Why defining a business structure for startups is important

Whatever the organization, a defined structure is important.

When talking about business structure, many people immediately think of the legal and tax structures of their business. I approach the structure of the company more broadly.

Before we get to that, if you’re trying to decide which legal structure to adopt, there are a number of good guides on the pros and cons of an LLC versus an S Corporation versus a C Corporation. I found this guide from Inc. useful. Of course, choosing the right legal structure also comes down to having the right team. Definitely talk to a lawyer and an accountant to see what works best for you.

Stepping back and looking at the topic of “business structure” more broadly to include your organizational structure, it’s important for entrepreneurs to create a defined structure from the start, even if you’re starting out as a sole proprietorship.

Document the different roles and functions of the company. Be specific and avoid vague titles for job descriptions. In fact, startups should have job descriptions for different positions, even if those positions don’t exist yet or one person manages multiple positions.

Taking this proactive approach has many benefits. This helps you build the business thoughtfully by forcing you and/or your management team to think about the positions you will need. It also creates clear roles and responsibilities when you start hiring people to meet those needs. Finally, it will help you identify the types of skills you need in early employees and/or business partners.

Having a clear corporate and organizational structure will make your business more attractive to investors. They gravitate toward businesses that have well thought out ideas and clear direction. A defined structure, including job descriptions, is an important marker for serious investors.

Ultimately, entrepreneurs should consider their current and future business structure early on. It may be more often associated with larger institutions, but given the benefits, describing the long-term structure of your business should not be put off.

Additionally, entrepreneurs and their startups should consider acting like bigger companies. Think like a bigger company and act like a bigger company so you can grow to be a bigger company.