The American Dream: the idea that if you work hard enough, you can achieve your own personal success and prosperity in this country. While some would argue that the American Dream isn’t what it used to be, people are still creating successful businesses every day. It certainly isn’t easy though, and hard work is only a part of it. Being a business owner also requires patience, persistence, commitment, creativity, flexibility and organization. However, with any great risk comes the potential for great reward, both internally and financially. Here is a basic guideline to get you pointed in the right direction for starting your business.
You’ve come up with your big idea, so the next step is to do your homework to learn about your customers, competition, and general economic conditions for your line of business. This will set the framework for your business plan and help you hone in on your customer’s needs, be better than your competitors, and mitigate marketplace risks. You can conduct “primary” research by holding focus groups or surveys within your target market; or by visiting and observing your competitors. “Secondary” research is market data that you can obtain online, from trade journals, or through an industry association.
The entity structure you choose determines how your business income will be taxed. Here is a brief summary on the different structures:
- Sole Proprietorship – Under a sole prop, the business does not file a separate tax return as it is not a legal entity separate from the owner. The business owner is liable for any debts incurred by the business.
- Partnership – Under a partnership, the business is owned by two or more individuals. Although the business is not a separate entity from the owners, a tax return must be prepared for the partnership to show how profits and losses are distributed to the owners. Any partnership owner can be held liable for all of the business’ debts.
- Limited Partnership – In a limited partnership, there are one or more general partners with control over the business and full liability as described above. There are also limited partners, who do not have management control and whose liability is limited to their investment in the business.
- Corporation – A corporation is a legal entity separate from its owners, who are known as shareholders. The corporation pays taxes on profits earned and if dividends are paid to the owners, these are taxed too.
- S-Corporation – An S-corp is considered a corporation, but does not pay federal income taxes. Profits and losses are divided among shareholders who report it on their personal tax returns. As such, the owners of the company enjoy the benefit of limited personal liability while also avoiding double taxation on profits. The legal requirements for the formation and structure of S-corps, however, are relatively restrictive.
- Limited Liability Corporation (LLC) – An LLC also has the advantage of limited liability along with pass-through income reporting (reported only by the owner at the individual level). The requirements for setting up LLCs are less restrictive than with S-corps, often making them attractive to single-owner businesses.
A business plan is crucial in the formation stage of your business. Initially it will help you solidify the mission and goals of your business. Later, it will be a crucial part of a loan package you’ll need if you intend to apply for financing. Check out this presentation on how to create a deck, business plan and give a winning elevator pitch. Additionally, there is a multitude of resources online for help in preparing a business plan. The U.S. Small Business Administration (SBA) has a free self-paced course available here.
Filing the Paperwork
- Pick a name for your business and register it with your state government
- Get a Tax Identification Number from the IRS
- Find out about your state & local tax requirements:
- Acquire the necessary permits and licenses for your business
Business Plan –> Slide Deck –> Elevator Pitch
Keep in mind that with the advent of technology startups, some of you may need a “deck” instead of the standard business plan. If yours is a technology based startup, then you need a deck. A deck simplifies your presentation in (generally) 10 slides or less and cuts to the chase when time is short for investors. This is because a business plan may seem outdated and too wordy for some investors since they review countless plans all the time. Take a look a the business plan below and note the differences between the traditional business plan and the deck:
Once you’ve nailed down the creation of your deck, then you’re ready to move on to pitching to a venture capitalist. This is known as an elevator pitch. You want this to be good because he/she could love your idea enough to fund it based on your presentation and how your business aligns with their values. Those values being the potential to make them lots of money!
Are you ready?
Tell us if you’ve started your own business and if so, what tips do you have for other women putting their first deck or business plan together!