Think that legal issues & accounting are burdensome? Try not to fall into the pitfalls that many startups face
- 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 are 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 defining 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 or losing money. 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 failing to ensure that all the legalities are 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 if they fail to get the right kind of help. Knowing what’s a business expense and what isn’t 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 in this regard and I strongly urge all the founders that I work with to get proper help for sorting through them, as well as in legal matters. My advice has always been to never skimp or cut costs when it comes to hiring the best lawyer and/or accountant. You never know when their help will be of paramount importance 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 yet, and 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)
Below 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 the most ignored aspect by the founding team. Don’t be that team. Watch this video and make sure you are doing this correctly.
Photo Credit: Accounting./ Shutterstock
This post was originally published on Startup Iceland.