Small software businesses are 10% software, 90% everything else. If you want to spend ~90% of your time coding, you want to work for someone.Patrick McKenzie
October 22, 2017
Now you have your budget and funding sorted out, it’s time to handle some of the logistics. If you’re looking to start a software company, you’ve probably been involved in creating software at some point. Maybe you have a good grasp of design and development. You might even know a bit about servers and release management. But there’s a whole other side to running a business, and you can’t neglect it.
This is probably the least exciting topic of this entire book–but if you’re going to launch a business, you’ll need to plan for this stuff. Each of the following items is a gross oversimplification; because many of these topics will depend on your local government and legal requirements, they’re way outside the scope of this book. My goal isn’t to tell you how to do them, but rather to make sure you’re aware that you need to research and take care of them.
Printing and faxing. You’ll inevitably need to print and fax things. If you’re lucky, your government may be more modern, but for most that won’t be the case. There are some great services and applications for sending faxes online without a fax machine these days. Be ready for this and have your workflow sorted out so you don’t put off this stuff. It’s no fun to realize at midnight that you need a printer, scanner, fax machine, or fax software to submit paperwork on time and avoid delaying other work. More importantly, all of these tools should be in place and convenient so you never procrastinate for lack of tools.
Incorporation. When and how you incorporate is up to you, but my advice would be to get started sooner rather than later. Incorporation doesn’t happen overnight–don’t let it block your other tasks. Even if you are to own 100% of the company, create a separate entity for your company. There are legal reasons, but beyond that it makes your finances tidier if you maintain separate bank accounts for your business and treat the money differently. There are also tax implications, so talk to a lawyer and an accountant to understand the ramifications.
Employer Identification Number (EIN). While this is specific to the United States, you’ll likely have something similar if you’re outside of the U.S. Many facets of the business, such as your bank account, merchant account, or payment processing will require you to have one of these. The sooner you get it, the easier the other steps will be. In most cases, you should receive one when you incorporate, but it depends on how you incorporate. Once you have it, keep it somewhere safe but readily available. It will come up on a regular basis, and digging for it will slow you down unnecessarily.
Bank account. It may seem obvious, but this can be easy to delay without realizing the consequences. You’ll need this to set up a merchant account and to do almost anything that requires spending money. Of course, to set this up you’ll need to be incorporated and have your EIN. You might be tempted to use a personal account if you’re the sole owner of the business, but I’d strongly advise against that. You can get by using your personal bank account, but since you’re serious about building a healthy business, don’t go that route.
Merchant account and payment processing. Depending on whether you set up your own merchant account or go with something like Stripe (a hosted payment-processing service), this can be very simple or very involved. We’ll take a look at some of these differences in depth later, but it never hurts to start looking into your options.
SSL certificates. If you’re putting a business online, you should serve everything over a secure connection. Obtaining and renewing SSL certificates can be involved and time-consuming if you want an extended validation certificate, since you’ll need to do some paperwork to verify the legitimacy of the business. Fortunately, times have improved, and basic certificates are much easier to obtain.
Insurance. There are several different types of insurance you’ll need to research. The two most common are key person insurance, and errors and omissions insurance (E&O), which is also called professional liability insurance. Key person insurance can help ensure the business continues if something happens to one of its founders that prevents them from working. Errors and omissions insurance helps lessen the chance that someone suing the company could put it out of business. It’s worth noting that you probably don’t need to worry about this until shortly before you expect to have paying customers. Remember, insurance is about managing risk. If you don’t have any paying customers, you don’t need to worry about managing that risk with insurance just yet.
Health and disability insurance. For many, health and disability insurance won’t be a concern. In the U.S., if you’re launching a business, it may be one of the scariest things you deal with. If you have more than two full-time employees who are not each other’s spouse, you might want to look into a professional employer organization (PEO). These companies provide a way for many small businesses to band together and pool their purchasing power for insurance. That translates to better insurance and better rates.
While some of these tie in with development, they’re all easy to overlook if you’re heads-down designing and developing. My advice would be to research each of these and start the processes on day one–or long before day one–so that you’re aware of just how complex and interdependent they are. Otherwise, you’ll get to the point where you need them, and you’ll be stuck waiting.
Stripe Atlas - Starting a Real Business. Patrick McKenzie has pulled together a great summary of some of the more tedious aspects of building and running a business internationally. This is an absolute must-read if you’ve never started a business before.