There are certain things that are okay to do later, but when starting a company, there are two things you need to do to avoid future disasters.
Ever heard the old saying, “Failing to plan is planning to fail?” To build a scalable business, you need a strong foundation. Here, I will explain how to build that with two of the most important pillars you will need.
The advice I’m about to give you is very important. How do I know that? Well, I did not follow my own advice a couple of years ago and lost a hefty amount of money because of it. So what am I talking about?
1. Always Get a Lawyer
Contracts can be a pain, but they are necessary, and you will have to sign many. A good attitude to embrace is hope for the best, and plan for the worst. “Having someone there from the get go, especially if you have many people involved, is important. People will bail on you early, but they sure remember that one small element of the app they designed for you when you get big,” says Aaron Kelly of Kelly/Warner.
Find a lawyer that’s knowledgeable in your area of business. Ask for references in your network. Check out online reviews, and if possible, ask them if you can speak to one or two of their clients (not all lawyers will agree to this). This will be a long-term business relationship, and not only do you need someone who is good at what they do, but you also need someone you “click” with. This is the person who you will have to call and rely on if you ever get into trouble, which you most likely will.
Making Your Own Contracts
“But, Sam, can’t I just use RocketLawyer.com and create my own contracts,” you may ask? Of course, you can, but let your lawyer read it through and put a final touch on it. It needs to be airtight. What kind of contracts am I talking about? Partnership contracts, vendor contracts, client contracts, you name it. You’ll need contracts for every deal or agreement you enter. I have friends who have lost millions of dollars because their contracts were flawed. As mentioned before, even I have lost money on a deal where the contract wasn’t up to par with what the actual situation needed.
2. Get an Accountant and Keep Your Numbers in Order
A vast majority of all new companies fail because of bad money management. If you don’t know anything about accounting, you have to get an accountant. “You can be the best at what you do business wise, but still go bankrupt if you don’t handle your financial records,” says Skip Tisherman, an accountant based in Los Angeles. Again, find someone who is knowledgeable and familiar with your industry, and ask to speak to his or her clients for feedback.
Company Creation and Taxes
“A good accountant will help you with what kind of company you need to form. This is important for tax reasons and liability. He or she will also help you set up quarterly and annual reporting, and a chart of accounts for you to use,” adds Tisherman. If you don’t know anything about bookkeeping or accounting at all, let them handle it as well. The easiest way is to implement an online system that you both have access to and to use a company credit card for all purchases.
Doing this will save a lot of time and money. Don’t do like a good friend of mine, let’s call him Mike, who collects all receipts in big garbage bags, and then spends a fortune and massive amounts of time having someone sorting, preparing, and entering them into a system. If you’re looking for investors, or to start a line of credit with a financial institution, you will need to have your accounting in order. There is no way around it.
Related Article: A Strong Foundation: 3 Books to Read Before Starting Your Business
Getting a lawyer and an accountant are business investments, not costs. They are almost guaranteed to save you money in the long run. In the world of business, it's better to be proactive than reactive, especially in these areas. Remember, if you want to run a professional company, treat it like one.