A solid financial plan consists of two things: wealth parking and wealth building. Investing in paper assets, whether via a retirement plan such as a 401(k) or an IRA (Individual Retirement Account) are vehicles to park your money. Typically, these vehicles are used for long-term gains (10+ years) and the tax-deferred or tax-sheltered benefits. You can expect slow and steady gains over a long period of time. However, wealth parking focuses on reserving a portion of your current earnings for future use. What if you had more earnings?
In today’s economy, multiple streams (or just two!) of income can make a big impact on your personal finances. A second source of income can come from a home-based business, real estate investing, and/or short term investments. According to Forbes, fifteen to twenty percent of the workforce, regardless of age, is engaged in running a startup or a more established business. If you have ever thought about building your wealth by about owning your own business, I’m here to share with you how to start your first business.
Besides wealth building, people start businesses for many different reasons:
- They are passionate about something and want to share it with others
- The tax advantages
- The potential pay out if/when the business is sold
- They want to get paid to do what they love
- To supplement their income, or to have an income
- The challenge and fun of running a business
Whatever your reason is, entrepreneurship is the ultimate journey of personal growth. Not only can you make money, but you will find you learn and grow each day you are in business.
Follow these ten steps to start your first business.
The first thing to do when starting your business is to ask yourself two questions:
1. Is this business congruent with my values? Because if it’s not, it won’t be easy to get out of bed with a smile on your face every day. To enjoy being in business, choose one that fulfills you. Our energy flows to the things we value most, so if you are starting a business that sells chocolate, but you don’t like chocolate, it’s going to be difficult to get jazzed to do what it takes to run your business. On the flip side, if you love making phone apps, and maybe you are already doing that your free time, this is a good business idea for you.
A good place to start when considering what your product or service will be is to look at what you are already doing in your life that excites you. What are your talents, hobbies, or skills? Give this some thought, because these are the things you value, and wouldn’t it be great to make money doing something you love, or already know how to do?
And the second question to ask yourself is
2. Do people want or need what I am offering? Find out! You must know the market for what you are creating BEFORE starting your business. How can you find out if people want and need it? Ask! Ask your friends, ask your family, ask your doctor, strangers, mailmen, Google, Siri, whomever! Get information on the market before you start your business.
Statistics tell us that 96% of businesses fail. But 70% of home-based businesses succeed! The top two reasons for failure are 1. the product or service wasn’t needed or wanted and 2. the business ran out of money. I’ll address that in a bit.
Now that you know what your product or service is, ask yourself how you can be different. If you are offering a service, think about how you are different. Weave this into your service. Keep in mind, people don’t remember what you say, they remember how you made them feel. If you are different, unique, or surprising, people will remember you, and this is crucial when it comes to customer retention and referrals. It’s one thing to get a customer, but it takes even more effort to retain a customer.
If you have a product, think about how can you make your product unique from your competition. Your offering has to stand out from the pack, so this should be a primary focus when you go to market.
Is the business viable? This is where you create your business plan. This is an overview of your product or service offering, marketing and sales strategy, target customer, your niche, budget, pricing, location, operations, and your financial plan.
But what viable really means is: can you make a profit? Keep in mind that profit is different than revenue. A lot of businesses are good at making revenue with little profit. But not you! You are going to make tons of profit because you are following these steps.
Benjamin Franklin said if you fail to plan you are planning to fail. Do your homework and create your business plan. I’ve included one for you here. Business Plan for a Startup
In the beginning, keep your overhead low and keep an eye on your expenses. Evaluate them on an ongoing basis; at a minimum every 12 months. In some cases, eliminating 10% of your expenses could increase your bottom line by as much as 50%!
Opt for a home office if possible, as opposed to renting an office. We live in a connected, digital world, so you may be able to eliminate the cost of an office by working from home. There are tax advantages to doing this as well.
Forecast when your business will turn a profit. Knowing this in advance, and planning for it, makes a difference in how you feel on a daily basis as you get off the ground. If you know it will take one year, for example, before you become profitable, you have already eliminated some stress.
When I contracted for an international food retailer, my role was to create financial statements. These projected the costs to open each store and operate them on an ongoing basis. The founder of the company, a highly successful entrepreneur in his own right, would always say the main reason most businesses fail is because they don’t factor in the time it takes to become profitable.
So keep this in mind and plan for it. It could take just a few months to begin turning a profit, or it could be a few years if you have significant startup costs.
Home based businesses typically require little startup costs, and you can turn a profit almost immediately. These are business such as multi-level marketing, online sales, or service based businesses.
Have six months of your personal expenses saved to eliminate worry about how to pay your personal bills while your business gets up and running. Being an entrepreneur is like being on an emotional roller coaster, and eliminating personal financial stress is crucial so you can focus on your business.
Determine the legal structure of your business. The type of business structure you choose will have legal and tax implications. It’s important to choose the one that makes sense for your business. This decision will have an impact on the amount of paperwork your business is required to do, the personal liability you face, and your ability to raise money.
Do you have business partners, will you have employees, will you have assets and liabilities? These are things to consider when determining the structure of your business.
There are six basic structures to choose from, and I recommend you work with your accountant and/or attorney to determine what’s best for your business. Sole Proprietorship, Limited Liability Company, Cooperative, Corporation, S Corp. and a Partnership.
Once you determine your legal structure, the next step is to get an Employer Identification Number, also known as a Federal Tax Identification Number. This step isn’t necessary for Sole Proprietorships or LLCs, but it can go a long way to limit your personal liability with your new business, as well as set you up to start building your business credit. With solid earning history and timely bill repayment, you can eventually get loans or lines of credit for your business, without being personally liable for them.
Your EIN number is a unique 9 digit number that identifies your business for tax purposes. Think of it as a social security number for your business. You can do this online at https://sa.www4.irs.gov/modiein/individual/index.jsp or by mail by with form SS4 https://www.irs.gov/pub/irs-pdf/fss4.pdf. There is no charge for this.
Set up your business bank account. You will need your EIN to do this. Keep your business expenses separate from your personal expenses. You’ll want to do this with your credit cards as well. If you are personally financing the startup of your business, dedicate one credit card to only business expenses and stick to it.
Being disciplined with this will save you time with tax preparation too, because you can easily determine what are business expenses and what are personal expenses. And keep in mind that as a business owner, many of your expenses are tax-deductible.
Take action. Don’t wait for your website to be perfect, your operations to be streamlined, or your product to be the final version. Your offering will be refined over time, as you get customer feedback, see what works and what doesn’t, and you will get better and better at running your business, so let the process of running your business be your teacher, and allow yourself to be malleable, meaning you can adjust to changes in the market, new technology, and your customer’s needs.
A good rule of thumb is to continually ask your customers what else you can do for them. They are your best resource for growing your business in the right direction.
I’ve left the most important step for last. Calvin Klein, one of the most successful fashion designers of all time, said that to succeed you have to focus on what you are aiming for. So focus on what you want. How do you see your business in 1 year, 5 years, or 10 years?
Create that vision, and look at it every day. Create a vision board if that helps you. Ask yourself if what you are doing is making that vision reality. Our brain does not know the difference between reality and a vision, so get very clear with what you want and take baby steps to achieve it every day.
That’s it! Those are the 10 steps you need to start your first business. I commend you for taking the first step, and I would love to hear how it’s going for you! Email me at email@example.com.
To your success,