Starting Your Dream Business Is Easier Than You Think — Here's How
One of the great pleasures of owning my own business and working for myself is that I get to talk to a lot of aspiring entrepreneurs.
They want to be entrepreneurs, but they aren't quite there yet. They read all the business articles online, they constantly make plans, they aspire to own their business and maybe one day they will get there. (See also: 10 Home-Based Side Business Ideas)
I've heard Mark Cuban, and others, call them "wantrepreneurs" on Shark Tank because they are perpetually in the pre-business phase. Having ideas is great, but executing them is what separates true entrepreneurs and wantrepreneurs.
Unfortunately, so many of them never start a business because they put up barriers in their own mind. One of those barriers is that they think "starting a business" is an arduous task that will take them months and months, if not years, of planning and preparation.
In reality, the paperwork of starting a business is almost trivial compared to everything else you'll need to do to start and run a business. But before you embark on filing anything, make one sale.
Make One Sale
Before you go down the route of "starting" a side business, make a sale. Just one.
If you wanted to start a snow shoveling service, would you start by incorporating your business, getting insurance, paying for advertising, or opening a bank account?
No, that's crazy. You would find a shovel and go door to door looking for people to pay you to shovel their driveway.
That's what you should be doing with whatever business you're considering. Make one sale. You will learn a tremendous amount about your market by selling your product or service to one person. After you make one sale, sell it to a second.
After you've made the first dozen sales, you'll know whether you have a business on your hands, a nice hobby, or a dream that can't be realized. It's valuable to do this before you waste time and money doing the paperwork of forming a business. (See also: Awesome Money-Making Hobbies)
Also, it's important to actually sell a product or service, not ask people if they would buy it. Most people are polite and tell you they would buy. But few people are so polite that they'd actually pay you for something they don't want.
Once you've made enough sales to be sure this is a business, it's time to make it legitimate.
So you've made some sales and you're ready to make it official. You need to do some paperwork. (See also: 250+ Tips for Small Business Owners)
The first step is to research the licensing and bonding requirements of your state. Some businesses need a license to operate. If you're starting a blog, you don't need to get a license or a bond to operate. If you're starting a tattoo parlor in Maryland, you need a Tattoo License before you can do business. Check your state's laws for what you'll need as it's different for each state.
Insurance and Bonds
The next step is to research your insurance needs. A surety bond covers guarantee of service but liability insurance protects you from accidents, lawsuits, and other business disasters. Some businesses need a surety bond, nearly all businesses should have liability insurance. If you intend to hire employees, workers comp insurance may also be necessary, as it protects your business from any medical or legal expenses associated with accidents on the job.
LLC, EIN, and a Checking Account
If you're starting a simple business that has no licensing, bonding, or major insurance requirements, the rest is easy. It's a three step process:
- Incorporate as a Limited Liability Company (LLC)
- Obtain an Employer Identification Number (EIN)
- Open a Business Checking Account
Do you need to incorporate?
It depends. Incorporating is a must if there are any potential liabilities associated with your business because it shields you from your business, if set up properly. You are often not required to incorporate and can operate as a sole proprietor. As is the case with any type of legal advice, check with a professional and with the requirements of your state.
Incorporate as an LLC
Incorporating is often a straightforward process, but it depends on your state because the complexity varies. In Maryland, it's a one-page form (Articles of Organization) with a handful of fields.
One minor bit of advice, in the area where you write in the "purpose" of the company, use this: "To engage in any lawful activity for which a limited liability company may be organized."
Some states leave this Purpose field blank, some states automatically fill it out with a similar phrase (California automatically fills it out with "The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the California Revised Uniform Limited Liability Company Act." Don't get caught up in writing something descriptive here, it'll only slow you down.
The cost associated with incorporating will include the one-time filing fee. In some cases, it may also include annual fees too. In Maryland, every business has to file a personal property tax return that has a minimum $300 tax. (See also: Is Starting a Small Business for the Tax Deductions Worth It?)
Obtain an EIN
An EIN is like a Social Security Number for your business — you can get one for free by applying with the IRS.
Once you get an EIN, use this instead of your Social Security Number on all forms for your business. Congratulations! You've graduated from sole proprietorship to an LLC.
Open a Business Checking Account
Once you have the incorporation confirmation letter (original with stamps) and your EIN, go to your favorite bank and open a business checking account. Look for one with low minimums and no fees. Most banks make their money off business accounts with merchant processing and other add-ons, so the base checking product shouldn't cost you anything. (See also: Best Credit Cards for Small Businesses)
Use this checking account as the center of your business banking world. Any revenue you receive should go into this account. Any bills you pay should come out of this account.
Now Go Back to Selling
Once you do those three steps, you're officially a business. Don't forget to file the necessary tax forms and get back to the important part of business, getting more of it.
Jim shares insights and lessons learned with new bloggers at Microblogger.com. Be sure to sign up for his free (and very in-depth) Create a Lifetime Income Blog course to learn from his experiences.