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Start-Up Business

Start-Up Business: Essential Tips from Experts and Entrepreneurs

GREAT COMPANIES FAIL for lots of reasons that have nothing to do with their products or services. Coming up with a great idea is difficult; turning that idea into a business is even harder.

We consulted members of the Financial Poise Faculty—each a professional advisor or successful entrepreneur—to discuss what it takes to start a business and get it off of the ground.

Our expert panelists also explore why so many start-ups fail and what common mistakes entrepreneurs need to avoid.

EXPERT PANELISTS:

Matt B. Schiff, head of Labor & Employment at Sugar Felsenthal Grais & Hammer
Paul Clinkscales, CFO, Director and part-owner of Sunburst Digital Inc.
Peter Feinberg, M&A attorney at Hoge Fenton Jones & Appel
Trisha Lotzer, entrepreneur and founder of the Lotzer Law Group
Michael Schwarzmann, Managing Director, Crowe Horwath advisory services

The first important question for the would-be entrepreneur/business owner to ask his- or herself is: What is the secret sauce for this business? How do you differentiate it from others, and what is protectable in the business.

Peter Feinberg, Hoge Fenton Jones & Appel

Why it doesn’t matter how great your idea is

The truth is that just having a great idea is rarely (if ever) enough. Products and services almost never “sell themselves.” Entrepreneurs need skill, training, experience and passion in other critical areas to survive and grow.

  • You need to know how to attract and retain key people.
  • You need to have a working understanding of business structures, accounting and finance.
  • You need to take risks, raise money and navigate whether to share ownership (and get it back).
  • You need to be able to negotiate various contracts—potentially to buy a competitor or, ultimately, sell your business.

Put another way, starting and maintaining a business is not for everybody.

You need to, like a chess player, be thinking a step or two in advance about whether you are going to be foregoing opportunities when [making business decisions]…

Peter Feinberg, Hoge Fenton Jones & Appel

Know Before You Go—What to consider before you enter a market

Each entrepreneur needs to honestly assess what they are good at and where their energy comes from. You have a personal skillset, but you may need partners that cover your weaknesses or accentuate your strengths. That said, avoid partnering up compulsively. Too many novice business owners rush into a market with a partner they barely know and try selling to customers they don’t really understand.

Here is a short, incomplete list of things to know before you go into a new market:

  • Are you better at running a business or starting out from scratch?
  • Where is the money going to come from?
  • How are others going to be involved in the business? If so, under what terms?
  • Under which legal structure will the business be organized?
  • Which risks can you insure against?

I once had a woman come to me for a business divorce…she’d given too much equity away in the business too soon to someone she didn’t know. She thought they had a complementary skillset. We did that divorce…and she came back a year later with the same problem.

Trisha Lotzer, entrepreneur and founder of The Lotzer Law Group

New business owners are well advised to build a network of advisors and professionals upon which to lean and ask questions. These include attorneys, accountants, possibly other consultants. Forming an advisory board can also be very helpful to your business.

You do not have to hire and retain experts to benefit from their advice. Many professionals are amenable to discussing issues over coffee or in an introductory phone call.

Figure out how your business structure modifies your decision-making process

New business owners must carefully choose the best business structure. The tax-savings for choosing the correct entity can be huge. Laws vary from state to state. Be well-educated before you approach advisors to save time and money, yes, but also to facilitate the relationship towards a beneficial path.

Having no legal entity—a sole proprietorship—I don’t advise that on the legal side at all. It’s not recommended for liability purposes, and it’s also just difficult for record-keeping and bookkeeping. Commingling funds is something you want to avoid.

Trisha Lotzer, entrepreneur and founder of The Lotzer Law Group

Lessons on financing your start-up business

business structures sole proprietorship partnership llc corporation

The next big problem that a lot of companies run into is a lack of cash. New enterprises tend to be starved for liquidity and struggle to grow when the bank account runs low.

Of course, acquiring money almost always comes at a cost. Entrepreneurs who fail to recognize and compare the costs of financing sources can unwittingly put their entire enterprise at risk.

How you put the money into the company is just as important as how much money you put in. Companies need to be capitalized at a certain level, but you don’t want to put in too much money as equity—that’s a good general rule.

Peter Feinberg, Hoge Fenton Jones & Appel

Entrepreneurs often put up money up front, whether from savings or through credit. Others rely on friends and family. You can even seek financing from customers and suppliers.

A step beyond friends and family are angel investors. Angels are a more sophisticated source of capital and, generally speaking, want the same type of equity as the owner. Some angel investors seek out participation rights in the business, but not all.

Angels tend to come in around the low six-figures but may pursue larger investments up into the high six-figures.

Private equity and venture capitalists are the final and most complicated private business financing source. These players are professional investors and often seek an advanced class of equity in exchange for their partnership. Most seek out some form of board representation or other business rights.

Professional investor money tends to be very, very expensive money. These players are savvy and protective of their interests. That said, the consultative expertise of a PE or VC firm can transform the right smaller business into a large, successful company.

From the perspective of a business owner: plan for when things are going to get rough. Particularly with friends and family, hold on to your equity as long as possible and be very cautious of even considering giving equity away. The bigger the party, the more complicated life gets.

Paul Clinkscales, CFO, Director and part-owner of Sunburst Digital Inc.

Protect your idea, your assets and yourself

Ultimately, every business owner needs to know how to structure their business relationships, legally and practically.

  • Intellectual property protection
  • Confidentiality agreements
  • Non-competes
  • Invention agreements
  • Risk management, insurance and ADR

You want to make sure you are controlling your contingent liabilities. Many best actions are not required from a legal perspective, but they are necessary from a competitive point of view.

Matt B. Schiff, head of Labor & Employment, Sugar Felsenthal Grais & Hammer

Notably, one of the best business practices is to put all of your agreements in writing. These include employment agreements, shareholder agreements, supplier agreements and partnership agreements.

Business owners often get into trouble when they work with friends or family because they fail to put the terms of their agreements in writing.

Don’t have unprotected success. Use a contract every time.

Trisha Lotzer, entrepreneur and founder of The Lotzer Law Group

An employee handbook is a good idea to document the expectations of both employee and employer—especially in the era of social media, the internet and email. However, employee handbooks can be changed. Employee contracts are more final and enforceable whenever a dispute arises.

For more advanced business advice, go here:

Entrepreneurs should focus on those things about which they have great passion.

Even so, most successful entrepreneurs wear many hats and discover things slowly, or by accident. Most successful entrepreneurs enjoy that. At some point, however, there is an economic advantage to seeking help and advice from real experts in business development.

Remember: if you’re going to make it, you need to know how to manage employees, investors, customers, suppliers, regulators and the IRS.

That’s why Financial Poise created the following webinar series—to help you.

EPISODE #1: Legal and Practical Advice—Starting a Business

Our webinars are developed and executed exclusively by professionals who are top performers in their fields of expertise. Our Faculty Selection Team chooses each panelist selectively on merit, based on his or her substantive knowledge and ability to teach effectively.

Hiring the right people can be the difference in success or failure. I cannot emphasize enough to spend a great deal of time vetting candidates…Particularly with start-ups and inexperienced small businesses—the culture, lack of structure and lack of delegated management can be a shock to people.

Peter Feinberg, Hoge Fenton Jones & Appel

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