ARTICLE | February 08, 2023 | Authored by RSM US LLP
You’re refining your idea and modeling your business. As you invest in your product, you’re probably losing sleep over cash considerations. How much do you need? What’s your burn rate? Which type of financing will work best? While you’re elbow-deep in those issues, be sure you’re also asking yourself these critical questions.
Q: Is my business strategy rock-solid?
Be sure you have a deep understanding of your market and have specific strategies to address the critical issues of what your competition looks like, how you’ll define and differentiate yourself in the market, and what your specific plans are to scale. Make sure you have all your t’s crossed and your i’s dotted but don’t delay launch unnecessarily to chase perfection.
Q: Do I have all essential skill sets covered?
As an entrepreneur, it’s impossible to be good at everything. Early on, be brutally honest with yourself in determining the internal functions with which you need help. Acknowledging where you have skills gaps goes a long way toward building a solid company foundation from the beginning.
Q: What tax structure or entity type works best?
It’s never too early to think about your company’s value at exit because you will begin creating this at inception. To that end, think through your entity type options and what those will look like at exit: family transition, franchise, or an outright third-party sale. After all, starting a company with the intent of selling within 10 years looks very different from starting one that you, and possibly your family, will own and run for decades. Thinking about this early on can help prevent wrong turns along the way.
People, process, and technology
Time is critical at this stage. Can you afford to spend your time managing people versus getting your product ready?
Best practice
Outsourcing can help you focus on the product and market while others ensure the business is in compliance and ready for your next move.
Most startups will need additional cash before they get to market. The faster you can procure it, the steadier your forward momentum will be.
Best practice
Understand your available options and build relationships with investors and bankers. By projecting cash uses, you can more clearly see when you will reach that minimal viable product point to start bringing money in the door.
Many founders at this stage believe technology is too expensive.
Best practice
Take the time to make a minimal investment at startup so you can scale your tech capabilities as your business moves forward.
Protect your personal wealth. For business owners who have already accumulated significant wealth, consider starting your new business in a trust for your heirs’ benefit.
This will allow the value to grow outside of your estate and protect the wealth that you have already generated from what is usually a riskier investment.
Look for research and development credits. Research can often be a large component of startup. Certain R&D expenditures may be eligible for a tax credit. While the credit is often related to income generation, there are exceptions and elections that can provide a benefit to organizations that are not yet profitable.
Owning a business takes a certain confidence and grit. All owners are different, but all face similar challenges. Our business ownership lifecycle ebook shares insights gleaned from helping business owners face these challenges head on.
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This article was written by RSM US LLP and originally appeared on 2023-02-08.
2022 RSM US LLP. All rights reserved.
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