All the Questions to Ask Before Starting Your Business
Starting a business is a deceptively complex process. It’s not as easy as “coming up with a great business idea” and “making it happen”.
You must decide how you are going to incorporate your business – LLC, S-Corp, C-Corp – and how you are going to finance your business during the startup phase.
You have to decide how much of your own money you are going to invest in the business, at which point you will close the business if it has not yet started to generate income (or does not generate enough income).
You may need to decide if you are going to attract a business partner (or partners) and how you and your partner (s) will share responsibility and profit.
You should also meet with both a lawyer and a CPA to understand the legal and tax implications of your business. This is a step that many aspiring small business owners miss, and can cost them a lot of money going forward.
So, before you put your great business idea into practice, ask yourself – and your potential business partner (s), your CPA and your lawyer – these questions.
Questions to ask yourself before starting a business
How will this business make money?
This may seem obvious, but think about it. Are you selling a product? Service? Are you providing content for free and are you monetizing through ads and sponsorships?
Once you’ve gotten this far, ask yourself why the person made the decision to give your business money. What are they actually buying? A tool to make their life easier? A skill they can use in their future careers? An emotional experience? The more you know about your business’s unique selling proposition, or USP, the better you’ll be ready to sell the USP to potential customers.
How much money does this business need to make?
Many business owners believe that their business will not make any money, at least not at first; however, it is important to ask yourself how much money the business needs to make to cover its expenses, and how much money you need to make from your business to cover your expenses . (Plus the amount of money you need to set aside for taxes.)
After you hit a few numbers, ask yourself when your business needs to start making that money. If you don’t have the money to live on while you start your business, your business may need to hit bottom line by the end of the first quarter. Other business owners may work for a year or so without taking any money out of their business to pay themselves, but they still need a business that brings in enough money to cover their own expenses. (And taxes.)
What kind of career capital am I investing in this business?
In his book So Good They Can’t Ignore You , Cal Newport explains that many small business owners jump into new businesses without first building up a career capital — the skills, resources, and networks are essential to succeed in a given career.
Newport gives the example of a woman who decided to open a yoga studio after a month of teaching; Since the woman had very few teaching skills (compared to more experienced teachers) and lacked the resources that she could have accumulated if she had spent more time in the yoga industry before starting her own studio, her business was unsuccessful.
Have you done a career building job or are you starting a business in a new industry or field? Beware of starting a small business hobby project before taking the time to accumulate the capital it needs to be successful.
What real capital do I bring to this business?
Some businesses require more start-up costs than others. If your business falls into the “high start-up cost” camp, do you have the means to cover its costs without jeopardizing your own financial stability?
Likewise, how much money are you willing to invest in your business before it becomes profitable? Knowing your number will make it easier to make business decisions, including the difficult decision of when to abandon a business idea.
Who are my clients?
The job of creating the perfect customer profile is great; Better yet, start a business that already has a group of potentially interested clients. Think, for example, of people moving from blogging to teaching courses; they already know who is interested in their work and can design their courses according to the needs of their audience.
Career capital can also come in handy here; For example, if you plan to do consulting, your first clients should naturally come from your network.
You can also use services like Kickstarter to test out new business ideas and see if you have a group of potentially interested clients, although you still have to go through the work of identifying your ideal customer and leverage your existing network to help you find that one. client. …
How can I connect my business to new clients?
Loss of customers is a real thing; If you don’t constantly connect with new customers and develop these relationships, your sales and income will fall, not rise.
Think about how you could attract new customers. Are you going to advertise? Collaborate with other small business owners? Attend conventions? Create tutorial videos on YouTube?
What’s my growth plan?
Where do you want your business to grow when you start it? What is the real growth next year? The next five years? Knowing what a realistic path to success looks like for a business like yours can help you set goals and SMART criteria that will help you achieve them.
Under what circumstances would I close the business?
When do you decide to stop building your business? When will income fall below a certain number and stay there for six months? When did you put X money or time into a business and didn’t see any growth?
Know when you will quit smoking before you start and you will not end up wasting good money for bad money.
Under what circumstances would I sell the business?
Running a profitable business has great value, especially if it generates passive income. Selling a business also has great value. Ask yourself when you might want to sell, and keep asking yourself this question every year that you stay in business.
Questions to Ask a Potential Business Partner
Why do you want to cooperate in this business?
People want to collaborate in business for a variety of reasons: chasing a dream, using their skills to help others, earning passive income, investing in a company they can sell in the future, etc.
Knowing why your potential partner wants to be in business can help you determine if he is the right person for you. A business partner who is primarily focused on helping others often makes business decisions other than business partners who hope to create an asset that can be traded. Does their vision of what this small business can be, aligns with or complements yours?
How much money does this business need to make?
Yes, you have already asked yourself this question, but if your partner has a completely different answer, you will want to discuss it. For example, a business in which one partner can afford to run out of income and the other does not can lead to disagreements over business decisions.
Where should this business be located?
If this is the type of business that operates from home, whose home will serve as the official business address? Will you receive a separate office mailbox or will one person be responsible for receiving corporate mail? The way you and your potential partner discuss this issue – whether your partner ponders a decision, says he doesn’t care, or presents an argument and refuses to listen to yours – will tell you a lot about how you could work together into the future.
What kind of career capital do you bring to this business?
Choosing a partner with significant career capital can help your business grow faster. If your potential partner doesn’t have a lot of career capital, what other skills, resources, or assets do they bring to the partnership?
What real capital do you bring to this business?
Does your potential partner invest their own money in the business? If so, how much? Remember that the amount of capital invested by you and your business partner in a business can affect how each of you will be paid in the future; that is, depending on how your operating agreement is structured, the partner with the higher equity contribution may be eligible for a larger distribution of business income. (This is a good question to ask your lawyer.)
Who do you think our ideal client is? How do you think we should connect our business with new clients?
Make sure you and your potential partner are on the same page. If one of you sees your ideal buyer as a 35-year-old man and the other thinks that the ideal buyer is a 50-year-old woman, you probably don’t see the business (and its unique selling point) in the same way.
What do you see as realistic but ideal business growth next year? The next five years?
A business partner who believes success is equal to “getting to a local small business show” will be very different from a partner who believes success is equal to “hitting a Shark Tank ”. You will also want to confirm that your prospect understands the path to their vision of success. Can they set and achieve SMART goals?
Under what circumstances would you close your business? Under what circumstances would you sell?
Again, you need to make sure you are on roughly the same page here. (You will also want to ask these questions every year that you remain a business partner.)
How will we resolve differences?
It will be difficult to figure out how you will resolve your differences until you actually find yourself in the midst of a disagreement , but discuss how you can resolve your differences. Will you involve a third party? Will you evaluate options based on financial or growth performance? Are you looking for a win-win solution? Answering these questions will help you prepare for future conflict.
More importantly, this discussion will make you and your business partner part of the same team . It’s not you versus your business partner. This is you, your partner and your business against the whole world.
What happens if one of us wants to continue working on the business and the other wants to stop doing business?
Of all the questions you and your potential business partner could discuss, this one is relatively simple! You can work with a lawyer to create an operating agreement that outlines what each partner is entitled to if they leave the business. Take a look at a few sample operating agreements to see what usually happens in these situations, because discussing with your partner before meeting with a lawyer will help the conversation – and the creation of the document – go smoother.
What happens if we both want to continue working on the business but no longer want to work with each other?
Unfortunately, the two business partners cannot separate and still do business separation. If the two of you decide it’s time to end the relationship, one of you will have to leave the business or buy it out – or the two of you will have to agree to close the business. At this point, you will refer to your operating agreement to determine how the remaining money is distributed, as well as any other assets the business may create.
Questions to Ask CPA
What type of business structure is the most beneficial in terms of taxation?
Don’t assume your business will be an LLC or S-Corp until you speak to the CPA. Each type of business structure has its own advantages and disadvantages, and before you join it, it is important to understand which one may be the most beneficial for you and why. These decisions have tax implications that can save (or cost) you a lot of money, so it’s worth getting a CPA on your team early in the process.
What do we need to know about paying business taxes?
If you thought it was difficult to collect taxes yourself, wait until you start paying business taxes. Is the income from your business passed on to partners and at what percentage rate per partner? How much should you set aside for estimated tax payments? What about payroll taxes? Can you reduce your tax burden by creating a SEP IRA?
The more you know about how business taxes work, the less likely you are to end up making a costly mistake (for example, not saving enough money to cover the tax burden). The more you know about business tax optimization, the more money you can put either in your pocket or back into your business.
So talk to your CPA. They have done this before and they know how to help you.
What types of tax forms will we need to fill out and when should they be submitted?
In addition to the good old 1040, you may have to file additional tax forms on behalf of your business throughout the year. For example, if your business pays freelancers, you may need to fill out 1,099 forms, which are due on January 31st, not April 15th. Companies with partners and companies with employees can fill out even more forms.
A good CPA will remind you of these requirements and their due dates ahead of time, but it’s still wise to know what to expect and when to plan for it in your workload.
What is the best way for us to keep records? What about inventory?
Your CPA should be able to help you set up small business accounting and maybe even have your preferred accounting software. They can also give you advice on keeping track of stocks, managing capital accounts, and more.
Do we need business licenses? Work at home permit? Any additional documentation?
Different types of businesses have different types of licensing requirements, and individual cities may have additional permits that you need to obtain. Ask your CPA what forms you need to complete before your business complies with state and local laws.
Do we need to complete biennial reports? Are there any other reports or claims we should be aware of?
As a small business, you will likely have to submit biennial reports to the state in which you are incorporated. Ask the CPA about your reporting requirements and what you need to include in those reports.
Questions to ask a lawyer
Does our company name fit? Should we trade this trademark?
A lawyer can help you choose a company name that suits both your business and the business requirements of your state. A lawyer can also help you decide whether it is worth the time and money required to register your business’s trademark.
How can we enter into an operating agreement that clarifies the terms of our business partnership and protects all business partners?
Don’t just grab a standard operating agreement from the Internet and assume it’s good enough for your business. Talk to your lawyer about how to create a business agreement that is fair to both you and your business partner, and covers any unique situations (for example, one partner contributes more capital than the other, or one partner contributes part of the intellectual property that will serve as the foundation of your business) and protects your rights as individuals and business partners.
What types of contracts should we prepare?
If you are going to work with freelancers, clients or vendors, you need contracts. Your lawyer can help you draft them.
If we plan to work with freelancers or hire employees, what legal issues should we be aware of?
You don’t want to be in a business that hires someone as a contractor when they actually do an employee’s job, right? You also don’t want to be the type of business that asks illegal questions during job interviews, or the type of business that does not provide government-mandated breaks to employees.
Know your legal responsibilities, whether you are looking to work with freelancers or hire employees. A lawyer can help you with both the obvious (yes, you should pay employees at least the minimum wage if your state does not allow you to pay less than the minimum wage for certain types of tipping jobs), and those that you might not know. …
Are there any federal or state requirements, such as safety requirements, that could affect our business?
If you open a food van, you will need to familiarize yourself with food safety laws. If you open a hairdresser, you will need to inquire about the OSHA formaldehyde standard. If you are a blogger who makes money from affiliate links, you need to understand the FTC’s disclosure requirements.
Ask your lawyer to help you understand which federal and state regulations apply to your business and how to comply with them.
Do we need to take out liability insurance or any other type of insurance?
Your lawyer can explain why your business might need insurance and what types of insurance you should consider purchasing.
These aren’t the only questions you’ll want to ask when preparing to launch your business, but they are a good start – and they will likely inspire you to ask even more questions. Remember, the more answers you get before starting your business, the less likely you are to make a mistake that hurts your business before it gets a chance to grow.