How to Start Up in the New Year

Is your New Year’s resolution to start a business? If so, don’t wave goodbye to the security of a steady paycheck so fast.

In workshops with prospective entrepreneurs, I preach the “slow go” approach to start up a business organization. My preference for first-time entrepreneurs is to wait to quit a salaried job as long as possible to preserve personal savings.

Too often eager entrepreneurs leave salaried positions with only a vague notion of their business goals. They quit to start a business but haven’t really thought through what might work with customers in the marketplace. With each passing month, their savings and confidence drop. This is why so many startup businesses fold early – they start from a point of weakness rather than strength.

A smarter way is to try to complete as many time-consuming administration and business plan research projects as possible before cutting off any paycheck.

Here are five pre- startup action steps to help advance the viability of your new business.

No. 1: Get organized. I wince each time I hear startup entrepreneurs say they can't call on customers until they get their business and domain names, logos, Websites and marketing materials in place. Most of this work can be completed prior to leaving a day job.

Also, to prevent having to redo all startup business organization and marketing materials, make sure your selected business and brand names are free of trademark conflicts. Start by visiting the U.S. Trademark Electronic Search System (“TESS”), where all searches are free.

No. 2: Get your financial house in order. It is said that the best time to apply for credit is when you don't need it. Entrepreneurs tend to get a better deal if they tap the equity in their home or apply to increase credit card spending limits before they leave a salaried job. Also, pre-startup is the right time to improve poor personal credit scores that can increase the costs of small business loans, equipment leases, credit card processing services for e-commerce operations, and more.

No. 3: Organize your company structure. Will your startup be set up as a sole proprietorship, a limited liability company, a partnership, an S-corporation or a C-corporation? This is a fundamental question that, among other considerations, determines the taxes entrepreneurs will pay on business profits and personal income.

No. 4: Research health insurance. Before you quit your job, re-visit your employer's benefits literature. Under federal law, if you work for a company with more than 20 employees, you may be able to stay in your company's health insurance plan for 18 months provided you pay the entire cost of coverage. Compare the rate you will pay your employer’s insurance company through COBRA to other health insurance options to see which deal is best for you. 

No. 5: Consider tactical employment. Every startup entrepreneur will make many beginners’ mistakes. Sometimes these mistakes can overwhelm a young company’s financial and operating resources. One way to avoid costly startup mistakes is to search for what I call "tactical employment." Tactical employment allows prospective entrepreneurs to make beginner’s mistakes on the employer’s dime and time. If, for example, you want to start a catering company, work for another catering company first. A short tactical employment stint can also give prospective investors and lenders greater confidence in an entrepreneur’s industry experience too.

Are there any risks to working evenings or weekends on a startup business plan while working for another employer? Yes, entrepreneurs who intend to compete with their current employers or develop potentially patentable technologies should understand the issues associated with intellectually property ownership. In addition, moonlighting entrepreneurs should work at their business on their own time and completely off employer premises.

Susan Schreter is a 20-year veteran of the venture finance community and small business policy advocate. Her educational work is dedicated to improving startup longevity in rural, urban and suburban America. She is the founder of www.takecommand.org, a community service organization that offers the largest centralized database of startup and small business funding sources in the U.S. Follow Susan on Twitter @TakeCommand.