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quack

When to register a company?

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When starting a company is it important to register it right away/early stages (home or other state)? I was figuring it would be ok to delay it until a few months before legal/ hiring / or other needed professional services phase. Startup expenses can be reported on individual returns. The only reason I ask as the cost of starting and maintaining a corporation in for example CA is decent vs other sw startup costs (a least a few tool licenses), I'd rather have those cost be deferred as there are more relevant costs in the near future. Am I wrong (probably)? Anyone have clues? Btw I'm industry active, am reading a heap of books and talking to folk about starting a company so I'm not entirely clueless about the business end. The incorporation timing is just something that isn't talked about much. Thanks, quack quack

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Once you go into business for yourself you're operating as a sole proprietor. As such, you should register your business and your DBA (Doing Business As) with the state, county, and city where you plan on doing business. In the US you're typically not required to register a sole proprietorship with the Federal Government. It's fairly inexpensive, and you can run a search with the secretary of state's office to ensure that the business name you wish you operate under isn't already in use. Keep in mind, most banks won't let you open a business account without the proper registrations and a valid DBA. Also keep in mind that if you're operating out of your home, your city may have specific home business requirements that you must comply with for your business to remain legit. There are some cities that will fine you heavily if you operate an unregistered business and/or fail to pay the appropriate business taxes-- so calculate that into your "cost saving" equation as well.

Gamedev asked me to write a piece on this last month, so you may want to look for it. You can also check out the Business Planning portion of my blog, which covers many of the issues concerning the basics of organizing and financing your company.

[Edited by - madelelaw on June 20, 2008 11:23:03 AM]

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> I was figuring it would be ok to delay it until a few months
> before legal/ hiring / or other needed professional services phase.

It depends. Here are your typical business creation phases:

1) Idea
2) assemble a solid management team that find it a
good idea and have the necessary market smarts,
complementary skillsets and inter-personal dynamics
to make it all work
3) create a business plan & market research everyone believes in
4) seek funding
5) start operations


If you already have a product or service for which you have an already existing customer base, don't need funding nor partners, then you can incorporate right away. Otherwise, it's somewhere between steps 1) and 3). Most likely, once you start 2) the incorporation process will come naturally as you negotiate how you want the business to be run and how profits are to be split with your partners.

-cb

PS: most people will skip 2) and jump to 5) right away, followed closely by 4). Progress grinds to a halt at that point until they realize banks and VCs are expecting 2) and 3) to be rock solid. But you knew that already.

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Thanks for the responses. I'll check with a local professional to see if there are penalties or missed opportunities for late incorporating.

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Most business processes can be divided into four stages. These four stages apply to starting businesses, too. Keep in mind that this is a fairly basic summary.

Discovery
Generate and develop your vision. During this stage, you will essentially be conducting in-depth SWOT and PEST analyses. You will also be crafting the aspiring organization's mission statement. "Iron Lore is dedicated to creating top quality, blockbuster games in a professional, fun environment" is a poor mission statement.

Strategy
Identify the organization's priorities and expected outcomes. Furthermore, a proper strategy also defines how the organization will effect those outcomes, what resources will be necessary, and at what point will exiting the business be appropriate.

You might produce a business plan here, but I'd recommend focusing on creating a strategic plan until you (and your team) are ready to pitch investors before starting on a business plan. I was an advocate of business planning once upon a time. Business plans, however, are overkill for most startups. Entrepreneurial challenges are significantly different from operational challenges.

Execution
Commit to and act on the strategy. This should be fairly self-explanatory. At this stage, you should also register with your city, county, and state; incorporate (if the sole proprietorship form doesn't fit your needs); and file for an EIN online with the IRS.

Measurement
Determine whether execution is moving the organization toward completing the mission and realizing your vision, and whether the time is appropriate for activating the exit strategy.

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Quote:
Original post by Morgan Ramsay
You might produce a business plan here, but I'd recommend focusing on creating a strategic plan until you (and your team) are ready to pitch investors before starting on a business plan.

Sure. Don't go to the trouble of making a business plan until you need to. The point where you need to is when you want to ask investors for money.
Quote:
I was an advocate of business planning once upon a time. Business plans, however, are overkill for most startups. Entrepreneurial challenges are significantly different from operational challenges.

Could you expand on that, Morgan? Very interesting and provocative thought, but I'd like to understand the point better.

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Quote:
Original post by Tom Sloper
Quote:
Original post by Morgan Ramsay
You might produce a business plan here, but I'd recommend focusing on creating a strategic plan until you (and your team) are ready to pitch investors before starting on a business plan.

Sure. Don't go to the trouble of making a business plan until you need to. The point where you need to is when you want to ask investors for money.
Quote:
I was an advocate of business planning once upon a time. Business plans, however, are overkill for most startups. Entrepreneurial challenges are significantly different from operational challenges.

Could you expand on that, Morgan? Very interesting and provocative thought, but I'd like to understand the point better.


Good idea on the strategic plan, although work has been collected for a formal business plan - which is in some way a strategic plan. I'm with Tom on this can you explain more. I've always dived first into business plans after basic planning as they often showed me several different ways that an idea wasn't such a good one, or good and just not feasible or profitable. Also I've learned they can prove useful for strictly internal use. The publisher I worked at made in house game teams write full business plans even for franchise titles and yearly sequels. Is this what you mean by operational challenges? Anyways I'm confused.

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The business plan is more like a detailed simulation of every gear and pulleys that make up your business; it contains a strategic plan, but there is a lot more details to it.

I don't agree with Morgan's suggestion to skip the business plan and just make a strategic plan; that may hold true if you are at your third or fourth successful startup, but it's not advisable if this your first business. I highly recommend you go through the process of a making a formal business plan if this is your first endeavor. The learnings you will get out of the process is immense even though the plan itself might get outdated quickly.

> Is this what you mean by operational challenges?

Not sure what he means either, but a business rarely turns out exactly as the plan stated it. I've seen many cases where the company switched to a completely new market with completely different products. That's why a strong management team is crucial in making corrections as the business evolves.

-cb

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