Start-ups can benefit from many financing methods that “classic” companies cannot use for themselves. Founding teams can get started in 8 steps.
Step 1: Business idea
Maybe you already have a great business idea, but maybe you still need to come up with one. Here, a look abroad can prove to be quite worthwhile: What works there can possibly be easily adapted and established on the German market. Many business ideas have already made it from abroad to Germany, as resourceful start-ups have used the trend for themselves.
However, with such “copy cat” methods, it is important to pay attention to trademark protection! If an international patent or other protective right exists for the exciting business idea, it might be difficult to bring the trend to Germany. Therefore, before you use a trend idea for your start-up, you should always carry out a detailed search to prevent you from infringing a property right. It’s better to start with your own idea, but here, too, you should make sure that no one else has already implemented your idea before you start.
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Step 2: Founding team
A classic mistake is to found a company with your developer friends so that the founding team is completely homogeneous. Your team should consist of people whose skills are very different, but at the same time balanced. This way you and your talents can complement each other. Especially when it comes to tricky decisions, different perspectives offer very valuable feedback.
Ideally, your team should consist of a minimum of one person each for sales, technology and one who brings the necessary business knowledge. A good team in which you feel comfortable is worth its weight in gold when founding a start-up, because you will probably see your co-founders more often than partners, children or friends during the initial phase of your start-up. Your business idea will continue to be constantly adapted or even completely turned upside down in the course of the start-up. For this reason, it is of immense importance that you are inseparable as a team and go through all the changes together. This is the only way you can succeed in the long run in the extremely dynamic market.
Step 3: Business plan
Even if it seems old-fashioned and outdated: write a business plan! Not only is the business plan a feasibility study and a financing plan at the same time, but it also helps you to bring a clear structure to your start-up. Even today, a business plan is indispensable – especially if you want to raise outside capital. Although the business plan seems to be less important in times of the Business Model Canvas (a condensed business plan in A3 format) and various pitches (e.g. at start-up competitions), it is still a great exercise for you – even if you don’t need it in the end. It helps you to discuss and formulate your future in detail. In any case, it reinforces your common goals and uncovers possible stumbling blocks in your business model.
Step 4: Funding
For innovative start-ups, there are a large number of initiatives for funding. However, you should think carefully in advance about whether you want to rely on classic outside capital or rather on incubators, accelerators, crowdfunding and the like. Get an overview of the various funding options and carefully weigh up whether the “rat race” that many financing options entail is right for you. Depending on the funding option, you will have to calculate the consequences, such as giving up shares, voting rights and profit distributions, as well as tax consequences.
If you rely on angel investors or venture capital, you should bear in mind that potential investors will already expect a possible exit strategy when you make your pitch. This means that it must be clear to the investor, even before the commitment, to what extent he can profit from his investment and what his return on investment (ROI) might look like. With venture capital, it is important to remember that although you are growing very fast, you will always need more VC to maintain the growth rates. Click here for more tips on finding investors.
If you don’t want to depend on outside capital, but you can’t bring in large amounts of capital yourself, bootstrapping might be for you. With this method, you create a strict financial plan that you have to stick to meticulously. In this way, you learn from the very beginning how to economise and concentrate on the essentials.
Step 5: The right form of business
Before you get down to the nitty-gritty, you need to decide on a legal form. For many start-ups, a GmbH (limited liability company) or, alternatively, a UG (limited liability company) are possible legal forms that allow you to benefit from limited liability. This means that in the event of a liability case, only the assets you have contributed will suffer, but not your private assets. Founding a limited liability company may be intimidating at first with its 25,000 euros in share capital, but since you are probably looking for investors or outside capital anyway, this sum may be less of a problem than you first think.
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If your start-up capital is rather small, you should consider founding a UG (limited liability company). If you decide to set up a limited company, the next decision will be made soon: Do you want to set up with individual articles of association or a model protocol? The standard protocol may seem simpler and cheaper, but you are bound by certain conditions: for example, your start-up may only have one managing director and a maximum of three partners.
Research legal forms
If you want to start smaller (or larger), there are also other legal forms. The best thing to do is to get a precise overview of which legal forms are available, what you bring to the table and what suits you best.
If you start your business as a freelancer, special regulations apply to you. Since you do not earn any income from commercial activities as a freelancer, GmbHs or UGs are less likely to be an option for you, as all the advantages of freelancing no longer apply. For freelancers in a team, partnerships such as the GbR or partnership companies are more suitable.
Step 6: Company name and trademark rights
Your company name is your signboard, so it must be individual and recognisable. The process of finding the perfect company name can be a tough nut to crack: In any case, you have to make sure that the name you want for your start-up does not collide with an existing one in the same industry and at the same time meets the legal requirements of a trademark. Even a phonetic similarity to an existing name can lead to warnings.
If your start-up is based on a technical invention, patent protection could be relevant for you. You can protect your innovative products or services by applying for a trademark. Both patents and trademarks protect you from imitators. Designs or small inventions can also be protected. You can apply for trade marks, patents and designs at the German Patent and Trade Mark Office. Make sure, however, that you carry out a thorough similarity search before applying.
Step 7: The foundation procedure
Many founders fear bureaucracy – and rightly so! If you are not well informed, it is easy to lose track of everything. That’s why you should inform yourself comprehensively about the founding bureaucracy before founding your start-up. Depending on the type of business, the procedure for founding a company differs marginally. You must complete the following steps if you want to found your start-up as a corporation:
Define who will take on which tasks in the company and who will contribute how much capital.
Discuss whether and, if so, which special regulations you want to agree on contractually.
Consider whether you want to and can set up your company with a partnership agreement or the standardised model protocol.
Have a memorandum of association drawn up or fill out the standard protocol.
Arrange a notary appointment for the foundation of the start-up.
Open a business account and deposit your share capital there.
Provide the notary’s office with proof of the deposit and complete the registration with the commercial register.
If your start-up has been entered in the commercial register, the business registration is still missing.
Fill out the tax registration questionnaire for the tax office.
Register your start-up with all the necessary authorities: IHK or HWK, employers’ liability insurance association, employment agency, etc.
These points are only a simplified and abbreviated overview of the start-up process.
Step 8: Find employees
If your start-up is to grow quickly, you will need employees. To do this, you will need a company number from the employment agency. Since it can be difficult to pay employees fairly, especially in the start-up phase, you may be able to offer your employees other benefits, such as investments: Instead of paying your employees, they could receive a percentage share in the company. Once your start-up is up and running and revenues are coming in, you can still choose to pay your employees regular wages.
Alternative to founding a start-up: company succession
Many companies in Germany are currently looking for a successor. The Deutsche Unternehmerbörse (DUB), for example, offers a great overview. If you haven’t found the right business idea yet, but still want to take off at top speed, you may find your calling in business succession. As the successor to an existing company, you also have the advantage that you can save yourself the start-up process and the lengthy build-up. With the help of start-up methods, you can generate a breath of fresh air in the company you have taken over and use existing business structures at the same time!