TEN MISTAKES WHICH CAN JEOPARDIZE YOUR START-UP

Upon the beginning of a start-up or a business, the vast majority of the entrepreneurs are focused on developing the product. Later, once they have already won that battle, they become obsessed with getting cash from investors. Needless to say both activities are crucial for the future of the start-up (unless the latter demands too much time or too many resources), but unfortunately, these new businessmen forget to pay attention to some other important issues, making what we could consider as “management” mistakes, which may have awful consequences not only for the general activity of the Company, but also may make investors to escape from the business. We show below ten of the most important management mistakes, which you should avoid if you want your start-up to succeed:

1. Not to ask to your consultant:  once the idea of your start-up has come up to your mind, you should immediately go to your legal consultants so that they inform you about legal problems concerning your idea. Fiscal singularities of a specific sector, specific legal conditions, licenses, issues concerning the so called collaborative economy…this first conversation will be helpful, believe us! And, at least if you work with Vaedro Asesores, for free! One additional advice: repeat this conversation every time you make a step you have never done before: apply new labor contracts, spread your business to new countries, launch subsidiary activities…you will never regret.

2. Not to monitor the work of your consultant: we know you need your consultants to help you with that non-core activities. But do not forget that, at the end of the day, the one responsible for your actions, from a legal point of view, is you! ‘I did not know I was not complying with the Law because these issues were run by my consultant”… that means nothing to the fiscal inspector or the judge hearing you. Maybe, they will tell you to sue your consultant, but in the meantime, you will be the one being investigated.  Consequently, do not forget to monitor the work of your consultants. Ask them for explanations of everything they do. If they are like we are at Vaedro Asesores, they will enjoy answering all your questions.

3. Fiscal Myopia: this problem exists in almost every single business and start-up and, sooner or later, because of it, problems arise. These problems may be small (for instance, the creation of fiscal credit to improve the balance-sheet) or remarkable (like including lots of non-deductible expenses in order to reduce the taxes to pay just because you are short of cash in the short-term). We could bullet tons of examples. Vaedro Asesores recommends you not to ever take a decision taking into account just fiscal reasons, because we bet you are going to make a mistake.

4. ‘I do not want to pay taxes’: we got bad news for you, buddy: eventually, you will have to pay taxes. We know this very friend of yours deducts personal spending in its company’s accounts, or that this big tech firm does not pay taxes in Ireland…but we will never know how big the penalty of your friend will be once the fiscal authorities catch it (something which will happen sooner or later) or how much money that big tech company spends on attorneys to litigate against the European Commission. Believe us: everybody pays taxes. Of course, Vaedro Asesores may help you to find the most efficient fiscal strategy, but the sooner you realize you will have to pay taxes, the greater things will go.

5. Carry out wrong risk assessments: consultants do not tend to be idle people who make useful recommendations in order to send hundreds of emails and, luckily, increase the bill. At least, not in Vaedro Asesores. Our recommendations are based in real risks; risks with consequences we have already seen before. For instance, we know that your current relation with all your employees is fantastic, and the idea of signing a document to avoid the misuse of confidential information by one of them seems stupid…but you should. Of course, at the end of the day, you are the one deciding but, please, carry out a correct assessment of risks and their consequences. Lots of entrepreneurs downplay non-core issues and that is not a good decision!

New businessmen forget to pay attention to some other important issues, making what we could consider as “management” mistakes

6. Forget the information of the annual accounts: a big number of new businessmen think that the official annual accounts is just a ‘paper-work’ thing. Wrong buddy! Official accounts show tons of information, which is real, specific and updated, and which concerns the past, the present and the future of your business. Use it! To do it, tell your accounting consultant to keep the records updated and to classify correctly earnings and expenses: extraordinary expenses must be that, extraordinary. Same thing for the use of the account ‘unallocated movements’. Unfortunately, they are not. Vaedro Asesores always ‘obliges’ our clients to demand us a correct and updated accounting record. The information they can get from that is huge.

7. Misunderstand legal documents: articles of association, shareholder’s agreements, investment agreements…sometimes, the real meaning of these words is totally unknown to some entrepreneurs…and even worst: sometimes they sign them without understanding them. If you are not lucky enough to have Vaedro Asesores as your consultant (we are obsessed with explaining everything), ask whoever your consultant is the meaning of every single word of the legal documents regarding your company. We know that the lack of cash and the pressure of potential investors are sometimes unbearable, but please, ask before you sign something you eventually might regret!

8.  Lack of tickets and bills: ‘it’s a mess’; ‘I have lost them’; ‘I did not ask for them’…when it comes to the lack of tickets and bills to justify expenses and outflows, we have heard it all before. But we will never get tired of recall you that this lack leads your company to a fiscal risk, since these expenses are not deductible. In other words, you will have to pay more taxes (sometimes, a lot of more taxes). That also applies to bills with wrong billing information (for instance, because the billing information belongs to a person and not to the company). Fiscal authorities will find these bills ineffective. 

9. The ‘pocket confusion’: ladies and gentlemen, there is more bad news coming up!! It seems that some people do not know, but your company’s bank accounts are not the pocket of your pants! Yes, we know that your very best friend use the money of its company to solve its personal cash problems, or even worst, it uses the money of its company on a regular basis as a way of financing its personal expenses to avoid the payment of taxes…Obviously, these movements of cash between companies and their managers and shareholders exist in hundreds of thousands of business. But in a vast majority of cases, they hide a situation which is not real or legal. The risk you face by doing that is not small, so, please, according to point three, carry out a correct assessment of the risk you want to bear!

10. The misuse of companies: and finally…a classic! Old school, ladies and gentlemen! A mix of the previous mistakes. Using a company to own shares, to hide the individual behind some decisions or to provide service inside your own start-up is absolutely legal. The point is that sometimes the use of these companies is only motivated by fiscal reasons or to limit somebody’s accountability…that is why the Law or the case-law have already developed rules to be applied in these cases, with consequences that, probably, will be different to the ideas you had in mind. Ask your consultant, avoid the fiscal myopia, understand all the legal issues and carry out a correct risk assessment when using this kind of companies!

We know that the launch of a business or a start-up is difficult, difficult enough to pay attention to the issues we have just described…but call you consultants to help you. And if your need further help or information…call Vaedro Asesores!