise are avoided. However, a partnership agreement can also protect owners in the event of a dispute, a sale to a new partner, the dissolution of the business, even in the unfortunate event of the death of a partner. Partnership agreements are absolutely crucial if applicable to your business.
- No Insurance
Yes, even your business will need insurance. It is imperative that you research and find out what insurances your company will need. At the very least, most small businesses need General Liability and Business Property insurance. Some companies even offer Small Business Owner’s Policies that package all your insurance needs into one policy. Once you have primary coverages in place, it’s also best to think about the risks that may be unique to your business and adding further coverage like Workers’ Compensation Insurance or Commercial Auto insurance if need be.
- No Employee Paper Trail
Sure, it can be fun to hire new people. That means your business is doing well, you’re growing and expanding your team. However, even if you’re hiring your trusty cousin Frank, you still need to have him sign an employee agreement. An employee agreement, or contract, is a document laying out all the details relevant to the job. This legal document can include the term of employment, the compensation provided and any other relevant information regarding the arrangement of employment that you deem necessary.
- Forget to Be Thorough
You can never be too careful when it comes to protecting your company. When drafting up the paperwork for your business, you must be meticulous. Don’t forget to include things like arbitration agreements and non-compete clauses in your contracts. One day, you may be very glad you did!
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