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Starting A Business

Cutting Through the Startup Red Tape

You have a great product or service you want to bring to the world. The day you decide to take the leap from consumer to entrepreneur is exciting but also filled with unknowns. The one thing that is known, however, is that you’re probably not too excited about the administration and red tape that comes with getting set up.

But you don’t have to let these hurdles dissuade you or diminish your passion for why you’re starting your business. By anticipating regulatory and administrative matters you might encounter along the way, you can actually build into your startup plan how you’ll tackle them.  Preparation on these fronts can save you hours, days or even weeks by avoiding missteps or sudden pitfalls.

Below are some of the most common elements to prepare for when launching a new venture and how to handle – or even avoid – them.

Company entity type

On the surface, choosing the right kind of legal entity for your business seems like an easy decision. There are only a handful of options, and this is a decision entirely within your control.

Most founders look at the legal protections and tax brackets each offer and then choose one.  Or they ask their network and choose an entity type based on what others around them have done. But what many founders fail to realize is that certain entity types are more favorable than others or place restrictions (or requirements) on how you operate.

For instance, in order to pay yourself in C-corporations and S-corporations – even if you’re the sole founder and owner – you need to treat yourself as an employee. That not only means withholding taxes from your pay just as you would for other employees, but in many states that also means having a corporate unemployment insurance account. You wouldn’t want to get penalized or have a business permit held up because of a tax lien for not setting up properly.  But this all depends on the entity type to begin with.

Another example is if you plan to take investment from people who will not be involved in your company’s operations. Many investors – particularly in the technology industry – prefer to invest in companies that issue shares that are easily bought and sold (e.g. like stock in a C-corporation). Some investors are also specific about the state in which you incorporate your business – like Delaware, which is known for its favorable corporate environment and specialized court system. Researching this topic for your industry and planning for the future could mean avoiding delays in financing or even preventing loss of an investment altogether because you were not set up properly.

Business location

As part of your business plan, you’ve probably thought about locations where you can best gain access to customers or be close to your suppliers. Or you may want to work from home to save money over a commercial space or because you live in a convenient location already.

Hopefully you’ve made the decision after understanding the following: You can’t operate a business anywhere you want. Most localities control the number and types of businesses in their area through land zoning. Types of zoning include residential-only, light industrial, heavy industrial or general commercial. It’s important to know whether the area is zoned for your type of business use.

Even if land is zoned for that use, you also need to know whether there are limits to the number of competitors co-existing in that area. For instance, if you want to open a restaurant, the locality may have limitations to how many restaurants may be on a block together or within a certain radius of each other. Variances may be granted by the locality, but you should anticipate a review process that can encompass months – even years – of time and additional costs you may not want.

Even founders working from home aren’t immune from these issues. Many home-based entrepreneurs don’t realize that they are subject to the same zoning rules and restrictions as any other commercial business. If your home is in a residential-only zone, technically you should not operate a business of any type from there, especially if you have customers coming on-premises or if you’re manufacturing a product.

With internet-based businesses abounding, many localities now make exceptions to home-based businesses that are done online, but you should check with local authorities. Bottom line: Always make sure your chosen location is zoned properly for your business type to avoid unnecessary delay or fines.

Operational licenses & permits

Related to the location zoning, almost all businesses are required to have operating licenses or permits – even for home-based businesses. Depending on your industry, combinations of federal, state and local bodies may govern your business and, thus, control the licenses required to operate. Licensing or permitting almost always means time and money to consider, so make sure you are aware of these particular regulations that often are required in addition to general business licenses:

  • Working in mining, hazardous materials management, waste removal and related industries: These businesses will likely touch the most levels of governmental regulation, so build in enough time to get all the approvals you will need.
  • Healthcare, engineering, barbering and other typically licensed professions: These specialty licenses are commonly administered at state and local levels and will require combinations of education, training and/or licensure exams prior to obtaining your operational business permits. Extra time and expenses should be built in if you don’t already have the required professional licenses.
  • Certificate of Occupancy (CoO or CO) for your location: You cannot obtain a business license without first picking a location. In addition to the land being zoned for appropriate business use, the building in which the business will operate must have an active Certificate of Occupancy. Especially if you are going to operate in a building you don’t own, make sure the CoO is current with the locality to avoid any delays in getting your operational business license approved.

It’s important to do research on your industry and location so that you can build into your business plan adequate time and expense to obtain required licenses and permits.

Securing your website

With the many self-service tools available these days, it’s easy for anyone to publish their own website. But if you are transacting business on your site – such as taking credit card or bank payments – you need to add what’s called “SSL” to secure data transmission to protect your customer’s financial information. When in enabled, active SSL shows as the padlock symbol or green bar you see on the window where you type the site’s web address.

What many people don’t realize is that, even though it can take just minutes to purchase SSL, two of the three types of SSL require validation of your business – and that can take some time.  The Internet authorities want to make sure your business is legitimate before they agree to verify secure data transmission from you. Make sure that your company is legally founded and registered in business directories like the Better Business Bureau or Dun and Bradstreet before applying for organization-validated SSL to avoid unnecessary delays in getting SSL turned on.

While there are unavoidable administrative matters founders will have to tackle in setting up a business, knowing what the hurdles are is half the battle. Knowledge is power in these cases.  By anticipating time, activities and expenses for these areas in your business plan, not only will you avoid being caught off-guard, but you can confidently return to delivering your product or service. Success will come from your great idea coupled with an ounce of responsible planning to avoid unnecessary red tape.

Brian Browning is the Founder & CEO of StartBlox, which evolved from a startup consulting process for founders. “No one starts a business because they love the administrative activities,” Brian says, which is why he created software to help on that front. StartBlox cloud-based app centralizes startup foundational elements all in one place for the first time. Their goal is for businesspeople to spend less time hunting for what they need administratively and more time focused on the product or service they love to provide.

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