4 business formation mistakes to avoid

business formation mistakes

When forming a business, the details matter. Creating a comprehensive plan gives a business a strong foundation for success, but mistakes during the formation process can limit opportunities for growth. What mistakes today could lead to business trouble tomorrow?

1. Failing to investigate a potential company name

When naming your company, you have a variety of different concerns. Do you like the sound of the name? Will it speak to your desired market? In addition to these concerns, businesses need to consider whether competing businesses have a similar name, whether the name can be trademarked and whether they will be able to purchase a domain for their website.

2. Forgetting details in initial agreements

If you are forming a business with other parties, the founder agreement should be as comprehensive as possible. Forbes notes that these agreements should lay out each party’s responsibilities in the company, outline salaries and information about how equity will be divided, detail the procedure for leaving the company and many other details. When a business’s initial agreement forgets these details, it can lead to conflict and potential litigation down the line.

3. Not preparing for startup costs

As Nerdwallet notes, new businesses face many different expenses. In addition to costs associated with the business’s physical location, new companies need to consider the cost of marketing, purchasing a website domain, insurance and other fees. When businesses are unprepared for these expenses, it can put their business at a significant disadvantage when it enters the market.

4. Choosing the wrong type of business entity

Each business entity has advantages and disadvantages, and businesses should carefully consider how each type aligns with their goals. Choosing the wrong entity could lead to higher costs, legal liability for company debts and other challenges.

By addressing these details and considering experienced guidance, companies can lay the groundwork for future success.