Pre-Business Formation Planning-Thinking Things Through

So, you are forming a business! No doubt you have done some studying and are looking at all of the possibilities based on your particular needs. First things first! Before you get your heart set on a particular type of business, it might be wise to sit down with a financial planner to determine if this is really the direction that is best for you. The personal and financial rewards can be tremendous, but the risks to you and your family can be harrowing as well. If you aren't prepared to have your business lose money for the first few years, and you have a hard time sleeping over losses, starting your own business might not be your best path to financial security. After all, you want to enjoy your time as an entrepreneur, not dread every business day. It can be a tough life at times, and it takes a person willing to commit years of their life (including weekends and evenings!) and a very understanding family. If you have any doubts, this is the time to make sure this is what you want to do.

So you want to move forward, eh? Well, it might be wise at this point to sit down with an attorney and an accountant to determine what is best for you. It has always been my advice to clients that the big picture is paramount. Set up your organization with some exit doors in case things don't work out. I'll give you an example. Too many people make just one business plan. But you should make several-one that shows things going well, one that is so-so, and one that shows an iceberg off the starboard bow. Your pre-business planning should incorporate all of these possibilities. You need to figure out what to do with all that new cash, to also figuring out pre-bankruptcy issues. And your legal planning has to follow suit.

For example-if you have a sole proprietorship, did you think about what would happen if your business wasn't successful? Essentially, you might end up bankrupt, but your business would too! After all, you ARE your business. If you decide to form a business entity, like a corporation, how does your planning account for you running out of money, either the business or you personally? How does that affect any retirement savings you have? Can you keep operating the business? Not trying to be doom and gloom, but these are all things that you need to consider, and if you do it properly, it can help your peace of mind. You will have enough stress without worrying about the unknown.

If you are going to be the only owner, you might want to determine if you want to be paid by salary, by distribution, how Texas franchise taxes might affect you, what kind of liability protection you will need (like insurance) and whether you want to set up your entity with the thought about having business partners or investors in the future (when things really take off!) All of these things, and many more, are some of the initial considerations. And an attorney can help you make the best decisions for you and your family.