Mistake #1 - No Formal Communication : Always put your business communications in writing. Never assume that things would be always according to the plans and oral discussions. When things go wrong, the client and the entrepreneurs may have difference of opinions. Hence, it is always recommended to have a written communication from the client even if he is a friend or relative of yours.
Agreed ! There are some partners who are doing a good business from many years without any formal agreements. We do not deny that. But the history also teaches few lessons which proved costly both in relations and finances.
Mistake #2 - Adding Partners without proper Agreement : Never add any partners without complete knowledge about their understanding and the role they are going to play in the partnership. Also, have an agreement on the profit/loss sharings. Recollect the story of the facebook founders (if you are not sure about their story, watch the social network movie).
No matter how good friends you are, a legal agreement is a mandatory. It doesn't mean that you lost belief on another - you don't need to take it to heart. The agreement should also have a clause on what should be the action when there is a difference of opinions.
Mistake #3 - 50-50 Partnership : We would recommend you not to go for a 50-50 partnership. It should be atleast a 51-49 partnership. When there is a difference of opinion at some point of time (expected in any business partnerships), there must be someone who has to take a decision. A 50-50 partnership leads to deadlock situations and may not lead to a conclusion.
Mistake #4 - Filing Patents/Trademarks without enough Research : A glance of search engines results and other patent related websites definitely is not sufficient to file a patent for your business idea or for the brand name. You may loose all your patent filing money once you come to know that someone else already has the same idea. There are clients who lost thousands of dollars like this.
Mistake #5 - Wrong Business Structure : Making a wrong choice about the structure of business you are planning to implement may put you on risk or it may lead to huge taxes by the end of the fiscal year.
You can either go for Sole Proprietorship, Limited Liability Company (LLC) or an S-Corp. Most of the start ups choose sole Proprietorship as it doesn't require much formalities and registration headaches. It costs less but beware there is no difference between your assets and business and hence your assets can also be in a risk in future. LLC & S-Corp structures takes may cost more at set up time but keeps your assets separate from your business.
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