This is the second story in a four-part series about topics every aspiring student entrepreneur should know. The monthly series was written by Penn State Outreach News Bureau intern, Dane Vanover and is a service of Penn State’s Small Business Development Center.
What do students, CEOs, local startups and multinational corporations have in common?
They all make mistakes.
Often, mistakes are vital learning experiences that help entrepreneurs develop and ultimately, succeed. However, there are several errors that any student entrepreneur could avoid with the proper research and help from Penn State’s Small Business Development Center (SBDC).
“We want students to engage in entrepreneurship, but we want them to do it wisely,” said Linda Feltman, SBDC senior business consultant of student entrepreneurship. “There are several common and sometimes fatal startup mistakes that could be avoided just by talking to us.”
Not having an official partnership agreement at startup. An official partnership agreement can be as simple as a signed document outlining partner responsibilities and percent of ownership, or can include facets such as how to deal with the removal of a partner. According to Feltman, one of her past clients without a partnership agreement actually had one of its partners run off to Tahiti for an “extended vacation” with the company credit card.
Rushing to incorporate and ignoring insurance. Many startups feel a need to incorporate right away, often before they’ve even made their first sale. While incorporation offers benefits when it comes to taxation and liability protection, it is often unnecessary at the time of startup and can beleaguer young entrepreneurs with unwanted costs and paperwork. Feltman says most student startups are better off having a strong partnership agreement, proper business liability insurance and a good attorney. Also, it is typically easier and less costly to move up the ladder of incorporation structures as your company grows than to unwind a business structure that was not needed in the first place.
Know your taxes. You must know when to register for an Employer Identification Number and what taxes your business will have to pay. If you fail to register and file correctly, even if you are filing a return of $0, the Internal Revenue Service could penalize you with fines and possibly legal action. There are helpful guides for both the federal and state levels, which Feltman said are available from the SBDC. “We are not attorneys or accountants, but we can often help students through the maze of choices and get them headed in the right direction,” she said.
Know which Penn State resources you can and can’t use. Penn State students have access to many tools: thousands of expensive research journals and market databases, free or discounted professional software and instructional programs, and of course, in-class and extracurricular lectures and seminars from knowledgable professors and industry professionals. However, using resources such as your Penn State access ID or your residence hall for conducting sales for a for-profit business violates your contract with the University. Talk to the Penn State Office of Risk Management to know exactly what you can and cannot do with your University resources.
The SBDC welcomes all student entrepreneurs to discuss how to avoid these issues or any others they may encounter. Free, confidential consulting services are available by appointment or drop-in from 4-5 p.m. Tuesdays and Thursdays in Kunkle Lounge. SBDC consultants can also provide a list of recommended attorneys.
Don’t forget to join the SBDC for Penn State’s Global Entrepreneurship Week (GEW) Nov. 16-20 for a weeklong series of informational and interactive events directed at students and community members interested in entrepreneurship.
To get started on your business idea, contact the SBDC at 814-863-4293 or request assistance online.