4.1 Starting a Business

Welcome back to this career readiness course on the essentials of entrepreneurship, brought to you by UCI Extensions. This is module four, and module four, we’re gonna get right down to it, and talk about starting a business. So, you’ve analyzed you know, your opportunity. You’ve evaluated that moved it from third person to first person. We’ve done a feasibility study, and we’ve, we’ve done the, the finances and we’ve got at least, if not a business plan, we’ve got, at least, a feasibility study put together. We’ve looked at the skills, and the tools we’re gonna need, and we’ve developed those things in us, or understand that we need to keep developing the, those things in us. And now, we wanna get down to it, and actually, start a business. Starting a business is, is a very involved process, or actually, I should say, it can be a very involved process. Depending where in the world you’re watching this from you could be in a very, very regulated environment, you can be in a very unregulated environment. I have lived in several countries around the world, I’ve operated, done business in several countries around the world, and in some of the countries in which I’ve, I’ve lived most people just start a business. You just go into business, you don’t incorporate anything, you don’t tell the government, you just start a business. Technically speaking that’s not theoretically legal, but it’s the way it’s done in that particular society. People start a business, and once it’s up and running, once it’s got some momentum behind it, then they incorporate. I’m not advocating doing anything illegal here, and I never would, but I do wanna bring up the fact, that you do want to do what is expected of you in that society, what you need to do in that society. And I want to give you the, the, the, advise of always err on the side of legality, and compliance. If you are not sure be complaint, and this really can help you down the road. I’ve seen many, many people hurt from the fact that, because they didn’t need to, nor were they even expected to actually register their business, or make it a legal entity? They got to a size where then they needed funding, and they couldn’t get funding because when somebody looks at your funding, especially, a bank, looks at your funding. They can really only look at it from the time that you’re incorporated, from the time that you’re a legal entity, right? So, you, you really if you’re watching this from a country out there somewhere in the world where this is not ultra regulated, don’t take leeways because you can, right? Incorporate as soon as possible, follow the law of the land, this is always the best advice. It’s going to payoff in the, in the medium to long-term, if not in the short-term. For those of you in most western societies, as Europe, especially the United States. No, you do things by the book, you incorporate, you pay your taxes, you, you do it right from the beginning, and this is vital. Okay, so, here we go into the steps of starting a business. We’re gonna cover incorporation, banking and accounting, the legal environment. We’re gonna look at systems and technologies, and we’re gonna look at what we call Bricks and Clicks. In other words, the physical aspect of your business versus the digital, the mobile, the social, the online aspect of your business. We’re gonna look at these in brief, again, general overview, and see what we as entrepreneurs have to do in the starting a business, the launching a business process. Okay, the first thing that you’re gonna wanna, you’re gonna need to do is you’re gonna need to incorporate your business. And the reason for that is because one of the first things that you’re gonna need to do, is you’re gonna need to open up a bank account for your business, and you can’t open a bank account until your business is incorporated. Now, there is a very quick, and easy way to do this, which is the sole proprietorship. Now, this, of course, I’m talking to you from the United States of America, from the state of California, from sunny Irvine, California. How do you create a sole proprietorship in the state of California? I simply, do business, if I do business with you, I have just created a sole proprietorship. I haven’t filed anything, I haven’t declared anything, but I, I’ve done business, and I’m gonna need to report that, and therefore, I have a sole proprietorship. Now, I’m probably gonna wanna formalize this by filing a DBA, right? A, a a Doing Business As, which is a fictitious name statement. So, maybe I want to do business with you as happy go lucky businesses, right? Happy go lucky business, so I’m gonna have to incorporate that name, or just reserve that name, and say, this is David Standen doing business as happy go lucky business, right? Now, interestingly enough, if I keep my name in the business, I don’t necessarily, even have to file the DBA. I can just say, David, David Standen and Associates. My name is in there, and therefore, I don’t even have to file a, a, a fictitious name statement. But if you are not using name, you probably do have to file one, you should file one, and that’s the most basic way of starting a business. And depending on the business that you’re starting you’re going to wanna look into different forms of incorporation. If it’s typical partnership, you might just wanna look into an LLP, there’s what we call the, they, they incorp, the, the corporations, the C CORP, the S CORP. Now, if you want to be able to sell stock in the future, or you want to be able to easily add and remove investors, maybe a C CORP, or an S CORP is best for you. There’s also the, the LL, the LLC, limited liability company. Right, like a limited liability partnership, but this one focuses a little bit more on the company itself, and you can add and remove partners, add and remove investors. I don’t wanna get into the technicalities of each of these too much, because these are gonna change depending on where in the world you are, and what forms of incorporation there are where, where you exist. But you wanna look at the kind of company that you want to run. Where you want to go with it in the future, and what you expect from that company in the short-term. Because do understand in most companies, in most countries, in most places, you can actually change your form of incorporation. You can be an LLC, and then change into a C CORP, or vice versa, okay? So, it’s not like if you just choose one form you’re stuck with that form forever. You want to avoid having to change if, if possible, but if you think that it might be in your best interest, and hey, I’ll give you an example in California. In the state of California a LLC needs to pay a tax a minimum tax of $800 a year, so your gonna have to from day one pay a minimum of $800 tax for your LLC. Well, if you expect to incur significant losses in the first three you know, two, three, four years of business. Well, if your in loss, you don’t have to pay tax, but if your an LLC, you do. So, what you might wanna do is incorporate as a C Corp, right? You have, have your losses, save on the tax, and then in that year three, four, five, when the money really starts to come in, at that points. Again, depending on how you want to raise capital, and deal with partnerships, and investors. It could be in your interest to change over from a C Corp into an LLC, and, and pay less taxes, depending on the business you’re doing. So, you certainly don’t wanna jump around, you don’t wanna have changed your incorporation status to you know, three, four, five times. But it could be a strategy depending on your business to incorporate one way to start. Also, it’s much less expensive to incorporate a C Corp than an LLC. So, if money is a, is a concern early on, which usually it is, you might want to choose a form of incorporation that, that you think you might wanna change as you go down the road. So, you’ve incorporated your company, or you’ve got a sole proprietorship, and you filed a fictitious business name. You wanna go out over now, and open up a bank account, now this is extremely important because you need to keep business funds separate from personal funds. This is important if your business grows at all this is gonna be even more important. But you wanna stay away from the commingling of funds, make sure that you can very clearly show, this is where I’ve put into the business. This is what I’m getting out of the business, and this is much easier, if there’s if there’s two accounts. So, whether the law requires you to do it, or not, it’s definitely a best practice. Simplify as much as possible, where this is concerned, I always encourage people open bank, your, your business bank account at the bank that knows you, and where you’re currently doing business. In the beginning, you’re probably gonna have to transfer money back, and forth quite a bit between the two. And so, if you’re at the same bank, at that transfer can be instant. Whereas, if you have different banks, it can take a day or two to get that transfer across. So, simplify, try to keep everything under one roof. Follow, don’t follow pennies, or promotions. In other words, don’t say, well, this bank is known for businesses, so I’m gonna go over, and incorporate with that bank cuz that’s a better business bank. You know, what? When your business reaches that size, or that volume, take your business over to another bank. That’s okay. You’re going to become disillusioned with banks in the entrepreneurial process. A, a mentor of mine once told me, that his mentor told him, your bank is your business partner, your bank is your business partner. Unfortunately, I find very few banks that are that, that, that view you in the same way. In fact, I think it was Bob Hope who said, a bank is an institution that will give you money as long you can prove you don’t need it, right? And that’s what you’re gonna find as an entrepreneur, you’re gonna find that banks, as soon they realize you’re an entrepreneur, and you’ve got a business, they instantly start telling you how conservative they are. How they’re not known for you know, getting into startups, and the don’t deal with this kind of thing. You know, what? That, that’s the nature of banking, banking is conservative. Once you’re up and running, and you’ve got cash flow coming in. Once you, they see how you can profit them, then of course, they’ll gonna be knocking at your door, and they’re all gonna want your business, is the nature of the beast. So, simplify your life with banking, unfortunately, in my experience not just in America but in other countries, they’re not gonna be ultra loyal to you. So, you don’t necessarily need to be ultra loyal to them. Go with the bank that, that best serves your needs at the moment. This is just some very practical advice, and it’s advice that maybe I’ve learned the hard way in the past, trying to go with a bank that I thought would be better for me in the future, as opposed to a bank that’s gonna simplify my life right here, and now. When it comes to banking, when it comes to beginning steps of entrepreneurship, only add complexity where necessary. So, open up your account, different than your personal account, try to get a credit card for your business. Now, you’re going to have to personally sign, in America, in California, that’s the way it is. You think, well, I incorporated a companies to be a separate legal entity, that, that legal entity should get the credit card, not me. That’s the way that Cali, the state of California would like it to happen, that’s the way the government would like to happen, that’s not the way the banks are gonna work until your operating in at least half a million dollars a year. So, until that point you are gonna sign for everything personally yourself, but get it anyway because that helps you keep accounts separate. You use your business account for business stuff, you use your business credit card for business things, personal account for personal things, et cetera, et cetera.