The Business Start Up Checklist you NEED
the FAQ of starting a business
So many articles, books and posts have been written about starting a business, but whenever I reference one of them to someone with the nuts and bolts of starting a business, I get more questions than answers. How do I register with the IRS? Where or who do I get articles of incorporation from? How do I process credit cards?
Most articles focus on the very intangible areas of a business plan. Identifying markets, documenting potential customers, and writing up a corporate mission statement. I've talked to enough successful business people, read enough start up stories and heard enough podcasts to know most of that is a waste of your valuable time - or at least not the best use of your time.. Ive tried to lay this out in a chronological order of steps.
As you read through or use this, let me know what I missed. If anyone has any critical task areas I missed or have totally wrong, let me know. I want to tune this for future use as possible.
Elon Musk said the last traditional business plan he did was for Paypal in 1999. No standard business plan at SpaceX or Tesla. Listen to any interview on “how I built this” or “founders”. None of them needed to fill out some business plan template with a consultant. They needed help invoicing customers or setting up payroll taxes. I’ve always told clients to go create problems by SELLING, solve those problems, rinse and repeat. Fiddling with a business plan for the next 6 months will be 6 months lost.
However, just going into something without knowing the risk is a recipe for catastrophic failure. Musk did do the “Secret Tesla Motors Master Plan” back in 2006 and published it on the internet right away. Musk just emphasized that traditional complex business plans only benefit the consultants paid to help assemble them. A couple key questions are in order to assess viability. Here are my 10 steps to nail down business viability first.
What is your key technology, service or product and why are you going to be able to provide it better than others in your market to your customers to create this business? Apples key advantage from the original macbook, through the ipod and to the iphone was ssd memory. Most people miss that. Apple had compact “instant on” memory without waiting for a bootup and Jobs was hunting for places to use it. Do you really know what your key saleable advantage is?
Do you know WHO your initial customers will be? Its not “local government agencies”. Be specific. Is it “Township clerks in rural areas”? “Government entity payroll clerks”? Or is it “City councils approving resolutions to qualify our product”? Who is making the decision? Is it a parent OR their 13 year old child? Once you know your customer with purchase authority, can you leverage them to grow organically without complex step changes in delivery? No one cares what your TAM is. Unless you are Mr Beast, no one cares what the total addressable market for candy bars is when you pitch your new energy bar. Who is going to buy from you in the next 24 months.
Are you going to be able to provide this product or service to your identified two year customer base with positive gross margin? Anyone can sell dollar bills for 75 cents. Can you do it for $1.10 with gross profit to cover some of your overhead?
Timing matters. Bill Gross did a TED talk that pointed out success factors for start ups that indicated success or failure. He ranked them as to which keys mattered to the start ups he invested in. Timing mattered for 42%, Team/execution 32%, The “idea” 28%, business model 24% and Funding 14%. So timing is more important than your team and the idea. Are you too early like MySpace and the internet isn’t ready yet? Are you too late like everyone who came after Facebook was entrenched? Who else is doing what you want to do and are you too early or too late?
The next big key is your team. Are you going to do everything yourself? Great. Do you have an accounting degree to do the projections for the bank? Do you have a law degree to review the contracts, leases and purchase agreements? Who do you need on the team in the first 24 months and are they on board? Better to get them on board while building the boat than yelling to them to jump off the dock into your canoe while you bail water.
Bankers and investors don’t look at most of your business plan. They want a TDLR of product/customer/opportunity and they want a 24 month budget. You better have a budget to live from. Who is going to buy it from you in your first 24 months? Bankers and investors like to see monthly budgets for the next 24 months and just annual after that. Now, you are ready to do a quick and dirty budget.
Remember that 24 months I referenced in talking about sales? That is where the budget needs to start. If you get a bunch of operating cost and find out you need $130,000 a month to cover costs, I guarantee you will come up with a sales forecast that exceeds that number - whether deviously or because you subconsciously do it. Instead, do the most important part of the budget first. The sales budget. What product or service are you selling for the first 24 months? How will you price it? How many to which customers and what is your Gross sales per month. If you do this part first, your entire process will be much more realistic and much more customer focused.
Convert those gross sales into NET sales. Do you need to deduct sales tax? Mastercard and Visa take 3% of your sales. Think about that, Mastercard has profited more from Amazon than AMZN shareholders. How about delivery cost? Returns and allowances? Volume discounts? This gets you down to Net sales.
What are your variable costs to sell. These are the costs that go up with sales. Product manufacturing? Packaging? Direct labor? Production supplies?
Finally, you can do the operating cost budget for rent, utilities, insurance and marketing to get down to net income loss.
Now, run that 24 month budget past the best consultant I have ever found to review a business budget and business plan - a banker. Even if you don’t intend to borrow funds, go to a bank loan officer. They have reviewed so many business plans that they can spot issues and concerns in your spreadsheet. It also prepares them for when things go well and you come back in a year to borrow operating funds to fund growth faster than you expected.
OK, You nailed your product and customer, got commitments from your team, built a 24 month spreadsheet (that you promised to update on a rolling basis every month) and the banker says it looks good. Now its finally time to pull the trigger and set up the stage to put on your show. Here are the administrative and legal issues to resolve to prepare you to go forward. They don’t necessarily need to be done in order, but they are the punchlist. Anyone who sees others I missed please comment so I can add them.
Pick the initial entity type.
Schedule C on your personal taxes using your personal social security number and bank? Probably NOT a good idea, but it is done alot.
Single member LLC that still flows through to your 1040 on schedule C, but with its own tax id number.
Service corporation, LLC or partnership?
C corp has most complexity, but best tax advantages if this is going to be really, really big.
A pac or superpac if you are going to be a government influencer.
A 501c organization for nonprofit activities. A 501(c)4 nonprofit health club with you as its president might be better than a for profit gym that you own.
Pick the state jurisdiction
Picking the state you live in right now is likely the easiest, but may be difficult to change later and taxes in places like New York or California may easily justify going somewhere else.
Nine states have no income taxes: Nevada, Florida, Texas, Washington and several others. It may be worth a look to incorporate elsewhere, especially if you are using a drop shipper like Amazon or providing a service nationwide.
Going international may offer advantages in transactional or financial realms of cryptocurrency or gaining off shore investments. If you are in this world, you need a tax attorney before going further - even if both of your parents are Stanford business school professors. Just ask SBF.
Once the entity and domicile are decided, its time to tell the world and file the forms.
Produce articles of incorporation, needed board resolutions, and other formation documents. A good lawyer saves a lot of hassle, but Google can get you there cheap if you are super careful.
Register with whatever secretary of state or other state institution you chose. You will likely need a registered agent in the state you pick. Does aunt Clara still live in Vegas with an address there?
File form SS-4 at IRS.gov to get a tax id ein (Employer identification number).
File for any non profit status or other business licenses you need to get.
Get any employer id needed for state level required where you have employees.
Get with a bank using your new EIN to get a bank account separate from your personal banking. If you use your own bank account, you have now comingled your personal funds and any lawsuit, tax audit or subpoena will reach into your personal assets even if they are legally pursuing the business as a separate entity.
Get any domain names, copyrights, and web based registrations needed to go forward.
Get a liability insurance policy for the business covering the owners and managers like yourself against liability. If you spill hot coffee on someone at the new coffee shop, make sure you don’t lose your house over it. Since you are doing this for profit, your homeowners won’t cover you unless you have an umbrella rider for business activity.
Get the team going from the start
Can you handle Quickbooks? For a start up, having founder do books initially may be best. If not, do you have someone you really TRUST to handle invoicing, book keeping and monthly projection update?
Who is going to sell, invoice and get paid? Do you have that process?
How are you going to fulfill the orders, process returns and manage inventory?
Now, you are ready to go. I hope this helps. Let me know what is missing. The next time someone asks one of us “what do I do now?” I want to send them a link to this “ToDO” document. So if you can help make it better, I’ll reference you - Just like I did with TED and Bill Gross above.