What is considered to be a small business may vary greatly. Small businesses are generally privately owned and operated and have less than five hundred employees.

Small businesses may also have a relatively low volume of sales. In the United States, small business standards vary by state and by industry. Because they are relatively easy to operate and offer tax deductions, small businesses are becoming more a popular form of business.

Other examples of the reasons small businesses are becoming more popular, include but are not limited to:

  • The amount of creative flexibility the owner is allowed;
  • The amount of control over the owner’s work-life balance;
  • Financial independence; and
  • Starting incentives, including financing options.

A small business often takes the form of:

  • A corporation;
  • A partnership; or
  • A sole proprietorship.

Another commonly used term to describe small businesses is startups. A startup is a small business which has recently opened and is typically smaller until it earns enough revenue to grow and move forward.

Startups may remain as small businesses, or they may grow past the criteria of small businesses. In manufacturing industries, a small business typically employs less than 500 employees. In non-manufacturing industries, small businesses are those which make less than $7 million annually.

What Are Common Small Business Mistakes?

Many individuals are attracted to the idea of having control over their own products or services. There have been advances in technology, such as internet websites, which has made the process of starting a small business much easier.

There are, however, numerous mistakes which individuals can make when opening and operating their small business. In many instances, this is due to an individual being eager to start their business, without foreseeing mistakes in the long run.

These mistakes can easily be avoided by using proper planning and consultation with legal and business professionals. Common small business mistakes may include:

  • Not having a business plan;
  • Setting unrealistic goals;
  • Not understanding how liability works;
  • Engaging in faulty hiring practices in an effort to save money; and
  • Not understanding how to transfer or terminate the business.

It would be surprising to learn how many entrepreneurs attempt to create start-up businesses without solid business plans. Although a small business can be enjoyable, it does not mean that it should be treated informally or without the proper business protocol.

Proper business plans should cover aspects, including:

  • The goals of the business;
  • How those goals will be achieved;
  • The roles of leaders and board members;
  • Accounting procedures and financial maintenance plans;
  • Division of property and assets; and
  • Preparations for business termination.

Another common mistake which occurs is that owners expect too much profit at the outset. If the business has a negative balance after their first year, it is often due to poor goal-setting factors, including:

  • Not factoring in overhead costs;
  • Renting more space than is needed;
  • Taking out too large of a loan for the start-up; and
  • Not calculating room for losses.

There are certain business formations which allow the individual operator to be shielded from liability. This means that if the business incurs a debt, the customer would not be able to reach the owner’s personal assets, but only the assets of the business.

It is common for small businesses to file as limited liability companies (LLCs) so that the owners can avoid personal liability for business debts. Other business forms, such as sole proprietorships, do not offer these protections, therefore, choosing the correct business structure is important to avoid losses.

One of the more risky mistakes a business owner can make is to engage in faulty hiring practices in an attempt to save money. This includes engaging in discrimination or hiring practices which are related to illegal immigration can cause the small business to fold immediately. The employer may also face legal consequences for violating hiring laws.

Another mistake is not understanding how to transfer or terminate the business. The owner should consider their plan the whole way through, including what would happen if an individual offered to purchase their business.

The owner may consider issues such as how much each partner would receive and what would happen to the business property and company trade secrets. There should also be a plan for business succession, or who will take over the business if the operators become incapacitated or pass away.

Closing a business does not always have to mean loss. In some cases, selling a business at the right time may be one of the most profitable things an individual could do.

How Can Small Business Mistakes Be Avoided?

The majority of small business mistakes can be avoided by using thoughtful planning. If an individual has a well-drafted and professional business plan, the majority of simple errors can be avoided.

In addition, many small business errors can be attributed to a lack of knowledge regarding local business laws in the area. For example, an individual may hear about a business idea from a colleague.

However, if the individual was successful in their area, that success may not translate in a different region if the business laws are different. For example, land use ordinances and zoning may vary drastically, even within the same county or state.

What Type of Lawyer Do You Need to Start a Business?

There are several different types of lawyers that may be helpful when starting a business. Examples include:

  • Business attorneys;
  • Contract attorneys; and
  • Tax attorneys.

A local attorney will know which laws apply to which industries as well as what specific licensure is required to start a business. A business attorney may be the best fit for an individual who is starting a business.

This is due to the fact that business attorneys are knowledgeable in numerous topics which would likely apply to a small business. This type of attorney can assist individuals who are looking to start their own business or who are facing a dispute involving their small business.

An attorney can also assist by:

  • Finding tax breaks for the small business;
  • Identifying special financing for the specific business;
  • Applying for a tax identification number;
  • Providing guidance regarding structuring the business in a way that limits their liability; and
  • Protecting their intellectual property.

When Should a Startup Hire a Lawyer?

It may be difficult, of course, to anticipate legal issues that startups or small businesses may face. An individual should consider hiring a lawyer for the following:

  • Business formation and/or creation;
  • Structuring the company;
  • Business contracts and transactions;
  • Meeting licensing and regulatory guidelines;
  • Issues or conflicts with fundings;
  • Protecting the individual’s ideas by:
    • utilizing patents;
    • trademarks; and
    • copyrights;
  • General disputes and lawsuits; and
  • Dissolving the business, or business succession.

Do I Need a Lawyer for Help with My Small Business?

It is essential to have the assistance of a small business lawyer for any issues, questions, or concerns you may have regarding your small business. Working with a lawyer can help you avoid the common small business mistakes discussed above.

You may want to consult with a lawyer before planning your small business, so your lawyer can help draft a sound business plan. In addition, your lawyer can research the laws in your area, explain which apply to your business, and represent you in court should a dispute arise.