I dream of owning my own business and ditching my boss and having enough money to be comfortable. I want to start a business now. What do I do?
Starting a business, according to the Small Business Administration, involves planning, making key financial decisions and completing a series of legal activities. Therefore they recommend the following ten steps to help you plan, prepare, start, and manage your business (from their website sba.gov):
Step 1: Write a Business Plan. This written guide will help you map out how you will start and run your business successfully. (If you’ve never written one before, this can be daunting, especially when it comes to financial projections.)
Step 2: Get Business Assistance and Training so you can prepare a business plan and secure financing, expand or relocate a business. (Those each sound like some pretty big hurdles to DO.)
Step 3: Choose a Business Location. Get advice on how to select a customer-friendly location and comply with zoning laws. (How much do you trust the advice? What happens if you get locked into the wrong location?)
Step 4: Finance Your Business. Find government-backed loans, venture capital and research grants to help you get started. (How solid is your credit and do you have collateral for a loan? Do you have intellectual property in place and significant revenue coming in already? If not, then venture capital isn’t interested in you. Have you written research grants before, are you prepared to hire the team to write the grant and do the research, and can you fund yourself without it? Success rates for grant funding typically are less than 15%. Can you afford to wait 6-12 months to find out if you received the grant or be in the 85% that doesn’t receive funding? )
Step 5: Determine the Legal Structure of Your Business. Decide which form of ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit or cooperative. (Don’t forget to set aside fees to pay an attorney.)
Step 6: Register a Business Name (“Doing Business As”). Register your business name with your state government. (Be certain to have researched the name so you don’t end up receiving a “cease and desist” letter!)
Step 7: Get a Tax Identification Number. Learn which tax identification number you’ll need to obtain from the IRS and your state revenue agency. (Yet another learning curve.)
Step 8: Register for State and Local Taxes. Register with your state to obtain a tax identification number, workers’ compensation, unemployment and disability insurance. (Yikes!)
Step 9: Obtain Business Licenses and Permits. Get a list of federal, state and local licenses and permits required for your business. (What if you miss something? How much have you set aside to pay for all these licenses and permits?)
Step 10: Understand Employer Responsibilities. Learn the legal steps you need to take to hire employees. (And be prepared for headaches and potential lawsuits.)
I don’t know about you but those ten steps sound pretty daunting, sound like they could take months if not years to complete, sound like they’ll cost a lot, and that’s just to get started! That doesn’t even take you through the first 1-5 years of running the business until you break even, hit profitability, and survive.
What do you need to do to launch a high-tech, scalable start-up that has intellectual property and requires investments from angel investors or venture capital funds? That’s a pretty different ballgame from a small business funded by bank loans. You still need to write a business plan. You need to hire and put together a top-notch management team that has a track record of successful ventures – and hope you trust them and stay friends with them. You need to attract a stellar Board of Directors or Advisors and typically they will want to get paid. You will need to have “skin in the game” and work for “sweat equity” – translated, that means you will fund a LOT out of your own pocket and forego a paycheck for a very long time. You will probably work 20-hour days and work 7 days a week and not take a vacation for a few years and become a road warrior who rarely sees friends or family. You will need to have intellectual property, which means you have a lawyer and you’ve paid to file one or more patents. You need to have created something that has a very big market, you need to understand your competition, you need to be conservative with your valuation, and you need to settle on your term sheet… in other words, you will own less than you want of your company in order to get the money you need from your investors. And you will have to continue to dilute your ownership, which means losing control of your company, every time you go back for another round of funding. Oh, and you need to continually look for funding while you are building a company and finding customers to produce the revenue to prove to potential investors that your idea is viable. And finally? You need to sell your company – your baby, your idea – so that your investors make lots of money! Having been there and done that, this is not a route for the faint of heart and it is TOUGH on friendships, bank accounts, dreams, and families. Does it offer the potential for huge reward? Sure. But so does becoming a box office hit or a pro athlete. It is the exception rather than the rule and many more don’t make it than make it.
Do I suggest you keep your job and live just for weekends? Absolutely not! I suggest you choose to own your own business. But be selective in the business model you choose to get started with. There is one method of doing business that minimizes risk and maximizes return while streamlining the time table for your ROI (Return on Investment) and that model is easy to start and sustain.
You don’t need to put your house up as collateral, you don’t need to write a grant, and you’ll never need venture capital. You don’t need a lawyer or an accountant to get started and you will never have to hire – or fire – an employee. You will be able to write-off your initial business expenses on your taxes and your monthly overhead will merely be a reallocation of money you’ve already been spending.
You don’t have to choose a location because you’ll work from the comfort of your home. If you move, your business always goes with you because it’s completely virtual. You never have to purchase or store inventory and you don’t even have to do market research. It’s all been done for you. When you are making lots of money you may choose to hire an assistant but that will probably be after you hire your massage therapist and personal trainer!