One day I got an email inviting me to join a team of three that were founding a healthcare startup. However, the closer I got to the opportunity, the more nervous I got about leaving my great six-figure job and putting a strain on both my finances and my ability to maintain some sort of work-life balance. Leaving to join the startup meant taking a 50% pay cut. Weeks of hand-wringing ensued and I decided if there was a time in my life to jump in the deep end of the pool, it was now.
Good investors know that not all their investments are going to work out. Experienced investors have seen it all before, so hopefully you won’t be dealing with a lot of blowback. It will probably be much less than you are expecting. However all investors, whether experienced or not, hate being surprised. So keep lines of communication open with them during both the life and death of your business. This is why you should always send short monthly updates after any investor joins up. That way they can see the trajectory of the business (good or bad), and they will not be surprised by sudden news that the business is closing. If the shutdown is well managed and clearly communicated, you might even be able to raise money from them again.
To start with take a big, deep breath. Everything is going to be fine and you’ll live to ride the startup roller coaster once again. Everyone gets a second chance, especially in startupland. Some people get many chances. It may not feel like it today – it may feel instead like you had your one shot and blew it – but that’s just not the case. Success is the ultimate redemption and if you continue to work hard you’ll have your chance again.
Internal Revenue Code Section 162 allows current deductions for “ordinary and necessary” business expenses. Section 162 expenses are basically routine expenses incurred in operating an up-and-running business. Examples include employee wages, rent, utilities and advertising. Section 162 expenses can generally be deducted in the year when they’re paid or incurred.
Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2017. If more than one person is covered, figure separately the amount to enter for each person. Then enter the total of those amounts 2.
If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that isn’t subject to the 2% limitation.
I raised too much money, too early for Standout Jobs (~$1.8M). We didn’t have the validation needed to justify raising the money we did. Part of the reason for this is that the founding team couldn’t build an MVP on its own. That was a mistake. If the founding team can’t put out product on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup. We could have brought on additional co-founders, who would have been compensated primarily with equity versus cash, but we didn’t.
If you do not expect to make a profit in the first year you are in business, you should consider amortizing the full amount of start-up and organizational costs over 15 years. This will allow you to minimize taxes in years where you make more money. For example, if your start-up costs are $30,000, you could deduct $2,000 per year for 15 years instead of taking the $5,000 deduction in year one.
Fab is both a success story and cautionary tale to entrepreneurs about the risks of pivoting. A pivot generally means that a business is looking to find a fresh perspective and vision to prevent themselves from growing stagnant. Hypothetically a startup should constantly be evaluating data: measuring the market, contemplating new strategies, testing new products. A pivot allows a business to forge ahead in a new direction when either the opportunity is clear, or the current strategy is failing.
The experience shattered my persona as a smart, successful entrepreneur and exposed me as a failure. Like a traditional Near Death Experience (NDE), this journey reordered my priorities and changed me as a person. Without it, I wouldn't have quit drinking and taken up authenticity as my guiding star. Learning how to be me without armor and jazz hands has been a challenge but ultimately worth it - allowing me to be more successful in business and life.
The way out: Minshew decided on a do-over, watching PYP's rebranding from the sidelines. In September 2011 she launched The Daily Muse (now called The Muse), and PYP's entire staff, plus another co-founder, joined her. The Huffington Post and TechCrunch covered the launch; the site drew more visitors in its first month than PYP had in its best. "The community knew what happened and stood behind us with tweets and shares," Minshew says. "It was painful, but being forced to start over was a unique sort of gift, because having been through a lot together, the team comes out of it with the confidence that nothing is going to stop us."
A "reimbursement or allowance arrangement" provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. If the expenses are substantiated, you can deduct the allowable amount on your tax return. Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. For example, you can deduct 100% of the cost of meals on your business books and records. However, only 50% of these costs are allowed by law as a tax deduction.
If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. However, you can instead choose to take a tax credit for the year of repayment if you included the income under a "claim of right." This means that at the time you included the income, it appeared that you had an unrestricted right to it. If you qualify for this choice, figure your tax under both methods and use the method that results in less tax.
File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return. If you have received a notice, make sure to send your past due return to the location indicated on the notice you received. If you have a past due return, filing your past due return now can help you do the following.
Of course things are very different here in Norway. Capital doesn’t yet flow as effectively into startups and there’s more social pressure to avoid failure here. Thanks to Janteloven, there’s a lot of pressure on those bold enough to strike out from the pack and create a company. Failure gives Norwegian society an easy opportunity to push you back down to their level, creating a weight that no doubt hangs heavy on the Norwegian founder of today. These founders make up the first generation since the oil boom and before that the early 1900s to think in a truly entrepreneurial way. They take more risks than their parents did. In this unique cultural situation of Norway, admitting your idea has failed can be significantly tougher than elsewhere. You especially don’t want to admit failure to friends and family who have supported you.
According to the recent Startup Genome Report, an estimated 90% of those startups that fail do so primarily due to self-destruction. It was their founders’ own bad choices or lack of preparedness rather than so-called “bad luck” or market conditions that were out of their control. Understanding your position in the business lifecycle just might help you stay a bit ahead of the game here and defy the odds, as you anticipate the potential challenges and obstacles that are upon you or are on the way depending on what phase you are in or about to transition to.