For most tech entrepreneurs ready to launch the next big thing, the idea of developing a business plan, finding the right lawyer or accountant, picking the business structure, and figuring out funding sometimes takes a back seat to the more interesting work of actually building a product or developing the business plan. While beta testing or tapping into a new market obviously is important, starting a business requires you to take a nuts and bolts approach to things that seem pretty dry. Here are some basics for you to consider as you work through the process of getting your product or service to market.
You’ll certainly need a strong and fleshed-out business plan to help you get off the ground and put your business on the path toward landing investments or making a profit, whichever is your goal. If you’re not sure how to draft one, get some help. While there are apps to give you the right setup, you’ll need expert help to make it professional. Often, tech incubators as well as government and university programs offer free help. Industry associations can also be a way to access free or inexpensive assistance. And, don’t forget the Small Business Administration. While it’s not necessarily known for helping the high-tech community, it’s a great resource for business basics.
Get an Accountant and a Lawyer
You’ll need an experienced lawyer, one who’s accustomed to the ins and outs of starting and running tech businesses. The right one can often be a great sounding board, as well as a link to angel and venture capital investors. It’s just as important to find a skilled accountant, too. Much more than the person who files your taxes, your accountant can suggest ways to reduce your tax liability better manage your cash flow. In addition, accountants are more and more providing a variety of consulting services. Industry mentors and trade groups often have connections to solid accountant and attorneys. But be sure to meet them before you hire them. You need to understand their approach, credentials, experience, availability and interest in your business. It’s also important to have the right simpatico with them. And check out their references.
Figure Out Your Company Structure
A good accountant and lawyer will also provide advice on the right business structure for your new venture. They understand the tax rules and can suggest the best structure for your tech startup, whether it’s an LLC, S corp., partnership or sole proprietorship. Educate yourself about each ownership structure and the risks and liabilities associated with them. Consider your long-term goals for the company, since that will likely factor into the decision. You can change the business structure of your company later on, but if you’re planning to offer equity in the business — which many tech startups do pretty quickly — you’ll need to be a corporation.
Plot a Path to Funding
Bootstrapping is a common way for new companies to start. If that’s what you’re looking to do, you’ll need to plan, plan some more and save. Family and friends might be willing to loan you cash or be early investors in your venture, but that cash can only go so far. (Also remember: Emotions run high when money and personal relationships mix. So, don’t take family cash lightly.) You and your family need to understand that your business might fail. If they’re looking to have a “say” in the company, but don’t have tech expertise, you might want to look elsewhere for money. It might be smarter seek out seed stage investors, getting serial entrepreneurs and angel investors to buy in. Not only will they understand the risks, they’ll be able to give you critical business advice. You’ll certainly need them later, anyway, as your business grows.
Plan Your Personal Finances
Before you transition from full-time employment to full-time entrepreneurship, make sure you’re standing on solid financial ground. First and foremost, make sure you’ve got a savings buffer in advance. That means developing a personal budget, in addition to a financial plan for the business. You’ll probably be working without a salary for some time, so plot well for it. If you’re dealing with family finances, make sure your significant other has bought into your idea and the lean times. How much should you put away? That depends on a lot of things – significant other’s salary, mortgage and the like – but many experts say at least six months to a year.
Decide When to Make the Leap
While you stockpile savings, hash out the specifics of the business, scope out the competition and test the waters with some early customers, you might want to keep your day job. Many a company began as a part-time business venture. So, think about how you’ll make a serious go of it before you go full-time with your idea. You need to know your risk tolerance. We don’t want to sound pessimistic, but remember most small businesses fail. You have to be willing — mentally and financially — to take the risk.
— Myra Thomas