Welcome To Startup Students

In the second part of The Complete Guide to Business Formation we will discuss Limited Liability Companies along with Corporations.  From there, you will have the opportunity to leave comments about what type of business you want to start and I will gladly help you determine which method of formation works best for you! 

By the way, if you missed Part 1, click here.

Let’s start off with a basic understanding of the types of corporations.  A corporation is a legal entity that keeps personal assets of the shareholders from the firm’s assets.  As you can see, this is a big step in the way of limiting your liability as opposed to sole proprietorships and partnerships. 

A Limited Liability Corporation (or Company – the terms can be used interchangeably with this type of formation) is an organization owned by the “members”.  With an LLC, the corporation’s assets can be seized; however they have no recourse against the shareholders’ personal assets.  The great thing about an LLC is that earnings can be taxed at the personal income tax rates of the members.  By the way, my company, Brett Adams Design is an LLC. 

A Subchapter-S Corporation provides limited liability for shareholders plus corporate income is taxed like personal income to the shareholders.  This is a great choice for a number of business types and may provide positive tax treatment, but does involve additional paperwork compared to an LLC. 

Now that we understand the types of corporations, let’s take a look at some reasons why incorporation makes sense for most people: 

• You limit your personal liability
• By placing Inc. or LLC. at the end of your business’ name, you clearly upgrade your image
• To have the opportunity to channel some heavy expenses
• It guarantees continuity, even after your death, if set up properly
• You can offer internal financial incentives
  

At this point, between parts 1 and 2 you should have a basic understanding of the different types of entities.  Below, I’ve put together a list showing some of the associated attributes for each entity type including liability, capital sources, firm lifetime, and taxation. 

• Proprietorship
  • One owner, with a short amount of time to set up and low cost
  • Unlimited liability
  • Most equity capital will come from the owner
  • Life of the business parallels life of the proprietor and transfer of ownership is difficult
  • Taxed at one’s personal tax rate
• Partnership
  • Two or more owners, with a moderate startup time and cost
  • Unlimited liability
  • Capital sources include other partners, family, and friends
  • Life is determined by the partners and again, transfer of ownership is difficult
  • Taxed at partner’s personal tax rate
• Corporation (C)
  • One or more owners, with a high cost and time to set up
  • Liability is limited to shareholders’ investments
  • Capital investments may come from venture investors and common stock shareholders
  • Business life is unlimited and ownership transfer is easier
  • Corporate taxation; dividends subject to personal tax rates
• Subchapter S Corporation (S)
  • Less than 75 owners, with a high cost and time to set up
  • Liability is limited to shareholders’ investments
  • Venture investors & Subchapter S investors can supply capital
  • Unlimited business life and ownership transfer is moderately difficult
  • Income flows to shareholders; taxed at personal tax rates
• Limited Liability Company (LLC)
  • One or more owners, with a high cost and time to set up
  • Liability is limited to members’ investments
  • Equity capital sources include venture investors and equity offerings to members
  • Business lifetime is set by the members, transfer is difficult
  • Income flows to shareholders; taxed at personal tax rates

Again, please feel free to comment with the type of business you are interested in starting and I’d be happy to offer my opinion.  Class dismissed.

This is the first part of a multi part series that I should have started long ago, and I apologize for not doing so.  This is more of a refresher course for some of you, but I feel it’s important to have this chronicled for those new to entrepreneurship.

When creating the next great startup, at an early stage you will come to a crossroads and must choose how to form your business.  Which option you choose will have a number of ramifications and each will be discussed in detail over the coming days.  There are four types of business formation methods that can be considered (although I wouldn’t recommend a couple of them).  Your choices are:

• Sole Proprietorship
• Partnership
  • General
  • Limited
• Limited Liability Corporation
• Corporations
  • C corporations
  • Subchapter S corporations

When deciding which is best for you, keep in mind some of the following:

• Will I be conducting any business internationally?
• Are there any tax implications?
• What liabilities must I be aware of?
• Might I be faced with litigation at some point in association with customers, employees, or other businesses?
• What are my plans for future growth?
• What types of relationships are present with potential partners?
• Do I have a grasp on my capital requirements?
• What is my exit strategy?

While pondering those questions, lets take a further look into proprietorships and partnerships.

A sole proprietorship is a business venture that is solely owned by an individual.  That person is also solely liable for any of the venture’s possible liabilities.  This means that you have a personal liability to pay off anything not covered by your assets.  Honestly, there are very few situations where this type of formation makes sense.

A partnership is a venture that is owned by two or more individuals.  Like the above, each owner is fully liable.  When we talk about a limited partnership, the limited partner is only liable for his/her capital investment. 

When considering a partnership, consider the following questions:

• Who will maintain management and control?
• What resolutions are in place in case of dispute?
• Consider the financial and time contributions of each partner.
• What occurs in the eventual dissolution of the partnership?
• Can we add new partners?

Again, I don’t think I would ever recommend this type of formation either, but you do tend to see these – especially with professionals such as doctors and lawyers.

In the coming days we will discuss the other types of formations including corporations and LLCs along with suggestions on which type would be best for your type of business.  Class dismissed.

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In the web development business, and many other small businesses it’s tough to stand out from the crowd. Designers are a dime a dozen these days, especially with the advent of outsourcing services such as ELance.

Personally, I’ve relied on top notch service and client referrals to maintain a steady income. Things are going quite well, in fact I’ve reached the point where I must turn down work on a regular basis.

Yet recently I have been looking to grow. Hiring another developer does’nt quite yet make sense, because the number of jobs I’ve turned down doesn’t quite justify the expansion. However, I just finished reading a fantastic book on cold calling entitled “Cold Calling Techniques That Really Work”- and by following the techniques I feel I’ll be able to sustain enough business to justify hiring additional developers.

There are five basic elements to the successful cold call:

1. Get the person’s attention. But not using a cheesy introduction.
2. Identify yourself and your company
3. Give the reason for you call
4. Make a qualifying/questioning statement
5. Set the appointment

Below, I have included some time tested scripts that can be used when making your calls:

• Initial Contact
  • Good Morning Mr. Adams, this is Brett from Brett Adams Design LLC. The reason I’m calling you today specifically is so I can stop by and tell you about our latest web site implementation (or service, or product, or program) that increases traffic and click-thru sales (or whatever applies to your business). I’m sure that you, like (name of previous client) are interested in increasing site traffic.
  • Generally, you are given a positive response by the prospect at this point.
  • That’s great Mr. Adams, let’s get together. How’s this Thursday at 2:00?

As I mentioned, lots of my business comes from referrals or third-party endorsements. But the great thing is that there is a script for those scenarios as well.

• Referral Script
  • Good morning Mr. Adams, this is (insert brief commercial about your business). The reason I’m calling you to today is that Mr. Smith just suggested I give you a call to set up an appointment. I wanted to if Thursday at 2:00 would be okay.

What tends to make these scripts successful is the fact that they generally require a positive response. You aren’t giving them the option to dance around or avoid your request. I’ll be implementing these strategies heavily in the coming weeks and I will keep you updated on the success.

Here are some tips, in no particular order, when cold calling:

• The object (for me at least) is to set an appointment. I’m not looking to close a sale over the phone, I’d rather sit down face to face and explain the value of choosing my services over those of the competition.
• No matter how good you are, sales is still a numbers game. 1/3 of your clients will fall into your lap, 1/3 won’t say yes no matter what, and the other 1/3 can potentially be convinced – and that is the portion that matters when it comes to being a successful cold caller.
• Practice your script, you don’t want to sound as though you are reading off of one, but it’s vital that you do in fact have one.
• People respond in kind. Think, feel, act, and sound positive and you will elicit positive responses.

Somewhat long post today but I hope you enjoyed the lesson and can utilize these techniques to grow your student startup! Class dismissed.

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In light of the disastrous fire situation in California, I thought it would be good to once again bring up the crucial importance of document storage.If you’re like me, especially since the stolen laptop debacle, you keep all your important papers in a sturdy filing cabinet and obsess over backing up your hard drive. No? Well, then I suggest reading this.

However, planning for a potential disaster goes well beyond storage. You need an action plan. What happens to your business in case of injury or death? Does anyone else have the keys to your filing cabinet or safe? Again, you might know the method to your storage madness, but would someone else?

Here are some tips:

• Store and file your information in multiple locations. For your harddrive, utilize DVD’s, external drives, online storage centers, or a combination of all three. Photocopy important documents and compile a list of stored contents; then place in separate locations.
• If you have yet to do so, start collecting relevant documents that would be crucial during an emergency such as banking, insurance, incorporation, and medical papers.
• Organize – then create a list of the contents of your filing cabinet, safe, and harddrive so that you can easily pull the needed information when time is of the essence.
• Create multiple copies of personal documents such as birth certificates, etc. that may be required by government entities in times of disaster. Keep in mind that copy machines may not be available when disaster strikes.
• Inform one or two individuals about the contents and whereabouts of your critical documents in case you are unavailable.
• Once your system is in place, its paramount that you maintain it. Dont wait til the end of the year to do it all again – instead remain aware of what documents should be added.

Generally, we don’t think about these things until it is too late. Take the initiative now to get your things in order. Class dismissed.

 When Virgin Records founder Richard Branson dropped our of school, his headmaster offered these parting words, “Congratulations, Branson.  I predict you will either go to prison or become a millionaire.” So what does that have to do with?  Nothing really, but I thought it was fairly interesting.

At any rate, as an entrepreneur, you will soon find that you simply cannot do it all yourself.  You’ve got to surround youself with the right people – but still maintain to stick to your guns.  Here are some sure-fire keys to success:

• Hire highly motivated individuals.  But be sure they’re motivated for the right reasons.  Those who are self motivated make the best candidates.
• As you surround yourself with great people, be sure to help them become even greater.  A little karma goes a long way.
• Create, maintain, and update as needed your vision and mission.  This creates a sense of clarity outlining your future direction.
• Create, maintain, and update your company values.  A strong corporate culture from the get-go (and then sticking with it) is often overlooked.
• Now that you have the right people on the bus, don’t let them get off!  Be sure to offer appropriate merit based rewards.
• As you grow and expand your business (and your personal knowledge), it would be a great idea to share the wealth.  Offer unique opportunities that allow your employees to garner more experience, but remember to keep your culture strong.  Now that you have highly experienced employees, you surely will want to hang onto them.
• Offering financial rewards is key, but did you know that offering praise is actually a much better motivator?  Make a point to always celebrate success, even if it’s relatively minor.

Class dismissed.

1. Reducing expenses is the quickest way to increase cash flow.
2. Effective networking requires planning and targeting the right contacts.
3. Good recordkeeping will save you time and money at tax time!
4. Use your business contacts and business counselors for perspective and advice.
5. Always be prospecting for new clients!
6. Qualify a client before you do a sales presentation.
7. Can you clearly convey why a client would WANT to do business with you.
8. Objections are an opportunity to educate your client on your product or service.
9. People are led, things are managed.
10. Business education needs to be an ongoing process! Attend a seminar this week!
11. Ask for referrals from everyone! Even those who don’t buy…yet.
12. Tradeshow expenses are wasted if you do not follow up on the leads.
13. Take the time to do it right the first time!
14. Customer service is not an expense, it is a competitive advantage.
15. Build your team of advisors and use them!
16. It is cheaper to keep a good customer than to find a new one!
17. Don’t make a rule that you do not intend to enforce!
18. Think globally and creatively…at least once a week.
19. A goal without a time frame is a wish.
20. Hold yourself and your employees accountable.
21. You must take time for yourself.
22. You can only burn a candle at both ends, half as long!
23. Share your knowledge with your employees!
24. It will build a stronger team.
25. Reward great performance.
26. Sometimes you need to count to 50 before you respond to people.
27. Share your vision.
28. Developing a system allows you to repeat your success.
29. Writing a business plan proves it wasn’t an accident!
30. Investment in education is investment in your future.
31. Be an expert at what you do, and then hire the rest.
32. Write down answers to the top 5 objections you receive… and then practice the answers.
33. If starting a business was easy, everyone would be an owner.
34. Lack of start-up capital is the leading cause of new businesses failure.
35. Ask yourself once and hour, “Is what I’m doing right now making me money?”

As mentioned, I’m interning at the Disney Entrepreneur Center in Orlando, FL. The E-Center is a public/private partnership dedicated to the development, growth, and success of small businesses. At the center, we have a big flat screen in our entryway that shows news, videos, etc. of things going on in the center. At any rate, one of the things displayed on the screen are the quick one liner business tips written by our Director Jerry Ross. – some of which you just read.  Class dismissed.

It’s been a while. Here is why:

• Internship (30 hours per week)
• Brett Adams Design LLC – my company (50 hours last week)
• Two classes
• College football season tickets
• Pro football season tickets
• My ice hockey league
• 192,837,490,823,749 other things

It’s been really tough juggling everything, but I will have you know I’m working on a killer post for late this week. It’ll be so big it might not even be navigable.

Today, however, I’m going to take a few minutes and talk to you about the first branch young entrepreneurs generally shake on the money tree. That is, friends and family along with any other fools willing to get on board. An example of a “fool” would be someone not in tune with the market or industry such as your dentist, mechanic, or mailman.

Don’t get me wrong, these individuals are a great way to go and often times make much more sense than aplying for commercial lending or an SBA guranteed loan. However, obtaining money in this manner often leads to strained relationships and in some cases can rip families apart. Personally, I’d like to avoid that and I’m sure you would too. Below are some tips to consider when approaching these individuals for startup cash:

• Put it in writing. Every last detail about repayment and usage of funds should be included.
• You are running a business, so make it a business loa – not a personal loan.
• Things happen – natural disasters, emergencies, etc. Be sure to add provisions that cover these types of things.
• Have a business plan? Make it required reading for your lenders. If you don’t have a plan then either:
  • Go write one
  • Or B, thouroughly discuss your company’s goals, ambitions, and forecasts.
• Create a continuous dialog and discuss potential problems, fears, and issues that are taking place on both sides of the field.

Again, sorry for not being around. Don’t hold it against me. Remember, just like you I’m a student entrepreneur, with the keyword there being student. Class dismissed.

I haven’t talked too much about financials, and I don’t really plan on doing so today.  I would, however, like to wet your taste buds with some tips on forecasting.  Remember, forecasting is in all reality BS.  Projections can only take you so far but they do help you when setting goals for your small business.

• You are better off selling yourself short than throwing out unrealistic numbers.  Be factual and conservative with your estimates.
• You arent going to go from making $10,000 to $10 million.  It just isnt going to happen unless something truly astonishing happens in your business or your market.
• Quantify your projections and dont just pull them out of a hat.  Make clear and concise assumptions.
• Back those assumptions up with a written list of your reasoning.  Pro forma financials will take your far.
• Utilize industry specific data and not just general data such as census publications.  Contact your local or university library for assistance in tracking down this type of information.  For those of you in school or who are stupid rich – try IbisWorld.
• This goes back to the above statements, but it’s important.  Your projections are going to be suspect if your sales or profit margins are higher (or lower) than the industry average.
• As you progress, compare your forecasts to actual results and determine what went wrong (or right!).

Yes, this was a bit “schoolish” but you are Startup Students!  Class dismissed.

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Today I have a list for you of some great ways to save money as a small business. This is especially useful for those of us trying to bootstrap the next great startup. Without further adieu:

1. Consider having your customers pay up front or require a deposit. This works especially well for larger ticket items or service providers.
2. Pay for your purchases on credit and don’t pay them off immediately. Of course you don’t want to get into serious debt right off the bat, but cash is very important to have on hand in the beginning.
3. Consider leasing your equipment. Laptops, furniture, transportation all come to mind.
4. Be frugal. Easier said than done but by keeping an eye on your spending you are more likely to survive.
5. Don’t splurge on an office right away, there is nothing wrong with working at home. I do it, so should you.
6. One man’s trash is another mans treasure. This goes both ways – sell off your old dilapidated equipment and buy others’ gently used byproducts.
7. Shop around. This goes hand in hand with being frugal I suppose, but next time you need something dont just hop in the car and buy it. Instead, do a little research on the internet to locate the best price first.
8. Make sure your liquid cash is not sitting idle. Put it to work for you and earn some interest.
9. Consider trading your goods or services with other small businesses to save money and benefit both of you.
10. I could write a whole post on this one and I just might some day. Get ready, it’s good. Never Buy what you can Lease, never Lease what you can Borrow, and never Borrow what you can Steal.

Class dismissed.

When pricing your product or service, you should put some thought into the strategy you utilize. Are you going to undercut your competitors? Would you rather target the upper echelon? Maybe you just want to price with the market. It really depends on what you are offering, but here are some different strategies you could employ.

• Penetration Pricing
  • This is when you want to quickly get some traction in your market by offering a lower (and sometime insanely lower) price. Benefits would obviously be the quick market penetration. But be careful, you dont want to undercut yourself out of business!
• Skimming Strategy
  • This is somewhat opposite of penetration pricing. Do you have a relatively new technology that nobody else is offering? Why not “skim” off the customers who are willing to pay more in the beginning. Once demand from the early adopters falls, you can then lower your prices.
• Follow The Leader
  • Sometimes it makes since to just follow the crowd and price your product competitively. Obvious products here would include commodities.
• Variable Pricing
  • Do you sell cars or real estate? Do you own an eBay business? If so, you are already using this strategy. Variable pricing involves negotiation and bargaining between your sales staff and the customer
• Flexible Pricing
  • This works well for service based companies. Do you have government clientel? Then add a couple zeros to the price tag. Have a scaled down solution for commercial use? Drop the price and gaing some market traction.
• Price Lining
  • If you’ve ever been to the Dollar General you are familiar with this strategy. All the products are offered at the same price. Obviously, this method is easy to manage, but you might get stuck due to its lack of flexibility. Times might get tough in times of inflation or an unstable market.

Hopefully this will help you grasp the basic ideas and maybe even assist you in finding the right strategy for your small business. Class dismissed.