Entrepreneurs are an enthusiastic lot. Charged with enthusiasm of setting up their own business and forming their own companies, at times, makes them throw caution to the winds. If the idea of what their startup would do is flawed, it is bound to, and nothing can be done about it.
However, what is unpardonable is when a perfect startup idea results in operational and monetary downfall, just because the entrepreneur failed to avoid the common mistakes in the process of company formation.
If you are forming your own company or are taking the help of online company formations agent, be sure what all it entails. You would do well to know the pitfalls beforehand to avoid them.
Common mistakes in company formation
Find below some common mistakes committed during company formation that you can highly avoid:
#1 Mistake: Quitting your full-time job to start a company
Of course, your aim for starting your own company is to free yourself from the stranglehold of your bosses, avoid office intrigues and chart your independent path. However, getting along with people and skill to work with them is the first requirement in forming your own company. Here is the guide of how to start an LLC.
It requires interpersonal skills, patience, and collaboration. So, gauge whether you have these skills before quitting to be on your own.
#2 Mistake: Working day in and day out
Forming a company requires deliberation and consultation with others who have been there, done that. In your eagerness to build your company, you are most likely to take on too much, too soon.
Doing this, you run the risk of early burnout, prematurely commit your resources and overextend yourself. Remember, you are in for a long haul in forming your company, so pace yourself.
#3 Mistake: Customers will line up by themselves
If you think your business idea is a runaway success and customers will come in droves at your doorway or website to buy, think again.
Unless you spread awareness about what your business does and tell the customers what is in it for them, it is unlikely that your product or service will find any takers. So, establish yourself through networking, marketing your product or service and branding your business.
#4 Mistake: Not preparing for lifestyle changes
If you have turned an entrepreneur from a nine-to-five job, you should be ready to immerse yourself wholly in your business to make it a success. This is likely to take a significant toll on your private life.
This sudden lifestyle change may not be liked by your family since they have to give up on some luxuries that they took for granted before. So, before you make the momentous decision to form a company, take your family members into confidence and explain what all it entails.
#5 Mistake: Not checking use of the business name
You can think up the most fantastic name for your firm; chances are others have already not only thought of it but have registered it for their own companies. If you don’t check whether you are allowed to use the name lawfully, you will be defying on another company’s trademark and run the risk of legal action.
Thus, before you get your business cards printed and put up your company’s name on the social media, check with the names registered with the state secretary where you are living. Also, carry out a national level trademark search to ascertain the company name is not already in use.
#6 Mistake: Registered business structure type is wrong
Your choice of business structure type has a direct bearing on the conduct of business and taxes. So, it is always safe to consult a lawyer to determine what is best for your firm. However, to safeguard your assets from company liability, it is always advisable to form an LLC (Limited Liability Company) or corporation.
#7 Mistake: Not opening a business bank account
Never mix your individual and business finances, since it raises suspicion in the minds of regional or state tax bureaus or the Internal Revenue Service.
Even specific legal structures require keeping your individual and business finances separate. It also gives you an air of professionalism, when you write checks of your business account, rather than from your personal one.
#8 Mistake: Not having a strategy, goal or objective
Proceeding without a business roadmap is akin to courting disaster, since you may go off course in no time. So, it is essential that you document what you want to achieve and chart out a strategy to get it done. You will, of course, need to build some flexibility into it and also adapt to the changing business scenario.
Company formation requires both passion and patience. Taking hasty decisions and not consulting with experienced entrepreneurs is certain to lead your company into rough weather. Exercising self-control and thinking out every aspect of your business will prevent you from making these mistakes.