Whether you are leaving the corporate world or graduating from school, starting a business for the first time can be overwhelming. Below is some helpful information to consider when building a business empire in New York.
While operating as a sole proprietor could be a solution for some time, setting up a formal business structure is almost always a good idea. To that end, if you legally set up your business as a corporation or partnership before the end of your first year in business, the IRS allows you to deduct $5,000 in business startup costs and $5,000 in organizational costs. However, many businesses do not make profits in the first year – and as such, do not owe any tax – so you may be better off amortizing the deductions over a few years to lessen your tax liability from future profits.
Much consideration goes into both the entity structure (LLC? C Corp? S Corp?) and a State of incorporation (Delaware? New York?). Ideally, an incorporation lawyer should be consulted, and we are happy to recommend one. From the tax point of you, it’s best to avoid incorporating towards the year-end and wait until January. Businesses set up in December are still require to submit a corporate income tax return for tax year ending in December – even if there was zero activity.
In parallel with setting up formal structure, it’s important to work on your business plan. Whatever the length or the format, putting together a business plan helps better understand your industry, its players and KPIs. The financial components of your business plan help set realistic expectations and ensure your creativity has enough cash resources at all times. The best way to go about it is to set specific milestones that are important for your business to achieve, and then calculate what it would take using costs and revenue assumptions.
How to estimate your sales force’s ramp-up time or firm’s cyber insurance costs? Today, just like in General Maurice de Saxe’s time, the art of war is about legs, not arms. Do the legwork. Talk to many fellow entrepreneurs in your field; they are usually willing to help and easy to find via a listing of over 600 local companies at Made in NYC, communities of entrepreneurs such as Galvanize NYC, or structured learning programs like Startup Leadership Program.
Now that you have a plan, you likely need funds to achieve the most immediate milestones. Contrary to a popular belief, venture capital is not an ideal funding source for the majority of businesses out there. There are many other capital sources one could tap into: high net worth individuals a.k.a. angel investors, U.S. Small Business Administration, and grant-making organizations like National Science Foundation are all cases in point. A major New York-based business success Chobani started out with a Small Business Administration loan and have done very well. Another potential source of capital is product crowdfunding platforms like Indiegogo or Kickstarter. A wonderful New York-based EGFS client Waverly Labs has raised north of $4 million over the past few month via Indiegogo and its extension, InDemand. Finally, there are also business competitions with cash prizes: New York StartUP! Business Plan Competition, Cartier Women’s Initiative Awards, etc.
If, however, you are building the next rocket ship and are set on getting venture capital funding as its fuel, look out for a future post on how to pitch New York VCs.