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Hey everyone! I hope we are all hanging in there and making the best of things! I’ve had a few friends lose their jobs, and of course their minds turn to starting their own business. Today, I thought I’d focus some time on how to start a business, from the formal/legal perspective. With jobs out there on the decline, folks are taking this time to reflect and wonder if starting a new business is for them. Maybe they want to start a business in response to the life-changing aftermath of COVID-19? Either way, times of trouble can often lead to great successes down the road!
Let’s assume you’ve found your “niche” or you’re pulling up the college business plan you’ve always kept in the bottom drawer in your desk! The plan is complete. Time is now. Something I hear over and over in business leadership podcasts, etc. is that there is never a perfect time to start your own business. If you’re looking for some encouragement, I must say, the satisfaction derived from owning your own business far outweighs the hassles! I waited for years to make the plunge for any number of reasons that I had created in my mind, but were far from real. However, also be ready to lose it all!
Either way, my blog today will focus on how you take that well-developed (or even barely developed!) business plan/product and get the ball rolling on formalizing your business entity and concept.
Register That Business!
The first step to formalize your business is to file paperwork with your Secretary of State. If you’ve decided you want to start an online business, don’t miss my other blog on the topic. I will explore some key steps that any business (home-based/online/brick and mortar) must complete prior to a successful and legal opening.
Each State is Different
Every state will have their own secretary of state page. You can find your respective state on this helpful website from The Balance. Each page is different in layout, but the general process is the same. You will be required to pay an initial filing fee. Moving forward, you will have to renew your license each year; typically prior to tax time. My fee for North Carolina was $197. The process for me took around two weeks to complete. You’ll typically receive an online notification first, and then be mailed the official documents via snail mail.
Once you’ve reached this page you have a number of decisions to make. First, and very importantly. What type of business do I intend to start. This can be determined by several factors. A couple of the options are pictured below:
As we’re focused on a business venture, we would most likely choose the top left option, “Business Corporations”. The main types here are: (definitions taken from here)
- Limited Liability Corporations (LLC)- A limited liability company (LLC) is a corporate structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. Limited liability companies are essentially hybrid entities that combine the characteristics of a corporation and a partnership or sole proprietorship.
- S Corp-An S corporation, for United States federal income tax purposes, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any federal income taxes. Instead, the corporation’s income or losses are divided among and passed through to its shareholders.
- C Corp-A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. federal income tax purposes.
It will make sense to now consider whether or not you’re starting this business yourself, or with a partner(s). You will also need to decide whether or not you will be taking on investment monies, or if you will be taking a loan. How you fund the business has tax implications down the road, so be careful to document. You will also want to consider personal and financial goals for the business. I would also recommend speaking to a local CPA, or someone you trust with business law. Bounce your ideas off of them. Even better, if you know someone who has small business experience, or even is just a seasoned entrepreneur, it’s likely you could learn a lot from a short conversation with them. Hey, it never hurts to reconnect either, right?
You will need to choose an official name for your company at this point. You can always adjust your DBA (doing business name) down the road.
Once you have registered your business with the Secretary of State, you will be able to move forward with the next steps in starting a business. Now the real fun begins! Money!
Before you can get to the critical step of hearing that “cha-ching” on the register, you must make you’re setup to pay Uncle Sam! Don’t forget who runs the show! You will want to register for an EIN number, otherwise known as a tax identification number. There are several ways you can accomplish this now! Waaay easier than it used to be : )
You can start at a website such as this. You will need the information that we obtained in step 1 to proceed here. The IRS will confirm that you have indeed registered your business in your home state. Once confirmed, they’ll proceed to email you a brand new EIN number!
Once you’ve obtained your EIN number, you’ll want to use it to open a business account. Something to consider when opening your business checking account is the number of transactions you expect per month. If you’re pushing thousands of transactions each month, chances are, you’ll need a premium account. Those types of accounts usually come with some perks, so don’t be afraid to ask! I recently just signed up for a Business 200 account with BB&T. It allows for up to 200 transactions per month (great for me, as I’m not selling anything online!) It also only required a $1500 monthly balance to avoid any additional fees.
Another key decision that will need to be made at this stage regards the capital infusion necessary to get the business rolling. Typically the funding component is something that any savvy business person will give much consideration to during the business planning phase. Does your business require a building? Do you require insurance? What will your inventory cost? There are dozens of guiding questions that will inevitably answer these questions and determine whether the funding is present for a successful business. The most textbook reason for a new business failing is under capitalization.
The Small Business Administration has a great website full of useful information on funding a small business. I highly recommend checking it out, if you haven’t already.
Whether or not you decide to start an online business, every successful business in 2020 has a website. There are dozens of places to start when looking for your website. My first recommendation for a robust, all-purpose website is to WordPress. I’ve seen estimates floating around that WP is used by over 75 million websites and is the # 1 Content Management System in the world. It is very simple to use, but can also have a large learning curve. It allows you the tools you need to make your website SEO friendly, which is a big deal!
However, if you’re only focusing on running an e-commerce website, then a website like Shopify or BigCommerce could be easier and more appropriate for your needs.
Something to consider at this juncture, is what you’d want your web domain to be named. It certainly makes sense to make the name in-line with the actual companies name. As someone who works with SEO often, I always suggest taking into account commonly searched words (if you’re not dead set on a name already!). You can certainly build a brand with ANY name, so don’t extinguish your burning passion to call your business “Your Name + Whatever you’re selling” : )
Check out on my client’s backend dashboards below. You’ll notice a “Pages” tab on the left-hand side. This is the jump-off point for adding pages to your new WordPress website.
There is also a difference worth nothing between wordpress.com and wordpress.org. WordPress.org is generally geared towards bloggers and more static websites. If you intend to grow your website and/or run an e-commerce platform, you want to confirm you’re signing up for wordpress.com.
Pitching your Business
So you’ve done the boring stuff! You’ve legally formed an entity, you’re legally taking credit cards and cash (no, Super Bowl squares isn’t legal!). Now, you’re asking yourself, “How in the heck do I get the good word out about my new endeavor?” Welllll, the answer is simple. Get people talking. There are fortunately dozens (which honestly may make it more difficult) of ways to spread your brand. Social media, Google, local media (print/video), etc.
Another way to think about how you pitch your business is to think about it in a Problem/Solution format. By approaching people with a common problem, you’re likely to quickly gain traction and show value. A client and I worked hard on this with TrusEase and their trust administration software. How can we frame our software as a problem solver versus just another subscription. The presentation (as any foodie will attest) always matters!
I asked a colleague of mine over at Green lane Communication, Michael Mejer, what he thought were some of the key things to consider when starting to formulate a pitch to a media member. First he says, “Aside from keeping your pitch relevant, keeping it short, sweet, and to-the-point is a must. Put yourself in the shoes of editors, reporters, and journalists. Their inboxes are overloaded from the moment they wake up, to the moment they fall asleep.” I think this point is important to remember. What makes your brand different? What story are you trying to tell beyond just sales?
Michael goes on to say, “This means you’re fighting for their attention, followed by their time. Write subject lines that are concise, attention grabbing, and communicate what the secret sauce is that’s inside your email. The difference between a bad subject line and a good subject could mean the difference between your email going in the trash and you ending up on the front cover of a magazine.” I think this is extremely important to remember when crafting email pitches. Personalize each email, or your chance of replies goes way down. You may save time on the front-end, but you’re likely to reduce your overall ROI on time invested (which is clearly the most valuable of all assets).
I think that is important to remember when you’re considering how you would approach someone in the media differently than a banker. How you convey the value and the importance will be much different. These are all very critical items to mull over prior to taking your concept to the media market.
I think another thing I learned quickly in my time as a business owner, was that very little in media was “organic” anymore. If you wanted to blast Facebook with your message, then you better pony up! Verrry rarely does a single post go viral the way it used to.
Want to garner 100,000 impressions using Google Search Network? Bust out that credit card good sir! Unless you have Kanye West sharing your business page on his Instagram channel, most likely you’re going to have to build it the old fashioned way! Paying for ads is a great way to get a boast in the arm, but remember the moment you turn off the credit card, these leads dry up. I always suggest focusing on a great content strategy to win the long game with customer acquisition over any PPC advertising.
Keeping your Business Legit!
One of the easiest ways to get into trouble in business is by not keeping accurate books. Thankfully, this whole process of been made lightyears easier by companies such as QuickBooks. They offer fantastic software for small business and employed individuals. I highly recommend starting Day 1 using their product to avoid any clerical issues when you start your business. Obviously, starting your own business opens a wide-range of potential tax benefits. Shopkeep wrote a solid blog on the topic, I think it’s a good starting point. Regardless of what you do, I suggest at least speaking to a CPA about your situation to confirm that you’re playing by the rules!
In the end, only you can determine whether starting a business is a reasonable idea for you and your family. Remember, a business is just like a stock on the market. You could wind up losing everything, breaking even, become wealthy or anything in between. Mentally prepare yourself for each scenario. Understand the risks and worst-case situations. If you can stomach all of them, and they don’t put your financial future in peril, then I say go for it! If you need any more advice, drop me a line below.
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