Business ownership: Startup challenges and opportunities

Startup challenges and opportunities

You’re refining your idea and modeling your business. As you invest in your product, you’re probably losing sleep over cash considerations. How much do you need? What’s your burn rate? Which type of financing will work best? While you’re elbow-deep in those issues, be sure you’re also asking yourself these critical questions.

Questions and answers

Q: Is my business strategy rock-solid?

Be sure you have a deep understanding of your market and have specific strategies to address the critical issues of what your competition looks like, how you’ll define and differentiate yourself in the market, and what your specific plans are to scale. Make sure you have all your t’s crossed and your i’s dotted but don’t delay launch unnecessarily to chase perfection.


Q: Do I have all essential skill sets covered?

As an entrepreneur, it’s impossible to be good at everything. Early on, be brutally honest with yourself in determining the internal functions with which you need help. Acknowledging where you have skills gaps goes a long way toward building a solid company foundation from the beginning.

Value is based on an organization’s ability to create additional profits after key leaders exit, which is why succession and contingency planning are important.


Q: What tax structure or entity type works best?

It’s never too early to think about your company’s value at exit because you will begin creating this at inception. To that end, think through your entity type options and what those will look like at exit: family transition, franchise, or an outright third-party sale. After all, starting a company with the intent of selling within 10 years looks very different from starting one that you, and possibly your family, will own and run for decades. Thinking about this early on can help prevent wrong turns along the way.

Best practices for owners of growth stage businesses

People, process, and technology

People

Time is critical at this stage. Can you afford to spend your time managing people versus getting your product ready?

Best practice

Outsourcing can help you focus on the product and market while others ensure the business is in compliance and ready for your next move.


Process

Most startups will need additional cash before they get to market. The faster you can procure it, the steadier your forward momentum will be.

Best practice

Understand your available options and build relationships with investors and bankers. By projecting cash uses, you can more clearly see when you will reach that minimal viable product point to start bringing money in the door.


Technology

Many founders at this stage believe technology is too expensive.

Best practice

Take the time to make a minimal investment at startup so you can scale your tech capabilities as your business moves forward.

Tax tips

Protect your personal wealth. For business owners who have already accumulated significant wealth, consider starting your new business in a trust for your heirs’ benefit.

This will allow the value to grow outside of your estate and protect the wealth that you have already generated from what is usually a riskier investment.

Look for research and development credits. Research can often be a large component of startup. Certain R&D expenditures may be eligible for a tax credit. While the credit is often related to income generation, there are exceptions and elections that can provide a benefit to organizations that are not yet profitable.

Explore all five stages of the business owner lifecycle

  1. STARTUP
  2. LAUNCH
  3. GROWTH
  4. MATURITY
  5. TRANSITION

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This article was written by RSM US LLP and originally appeared on Feb 08, 2023.
2022 RSM US LLP. All rights reserved.
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