Business decisions

2 Essential Business Decisions Many Entrepreneurs Misunderstand

Starting a business for the first time can be scary, and not knowing what to expect can make the unpredictable nature of risk seem as big as the Grand Canyon. If you’re lucky, you’ll have friends and colleagues who can guide you along the way. Or, you can hire a business coach who has achieved a high level of success to keep you on the right track. It’s always great to be able to lean on someone for support to help you get your startup going, and at the same time, there are aspects of starting a business even they may not think to cover. As you develop your business, you’ll find yourself making important choices, but making the wrong decisions can cost you time and money if you don’t know how to navigate them.

Here are some tips on how to navigate two major decisions entrepreneurs face when starting out:

Knowing when to register trademarks

Many people think they need to register trademarks simply because they can. This could be a waste of time and money, depending on what’s being trademarked. It’s essential that you first understand what a trademark is.

A trademark is a a word, phrase or symbol you use to represent your brand while engaged in commerce.

The reason people officially register trademarks is so that nobody else can use the same or similar marks for their products and services. Trademarks are designed to protect against confusing consumers if two businesses use similar goods or names.

While you don’t need to file expensive trademark paperwork for every idea and concept you come up with, it’s a good idea to trademark the names, phrases and logos you intend to use to market and brand your business. However, a word of caution: don’t wait until you’re absolutely sure you’ve settled on a final name or design. If you rush to trademark them too soon, and you’re still in the development phase, you’ll have to spend more money to trademark your revisions.

Trademarks are not copyrights

Trademarks do not function as copyrights. A copyright is intellectual property protection designed to prevent unauthorized use and commercial gain. A trademark is intellectual property protection designed to eliminate confusion between competing brands. While some trademarks are also copyrighted (like logos), not all trademarks can be copyrighted (like phrases). Regardless of what you think you understand about trademarks, the law is complex, so it’s always advisable to contact a trademark lawyer to help you make your decisions.

While you can’t reproduce something that is copyrighted without permission, you might think that once someone trademarks a company name, nobody else can ever use it. This isn’t true. In fact, you can trademark an already-trademarked name, provided you’re in a completely different industry than the business represented by the existing trademark.

Let’s say you’re building a business that sells clothing styled after the Colonial period, and you want to call your company, “Quaker.” You research the database of registered trademarks only to be reminded that “Quaker” makes oatmeal and other foods.

Many people would stop at this point and rename their company; however, here’s what you need to understand about trademarks: they only apply to similar products and services. You can still trademark the brand “Quaker” and use it for your clothing company.

Trademarks are designed to prevent confusion in the marketplace between similar products. If you were starting a breakfast cereal company, you couldn’t call it “Quaker,” but a clothing company would be allowed to use the name.

Forming a nonprofit or a charity

This is a decision best made after thoroughly discussing your options with a lawyer; however, to get started, there are some distinctions you should know about before making any decisions.

Forming a corporation isn’t a simple task, but it’s easy to find information on what your options are.

The waters get a little muddy when it comes to forming a nonprofit, and there are more misunderstandings about forming a nonprofit than there are about forming a corporation.

Nonprofits aren’t automatically tax-exempt

It sounds great to form a nonprofit organization and achieve tax-exempt status, but not all nonprofits are automatically tax-exempt. To demonstrate the complexity of what it takes to achieve this status, there are 27 subsections to section 501(c) in the Internal Revenue Code, and three more sections in the code that can determine exempt status.

Nonprofits can make a profit

This is perhaps the largest myth about nonprofits. All organizations need financial revenue to function and sustain themselves, including nonprofits. The difference between a for-profit organization and a nonprofit is that the nonprofit can’t distribute its profits to private persons. This doesn’t mean they can’t pay vendors for products and services; on the contrary, they can. According to the Bureau of Labor Statistics, nonprofits employed 11.4 million people in 2012 alone.

Forming a charity

A charity is different from a nonprofit, and is exempt from federal income tax under the Internal Revenue Code, but must meet specific requirements under the 501(c)(3) section. Mostly, for an organization to qualify as a charity, it must be religious, educational, perform scientific testing for the safety of the public, or help prevent cruelty to animals or children.

Then there are subsets of charities including public charities and private foundations; both have different requirements under the Internal Revenue Code. Public foundations usually generate support from the public, while private foundations have strict guidelines and usually receive their funding from investments.

Get ahead of the game

Building a business isn’t an easy task, and if you’re creating your first business, you’re going to experience some unexpected bumps in the road. It’s an unavoidable part of venturing out on a new entrepreneurial path. You’ll no doubt do well if you’re not afraid to make mistakes and ask for help when you need it.

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