VW Blog

Starting a New Business? Here’s What They Haven’t Told You (Part 1)

August 28, 2012   |   By Vela Wood

There is no shortage of books and other resources out there for entrepreneurs. These how-to’s do a fantastic job of describing business plans, giving advice on how to raise capital and providing guidance to launch your marketing campaigns.

There are, however, a lot of things that these resources leave out. Some of these aren’t quite as sexy as getting someone to write you a check or picking a logo, but they are imperative for any new business. Over my next two blog posts, I’m going to pass along 10 things I’ve learned from representing dozens of startups, and through my own swings and misses. Here are the first 5:

1.  You will have to personally guaranty contracts. A lot of them. Office leases, equipment leases, bank loans, etc. At some point in time you become immune to the whole “personal guaranty” thing and don’t even bother telling your spouse that you just guaranteed a six figure contract. It happens.

2.  You will have a disagreement with your partner/co-founder/vice-president, etc. A bad one. You can’t possibly predict every scenario, and problems arise. How you handle these issues in the early years, when the problems likely aren’t all that bad, will go a long ways towards defining how you handle them when they have some real dollars tied to them. You must spell out your partnership relationship up front. The single biggest source of litigation that we see among small businesses is partnership disputes.

3.  Phone systems are expensive. Most likely, you will have to “lease” your first phone system (see #1 above), and you have to purchase and install a “PBX.” But most small business live off of their phones. If this is you, don’t skimp here.

4.  Copiers are expensive. And even then, the ones you can barely afford came off the assembly line in the 90s. Have you ever looked at what a copier costs? A medium-duty seven year old machine can easily run you $10k. $10k! A heavy-duty one may be on par with a German automobile. But if you use them, they are worth their weight in gold. In our business, a good machine is crucial to daily operations. Despite all of the error messages we get (it’s the beeps that are really annoying), our copier has been a great tool.

5.  You have to pay EMPLOYER payroll taxes. So add 13% to your payroll expense. You know all of those neat little Excel spreadsheets that you have right now, the ones where you change one number and all of a sudden you are a millionaire? Well, make sure that you account for employer taxes in your payroll rows. Basically, on top of what the government takes from the employee, there is also a roughly 13% charge to the employer. This makes perfect sense now that I co-manage a small business, but I never considered this before. I simply didn’t know.

So, there’s the first five. 6 – 10 coming in a few weeks available here.


Posted in Startups
Vela Wood

Vela | Wood is a boutique corporate law firm that focuses on small businesses, entrepreneurs, and startups.