Starting your own business has several components to become a business and will require money of some sort to get into a business operation. The outline below will give you the general thought process on how to start a business and how to move forward as well as the estimated requirements.
A. Formation of the business will require the following:
A business Name – unfortunately every name you want to choose for a business is not available. Once you have picked a business name you will need to search to see if the name of the business is taken. If the business name is not taken, then you will form a legal company to do business with and that company today is called a Limited Liability Corporation. Depending on what state you are providing a service or product, the business LLC will have to registered with the state which you will be providing the services and products. Different states have different tax laws and different business laws; some states are obviously better than the others. Most LLCs are either formed in Delaware or Nevada as it relates to limited liability companies. Any attorney can help you form your own business legally but will charge you a fee to incorporate your own business. This is not legal advice and any of the information provided is based on experience or information that we have obtained primarily business experience and/or lawyers that have put performed the services for us.
B. Getting Your Business Registered in That State.
Once you get your business registered in the state of your choice, you will have to file for a federal tax identification number and when you register your business, you will receive a nine digit tax ID number. Sometimes you can receive them online at other times they will mail the tax identification number to
the legal address of your business. Then once you have your business registered you will be mailed a certificate of good standing to the address you will be receiving your mail or doing business with. There is a cost associated with getting your business registered and filed in the state of your choice; the cost is usually around a minimum of $125 andcan be as high as $500 depending upon the state in which you file your LLC.
When you register and list your business as an LLC you’ll need to names to register as a complete LLC. For example, John Doe which could be you could be listed as the 99% owner and Jane Doe 1%, which is a legal example of a structure for an LLC at any time. It can be difficult and the percentage can be different and you can have additional members in your LLC, as is not limited to two but does require at least two to be a true LLC for tax reporting requirements. There are single-member LLCs but they are not typically recommended. An LLC is required to have members as well as a manager. In small business, usually the manager is the person who created the business. Once you have done all this and filed with the state you are doing business with you will now have created what is called your Articles of Organization and this will be the date you first opened and started your business. It will require an annual review to keep the business in good standing and the State will mail you a good standing certificate via snail mail. These usually range of around $125 per year if done in the proper time frame.
C. Business Operating Agreement.
After this you will need to have a business operating agreement. All LLCs are required to have an operating agreement which will be your first document on how you operate the company and treat the money as well as how you will disperse or spend the excess money. Basically these are the rules of the business to keep you out of trouble and to protect you legally on what is agreed upon by all parties that have contributed money into the LLC for either loans or investment purposes.
D. Business Plan.
This will be a written outline of the description of the business and what the business does. You will want to present in the summary what the business can achieve the look kind of products and services are available. On any business plan you need to put in bold letter legal disclaimers that will protect you on any information that you are providing stating that there are no guarantees in certain representations on the business plan as to any numbers you provide so the investor understands that he could lose 100% of his investment in the business plan that is provided. Basically you are no guarantees in any start up business.
You’ll need to provide a description of how many employees it will take to operate the business including yourself and what your specific responsibilities are as well as their responsibilities. You will also need to write out each employee’s job description and also what you would have their hourly pay be or what would be their annual salary. You must do this for each employee who works in the LLC as well as outline their job duties in order to be successful.
Part of the business plan is preparing a budget which will prepare a financial forecasts of expenses. Expenses are defined as the money you plan on spending for employees and anything related to the cost of running the business on a monthly basis and this
will also show how many employees it takes to run the business. This is typically called a pro forma and should go out a total of at least five years. You’ll decide where you’re going to pay people on a weekly basis or every two weeks or even twice a month. This will help you with cash flow as well as let you know how much money will be needed to have on a regular basis for payroll. It would be beneficial to hire a payroll service for a small business so that the business owner can spend their energy on running the actual business. The payroll service would also handle the government requirements such as Medicare, Social Security and unemployment benefits. The second part of your pro forma will be the revenue the business generates and where that revenue is generated. The combination of expenses and revenue will generate a budget to show where you need to be to breakeven so the business supports itself and ultimately earned a profit as you become successful. Starting a new business without a business plan could be a disaster.
E. Financial Resources for the Business.
In a business that is a startup business, there will have to be financial resources. Sometimes that is in the form of cash or sweat equity and really almost every new business is going to have both of those involved in the resource side of the ledger. With sweat equity you are hoping to build a business that can generate a living and future cash for your family. In startup ventures there are several opportunities for financing and a variety of places to go for loans for startups and new business opportunities. Of course none of these are guaranteed to give anyone money no matter how worthy your project is. Every deal has to stand on its own to investor and a solid resume can go a long way in this regard.
Here are some investment resource ideas:
Venture Capital. This is a group or person who invest money in the high risk and high reward opportunities. Their usual structures are that they will put up the money for ownership and usually alone with an interest rate attach the loan that is higher than a banquet typically give you and most banks will not risk capital and almost never take ownership or partial ownership of your business. This is very expensive money because of venture capitalist will take a part of your business. Although expensive it is viable companies such as Facebook and Kilmer Perkins both started with venture capitalists.
Hedge Funds. Similar to a venture capital firm hedge funds look for high growth and high returns and usually a minimum of 20% return annualized on their investment and they always had a minimal amount they will invest. The return does vary depending upon the particular hedge fund.
Bank. Of course the bank is the least expensive money tomorrow but banks typically do not want to be in lending business unless you have assets of value to cover the money your borrowing. Most banks require a personal guarantee by the individual borrowing the money which means you are putting yourself liable for the money and ultimately responsible for the repayment of the funds if things go bad. Banks loan you money when you do not need money in today’s economy they are not very flexible. Also they scrutinize your books very closely.
Family or Friends. Usually not the best place to go to borrow money for a business startup because it does not work out it can cause problems for the family if money is lost or not repaid. It can also create ill feelings with family members due to pressure. You must have legal documents so that you properly explain the risk to the family member so they fully understand they could lose every dollar invested. Any financial transaction among family or friends to have a lawyer involved so that everybody understands all the risk and all the reward.
Investment Firms and Institutional Investors. These companies will go out and raise money for your project or business but they will charge you a fee for this and that he may be in the form of equity and possibly cash. Standard banking rates from these companies, called investment bankers, are between three and 10% of the money raised. All this of course is fully disclosed to all parties and are no guarantees that they will be successful in raising your money. In some cases they will charge you upfront fees just to shop your deal with no guarantees of success. Your best opportunity with them is to negotiate a success fee as opposed to an upfront fee.
Government Programs. In some cases a small business can qualify for a government program such as an SBA loan or even a grant. These programs are available for anybody and they have specific opportunities for minority owned enterprises. The amount of ownership by the minority can vary but typically they must be the principal owner of the new small business.
F. Insurance and Taxes.
Insurance and taxes are part of any business and will have to be dealt with if you have just one employee or 100 employees. Most states if not all require that you file Workman’s Compensation forms if you have employees. Most payroll companies can buy you on those state requirements as well as a local account if that is how you go. It may be best to consult with a certified public accountants when you’re first setting up your business and then use a bookkeeper as you move on. One other thing to consider, depending upon the type of business you are in, is to see if there are any special insurance or bonding requirements for your state. Also remember if you’re a certain size health insurance for your employees is a requirement.
G. Different Types of Businesses.
For the person who is motivated and wants to start a small business that would give them a return very quickly here are a few businesses that typically fit that criteria.
A landscaping business can operate in many areas and has some flexibility as people need a lawn mowed, trees cut down, yard cleaned, and flower beds maintained.
A pool cleaning business is also multifaceted. Of course there is the typical route where you would clean pools but also there is equipment maintenance, pumps and such, where you can add on and make extra cash.
There are many kinds of food service businesses if you have a feel for the culinary arts. There are stand-alone businesses, mobile food carts, and even wholesale operations where you could make a good living.
Starting a leather making business works very well if you have that kind of dexterity and making products using leather and selling them on the Internet or even at flea markets is not a bad way to make a living.
Many people do very well with a Craft Business. You’ll need to have an eye for good art and color skills as well as like to work with your hands.
Selling online. You can make money selling online on eBay, as a drop shipper, or even offering your own products on Amazon and other sites such as that. The computer skills needed are now minimal compared to the way they were back in the day.
Translation Business. Teaching people to speak a foreign language such as English to Spanish people were Spanish to people who have English as their first language is very popular in today’s market. That opens the door for many people to get jobs where bilingual is important.
Of course there are other businesses such as home cleaning businesses, pet care businesses, pet sitting, a courier service and even food delivery. In fact the list of new businesses that a person could start that are small and need little capital is almost endless.
So setting up a brand-new business small, large, medium, in any kind of vertical, is going to require that you be flexible as well as very specific in your details. Of course you’ll need money as well as be willing to work hard but America was built on small business. Remember, the business of America is business.