The dreams of having your own company: it is reviving in the younger generation in particular. Almost half of the 18 to 39-years-old, 46 percent, can imagine starting a company. And it seems to be paying off: Despite a high workload of an average of 56 hours per week, founders show above-average life and work satisfaction.
But there are also dark sides: 30 percent of the founders end their activities within the first three years. In addition to personal reasons, a lack of economy plays a crucial role.
Proper preparation is crucial to prevent such a result. That is why we provide you with a detailed plan here, with which you can successfully transform your business idea into a corporate concept and take all the important steps on the way to your own company.
What Do You Need To Start a Company?
- A stable business idea that can be converted into a corporate concept forms the basis for the foundation.
- Experience in the industry helps to better assess the opportunities and challenges.
- Own start-up capital facilitates independent founding
- If there is no or too little start-up capital, you need to think about the financing.
- Start-up loans, crowdfunding or the involvement of investors are available as options.
- Reserves are used to bridge the first few months when most companies are still not making a profit.
- Willingness to work is essential to cope with the high workload, which often goes beyond full-time employment in the early days.
- A feeling for numbers makes it easier for you to make calculations and to check the business model for profitability.
- Willingness to take risks is essential as there is no guarantee of success, no matter how well planned.
Starting a Company: Planning
1- What Are The Requirements For Starting Up?
- Experience in the branch: Anyone who has worked in the branch in question for a longer time is likely to have a deeper understanding of the opportunities and risks of the business field. Finally, in everyday work, you become more aware of special features and common pitfalls of the industry than as an outsider.
- Start-up capital: In principle, it is of course also possible to set up largely without equity (more on this below). However, it will make the project much easier if you are not dependent on external investors or credit institutions to whom you owe an account and interest, and to whom you may have to have a say in corporate decisions.
- Reserves: Hardly any company generates profits immediately after it is founded. And even if this should be the case, it often makes sense to reinvest it instead of paying yourself a salary as the founder. However, this also means that (if you start a full-time job) you initially have no income. All the more important are reserves that pay rent and livelihood in the first months after foundation.
- Willingness to work: “ To be self-employed means to work yourself and constantly .” There is a lot to be said about this saying. With 56 hours of average weekly working hours, there is considerably more working time than in a typical full-time job. Especially in the initial phase, the nine-to-five working day is often a long way off.
- A feeling for numbers: A certain mathematical understanding is an advantage as a founder. Because even if you can get help from tax consultants and Co., planning will be enormously simplified if you can calculate your project to a certain extent and check its cost-effectiveness.
- Willingness to take risks: Even with good planning, there is a certain residual risk with every start-up. There is no guarantee of success and personal economic improvement. So if you are not willing to accept setbacks and possibly the failure of the project, you should refrain from starting up.
2- Start Part-Time or Full-Time?
First of all, you should decide whether you want to devote yourself to your start-up project full-time or in addition to regular employment. Both options have different advantages and disadvantages:
The main advantage of founding a sideline is minimized risk. After all, you still receive a regular salary and are not left with no income in the worst case. Besides, part-time start-ups are particularly often covered by small business regulations. This affects companies with a previous year’s turnover of a maximum of 17,500 euros and a planned turnover of no more than 50,000 euros. They benefit from a simplified sales tax regime, which relieves the bookkeeping. It is no wonder that, according to the German Startup Monitor, over half of the start-ups have been part-time in recent years.
However, the price for more security is a tighter corset of requirements. A part-time job is only considered part-time as long as it does not exceed working hours and income from the main job. Even hiring an employee can mean that your independence is no longer considered a part-time job. You must also inform your employer about the project, which may veto if your start-up project could compete with it. Also, appropriate clauses in the employment of part-time self-employment may conflict.
Please also note that taxes are also payable for founding a sideline. This affects both taxes and social security. Because of these, with increasing income, higher contributions are due.
Anyone founding a full-time job can put all their time and energy into self-employment. This increases the likelihood of success. At the same time, you may take your project much more seriously if it really “is about something”. The pressure of 100% commitment can also inspire.
The downside, however, is the lack of a safety net. There is a lot at stake when it comes to founding a full-time job: either your company succeeds – or you are left with no income at all. This not only increases the fact (financial) risk, but the pressure can also be debilitating and rob motivation.
Starting a Company Without Equity
Ideally, you bring your savings for the start-up project. But even if your financial situation does not allow this or your funds are exhausted, there are various ways of financing your future company:
1- Start-Up Credit And Funding
Various funding institutions such as KfW (Kreditanstalt für Wiederaufbau) offer loans especially for start-ups, for whom repayment is only due after several years if the company has a good chance of earning a profit.
In some cases, some grants do not have to be repaid at all. These include, for example, the EXIST grant from the Federal Ministry for Economic Affairs and Energy, which supports start-up projects from technology, science, and research. Unemployment benefit recipients can benefit from the start-up grant if they become self-employed and thus end their unemployment.
In particular, if you want to implement innovative ideas as a start-up and the capital requirement is not too high, crowdfunding offers an alternative to conventional financing models. Individuals can finance their companies through various platforms. In return, depending on the model, they either receive the future product for free, a repayment or shares in the company.
Crowdfunding is also so attractive because it is so cheap. Only a small commission has to be paid for the creation of the project. The downside: the all-or-nothing principle applies. If the financing target is not reached, all the money collected flows back to the donors.
Investors are the third way to start without equity. Private investors generally only participate financially and either act as silent partners or make an interest-bearing loan. As a rule, however, you do not generate more than 25,000 euros. Business angels, on the other hand, not only bring in the capital but also their know-how and network as business people. However, they usually also demand higher company shares and a say in company decisions. The average investment here is between 50,000 and 250,000 euros.
Venture capital companies are the right place to go for even higher investments. As a rule, however, you do not invest in the early phase of the foundation, but when the proof-of-concept has been provided and the company has proven to be scalable. The amount of investment here can be several million.
Regardless of which form of investment you are considering: In the beginning, there is always a well-thought-out company or idea presentation, for example in the form of an elevator pitch, with which you have to convince investors of the success of your company.
Starting Your Company: This Is How You Do It
To help you make the trip from the idea to the registered company trip-free, you will find an overview of the individual steps in founding a company here.
1. Develop a Business Idea
The basis for your own company is, of course, a basic business idea. However, this needs to be substantiated to such an extent that it can be converted into a business model. Suppose you want to develop your lemonade. Then you should not only think about what exactly distinguishes this lemonade and set it apart from others but also how you want to sell it. Are you just planning the production? Or do you want to open your coffee where the lemonade is sold exclusively?
Depending on the situation, you not only have to comply with very different legal requirements but also address other customers because you sell directly to the end-user (B2C) or a dealer (B2B).
Once the business model is in place, it must become a corporate concept. This is where the creation of a business plan helps, which should show that the business model is economically viable. These include, for example, the following aspects:
- What is the product?
- What sets it apart from comparable offers / Why should customers buy this product of all things?
- Where do you get the product / raw materials?
- How do you market and distribute the product?
- How do you define your profit and what are the main costs?
In addition to the strategic orientation of your own company, competition in the market should also be considered. The ocean strategy or PEST analysis can help here.
Besides, you should think about the structure of your company: Do you want to start alone or with a co-founder? Are you planning to hire employees shortly? If so, how many and how should responsibilities be divided over the long term? Here it is advisable to create an organization chart.
2. Clarify Legal Requirements
In the next step, you should clarify whether your company requires special legal permits and requirements. Various activities are subject to a basic license requirement, for example in the area of private hospitals, amusement arcades or in the travel industry.
If you want to become self-employed in the craft, you must observe the master’s duty: you must either have passed the master’s examination yourself or hire a master. You must also be able to demonstrate your professional qualification for professions requiring a chamber (for example as a doctor, architect or notary). In the field of pharmaceuticals, road haulage, insurance and some more, a specialist examination must also be taken at the Chamber of Industry and Commerce ( IHK ).
But even if you have the right qualifications, it may be necessary to obtain additional permits. Operating rooms and systems, for example, have to be approved by the trade inspectorate, the building authority approves structural changes. In the catering trade, doctor’s surgeries or childcare, permits from the health authority are required.
3. Determine The Legal Form
The legal form of your own company has far-reaching consequences, especially about tax and liability issues. A basic distinction is made between sole proprietorship, partnerships, and corporations. While the founder is personally liable for sole proprietorship and partnerships, only the share capital is liable for corporations. Partnerships and corporations usually have to be entered in the commercial register; for sole proprietorship this is optional. The entry in the commercial register is accompanied by the publication of a balance sheet for the annual financial statements. Sole proprietorship that are not registered in the commercial register only have to submit a simple income statement with their tax return.
4. Find Names
The company name needs to be carefully considered. After all, changing it later can be costly and cost laborious brand building. However, you are not entirely free to choose your name. At GbR, for example, the names of the founders must be included in the company name.
Also, you should ensure that the planned name is not protected by trademark law or is otherwise already assigned to avoid injunction and compensation claims. You should search for the German Trademark and Patent Office and the company register.
In general, you should make sure that the name is easy to pronounce, write and remember. In this way, you ensure that potential customers keep your company in mind and can easily research online. Ideally, you should also try to find a name that also works abroad and can be shortened well for a logo if necessary.
5. Make The Formal Foundation
To officially found the company, various administrative procedures are necessary, which differ depending on the legal form.
- Freelancers, as well as traders, must report your company to the tax office and apply for their tax number there.
- For each company, a business registration must be made with the trade office.
- For business units subject to chamber membership, it is then necessary to be admitted to the responsible Chamber of Commerce (IHK).
- Corporations must register with a notary public at the local court. The entry in the commercial register is also mandatory here.
- If employees are to be employed, must always one at the employment office operation number is requested.
- Under certain circumstances, joining a professional association is mandatory.
6. Clarify Property Rights
To preserve the unique selling proposition of your young company and secure it externally, you should seek extensive industrial property rights. The best-known property right is the patent, with which you can protect your business idea. But a registered design and trademark rights also protect you from copies by competitors.
However, if you adopt a concept (for example as a franchisee), you have to acquire licenses from the rights holder. These generally allow you to offer products or services within a certain scope and for a certain period. You may use utility models, designs, logos and characters from the licencor.
7. Take Out Insurance
Please note that you are also subject to compulsory health insurance as a self-employed person. Here you can choose between private and statutory insurance. To mitigate the risks of self-employment for yourself in the best possible way, private liability, disability, and legal protection insurance are also advisable.
At the same time, you should also secure your company in the best possible way. Depending on the industry and company size, different types of insurance are useful here, for example:
- Company liability: insured for claims for damages from employees, customers, visitors, suppliers, etc.
- Professional liability: protects professional accidents, such as incorrect advice or assessment, is particularly suitable for service providers and freelancers.
- Business interruption insurance: covers ongoing costs such as salaries and rent if no income can be generated for a certain period.
- Burglary theft insurance: insures damage through destruction, theft, and damage.
- Fire insurance: covers damage caused by fire or explosion.
- Machine insurance: applies to repairs to stationary and mobile machines that are necessary due to human error.
8. Set Up a Business Account and Accounting
While freelancers and sole traders can use a regular, low-cost checking account, partnerships should use an actual business account. For corporations, it is even an integral part of the start-up process, because they only become legally effective once the necessary share capital has been paid into the account and receipt has been confirmed by the notary. When choosing a bank, it should be considered whether cash deposits and withdrawals are possible, how high the account maintenance fees are and what general financing options the bank offers.
Besides, it is now time to set up the accounting. All income, payments, and liabilities are to be recorded here. Exactly how the bookkeeping should look depends on the respective legal form. For example, sole traders and the GbR are released from the obligation to keep accounts (as long as sales and profits do not exceed 600,000 or 60,000 dollars), which does not mean that entries and expenses do not have to be documented. For example, freelancers must state them in the form of the income surplus regulation (EÜR) in their tax return. This form of simple accounting also helps you to keep an overview of your finances.
9. Create an External Appearance
The last step is to present your company to the public. Define a corporate design and design the website and advertising materials accordingly. Develop a marketing strategy and communicate the added value of your company to potential customers. Now you are ready to start your own business!