Easy ways to build strong business foundation

Startups are a lot like infants. They come into the world vulnerable and needy. And it's your job, as the founder, to protect your new business much like a parent would with a helpless baby.

Businesses face numerous risks from the start. And in many regards, it's your ability to protect your fledgling business during these early days that makes or breaks your chances of long-term success. In light of this, here are a few practical tips you may find valuable in your pursuit of growth and stability:

Form the Right Legal Entity

One of the first steps every business owner should take is to form the correct legal entity. This legal entity will provide tax advantages as well as certain asset protections. The most common types of legal entities include:

• Sole proprietorship. This is the default legal entity. It provides very little protection (you're personally liable for any lawsuits filed against your business), but is the simplest to operate. All profits and losses are handled via your personal tax return.
• Partnership. If there are two or more owners, a partnership can be used to reduce some risk while still maintaining the simplicity of filing taxes via separate personal tax returns.
• LLC. With an LLC, you get limited liability. This separates personal assets from business assets while still allowing you to be taxed in a fashion that's similar to a sole proprietorship or partnership.
• Corporation. Corporations - which come in C-corp and S-corp varieties - establish legal and tax structures that are separate from the owner. This limits personal liability even more than an LLC.

Consult with a business attorney to determine which one of these entities is best. It depends on a variety of factors - so it's wise to have some expertise in your corner. 

IP requires protection

One of the biggest risks you face is having your intellectual property (IP) stolen by a competitor. Thus, if you want to keep your business safe, you need to invest in proper IP protection.

Proper IP protection will vary depending on what you're trying to safeguard. If it's a particular product or process, you might be able to get a patent. There's also something to be said for establishing a noteworthy brand so that the marketplace is clear about where the idea has originated from.

Secure the Necessary Insurance Policies

Insurance isn't something business owners get excited about, but it plays a key role in protecting your business from unnecessary risk. And there are a few policies in particular that everyone should consider:

• General liability. It doesn't matter what line of business you're in - you need general liability insurance. It provides protection should your products or services cause injury or harm to a third party.
• Errors and omissions insurance. Also known as professional liability insurance, errors and omissions insurance provides protection in situations where advice or services rendered causes some sort of damage. It steps in and provides protection where a general liability policy doesn't.
• Property insurance. If you own a building or have personal property - like office equipment, inventory, or tools - a property insurance policy will protect you from theft, vandalism, fire, etc. You can even add on a rider for business interruption or loss of earning to protect your revenue.
• Key person life insurance. A key life insurance policy is a type of policy that's used to protect the interests of parties who are reliant on a key individual that produces profits for a business. It's common for co-founders to take out a policy on one another to ensure the business is able to survive if one individual is killed or seriously injured.

The right combination of insurance policies will prevent your business from being wrecked in one fell swoop. At the very least, it gives you time to figure out how to proceed.

Don't Get Sued

"Don't get sued" sounds like very generic advice, but there are actually a handful of practical steps you can take to dramatically lower your odds of facing a lawsuit.

The biggest rule of thumb is to watch what you say and do. If you say you're going to do something, follow through. If there could be a potential conflict of interest, stay away from that particular dealing. (It's simple advice, but is much more challenging to follow when you're in the heat of battle. Make sure you set up plans and processes that allow you to avoid compromising situations such as these.

Adding it All Up

There's no way to completely insulate your business from all risks. You can, however, establish a strong foundation upon which you stand a much better chance of being successful. Don't feel like you need to do everything in this article. Instead, take a couple digestible pieces and put them into action. Success is found in movement. So anything you do to move will inevitably propel you forward.