If businesses (other than restaurants and retail stores) really had to go through the ten steps listed on BuzzFeed’s Start a Business in 10 Not So Easy Steps, few would ever get off the ground. Most businesses start under the radar without trying to follow a governmental bureaucrat’s outline of the necessary steps. Below is an abbreviated listing of the 10 Steps (which you can view in full using the link above) and the street reality as I’ve observed it over the last 40 years.
Step 1. Research and Plan Your Business The vast majority of successful companies have been launched with relatively little research, primarily using trial and error in the marketplace to prove out the entrepreneur’s business idea, product or service. Could extensive research have helped their launch? Maybe. Research can be expensive and time consuming. If your undercapitalized and proceeding on a shoe string budget, doing rather than researching can be a faster lower cost route to early positive cash flow.
Step 2. Seek Assistance Mentors and coaches can save time and money in the long run but aren’t usually cost efficient or even necessary until you’ve got a product or service with proven sales.
Step 3. Choose a Business Location The best and lowest cost initial location is the entrepreneur’s den, attic or garage. Don’t even think of moving beyond until the need to fulfill sales drags you kicking and screaming into something more formal (and more expensive).
Step 4. Acquire Funding No one but the entrepreneur or their family is going to fund a start-up before it has some track record so the key is keeping expenses almost non-existent. That means not spending a lot of money (or time) doing most of the items on BuzzFeed’s Start a Business in 10 Not So Easy Steps.
Step 5. Determine the Legal Structure of Your Business For most first time business starters, formal structure isn’t a priority until you have significant income. The default structure of Sole Proprietorship is usually just fine to start. A Corporation or LLC can be formed later. Expunge the idea of Partnership as a business structure from your mind. It carries too much risk exposure to be a viable business structure in the current business environment. Many a budding entrepreneur has formed a corporation thinking it would protect them from personal liability only to find out they were required to personally guarantee most of their early obligations anyway. If you are negligent in the production of your product or service, a corporation probably will not protect you from personal liability, especially if your business is thinly capitalized. Bottom line… prove you have a business before spending a lot of time and money on structure.
Step 6. Register Your Business Name Registering your business name is not necessary if your legal structure is a corporation or LLC and their legal name is your business name. Otherwise, it can be quickly and inexpensively done through a local publication that specializes in that function. Unless you’re worried about someone stealing your proposed business name, registering can usually be deferred until you are actively selling your product or service thus avoiding this time and expense if you never get your business off the ground.
Step 7. Get a Tax Identification Number (EIN) The only tax id you need as a sole proprietor is the Social Security number you already have. If you are operating as a corporation or LLC you will need an EIN (easily obtained for free in about 5 minutes online from the IRS) to open your bank account.
Step 8. Register for State and Local Taxes Registering for state and local taxes only becomes necessary when you have sales subject to tax or when you want to purchase items for resale.
Step 9. Obtain Business Licenses and Permits Licenses or permits only become a priority after you have a sales flow. For both Steps 8 and 9, you are not technically a business until you actually sell something. That’s why the IRS considers all of your business expenses prior to your first sale as non-tax deductible expenses. They are deemed an investment in your business-to-be or the expenses of a hobby. Without sales you are not operating a business. What makes you a business is selling goods or services with the hope or expectation of making a profit.
Step 10. Hire Employees You don’t need to worry about hiring employees until the demand for your product or service reaches the place where you cannot handle them yourself. The last thing you want to have as a start-up business is employees with all of the government regulation that brings. In your early days, you’d be better off outsourcing to already established businesses and when possible using independent contractors instead of employees. Once you have sales volume and profits and a need for direct control over the time, place and methods by which work is performed, employees become the preferred alternative.
Simply stated worrying about, incurring the expense and taking the time for most of the structure in these 10 Steps is counterproductive to starting your business. Do what you have to do to prove your concept in the marketplace. Test your market to determine if the consumer is willing to buy your product or service at a price that will give you a worthwhile profit margin. Once your sales begin and the volume appears, back into the 10 Steps with cash flow from your sales that help pay for it.
One more suggestion, as an alternative to starting your business from scratch, you can buy someone else’s already successful business where all of this structure, time and expense have already been taken care of by the seller and where the success and profit of the business are
already established. You can financially leverage the assets and the cash flow of the business to create virtually all of the financing to complete the purchase without using any cash of your own. How do I know? Over the last 30 years, I’ve trained over 300,000 people to do it. Just watch this video. http://www.youtube.com/watch
Take 6 minutes to learn how you can purchase an existing business in the field of your choice using little or none of your own cash.