The 1st Step
When we think about starting a business, we think about the concrete steps we need to take to make the business real. Over the years I have taught thousands of students in a class called “Start-Up Basics”. It is the first class that many start with. It is a class that covers all the steps necessary to start a business. Everyone is seeking a magic checklist. In the course, we review all the steps to concretely make your business a reality. They are Registering with the Secretary of State, choosing how your business will be organized (Sole Proprietor, LLC, S-Corp), filing taxes (federal, state, and local), getting a business license, employee classifications, determining insurance needs…and the list goes on.
This is important stuff. If you mess it up, you could be liable for heavy fines and penalties. Ignorance is not an excuse under the law. The federal government and your state and city government all have rules, you must know and follow them. Agreement with them is, of course, always optional.
But as important as this Start-Up Checklist is, it is not the most critical. The truth is
you can get an EIN (Employer Identification Number) from the IRS, register your
business with the Secretary of State, apply for your sales tax number and
business license, plus a variety of other important things for a business in a
short period of time. The truth is there are numerous businesses with EIN
numbers, and registered with the Secretary of State, that have never made a
dollar and possibly lost thousands.
The key question is: How do you know if your business is financially viable?
The answer to that question is not easy nor is it fast. There seems to be an American myth out there that repeatedly relies on the belief that goes something like this:
A) have created an awesome product, or
B) have a graduate degree in (pick your major), or
C) I am an expert in my field (pick your field), or
D) have a great idea for a disruption business model
I just need to hang out my shingle (or put up a website or print some business cards) and everyone will come.
Now that has happened, but so has buying the winning 410-million-dollar lottery. It just does not happen often.
A successful bottom line
There is a simple formula for a successful bottom line.
REVENUE – COSTS = PROFIT
If costs exceed revenue, the only benefit I can see is you can report a loss on your personal tax return. Yet, we continue to start businesses every day based on more faith and hope, than on clear realities. That is why the failure rate after 5 years is 80%.
You need faith and hope to start a business, but you also need:
- A clear vision
- An identifiable and reachable market
- A clear understanding of your industry, the state of the economy, and demographics and trends
- A product or service customers are willing to pay for at a price you can deliver on
- A marketing strategy that gets the word out
to that identified market
- A business plan/strategy that you can execute
with the funds and team available to you
- To understand your financials and what they mean to your business.
Once you have proven to yourself that your business model can be financially viable, then follow the Start-Up Checklist