I know I said that there are already a million other articles just like this one out there...but I feel that I have a thing or two to say about the business world too. The gist of it? Starting a business consists of a bunch of paperwork, technical rules to heed, seemingly pointless advertising, and a lot of hard work. Through my experience getting my business's act together, I've already collected a load of tips and head-knowledge that I feel are very important to keep in mind when joining the world of entrepreneurs, and--to be honest--I'm just dying to share them with anybody who could benefit from them. I hope you'll give me a listen!
The Business Plan Tree
First word of advice--before you do anything else, sit down for a good half-hour with a blank piece of paper and some pens. Make a "Business Plan Tree", where you start with the first thing you can do for your business, and then below that, write down the second thing you can do because you did the first thing. After doing this myself, I had written down about 30 boxes of things I had to do to get my business off the ground after only 15 minutes. This became my to-do list, but the cool thing about it was I knew which things had to happen before other things could. For instance, you can't make business cards without choosing your business name first. Nor can you advertise, nor get your website up and running...or anything else, really. In fact, the first thing on my list was choosing my business name. As I accomplished different things on my Business Plan Tree, I outlined the boxes with a different color pen, so I could see what I'd accomplished and still read the text.
The next thing you have to do is make a bunch of decisions.
Sole Proprietorship, LLC, or Inc?
Never really cared about these terms before? You do now, because they all mean different things and they could all apply to you. I currently have sole proprietorship over my company, which means I am the one calling all the shots, making 100% of the profits, but I am also the one responsible for anything should it go wrong, which is where sole proprietorship is more risky. Good for starting out, but as your business grows, you increase the odds of being sued. This is why I suggest getting Business Insurance.
LLC stands for Limited-Liability Company, which is a business structure where multiple people are involved as "business members", and which enjoys tax-breaks and gives less responsibility to each member should the company be sued. The downside is that forming an LLC is more expensive, which is why it tends to be a business status companies upgrade to as their business grows.
Getting your business Incorporated makes your business a legal entity that has a lot more power in the business world and is less liable from company debts and obligations. It has a much heavier tax burden, however, and is generally a step taken by businesses that have been around the block.
Services or Products? (The Bit About Sales Tax)
Now that you've got that figured out, you need to make a decision on whether your business specializes in services or products. Chances are, you already know this one, but it's important that you get it set in stone because you'll need to determine whether it requires a sales tax number or not. All tangible items sold in the US require that you register for a sales tax number, whereas some services can go legally un-taxed. To determine where your service fits in, find out what your state laws are for business services; and if you do need a tax number, simply apply for one--you're an adult, so you are responsible to do this yourself. If you're in California like me, you can see if your service is exempt from sales tax here.
When starting your business, you have to come up with a strategy of how you're going to make a profit. This is part of what you'd be writing in a Business Plan, should you choose to make one. Because I wasn't pitching my idea to any banks asking for business loans, I didn't make an official Business Plan--my Business Plan Tree was basically as official as that got. Either way you go, you still need to decide on how you're going to sell yourself. My dad always told me to "Find a need and fill it," which is genius, really, because sometimes people don't know what they need until you provide the solution to an issue they have. What people don't need, however, is a slightly different version of something dozens of other companies already sell. Statistics say you have about 5 seconds to sell yourself to someone with an ad, so get to the point with whatever your slogan, your headline, and your business name is. Don't let yourself fall in love with long statements that wax old and flowery like Charles Dickens--nobody has time to read a paragraph just to figure out what your punchline is. Do your customers a favor by being clear and frank.
If you're starting a business that you can't run yourself, you're going to have to think about hiring employees. To do this, you'll need to do some initial research, but you're going to need to download some financing software to keep track of your employees' hours, overtime, and payment schedule, as well as get familiar with how to fill out tax-forms and employment paperwork for your employees, and how to issue paychecks (professionally), along with end-of-the-year income reports that enable your employees to do their taxes accurately. Any employees you hire full-time should legally be provided health insurance by your company, but part-time employees don't. If you're just starting out, you can save money with employees if you hire more part-time instead of full-time workers so that you don't have to provide insurance.
Fictitious Business Name
If your business is called anything other than your legal name, you need to file a fictitious business name report at your county office, which in the state of California costs $40 and is valid for 5 years. This is important because they'll give you paperwork that enables you to publish your business in your local newspaper as well as get a business bank account. If you go to here you can learn more about where you can locally go to get this done. Changing your business name is a really big deal, and it costs a small fee, so my best advice to you is to avoid such a hassle by thinking long and hard before committing to a name in the first place.
Once you file your fictitious business name, within 30 days, you are required to publish a statement in a local newspaper once a week for 4 weeks that says you've started your own business. This costs between $40-50 and is fairly simple. All you need to do is go to a local newspaper office, hand them the paperwork you got at your county office for your fictitious business name, give them your information and a payment method, and they will notify you in the mail that the statement has been published. It's a very standard practice, and the newspaper will know just what to do.
Business Bank Account
Once you do all this, you'll probably want to get a business bank account, which is also pretty simple. There are basic accounts for start-up businesses at most banks--especially the larger ones--with very reasonable rates (if not free) that enable you to deposit income, write checks, and manage expenses. They will also require certain paperwork that your county office will give you.
Once you've got that settled--and you'll want to at least get the business name settled first--you'll need your business license, which can be attained at your local city office. They will probably ask that you fill out certain paperwork first, so it's worthwhile to visit their site and print out and sign the required documents beforehand. A business license is valid for one year, but no matter when you register for it, it expires December 31st of that same year and must be registered for again by January 1st. Because I got my license in June, I paid for a full-year for it only to last half a year. It might be different in other states, but look into it, and consider starting your business in January to save some money. A business license costs around $70.
Business Home Occupation Paperwork
Along with your business license you may need to sign some home occupation paperwork. If you work from home like me, you'll need to fill out an additional form with your home address and your signature promising that you aren't doing so much business out of your house that it's disrupting your neighborhood. I was terribly annoyed to find that in addition to a $63 home occupation permit, I had to pay my city $40 for someone to drive down my street to ensure that I didn't have a line out my door due to business. As far as I've looked into, there aren't any fees for commercial business locations other than rent fees.
This covers the most legal aspects of a business startup, but it's far from everything there is to know. I am going to continue this two-part series next week where I'll be discussing details suck as business cards, websites, self-advertising, and more goodies!
Questions? I'd love to hear from you in the comments!