An Evolved Economy Business Is Simple to Start

I dream of owning my own business and ditching my boss and having enough money to be comfortable. I want to start a business now. What do I do?

Starting a business, according to the Small Business Administration, involves planning, making key financial decisions and completing a series of legal activities. Therefore they recommend the following ten steps to help you plan, prepare, start, and manage your business (from their website sba.gov):

Step 1: Write a Business Plan. This written guide will help you map out how you will start and run your business successfully. (If you’ve never written one before, this can be daunting, especially when it comes to financial projections.)

Step 2: Get Business Assistance and Training so you can prepare a business plan and secure financing, expand or relocate a business. (Those each sound like some pretty big hurdles to DO.)

Step 3: Choose a Business Location. Get advice on how to select a customer-friendly location and comply with zoning laws. (How much do you trust the advice? What happens if you get locked into the wrong location?)

Step 4: Finance Your Business. Find government-backed loans, venture capital and research grants to help you get started. (How solid is your credit and do you have collateral for a loan? Do you have intellectual property in place and significant revenue coming in already? If not, then venture capital isn’t interested in you. Have you written research grants before, are you prepared to hire the team to write the grant and do the research, and can you fund yourself without it? Success rates for grant funding typically are less than 15%. Can you afford to wait 6-12 months to find out if you received the grant or be in the 85% that doesn’t receive funding? )

Step 5: Determine the Legal Structure of Your Business. Decide which form of ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit or cooperative. (Don’t forget to set aside fees to pay an attorney.)

Step 6: Register a Business Name (“Doing Business As”). Register your business name with your state government. (Be certain to have researched the name so you don’t end up receiving a “cease and desist” letter!)

Step 7: Get a Tax Identification Number. Learn which tax identification number you’ll need to obtain from the IRS and your state revenue agency. (Yet another learning curve.)

Step 8: Register for State and Local Taxes. Register with your state to obtain a tax identification number, workers’ compensation, unemployment and disability insurance. (Yikes!)

Step 9: Obtain Business Licenses and Permits. Get a list of federal, state and local licenses and permits required for your business. (What if you miss something? How much have you set aside to pay for all these licenses and permits?)

Step 10: Understand Employer Responsibilities. Learn the legal steps you need to take to hire employees. (And be prepared for headaches and potential lawsuits.)

I don’t know about you but those ten steps sound pretty daunting, sound like they could take months if not years to complete, sound like they’ll cost a lot, and that’s just to get started! That doesn’t even take you through the first 1-5 years of running the business until you break even, hit profitability, and survive.

What do you need to do to launch a high-tech, scalable start-up that has intellectual property and requires investments from angel investors or venture capital funds? That’s a pretty different ballgame from a small business funded by bank loans. You still need to write a business plan. You need to hire and put together a top-notch management team that has a track record of successful ventures – and hope you trust them and stay friends with them. You need to attract a stellar Board of Directors or Advisors and typically they will want to get paid. You will need to have “skin in the game” and work for “sweat equity” – translated, that means you will fund a LOT out of your own pocket and forego a paycheck for a very long time. You will probably work 20-hour days and work 7 days a week and not take a vacation for a few years and become a road warrior who rarely sees friends or family. You will need to have intellectual property, which means you have a lawyer and you’ve paid to file one or more patents. You need to have created something that has a very big market, you need to understand your competition, you need to be conservative with your valuation, and you need to settle on your term sheet… in other words, you will own less than you want of your company in order to get the money you need from your investors. And you will have to continue to dilute your ownership, which means losing control of your company, every time you go back for another round of funding. Oh, and you need to continually look for funding while you are building a company and finding customers to produce the revenue to prove to potential investors that your idea is viable. And finally? You need to sell your company – your baby, your idea – so that your investors make lots of money! Having been there and done that, this is not a route for the faint of heart and it is TOUGH on friendships, bank accounts, dreams, and families. Does it offer the potential for huge reward? Sure. But so does becoming a box office hit or a pro athlete. It is the exception rather than the rule and many more don’t make it than make it.

An Evolved Economy Business Is Simple to Fund

The number one biggest barrier to starting a business that most people cite is access to funding. There are only so many ways to come up with funds; either you have the cash, you borrow the cash, or you get cash you aren’t required to pay back in the form of a grant or an investment.

You often hear of people maxing out their credit cards, turning to friends and family, or you watch Shark Tank and enjoy the discomfort of people pitching to investors. There are lots of books about “bootstrapping” which just means paying as you go and keeping expenses as minimal as possible. You can borrow money in the form of a commercial loan through the SBA but you’ll need to fill out lots of forms, have excellent personal credit, and you’ll need to provide collateral. You can apply for a grant but you have to know how to write a grant, have the time to wait to see if your request is denied or approved, and often the amounts you receive are quite small. If you go for larger government funded grants like an SBIR or STTR grant and you receive it, be prepared to document how you spend every dime – and in some cases you will have to spend the money first and then request to be reimbursed. If investment money is what you are after just know that you have to give up a percent of ownership to get the money and now you set an expectation that you will sell your company completely at some point in the future in order for the investors to receive 7-10 times more than they invested in you.

No wonder funding is seen as a huge barrier. What if there is a better way to start your own business that doesn’t cost so much? What if you can start a second business easily and use that to provide a cashflow cushion to your primary business, the one you trained for or have sunk so much into already you don’t want to walk away? Then you’d be economically ambidextrous! If that exists, don’t you want to know how to get started right away? It does exist!

There IS a better way! There is a capital creating model of business that is inexpensive to start, inexpensive to maintain, and you can use the cash from it to support your traditional business, your children’s college fund, your house fund, your vacation fund, contributions to charity – whatever you choose.

But what kind of numbers are we talking about? If funding is a barrier for most people who want to start businesses, why? How much does it all cost?

For those of you with small to medium-sized businesses already up and running, you can assure the rest of us that you are very accustomed to dealing with numbers with lots of zeros after them. Heck, your utility bill each month might be over $1000 or your fleet bill could exceed $10,000 depending on how many vehicles you have. If you are a solopreneur, someone who works by yourself, then these numbers may be intimidating because you are neither spending – nor earning – much over subsistence. But that’s not why you went into business, is it?

So let’s look at real examples just to get oriented.

Average initiation fee for a franchise – $30,000
Average annual royalty fees for a franchise – $38,000
Real estate, inventory, employees, advertising, etc. for a franchise – $Big Number!
Start-up-up costs for an average small business – $50,000 (per Inc magazine, Entrepreneur Magazine not inclusive of monthly overhead )
Web costs – $2000-$100,000

And none of these figures take time into account. It takes time for a developer to create your site. It takes time to scout a location and get a lease and everything else you need to do for your new franchise or brick & mortar business. It takes time to set up your gym or your nail salon or your restaurant or your home d├ęcor store. It takes time to find your employees and get your permits if you are a development or construction company, an HVAC company, an exterminator, or you are in the trades – plumbing, electrician, etc.

If you work solo, as a consultant or a professional, you still had to pay for and complete all the training and apprenticeship, right? Let’s not forget the time and tuition it cost you to first become an accountant, a lawyer, a physical therapist, a chef, a mechanic, a pilot – whatever it is that you know how to do that you have turned into a business. That sort of training runs 2 years to 10+ years depending on your occupation, cost $20,000 at a minimum, and could easily exceed ten times that much!