What you do in your first year of business lays the foundation for everything else. It can be intimidating, scary, fun, exhilarating, and meaningful. In this post, I will describe the five steps for building a solid business foundation in your first year.
Step one: Develop a business plan.
I never get in my car and drive aimlessly around town. I always know where I’m going. The same should be true for your business. The following are 12 questions you should ask yourself before starting a business:
- What’s your business’s identity?
- What problem are you solving?
- What’s your solution?
- Who is your target market?
- Who is your competition?
- What type of revenue streams will the business have?
- How are you going to market?
- What will it cost to start and run the business?
- What team members do you need?
- What are your milestones?
- Who owns the business?
- How do you plan to exit?
Once you have a business plan in place, make that business official and start forming some entities.
Step two: Form an LLC and get an EIN.
A limited liability company (LLC) and an employer identification number (EIN) will separate you from your business. When you form an LLC, you put a line between you as a person and the business. That line is liability protection. That means you’re not responsible personally for the business activity, and the business isn’t responsible for your personal activity.
Not everybody needs an LLC. Some people can operate as sole proprietors or 1099 or independent contractors. But if you are going to be bringing in more than a thousand dollars a month, I highly suggest that you form an LLC. LLCs must be formed within your state. So if you’re doing business in California, you have to form an LLC with California. If you’re doing business in Texas, you have to form an LLC in Texas. Each state has its own rules and costs for forming an LLC. The key is to form your LLC directly with the secretary of state. That is the cheapest option. The next best option is to pay a company to submit all the filings and do it for you.
Once you have your LLC, you can get an EIN. An EIN is like a social security number for your business. You don’t want to give out your social security number when doing business with other companies. EINs are 100% free and take about 10 minutes to get. You can do it all online with the IRS.
Step three: Open a business bank account.
You don’t want to mix business money with personal money, so you need to open a separate
business bank account. When you open up a business bank account, the bank will want two pieces of documentation from you. The first is your articles of organization, also known as your LLC paperwork. The second is your EIN, which you got from the IRS. Once you have those two things, you can open a business bank account at a financial institution. Whether you choose a local credit union, a big bank, or an online solution, they all work. Just make sure you pick the one that fits your needs.
Step four: Check with the city or the local government to get a business permit or a business license.
Cities are strict on this because they want to know what businesses are operating within the city limits. There are two main reasons for wanting this information. The first is to generate revenue. The second is so they know of any potentially hazardous activity in case there’s an emergency.
Every city is different, and you should understand your city’s rules before starting your business. For example, the city that I’m in now doesn’t require a permit for me to run a home-based business. However, I used to live in Chino Hills, and the city required a business license just to operate a business from your computer and your living room. So get online, go to your city’s website, and see what the business permit requirements are.
Step five: Stay organized and keep good records. In my opinion, this is the most important step.
The first way to stay organized is to keep your business money separate from your personal
money. All the money that you’re earning from your business is going into your business bank account. That is, you only spend money from your business account on business purchases and things required to run your business, and you only spend money for personal items out of your personal account. When you do it this way, you respect your business. If the time ever comes when you have to meet with a judge or the IRS, they will respect it just like you did. But if you’re commingling assets and have personal expenses coming out of the business account, a judge or the IRS will decide if you’re not respecting your business.
Whenever you get data or a receipt or information about your company, keep it in a separate folder online, stored in the cloud, so that you’re not dependent on a laptop or a computer in case it breaks. Try to get your business to a point where you can operate it from any device, anywhere in the world. QuickBooks is great for that. You can link it up to your bank accounts and have it manage all your transactions and run your payroll. As you grow, it can also scale with you.
As you become more successful and generate more revenue, your business will grow. The five steps outlined in this post will lay a solid foundation, but skipping any of these steps can create a shaky platform for your business that will need to be fixed later.
I hope my advice is helpful. Please drop a comment If there’s anything else you want to see.
Keep learning and be good to your future self.
