What’s the Most Important Thing I Should Do When Starting My Business? Pt. 3

The next step to think about when starting your business is what we call “defining your who.” This is when you identify the people who will be involved with your business.

Like some of the other items on this list (like defining your mission and defining your end goal), defining your who is not in itself a legal concept, but it will absolutely affect your legal decisions.

“The next step to think about when starting your business is what we call “defining your who.” This is when you identify the people who will be involved with your business.”

The “who” of your business can be broken down into three different parts:

Partners

Employees or Independent Contractors

Other Collaborators (Investors, Lenders, Vendors, Service Providers, etc.)

Let’s take a look at each of these parts in more detail.

PARTNERS

The first group of people you should identify is potential partners.

We talked about this earlier in Defining Your End Goal. If you’re thinking about going into business with a partner, it’s important that you both have a similar end goal. Otherwise, you could go off in different directions, which could create a lot of tension.

You’ll also want to make sure that a partnership is right for you, personally. If you are considering bringing on a partner, make sure you are comfortable giving up some level of control. Also try to identify what each of you brings to the table so you can break up responsibilities and set realistic expectations.

EMPLOYEES OR INDEPENDENT CONTRACTORS

The next group you need to think about when defining your who is people who will work for your business. Namely, employees and independent contractors.

It is extremely common for businesses to pay their workers as independent contractors when they should be treated as employees. If you try to save tax money by classifying an employee as an independent contractor, it can come back and bite you. If you are caught, you’ll have to pay back-taxes and penalties.

In short, if you have someone who is working for you most of the time, and your business mostly supervises them and the time, place, and manner of their work; then they are most correctly and appropriately defined employees rather than independent contractors.

When you are thinking of who will work for your business, think about the day-to-day activities that you can’t (or don’t want to) handle. Next, think if this will be a person who you will bring on full or part-time as an employee, or if this can be handled by a contractor (or a combination of the two).

OTHER COLLABORATORS

Another group to think about when you are defining your who is other collaborators.

One of the most significant types of collaborators are lenders and investors. If you collaborate with people who will be providing funding for your business, you need to think about what type of relationship you want. At this stage, you may not know specifically who your investors will be, but you can start to think about what types of investors you would want.

For example, if you’re seeking venture capital funding, do you want an investor who just gives you money and gets out of the way? Or do you want someone who will serve more as a mentor and advisor to your business, with a board of directors seat and hands-on involvement in the day to day operations?

The last group we will talk about in defining your who is vendors. Vendors could be the suppliers of raw materials, landlords, service providers (such as advisors like attorneys and accountants), and even technology providers. Vendors are much like independent contractors or employees, but instead of being individuals, they are most often other businesses.

When considering outside collaborators, think about your strengths and weaknesses. What skills are you lacking? Does it make sense for someone (a partner, employee, or other collaborator) to fill that gap?

Why is this important? Because if you bring on partners it will affect the type of business entity you select. If you have people working for your business it will affect your tax decisions. Keep reading, because we will discuss business entities and tax treatments in future sections.