There are 2 things that usually kill a startup, I have written about 1 and 2 before:
- Legal – Legal Entity formation, Contracts vetted by lawyers to clearly articulate equity split, employment and business contracts.
- Accounting – Disciplined Bookkeeping, Budgeting and Accounting
For those who have never formed a company or registered a legal entity, it might seem fictitious that pieces of paper is all that legalizes a company. Why is this important? well, hopefully you are building your company in a place where there is a rule of law, especially company law, what this entails is a basic rules of engagement of a business entity. Defines what a company does and how it should be governed. The reason why we do this is because it makes life easy when you start making money or not. A company registered and under a company law, can file for bankruptcy and have a structured way to settle disputes under the legal/judicial system. Yes, I know this is boring but not having the right legal structure or making sure that all the legalities are not done properly is the surest way to the poor house.
The second most important thing that totally derails most startup founders is bookkeeping and making sure clean and proper accounts are maintained for business expenses, salary and contracts. This is not the strength of most entrepreneurs, however this more or less is what kills them if not done right or not get the right kind of help. Knowing what is business expense or not is something that your accountant or bookkeeper or a good accounting software can tell you. The important thing is to have the discipline to keep track of all the bills, invoices and payments. In addition, Tax filings at the end of the year is mandatory. There are a number of requirements and I strongly urge all the founders that I work with to get proper help in this as well as in the legal matters. My advice has always been to never skimp or cut cost in hiring the best lawyer and accountant. You never know when their help will be paramount to your team.
It was great to see the 18th lecture of How to Start a Startup focus on the Legal and Accounting basics for Startups. Here are some of the resources referred to in the above link, in case you did not click on it, yes, I know you probably did not click on the link.
- How to Work with Lawyers at a Startup by Mark Suster
- Startup Company Lawyer by Yorim Taku
- Useful resources – clerky.com (Company Formation), zenpayroll.com (Payroll and Salary setup), zenefits.com (Payroll benefits)
Here is the lecture, I know it could be boring but please bear with me this is by far the most important thing you can do while you are building your startup. This is the easiest part of doing a startup but mostly ignored by the founding team, don’t be that team. Watch this video and make sure you are doing this correctly.
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