4 Questions to Ask Yourself
to Avoid Failure
With the onslaught of COVID-19 in March, many aspiring entrepreneurs decided it was time to take their side hustle to the next level and turn it into a full-time gig. As of August 2020, there are 30.7 million small businesses in the United States, accounting for 99.9% of all businesses in America, according to the Small Business Association. This is a 3.15% increase from 2019 and that percentage is expected to continue rising.
Though an incredibly exciting transition, it’s also one that requires attention and structure in order to achieve success for your business. As a brand consultant with decades of experience working closely with a variety of start-ups, I’ve seen eager-eyed entrepreneurs make small mistakes, as well as detrimental legal errors that undeniably affect the overall success of the brand.
Running a business takes more than simply being good at your craft and getting contracts signed. There needs to be a strategy in place from the moment the company is born, in addition to having both legal and administrative components in order. If you are planning on diving into the entrepreneurial waters in 2021, there are several questions you need to ask yourself in order to make sure you’re getting both your business strategy and legal ducks in a row. Otherwise, your company will join the 20% of small businesses that fail within their first year.
Question 1: Do you have a brand strategy in place?
A large portion of small businesses begin without really knowing who they are, what they’re selling, and what exactly sets them apart from their competition. Well before your launch, you should have a structured business plan in place. Through developing the plan, comes an excellent opportunity to thoroughly examine your motives for starting the business, which will give you a good idea about how you want to execute your brand and relate to your customers.
Development and implementation of an effective, unique strategy leads to strong brand loyalty with those buying from you or hiring you. Make your brand messaging clear and authentic – speak directly to your consumers. Why should they buy from you? Why hire you? What sets your brand apart from the rest?
Question 2: Have you registered for an LLC?
A common (and very big) mistake I’ve seen among individuals as they start their business ventures, is that they run their entity as a sole proprietor, rather than registering as a Limited Liability Company (LLC). One of the main reasons for this being that they haven’t differentiated their business from a side-hustle or hobby yet. I see this all the time, and it’s an issue.
Why? Because if you don’t register your business, you are personally liable for everything. This means that if a client has an issue with your product or services and tries to sue you, your personal assets such as your home or car, are at risk. You are completely responsible for fighting the lawsuit. Roughly 43% of small business owners say they have been sued or threatened with a lawsuit. You don’t want to be part of this percentage.
Question 3: Are there additional licenses you need to run your entity?
Many businesses hit the ground running without even knowing they need specific documentation to legally run their operation. You will need a general business license, tax identification number and depending on where you are located and the type of business you’re opening, there will likely be additional records needed.
When small businesses owners don’t set the legal foundation for their entities at an early state, it increases the likelihood of failure and running into legal troubles with the IRS in the future. Neglecting to file the correct paperwork can result in the following consequences:
- Required to close with no guarantee of re-open
- Put on probation for a set amount of time
- Charged with local fines and/or fees
- Required to pay back taxes if applicable
Question 4: Do you have a launch plan?
Once the business structure and brand identity have been established and the appropriate paperwork has been filed, a step that’s often skipped is having a formal business launch. I’ve seen start-up after start-up fail to announce when they are officially in business, causing them to miss a major opportunity to connect with prospective clients.
Write an email to your existing database. Distribute a press release to your local media outlets. Don’t miss the mark on this opportunity to let your community know you’re open for business.
Starting a business is challenging, there’s no denying that. Step 1 is to accept that your side hustle is no longer your side hustle, it’s a business that needs structure and your constant attention. If you’re thinking 2021 might be the year you will launch a legitimate business venture, I hope you will use the questions in this article as a guide to avoid legal trouble and overall failure in your entity’s future.
Knowledge is power, right? We want you to be aware of what we’ve seen take entrepreneurs down an unsuccessful path, so that it won’t happen to you. For Covington Law’s recommendations on how to combat the obstacles described in this article, please see the second blog post below.
For information on Covington Law’s Corporate Identity Package and additional legal services, click here.
About Carolyn Covington: Carolyn Marshall Covington joined Covington Law’s team as Chief Brand Strategist in fall, 2020. In 2016, she received the Legacy Leadership Award at the Beauty and Barbers United ceremony. She is a seasoned thought leader in the beauty and fashion industry, bringing years of consulting experience to our team and clients. In 2020, she was inducted into the (NAWBO), NC National Association of Women Business Owners Hall of Fame. Carolyn has helped countless business owners take their strategies to the next level by offering her expertise & recommendations.