No Internet access for the last 18 hours, driving me nuts.  (And It has cut out three times trying to add this post).  So, I’ll be brief…

I got to see and meet Eben Pagan (aka David DeAngelo) a few months back at Dan Kennedy’s Info Marketing Summit in St. Louis.  Eben talked about business for about two hours and shared his shortcut to finding a great business opportunity… 

Eben Pagan’s Three Questions to Increase the Probability of Success in a Business:

1. Is my prospect experiencing pain plus urgency OR irrational passion?

2. Is prospect proactively searching for a solutions?

3. Does prospect have few or no perceived options?

The more YES answers, the higher your probability of success.  You can do OK with other products but if you have all THREE of these, you are probably 90% likely to succeed…

Seize the Day,

Rob

Good day everyone, the topic for today came to me as I was going through some Boy Scout stuff in the garage yesterday (my son is a 13-year old First Class Scout working towards his Eagle hopefully in 3 years…

There are always opportunities for good ideas to be brought to life. But they won’t bring themselves to life, they need a fire starter. 

Someone to carefully set up the little pile of kindling and a tinder nest to catch a spark.  

And then the fire starter need to create a spark to ignite the tinder nest, and then to control the addition of the kindling to the fire, all the while blowing gently to give oxygen to the fire. 

Progressively the fire– or business- gets bigger and can take bigger pieces of wood less frequently, and it can get its own oxygen.  It has taken on “a life of its own” but it still needs a little help.

Eventually, you just need to come around once in a while and add some big logs…

The rest of the time you can be working on other things and other fires. 

Each individual project within a business can be looked at like a fire and…

Unless you go through each and every one of these nurturing steps for your projects, you will be left with a bunch of useless piles of kindling strewn about.   Or a bunch of once-roaring fires that were abandoned and are now smoldering ashes…

Tinder Nest

Kindling Ready

Spark

Add Kindling

Give Oxygen

Progress to Larger Fuel

Add Occasional Logs

Hope this metaphor helps you get your next project off to a successful “life”…

Rob

I hope you all are doing great today, and the year is getting off to a fantastic start.
(If not, what are you doing to change tomorrow?)

In Michael Gerber’s classic book “The E-Myth Revisited” (if you haven’t read it, you are in for a treat), he asks the simple question… Do you have a Business or do you have a JOB?

The E-Myth, or entrepreneurial myth is given two definitions by Gerber:

1. the myth that most people who start small businesses are entrepreneurs, and
2. the fatal assumption that the person who understands the technical work of a business can successfully run a business that does the technical work.

Many technician types decide to start a business because they love doing the work of the business, but they have no idea what they are doing otherwise.  Gerber explains that you need to step back from the technical delivery of the product and look at your business as separate from you.  In order for it to be a real “business” it should be able to operate without you personally doing the technical work.  These people are the ones doing the “jobs” in the business.   

Now, of course in many cases a small business owner is going to be one of the ones working at a Job in the business as well as running the business.  In my case, I have two businesses and I have “jobs” in both of them in addition to my responsibilities as the owner of the business… 

But the fact that I choose to take on some of these jobs in my business doesn’t mean that I shouldn’t step back from those jobs and look at the business from a more strategic point of view—the 40,000 foot view—and devise systems and tactics to make the business more profitable, and better able to serve the markets.  In this higher level role is where you also look at trends and market realities to decide when change is needed and in which direction to move.  And, in some cases when you are up in the cockpit at 40,000 feet looking at the business, you might even decide to fire yourself from some of the “JOBS” you are doing in the business and either bring on someone else to do the work, or outsource it.

The book E-Myth is highly recommended and it will give you a much brighter picture than I could ever do in a short blog post of how to grow a small entrepreneurial business.  I try to re-read it at least every couple of years and I am overdue.  Get a copy today…

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

Thanks for reading, and see you tomorrow!

Rob

Now that you have been through the previous six steps, assuming that everything still looks good and you have your resources ready to go, and you have a Name, and you know what you are going to sell first, and you know what structure makes sense for you, you are ready to jump into the pool.  These instructions are for an S Corporation, the LLC is slightly different.  Get ready, here we go…

“Inc.” in 10 minutes!

You can use one of the online services like LegalZoom, but it isn’t that hard to do it yourself.

My last incorporation earlier this year took ten minutes on-line with the GA Secratary of State and I charged the $100 registration fee to my credit card.  I had to fill in a form to tell them the name of my corporation, who was incorporating it (me), the legal address, how many shares of stock were authorized, and my official Registered Agent (me again). 

After hitting SUBMIT, I got the ARTICLES OF INCORPORATION back approved with a receipt in just a few minutes…  Different states might be different.  If you are doing this yourself, you should order a Corporate Record Kit (I like www.fastkit.com) and you should order CorporateVeil Pro Step-By-Step Corporate Records system…  These things together will give you the necessary information to keep your corporation legal and proper from the start.  Just take my word on it, and do it.

You are now the proud owner of a brand spankin’ new corporation! One with an unlimited future that you will create and control…Now on to a few housekeeping matters, you need to get a Federal Employee Identification Number (EIN, it’s like a Social Security number for your business) using the SS-4 form.  You can call and get the EIN over the phone to eliminate a wait for the paperwork to be mailed back. 

The Gavel Drops… Initial Meetings of Shareholders and Directors

Once incorporated, you need to hold your first shareholders meeting and authorize the Bylaws and elected director(s), and hold your first directors meeting, and appoint officers. You also need to open a bank account and deposit the initial equity into it. 

VERY IMPORTANT:  Most small businesses should become an S corp, and this is very easy.  You have a short amount of time to fill out the IRS 2553 form electing this S Corporation status.  This form must be unanimously agreed to by all the owners, and this is how you will avoid double taxation on your profits. 

Sounds like a lot, but it isn’t really.   Total time expended less than two hours- start to finish.

You can use your receipt from the Secretary of State declaring you to be an actual, honest to goodness corporation to open your corporate checking account, and to secure a Post Office box in the company’s name. You are now open for business.  Just don’t forget to spend a half hour a quarter on those corporate records.

Finally, Should you Inc. without consulting an attorney?

I am not going to answer that.  It’s up to each person to decide for themselves.  I do think everyone should have an attorney they can talk to.  You don’t have to have a lawyer fill out the forms for you if you are comfortable doing it yourself.  If you are entering a high-liability business area, you will be inclined to seek more legal advice and there might be better ways to set up stronger asset protection than just a corporation. 

There are a lot of books on this subject, I will put together a short list in a future post.  And I be discussing how to select and  use an attorney effectively in the very near future. (Hint: preparation!) 

That’s it for this seven part series on Corporation Startups, let me know if there are questions…

Rob Northrup

President, Basecamp Publishing Inc.

Is Your Corporation Protecting You?

What is at Stake?

Everything you own personally (now and in the future) could be at stake in this decision…

“Limited Liability” business means that the business is a separate thing from you personally and if setup and managed properly it gives the owners of the business a level of protection from things that happen within the business.  Put simply, it makes the business liable for things that happen as a result of business dealings and situations, rather than the owners personally. 

Before we get too deep into discussing what form of business you should start, let’s talk a little about whether or not you need to have a limited liability business at all… 

The Sole Proprietorship is the Default Business

When you start an informal business and don’t incorporate or start an LLC, you are automatically a Sole Proprietorship without filling out anything else.

The IRS expects you to report all the income you generate in this business on your own personal tax returns.  You are also able to deduct many of your business expenses on your tax form, but the taxes for the business and you personally are all on your personal tax return.

The Sole Proprietorship Offers No Protection

There is no distinction between you and your business legally or financially. The business is officially your name although you can “do business as” a different name.  Even with a Sole Proprietorship, you should maintain a separate bank account and records of income and expenses for this business, but this is for ease of recordkeeping and tax preparation.  If someone sued your business, then all of your business and personal assets would be fair game to payoff any judgment against you. 

The sole proprietorship is acceptable for one-person micro-businesses with extremely low revenue,  no expectation of growth, and low liability risks.  If you are buying and selling $5,000 a year in beanie babies on eBay then you are probably ok to stay a sole proprietorship until you dream to expand and get larger.

The Six Triggers

There are at least six “Triggers” that I think make it almost mandatory that you start a limited liability business (it isn’t that hard or expensive):

·       Having a partner in the business OR

·       Having employees in the business OR

·       Startup losses likely to be incurred OR

·       Future Revenue Projections more than about $20,000 per year (not a hard number) OR

·       Business requires outside investment to fund operations OR

·       Business has risk of harming someone physically, financially, etc.

If even ONE of these Triggers describes your business, then you likely NEED a limited liability business. 

There is one other HUGE BENEFIT to having this more formal business structure.  It provides a structure to realize your financial dreams.  Once you have a business, your mind starts to look for business opportunities, and they are everywhere.  If you are looking to escape your Hamster Wheel job, then starting a business of your own could provide your escape route and there is something about the formality of a Corporation or LLC that is psychologically more valuable….

To be continued…

Now that you have a name (Step 1), a rough idea of your startup expenses (Step 2) and a rough idea of whether you have any chance to make money (Step 3), we are about to shift gears from thinking to doing… Not quite yet though we have one more step that will help to ensure your success before we jump into the pool…

To start a business requires RESOURCES—sometimes a lot, sometimes a little.  Here’s what I mean by resources:

1)     Time-  you need to evaluate how much time you have available to invest in the business.  In the beginning, a startup can be all-consuming.  In my case 18-20 hour days were common in the first year.  If you are planning to startup part-time, this can be done, but you need to carve out enough time and your family and friends are going to have to get used to you not having as much time for a while. 

I think that you should plan to spend at least four hours a day in addition to your “regular job”—preferably the last two and the first two of each day.  For example 8-10pm and 5-7am can be your Startup Time when you work solely on your new business.  Whatever works for you.  Just be aware that you need to have the resource of time available… (sign up for www.simpleology.com and you’ll get twice as much done in the same time, and it will be the right stuff- trust me and do it).

2)    Money- you need enough money to fund the business.  Money can also be used to purchase the time of others, such as coaching, marketing assistance or copywriting.  Money can also be used to purchase How-To information and business instruction.  But if you remember back to step 2, we discussed startup costs.  You need to have this money in hand before starting. In Step 3, we looked at Income and Expenses.  All businesses are different and you need to have a good idea of any lag between spending money and getting paid for your efforts.  At the very least, you should count on having three-six months (or more) of your Fixed expenses available in case orders are slow to come in the beginning as you work through any kinks.  You should also plan to have at least one-two months of your variable expenses on hand if there is any lag between fulfilling the order and getting paid.

In our example before, the Fixed Monthly costs were $150 and the Variable Monthly Expenses were $2450, so using the formula of six months fixed and two months of variable would mean you need $900 + $4900 = $5800.  At the very least three months fixed and one months variable would be $450 +$2450 = $2900.   I would try to make sure that I had at least this much available before starting.  

This isn’t to say that if things aren’t working out with your idea, you will have to sink all this money in a losing venture.  What I am saying that if your idea succeeds, this is what you will need to run the business and reap the rewards.

This is in addition to your startup costs for a computer and/or software and anything else you need to get rolling.  One of the advantages of an Internet based business, especially if you are selling information is that the startup cash required is very small in most cases, and you can grow the business rapidly using your profits from the business.  In addition, you can change ideas rapidly and most of the tools that you have invested in will still be useful in the next venture…

3)    Knowledge- you need to have at least some idea of what to expect and how the legal and financial rules are going to affect you.  You also need to be aware of what risks you are liable to face so that you can take steps to insure against them and to structure things so that you minimize your risk.  Often this information can be found in the library (the big brick things that are the physical embodiment of Google) or on-line.  If at all possible, take someone in a business like you are thinking of starting to lunch or dinner at your expense and ask them questions.  There are no stupid questions, only those that aren’t asked.  If at all possible, work for someone else in this type of business for six months and see what sorts of things happen that you hadn’t thought of.

4)    Professional Team- in the long term, you are going to have a Banker, an Insurance Agent/Consultant, and an Attorney.  Depending on the business you might need all of these at Startup.   Unless you are knowledgeable about accounting and tax laws, then you should find a small business accountant and talk with him before officially starting the business.  This is one area that you cannot afford to mess up and this advice is available for $100 an hour or less.  Get a reference from someone you know if possible…

The last resource I recommend to anyone starting a business is some sort of Accountability Partner.  This can be a business coach, it can be a local Mastermind group of success-oriented businesspeople, or it can be someone on-line or in the real world that you agree to share progress reports with.  But there is something about telling someone else that you are going to do something by a certain date that seems to increase the chances of it getting done…

Now that you have determined the scope of your business and a good name, it is time to figure out the money side of the startup.  The number one reason for business failure is lack of planning with regard to the financial side of the business.  The big ten dollar word for this is Undercapitalization.  It means that you don’t have access to enough capital to operate the business.

Even a business that is fantastic at selling a high end product at a profit can fail if they don’t have enough money.  Often there is a lag between when you have to spend money and when you get paid.  So, you need to have enough money in the bank so that you can make it until the cash starts rolling in.

A True Story about Cashflow…

My father started a small business in our basement when I was fifteen and I remember him and his two partners (one an Engineer, the other a Marketing guy) working 18 hours a day on their pneumatic conveying systems, airlocks, and other mechanical components.  The name of the company was BulkVeyor Inc.  They struggled and they started to have some success, this was at the heart of the Carter years with stagflation and the country basically in a deep funk.

The business was doing ok, but cashflow was always a problem… I remember many nights when our family of five plus the two partners would eat the frozen “chicken” pot pies for dinner… and I still can’t eat them to this day, I am talking about the two for a buck ones, I equate these to deprivation and poverty thinking, but I digress…

The Death of Three Salesmen…

What finally killed their fledgling three year old company was a huge order,  they had made it!  They worked day and night to get the designs, they took the order, and they were so excited.  The terms that they agreed upon were a certain amount down and the remainder to be paid when the equipment was delivered, and they started designing and building the system…

They ran out of down payment when they were about 75% complete and they went to try and find the additional money that they needed from the bank to finish the job.  They had everything tied up in a system that was 75% done, and needed to be 100% done so that they could get paid…  The bank looked at their situation and wouldn’t give them more money, so they went to the customer.  The customer wouldn’t budge on the payment terms and they were finished.   This finished off their company taking an order larger than they could fund…

Calculate Startup Costs…

You need first to figure out what things you will need to startup.  Be realistic, but keep it simple.  You need a place to work, you need some supplies and tools like computers etc, you might need employees, you need to have a very good picture in mind of what is needed to get started.  You also need to be aware the customers need to be attracted and this marketing can cost money as well, you can use manual labor to attract some business but you need to budget for some marketing to spread the word.

Once you have these numbers figured out, it is time to move on to Step 3. Forecasting Revenue and Operating Costs…

This week, we are going to do a series of posts exploring the decision to start a business.  Although you can get incorporated online in a matter of minutes in most cases, this is a major decision and can have huge financial impact so you want to make the best choices. 

Most things are not set in stone and can be changed, so don’t let the fear that you will make a mistake stop you from taking action…

Step One: Picking Your Business Name

Although the name is NOT the most important thing, it is an early step. The reason for this is that you need to pick a name that you will not outgrow as you build the business.  The process of picking a name causes you to consider the logical growth of the company so it is a good place to start.

Please DO NOT get bogged down at this point in such mundane tasks as designing logos and business cards, etc.  There will be time enough later for this (maybe) and too many people starting businesses get bogged down in this relatively low value activity because it stokes their ego…

To pick a name…

1.      Define your initial product or service in a reasonable amount of detail.

2.     Make a list of the areas that you think will differentiate your product from the competing products.  The “Benefits” of doing business with you…

3.     Try to look into the future five to ten years.  Have an idea of the overall scope of the business you are intending to build. If you know your first product or service, think about what the logical next product, and the one after that, and the one after that…  You should try to come up with a business name that encompasses the complete product line that you plan to provide in the longer term…

4.     Brainstorm name ideas, combining your products and services with the benefits that you are going to provide.

5.     When you have some proposed company names, then check google to see if there are any other businesses that already come up when you search on the name.

6.     Check on your state’s Secretary of State website to see if the name is available. 

7.     Check on godaddy.com or another domain name registration service to see if the website is available. 

8.     If you can find that there are no other major conflicts and the name is available and the website is available, then you are ready to move on to the next step which is to determine an initial budget and revenue projections.

To be continued with Step 2: Forecasting Your Business Revenue and Expenses