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A Simple Framework to Start Your Own Small Business
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Michael J. Herman --Motivation Attitude Sales Extraordinary Everythhing In Life. Michael J. Herman --Motivation Attitude Sales Extraordinary Everythhing In Life.
Granada Hills , CA
Thursday, April 16, 2020

 

A Simple Framework to Start Your Own Small Business         

By Michael J. Herman ©2020 Michael J. Herman

Michael J. Herman is an entrepreneur with more than 30 years of successful business experience in a wide ranging spectrum of industries and specialties. His knowledge and understanding of business startups, running, and growing a profitable business comes from real world and hands-on know-how. Michael can be reached at mike@michaeljherman.com.

During these very uncertain economic times, it's more important than ever to think and act entrepreneurial, to be money conscious, and think about the bottomline. The bottomline is where the money is. It's where the profit center exists. When someone talks about their bottomline, it refers to the place on the balance sheet where profits are made or losses are incurred. It's the most significant place in the entire budget and it determines if your business will be profitable or not.

However, it's clearer than ever that entrepreneurs and wannapreneurs are clueless as to how to start, launch, run, or manage their own businesses.

There was a time when a proprietor would provide a service, or make or sell a product, get their shilling, nugget of gold, or coinage, take it to the banker and get a receipt. That's it. 

But the Old West is long gone and if you're going to be successful, there are some very easy, but not so very obvious steps for starting your own small business. It's more than just throwing up a web page and signing up for Paypal.

If you're just starting out, you may wish to create a dba, or doing business as. This means you are a person doing business as this name. It's also commonly referred to as a Fictitious Business Name. In this case there is nothing wrong with being fictitious. Don't take it personally. You're still very real.

The following may vary slightly from state to state and city to city. So do a little research before delving fully into the process.

The most basic reason now for having a small business (or side hustle) is to offset your W2 or W4 salary. In other words, the income you make from your side hustle can significantly reduce the amount of taxation you owe from your main source of revenue.

 Learning to reduce and save on taxation will go a long way in building your wealth and retirement nest egg. Even if you only have a hobby, or something you do for fun, if you can charge for it, you can be a small business operator.

No matter what kind of business you start, you will require an entity. An entity is a legal term meaning Business. In January 2010 Citizens United  (US Supreme Court decision) determined that a corporation (business) is a person. And as such is entitled to the same rights and privileges as a human person. This means a corporation can earn money, pay taxes, and even use its political influence to cause change, or to increase power and influence.

In this article, I will discuss forming your business, running your business, and making money from your business. What's important for you to know is this: You can be successful in business to whatever degree you desire if you take action.

 A business can be a dba (doing business as) a corporation, a partnership, a trust, or other type of legal entity. Consult a licensed CPA or attorney for more details and to know which is right for you.

In many cases, it is nice to own a corporation, but corporations come with expenses, responsibilities, and legal requirements. A business can take many forms.

I am not a lawyer and I don't play one on TV. So please realize that this is only business advice and you remain responsible for any and all actions you do or do not take. It's best to consult a state licensed CPA or attorney to determine the best options for any specific situation. This guide holds no liability fpr the way this information is used.

That said, here are the steps to forming your entity and making it work.

  1. Choose a name. Maybe it's your name? John Smith and Company? Perhaps it's The Rootin Tootin Baseball Card Shop? Whatever it is, choose a name and Google it.

Also search it on WhoIs.com,make sure no one already has it. If it's available, go to a news publisher, like The Los Angeles Times, The LA Daily News, The LA Business Journal, The LA Daily News or even The New York Times. Even free community papers offer Business Publishing Services. In many cases, you can also go to your County Recorders Office directly and do it there. When you publish your new company name, you're announcing "I am doing business and this is the name."

  1. Find out the cost and how to file a dba (doing business as) and file the requisite documentation and pay the fees.  In about 1 to 2 weeks you will receive a copy of the published clipping of your business name with other paperwork and this constitutes your legal documentation. Keep the published clipping and proof of payment as you'll need them again when you open more business bank accounts, or need to file additional business documents.
  2. Take these documents to your business bank of choice and use them to establish a business checking account. You can open multiple accounts with the sane documents.

Once you have a business banking relationship, you can also conduct merchant services and electronic banking as a business. A good strategy is to always be paid to your company.

  1. Obtain a tax payer resale number from your state's Franchise Tax Board. One of the skills you must master as a business owner is to manage finances and make your dollar go even further. Avoiding paying full retail and buying wholesale and being able to be a preferred purchaser from other businesses will go a long way. It also opens doors to associations and organizations that can help you grow faster, get bigger, and operate more lean.

 

  1. Obtain a Dunns Number. A Dunns Number is a Dunn and Bradstreet Number. Just like people have personal credit ratings, Dunn and Bradstreet have been rating companies and organizations for nearly 200 years.  They provide extensive data on companies so other companies can do business with them. In fact, there are organizations who won't engage in business with you if you do not have a Dunns Number. It also can weigh heavily when applying for company credit.

D&B also tracks those with whom you do business. It's a good resource to have and exploit.

  1. A big mistake young or first time business owners make is they don't know where the money is. They have a vague if any idea of how much money is available, they don't track the income, they don't know the expenses, they have no concept of taxes and liabilities, the fees, the fines, the interest, the costs, how to use and benefit from debt, and other uses of revenue. They assume that just because money came in that there is money in the accounts.

Income does not necessarily mean profit. This probably sounds glib, but it's too true all too often, and can define the future solvency of a business or an individual.

  1. This probably should be at the beginning, in the middle, and at the end, but you must think of your business as a business. This means you're actively operating it. You're looking for paying customers. You're networking and asking for referrals. You're finding new ways to generate income through your business. You're connecting with colleagues, competitors, events, media, promoters, anyone and everyone who can be a paying customer or connect you with one. And you're collecting accounts receivables.
  2. Build a strong team. A successful enterprise will always be obvious to anyone by the team it has around its mission. A business will go far when all the players involved are of one mind. Even an organization as large and diverse as Walmart, United Airlines, or American Express can only function as well as they do as long as the teams running them and making them work are of one mind and one culture. The best way to build a strong team is to have people around you who emphasize your strengths and strengthen your weaknesses.

You can do this. As someone reading this, you demonstrate that you have what it takes to lead a brightly lit path. While starting, running, and building a profitable enterprise isn't easy, it's a lot better than starting, running and operating someone else's enterprise.

  1. As a business owner, you must, and I repeat must track and manage your assets on a daily basis. Even if no money has come in or gone out, a daily monitoring of cash flow is the single differentiating factor between profitable companies and ones that rapidly go out of business. It's less important how much revenue the business does, and more about you or someone responsible and competent is at the helm watching over the money.
  2.  CASH FLOW.  A human body cannot survive without blood flow. Lungs cannot breathe without airflow. And the same is true about a business. It cannot function let alone succeed without cash flow.

What is cash flow? It is exactly what it sounds like. It's the flow of money into and through your business. Whether it is cash money, coinage, electronic deposits, checks, credit, non-cash currency, BitCoin®, or some other currency, cash flow allows the business to function.

Revenue comes into the business and it is used to pay bills, overhead, satisfy debt, pay salaries, purchase inventory, overhead, and so on. But if there is no cash flow, they cannot be satisfied and needed services rapidly shut down. Cash is always King.

Keep track of the money. One of the biggest and most frequent mistakes Wannapreneurs make is not knowing where the money is going, or even how much of it there is? What are your numbers? Rent, electric, insurance, computers, phones and technology, support, supplies, goods and services, vehicles, leases, taxes, interest, fees, and are they recurring? There's almost no limit to the operating costs when your business grows big.

 Get Paid. This probably sounds obvious, but many new business owners either forget to ask for the money, fear the confrontation of not being paid, or simply don't know how to close and collect.

  1. You have to train your customers to pay in full and on time.
  • If a customer doesn't pay, they will continue to take advantage of your goods and services. Remember to get paid. You may laugh at this point, but some operators forget if they've been paid? Have they invoiced the client? Have they sent the bill? And then the money gets lost.

Remember, the more work you have to do to get paid and chase the money, the less you get paid, because your time and energy chasing the money you've already earned is something for which there is no compensation.

There may be times when billing is an issue. Perhaps the client cannot pay now and makes special payment arrangements? This is fine. But what if you're not set up to receive or process income? Maybe you're new and your business banking isn't yet established? You can offer a net 30 or net 90 option, you can offer to bill the client, you can be paid in cash and notate the cash in your ledger, or find other methods of mutual accommodation. Don't lose the client because you don't know how to get paid.

  1. Keep track of all receipts and documents. Create a working and systematic process for tracking business. This includes but is not limited to:

-receipts

-orders

-invoices

-estimates

-plans

-payments

-bills

-letters

-correspondences

-and others.

If this talent is beyond your acumen then consider hiring a professional services company.

  1. Take 10 minutes of your time to invest in crafting a simple 2-3 page business plan.     

      In it, describe what is the goal of the business and what the business does?

I.E.: Creative Cutlery is a company that makes custom knives for professional level Ninjas. We also hand make a variety of other cutting items such as throwing stars ,samurai swords, and guillotine blades. We use cutting edge technology in every slice we make,

Or,

Bailey's Bridal & Ballerina Bazaar is a retail store that services the very narrow niche of dancing brides. We have everything you need to keep dancing all the way to the altar.

Then discuss your plan for sourcing, staffing, marketing, advertising, promotion, partnerships, distribution, and management. Discuss who is involved in the business and their backgrounds. If you're a one-man operation, say so and discuss who you are and why you think this company is viable?

If you're really conscientious, you can update this document once every year to prove to possible future investors, potential partners, or IRS investigators you're serious and trying your best.

Print it out and save it in its own file folder.

The reason for this document is to show that your side hustle is a legitimate business and not simply a tax dodge, or also called a hobby.

  1.  Keep a journal of record. Most business owners/operators do not do this step and it is a mistake. Keeping a journal or record of your business habits and dealings, creates an almost impenetrable defense should you ever be audited or asked for proof of business transactions. The level and depth of detail you choose to make this is entirely your own.
  2.  Create your brand. A logo, a service mark, a slogan, a jingle, a trademark, or even just a doodle. Establish something to brand your new firm in the marketplace. This is something simple that all too many beginners waste a ton of time on which is something that should be focused more heavily later on in your success.

A simple placeholder for your brand's identity at the beginning will suffice. While brand identity is important, it should not impede your rapid progress.

  1.  Multiple Streams of Income. If you look at almost any successful and profitable enterprise today, they do more than one thing. They offer multiple services, they sell multiple items, or they have multiple focuses.

I'm not talking about the Coca Cola Company that has its interests in beverages, food, vending, licensing, real estate, catering, transportation, farming, energy, and others. I'm talking about something as simple as a mom and pop coffee shop.

They may also have an area in the shop that sells toys, or books, or clothing, or gifts. They may provide notary public services.  They may have live entertainment and sell tickets. The ability to find new and dynamic ways to serve your audience will be the determinting factor in how strong your business grows.

  1.  Take All Out Massive Action. Be like a cannon ball being sent over the bow of an enemy pirate ship. The cannon ball doesn't saunter. It doesn't sway. It doesn't even mosey, it takes all out massive action from the instant it fires through the cannon. It has one mission and that is to get out of the chamber and to its destination. Nothing will stop it and nothing can.

There's been a lot of information so far, but don't worry, because you can do this. If you're eager enough to have the freedom your own money making enterprise can offer, these ingredients in the potpourri of your enterprise are easy. Way easier than grinding it for someone else's dream.

  1. Establish a set of rules by which your company operates.

 

-Will you offer discounts?

-Will you provide refunds?

-Will you accept deferred payments?

-Is payment due upon completion?

-Upon delivery?

-In full in advance?

50% up front and 50% upon 

-completion

– delivery

- approval?

 

Will you accept international clientele?

Do you only do in-person business like an exterminator? Are you a brick and mortar establishment

Or will you offer online and remote services?

Do you require an NDA (non disclosure agreement) to conduct business?

Do you require a contract to engage you?

Do you accept any customers?

Walk in?

Response to ads?

Or are you purely by referral?

Do you accept credit cards?

Will you accept online transactions?

Or mobile pay?

 

The reason you want to have policies and practices in place is so you don't have to invent it for each client opportunity when they present themselves.

 

  1.  Be prepared. In other words, BE "PREPARED!"

This means have an invoice template created and at the ready. Have estimate sheets or forms or online templates made and ready. Have a pricing guide already available so you don't have to fumble and look unprofessional.

 

When someone asks "How much is it?" You should be able to say, "It's X, Y, and Z." Can you send me an invoice?" "Yes, it's on its way."

 

Be "Prepared" means if you're selling something and someone orders it, you have inventory and you know how and where to retrieve it. You have shipping envelopes, boxes, or crates ready to go. You have a shipping label template already in the system so you don't have to create a new one for every order.

 

Know your numbers. Know how much things cost you to be able to deliver what is being ordered. Know if your pricing is too high or too low?

 

If a customer calls and orders 500 teddy bears, know what's your cost, how much is shipping, tax, drayage, storage, restocking fees, return shipping, etc. Does the order come in different colors, sizes, shapes, options? If yes, what are the costs of each?

 

Also know the costs for returns or penalties.

 

What's a penalty? What if your customer doesn't pay? Do you impose late fees? If yes, post these and make them somehow known. And have a way of enforcing the late penalty.

 

Create invoices, receipts, estimates, and templates so when you need them they're ready. Losing time trying to find or create the necessary collateral can actually end up costing a lot of money and energy.

 

  1.  Be "Pre-Pared" means know what's coming down the pike and how to manage it. A well armored attack is survivable. A surprise can be disorienting and devastating,

 

  1. Keep copious notes and keep records. Separate from a journal, notes on conversations, outlines of agreements, specifics on projects, commitments and expectations, deadlines, completions, failure to pay, payment histories, payment practices, and other matters are important to track.

To be honest, these things can sound daunting and even overwhelming, but all are not required at one time. Many of these steps are part of sequences. Most can be combined into processes, but the idea here is to start thinking of your business as a money making enterprise.

Something you exercise and actively practice. In fact, in order to be considered a business you have to actively promote and operate it. You cannot transact a $100 transaction per year and expect all the benefits available to a business owner.

In this way you'll be able to take advantage of the tax advantages and wealth building opportunities that a small business can offer. However, if you treat it like a hobby, as something you do sometimes, for fun, or do not take seriously, the Internal Revenue Service will come after you and pound you hard.

Does the IRS care the draw you take from your primary job is less than you spend on your side hustle? Not really. The government actually wants you to start a business and to be successful. They want you to make lots and lots of money so you pay lots of taxes.

They just want to see that you're making a legitimate effort to make a go of the business? That means are you actually trying to make a profit? Are you actually trying to be successful? There are billion dollar corporations who do not make a profit and pay no income taxes, but they operate like a legitimate business and get the benefits accorded to it.

  1.  Track Where The Money Goes.

Whenever you as a business owner spend money on your business or a business related expense, always, always, always notate what the expense is, what it's for, and who is involved. If you have a meal, notate who it was with and what was discussed. If it is a product or service, notate details about the expense. Then track the receipts.

  1.  A great resource for tracking expenses for businesses is the Taxbot app available for mobile devices. It costs $10 per month or $100 per year. It intelligently tracks your income and your expenses in real time. Get Quickbooks, FreshBooks, or outsource the task.
  2.  The sure sign of a truly masterful entrepreneur is the ability to delegate tasks and responsibilities that do not optimize their talents. A good choice for this is a Virtual Assistant, or VA. VAs can satisfy almost any business task for which you may be lacking in prowess.

My good friend Daven Michaels has an excellent VA service called 123Employee. They can be found at 123employee.com, or by phoning (866) 549-1296.

  1. Use contracts. There's an expression in Business regarding contracts and it goes like this: "Pros use paper. Amateurs do not." A simple thing probably doesn't require a written contract, but anything serious where money is involved or work effort is conducted should be written down and parties should honor their words. Even simple agreements should have something in writing.

It goes without saying, but I will any way. People lie. People cheat. People misrepresent. People do bad things. Most people don't, but if you're in business for any amount of time, you can be the victim of malcontents who desire to defraud you or take advantage.

Lawyers and contracts can be expensive. So I always recommend Legalzoom.com for basic and low cost legal documents. Also, Second or Third Year law students often provide gratis or low cost legal advice and legal services. As a business owner, you should establish a relationship with a good Business Law attorney.

Another good legal company anyone can use or afford is LegalShield. It's easy to find a rep by going to DSA.org. Regardless, you must be on top of your protection. Part of this is carrying basic business insurance. It's usually not expensive and it can protect and save everything for which you work.

  1.  Unfortunately, being in business means you can get sued. In some circles some are of the opinion that you're not really in business until you've been sued. Clearly the objective is to never be sued, but it can happen and it's important to know good people and companies to whom you can rely in these cases.
  2.  Have Mentors

A huge error most, yes most, beginner business owners encounter which is entirely and totally avoidable, and can literally sabotage any business is having advisors. Some people call it coaching or mentoring. Others call it consulting. Some even call it an advisory board. Whatever name you give it, it's crucial to know what "to do" and imperative to understand what not to do. It's so important that the former is probably sub to the latter.

Why you should have advisors in your enterprise:

  • It's so easy to make mistakes in business.
  • Making the wrong decisions,
  • Buying the wrong invengtory,
  • Hiring the wrong people,
  • Firing the wrong people,
  • Spending too much money
  • Not spending enough money
  • Filing documents at the wrong times
  • Missing the trends
  • Over estimating
  • Under estimating
  • Personnel issues
  • Lease issues

And on and on goes the unending list of problems and complications that are easily avoidable until you gain the prowess and acumen to fly on your own.

For some reason, some new business owners see asking for help as a weakness when in fact, it's a sign of leadership, mastery, and confidence. Only someone so secure in themselves would share that they need help from others.

It's easy to get advisors and mentors.

A-S-K! Many people will gladly give free advice. After all, it's easier to give it than to take it. Seeking a mentor is considered to be a very highly sophisticated behavior. It shows you're intent is to better yourself and continuously improve.

Seek out someone who has done what you wish to do and has achieved the results you desire.

If they cannot demonstrate they have done it, do not apprentice under them. Only someone who has done it can show you how to do it as well.

CAVIAT: Judge wisely the advice and the results it garners. I have protégé'd with many an advisor only to learn dismayed their intents or expertise did not resonate with my own values.

  1.  Find yourself a good CPA. Accountants are good, but I have found that if you're a professional running a professional level enterprise, you require the talents and skills of an excellent CPA. A good CPA knows how to not only manage your finances and optimize your taxation burdens, but also how to grow and protect your business assets.

My father used to say, "Michael, there are accountants and then there are accountants." This means there are people who know how to fill out a form and file a return, and then there are people like good CPAs who know where to find money and how to protect assets. There is a difference and good CPAs know how to find them.

  1.  Grow wisely. Have high ideals, but live in reality. It's possible that you can open your doors for business, start up your enterprise and the floods of raving and devoted fans can come streaming in the doors. You could explode on the scene like Pokemon, Netflix, or Snapchat. It's great if this happens, but what's bad is if you expand too quickly.

-Don't order too much inventory without knowing your market.

-Don't lease space too big for your launch.

-Don't hire more employees than you need.

-Don't think things are bigger/better/rosier/richer than they are.

It's better to grow too slowly than too quickly.

 

 

 

  1.  Above all, beyond anything that has been discussed, not withstanding all you know and all you'll learn about owning or operating a business, remember that your main purpose is to serve the customer. You need to make money and your objective is to make a profit, but your job is to provide a service or product to your market.

If you fail in this regard, profits don't matter, because there won't be any.  The only way you can possibly survive as a business entity is to provide a product, service or experience that is wanted and needed in the market, and one for which customers are willing to pay. Forget this and all bets are off.

 

Starting, launching, and running a small business can be daunting. Take the chsnce, anyway. Being in pursuit of higher and greater results can be chasllenging. Reach for them any way. Becoming the extraordinary expression of your true greatness and the reason for which you were put on this planet is a big responsibility. Accept it gracefully and fully. It is your destiny to excel and you are now on your way.

Good luck.

Michael J. Herman is widely known as "Mr. Motivation"® for his uncanny ability to inspire and activate audiences. He has been the owner and Main Motivator of The Motivational Minute Publishing Company in Los Angeles, CA since 1997. For more impact in your life, hit him at Mike@michaeljherman.com

Please let me know if and how I can be of value.
 
Michael J. Herman, Speaker-Writer-Author-Entrepreneur
(818) -894-4610  |  M: (818) 441-9288
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Dateline: Granada Hills, CA United States
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