RPF-0031-Basic_First_Steps_to_Starting_a_Business
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00:00:29.000 | Radical Personal Finance, episode 31.
00:00:34.000 | (upbeat music)
00:00:37.000 | Welcome to the Radical Personal Finance podcast
00:00:53.000 | for today, Wednesday, July 30, 2014.
00:00:56.000 | I'm your host, Joshua Sheets, and today we're gonna be
00:00:59.000 | talking about business, specifically starting one.
00:01:02.000 | (laughs)
00:01:03.000 | One of my favorite topics, in case you can't tell
00:01:05.000 | from previous episodes, and I'm just gonna give
00:01:07.000 | a few tips and ideas for practically
00:01:10.000 | how do you start a business.
00:01:12.000 | Unfortunately, it's a subject they don't teach in school,
00:01:14.000 | so we're gonna start teaching it here today.
00:01:16.000 | (upbeat music)
00:01:19.000 | This podcast is actually the result of a podcast
00:01:25.000 | and the result of some recent conversations
00:01:27.000 | with a friend of mine who's just starting a business
00:01:29.000 | of his own, and when we were talking,
00:01:32.000 | I was trying to give him some ideas and some tips,
00:01:34.000 | and we started talking about a few of the details
00:01:36.000 | surrounding business startup, and I realized that,
00:01:40.000 | I don't know why I haven't realized this in the past,
00:01:43.000 | but I realized that we don't talk a lot about business
00:01:48.000 | and about starting businesses, how to start businesses.
00:01:52.000 | And it's interesting, I was reflecting back on the book
00:01:55.000 | that Jake DeSilis wrote on entrepreneurship
00:01:58.000 | and was just reflecting on why that is,
00:02:00.000 | and the reality is that most of our teachers in life,
00:02:04.000 | in formalized schooling, most of our teachers are employees.
00:02:08.000 | They're employees of the school board,
00:02:12.000 | or of a private institution.
00:02:15.000 | And so I thought, wow, it's no shock that we don't know
00:02:17.000 | how to start a business, but I was just reflecting on
00:02:20.000 | and speaking with my friend, I was just reflecting
00:02:23.000 | on how valuable just some basic knowledge
00:02:26.000 | about how to start a business would be and can be.
00:02:29.000 | And there are lots of books, lots of excellent books
00:02:32.000 | that are written about this that I think are well worth reading,
00:02:35.000 | and I'll try to, maybe at the end of the show,
00:02:37.000 | if I can remember a few of the ones that I've really enjoyed
00:02:39.000 | over the years, I'll try to make some recommendations.
00:02:41.000 | I don't have them written down, but maybe I'll do it
00:02:43.000 | off the top of my head.
00:02:45.000 | But it's fairly simple.
00:02:47.000 | The whole process of business is fairly simple,
00:02:49.000 | but in other ways, it's pretty daunting.
00:02:52.000 | And I recognized back, I was just thinking back
00:02:55.000 | to when I started my business,
00:02:58.000 | my financial planning business about six years ago,
00:03:02.000 | and I was an entrepreneur for the first time,
00:03:04.000 | dealing with business taxes and entity selection
00:03:06.000 | and all of that for the first time,
00:03:08.000 | and I realized, you know, it is a pretty daunting,
00:03:10.000 | overwhelming, overwhelming thing,
00:03:12.000 | but it really doesn't have to be.
00:03:14.000 | So today's show is going to be a list of some tips
00:03:16.000 | and some things that I think are interesting and useful.
00:03:20.000 | And if no one listens, it's specifically for my friend
00:03:23.000 | that I want to give this information to,
00:03:26.000 | and I hope you can benefit by listening
00:03:28.000 | in on the conversation as well.
00:03:30.000 | It's a little easier for me to sit down
00:03:32.000 | and compose some ideas like this
00:03:34.000 | than it is to talk his ear off,
00:03:36.000 | to talk his ear off in person.
00:03:39.000 | And I hope this will be a little easier to listen to.
00:03:41.000 | There are kind of two aspects to starting a business,
00:03:43.000 | and so the thing that was worrying a friend of mine
00:03:46.000 | was kind of what I would classify as entity selection.
00:03:49.000 | And, you know, should I open-- should I start an LLC?
00:03:52.000 | Should I open a corporation?
00:03:54.000 | And I'm going to deal with, like, which entity
00:03:56.000 | in a separate topic, in a separate show.
00:03:59.000 | But today's show is basically just going to be--
00:04:02.000 | my answer is don't bother with that right now.
00:04:04.000 | Just don't even worry about it.
00:04:06.000 | So Joshua's steps to starting a business.
00:04:08.000 | And I think that this is so key
00:04:11.000 | because the reality is I think we should all be--
00:04:14.000 | I think this should be useful to all of us.
00:04:16.000 | First of all, I think that we're all already in business,
00:04:20.000 | and we should learn to think like business people.
00:04:23.000 | So to me, a stage of-- a very important step of freedom--
00:04:27.000 | and I don't know how to list these out in an orderly way
00:04:30.000 | that this is the step, but I think a very important step
00:04:33.000 | along the way is for all of us
00:04:37.000 | to view ourselves as self-employed.
00:04:39.000 | And whether we work for an employer
00:04:41.000 | or whether we work for a business that we own,
00:04:44.000 | all of us to view ourselves as self-employed
00:04:46.000 | because if we view ourselves as self-employed,
00:04:48.000 | we'll start to run more calculations.
00:04:50.000 | And I've gone over that in previous episodes,
00:04:52.000 | but those calculations are important.
00:04:54.000 | You know, am I getting the value for my effort
00:04:56.000 | that I need to be getting?
00:04:58.000 | Is there some way that I can enhance my value
00:05:00.000 | so that my customer, which happens to be my employer,
00:05:03.000 | is willing to pay me more money?
00:05:05.000 | So the business owner is constantly thinking about it,
00:05:07.000 | saying, "How can I deliver a higher amount of value
00:05:11.000 | "so that my customer will choose to repay me
00:05:16.000 | for that value with their cash?"
00:05:19.000 | That's the essence of business in and of itself.
00:05:22.000 | And I think this would be really helpful for us as a culture
00:05:29.000 | if we really institutionalized this way of thinking.
00:05:32.000 | But--and I don't see any way that it's gonna happen
00:05:35.000 | in our current paradigm, and that's okay.
00:05:38.000 | So Joshua, step number one for starting a business.
00:05:41.000 | If you have a business idea, number one,
00:05:43.000 | sit down with a pen and a piece of paper,
00:05:45.000 | turn your cell phone off, turn your computer off,
00:05:47.000 | get away from everything for just 10 minutes,
00:05:50.000 | 10 minutes at most,
00:05:52.000 | and write out what you propose to do and for whom.
00:05:55.000 | So what is your business?
00:05:57.000 | What do you propose to do and for whom?
00:06:01.000 | So do you propose to make stuff?
00:06:03.000 | Do you propose to make something?
00:06:05.000 | And then who's gonna buy it?
00:06:07.000 | And then--or do you propose to do something,
00:06:09.000 | provide some kind of service,
00:06:11.000 | and who's gonna pay for that service?
00:06:13.000 | And it seems silly, and I mean, it seems simple.
00:06:15.000 | You're like, "Well, I wouldn't be starting this idea
00:06:17.000 | "if I didn't know it."
00:06:19.000 | But many times we don't take the time to write stuff down.
00:06:21.000 | And if you just write a paragraph,
00:06:23.000 | "This is what I want to do and for whom,"
00:06:26.000 | then that will help a lot.
00:06:28.000 | And it's much more valuable to be specific,
00:06:31.000 | as specific as possible with it.
00:06:34.000 | And then number two, most important, next step,
00:06:36.000 | is write out a plan for how you propose
00:06:39.000 | to reach those people.
00:06:42.000 | If you go through formal business school
00:06:45.000 | and you learn about, you know, business plans
00:06:47.000 | and all of that--and by the way,
00:06:49.000 | one comment on business plans.
00:06:51.000 | There is dramatic evidence to show--
00:06:53.000 | I've read various surveys,
00:06:55.000 | none of which I can cite for you today,
00:06:57.000 | so you just take my generalized word for it.
00:06:59.000 | I've read various studies that have shown
00:07:01.000 | that the having of a business plan,
00:07:05.000 | the existence of a business plan,
00:07:07.000 | is a significant marker in the potential success
00:07:09.000 | of a company.
00:07:13.000 | But if you actually interview the entrepreneur
00:07:15.000 | who's starting a business,
00:07:17.000 | it's very often--very often
00:07:19.000 | that the entrepreneur never refers to the business plan.
00:07:22.000 | And the idea is that the business plan
00:07:24.000 | is a way of sitting down and thinking on paper.
00:07:26.000 | And this is my opinion.
00:07:28.000 | Thinking on paper, thinking in advance
00:07:30.000 | of what all of the things that are going to happen
00:07:32.000 | and can happen and all the things that could go wrong
00:07:35.000 | and what you would do and all the things that could go right
00:07:37.000 | and what you would do then,
00:07:39.000 | just gives you a valuable mental exercise
00:07:41.000 | where without yet being out in the thick of things,
00:07:43.000 | you can sit down and you can just start thinking it through.
00:07:46.000 | "What would I do in that situation?"
00:07:48.000 | So thinking on paper--and this is the essence.
00:07:50.000 | These two things are very simple parts
00:07:52.000 | of a business plan.
00:07:54.000 | You don't need to pull up a business plan template online
00:07:56.000 | and bother through that nonsense.
00:07:58.000 | You just need to answer a few basic questions.
00:08:00.000 | "What do I propose to do and for whom?"
00:08:02.000 | And then, "How do I propose to reach those people?"
00:08:04.000 | "What's my marketing plan for reaching those people?"
00:08:07.000 | I think many business owners could easily--
00:08:09.000 | many people who are starting businesses
00:08:11.000 | can very easily start and answer the question--
00:08:15.000 | can answer question number one.
00:08:17.000 | Many fewer can answer question number two--
00:08:20.000 | "How do I propose to reach those people?"
00:08:22.000 | But it's incredibly important.
00:08:24.000 | Businesses don't succeed or fail--
00:08:27.000 | businesses don't succeed or fail based upon--
00:08:33.000 | businesses generally succeed or fail
00:08:35.000 | based upon not reaching enough people,
00:08:36.000 | not selling enough stuff.
00:08:38.000 | And oftentimes, if you have a reasonably good--
00:08:41.000 | or at least average--product or service,
00:08:44.000 | it's the marketing plan that's the key thing.
00:08:46.000 | And so you want to sit down and say,
00:08:47.000 | "What is my marketing plan?"
00:08:49.000 | "Am I going to reach people individually
00:08:50.000 | "by calling them out of the phone book
00:08:53.000 | "or out of the Chamber of Commerce directory?"
00:08:55.000 | "Am I going to reach people with a web page
00:08:58.000 | "that they find through targeted traffic?"
00:09:00.000 | "Am I going to reach people
00:09:01.000 | "through word-of-mouth referrals?"
00:09:02.000 | "Well, in that case, how am I going to let people
00:09:04.000 | "that know me and know what I do
00:09:06.000 | "know about my word-of-mouth referrals?"
00:09:08.000 | "How am I going to start reaching people?"
00:09:10.000 | If you have the answers to those questions,
00:09:12.000 | you basically have--you basically have your business.
00:09:15.000 | And then the next step is, "Don't wait.
00:09:17.000 | "Just start. Start reaching out to people
00:09:19.000 | and start selling."
00:09:20.000 | There was a--there's a saying, and--called--
00:09:24.000 | the saying is, "Ready, fire, aim."
00:09:26.000 | We're all familiar with the idea of "Ready, aim, fire."
00:09:28.000 | And an author named Michael Masterson
00:09:30.000 | wrote a book on it called "Ready, Fire, Aim."
00:09:32.000 | He used that as his title.
00:09:33.000 | Excellent book.
00:09:34.000 | And the point that I agree with
00:09:38.000 | and that I've seen in many things
00:09:40.000 | is don't worry about how to be good at it.
00:09:42.000 | Just go--go--go start trying it.
00:09:44.000 | It's--it's so much easier to adjust
00:09:47.000 | once you've seen what the business is actually like,
00:09:49.000 | once you've actually gone out and started doing it,
00:09:51.000 | than it is to sit back in a closed room
00:09:56.000 | and try to imagine all of the possibilities
00:09:58.000 | that are--that are there.
00:10:00.000 | So just go out and start reaching out to people.
00:10:02.000 | Start selling. Start selling. Start selling.
00:10:04.000 | And let the market give you the feedback
00:10:06.000 | that you need to adjust your product offerings.
00:10:09.000 | If you're finding that it's very difficult
00:10:11.000 | to sell what you thought you were gonna sell
00:10:13.000 | and you're not having any success selling that,
00:10:15.000 | then ask your customers or your--
00:10:17.000 | your target customers, "Okay, the offering,
00:10:20.000 | "the product, or the service that I'm trying to offer you
00:10:22.000 | "is not--is clearly not attractive to you.
00:10:26.000 | "Would you be willing to tell me what is attractive to you?"
00:10:30.000 | And then think--can see--
00:10:32.000 | figure out if you can offer that.
00:10:34.000 | So the key with business is to ignore everything about it
00:10:38.000 | until you go and start selling.
00:10:40.000 | Don't print business cards. Don't get office space.
00:10:42.000 | Don't buy stuff. Don't buy products, even.
00:10:44.000 | Don't, you know, set up accounting systems.
00:10:46.000 | Don't do any of this stuff. Go sell.
00:10:49.000 | And if you just go sell and you have money coming in,
00:10:52.000 | then you have the cash flow to sustain
00:10:54.000 | all of those other aspects.
00:10:56.000 | So I remember a--
00:10:58.000 | there was one useful anecdote in 4-Hour Workweek
00:11:02.000 | with Tim Ferris-- that Tim Ferris wrote.
00:11:04.000 | And I remember he put this into the 4-Hour Workweek
00:11:07.000 | as part of his suggestions for building an online business.
00:11:10.000 | He said, "Make a product and go put an ad up.
00:11:13.000 | "And create a landing page saying,
00:11:15.000 | "'Sorry, this product is not--'"
00:11:17.000 | I think he used, like, Hawaiian shirts or something.
00:11:19.000 | "So create what you think is a super great tropical linen
00:11:22.000 | "Hawaiian loose weave shirt.
00:11:24.000 | "Write an ad for it.
00:11:26.000 | "Go out and buy some Google ads
00:11:28.000 | "and put that ad in front of customers
00:11:30.000 | "and measure the results.
00:11:33.000 | "Have product A and product B,
00:11:35.000 | "and neither of them have been created yet.
00:11:37.000 | "But go out and get some people to click on that
00:11:39.000 | "and then measure--maybe put a form there
00:11:41.000 | "where they can opt in to be notified
00:11:43.000 | "when the product is ready, and then measure the results.
00:11:45.000 | "And then that will help you to identify
00:11:48.000 | "what product offering there is."
00:11:50.000 | Until you've sold something,
00:11:52.000 | you have no ability to have a business, period.
00:11:55.000 | And so the key is go out and sell, sell, sell, sell, sell.
00:11:58.000 | Sell your product, sell your service,
00:12:00.000 | sell your product, sell your service,
00:12:02.000 | and then adjust and get feedback from your customers.
00:12:04.000 | Ask them, "What do you really like about this?
00:12:06.000 | "What's going well about it?
00:12:08.000 | "What would you like to improve?
00:12:10.000 | "If I could offer you a better service,
00:12:12.000 | "what would you improve about that?"
00:12:14.000 | This is the most important thing,
00:12:16.000 | is to get really comfortable going out and selling.
00:12:19.000 | Unfortunately, this is also the hardest thing.
00:12:22.000 | So what many entrepreneurs will want to do
00:12:24.000 | is they'll want to go out and rent office space
00:12:26.000 | and get furniture and set up a website and all this.
00:12:29.000 | Selling is uncomfortable.
00:12:31.000 | But you have to go out and sell.
00:12:33.000 | If you can't go out and sell
00:12:35.000 | and you can't get cash coming in the door,
00:12:37.000 | you have no business.
00:12:39.000 | You have a dream, you have an idea,
00:12:41.000 | so I say get out there and sell.
00:12:43.000 | Now, as far as what do you formally need to do
00:12:46.000 | to start a business, nothing.
00:12:48.000 | Absolutely nothing.
00:12:50.000 | You don't need to do anything.
00:12:52.000 | You could start and run seven businesses in one year,
00:12:55.000 | zero the next, 15 the next, zero the next.
00:12:59.000 | So from the--
00:13:01.000 | Generally, people are concerned about taxes and legality
00:13:04.000 | and all of that.
00:13:06.000 | Unless there's some kind of business license
00:13:08.000 | that you need from a local municipality
00:13:10.000 | or there's some kind of occupational license,
00:13:12.000 | and that stuff does exist, and you should know about it
00:13:14.000 | if you're going to go and find your industry.
00:13:16.000 | But from a tax perspective or from the IRS perspective,
00:13:18.000 | you don't have to do anything to set up a business.
00:13:22.000 | Just go do it.
00:13:24.000 | If you make money at it, you need to record the money,
00:13:27.000 | and then you'll offset the expenses,
00:13:29.000 | which is what we'll get to in just a second.
00:13:31.000 | But you don't need to start a corporation,
00:13:33.000 | you don't need to start an LLC.
00:13:35.000 | Just get out there and start selling.
00:13:37.000 | And if you get out there and start selling
00:13:39.000 | and you're a successful business,
00:13:41.000 | now go ahead and get the formalities in place.
00:13:43.000 | And the formalities can be put in place very, very quickly.
00:13:46.000 | So it's really not that big of a deal.
00:13:48.000 | If you make money and you don't have anything in place--
00:13:51.000 | let's say you haven't started a corporation,
00:13:53.000 | you haven't filed for an LLC, any of that stuff--
00:13:56.000 | and you made money, all you'll do is you'll simply total up
00:13:59.000 | at the end of the year how much money you made,
00:14:01.000 | you'll subtract any expenses that were associated
00:14:03.000 | with that money, and then you'll file
00:14:05.000 | what's called a Schedule C on your taxes.
00:14:07.000 | And a Schedule C is a separate schedule
00:14:10.000 | that you file with your Form 1040
00:14:12.000 | for your annual income tax return,
00:14:14.000 | and it's for profit or loss from a business.
00:14:16.000 | And if you made money on the business,
00:14:18.000 | then you'll go ahead and pay income taxes
00:14:20.000 | and employment and self-employment taxes on the money.
00:14:22.000 | And if you lost money, you can deduct that loss
00:14:25.000 | against your other income.
00:14:27.000 | So it's no big deal.
00:14:29.000 | And you don't have to keep the business going.
00:14:31.000 | You can have one business that you did in January,
00:14:33.000 | one business that you did April through November,
00:14:36.000 | and a third business that you did for 2 months
00:14:38.000 | in July and August.
00:14:39.000 | It's really not a big deal.
00:14:41.000 | You would just file under that scenario.
00:14:43.000 | You would file 3 separate Schedule Cs.
00:14:45.000 | Now, you do, of course, want to keep this practically in hand.
00:14:50.000 | So step 4 is very simple.
00:14:53.000 | Open a business checking account.
00:14:55.000 | And this may or may not be a business checking account.
00:14:58.000 | In fact, I think you're probably better off
00:15:00.000 | just starting with a personal checking account
00:15:02.000 | and ignoring the name of your business.
00:15:04.000 | Don't worry about going out and getting a business checking account
00:15:06.000 | in the name of Acme Corporation.
00:15:09.000 | Rather, just simply say, "Hey, I'm Joshua Sheets,
00:15:12.000 | and I'm opening a checking account."
00:15:14.000 | And people are just going to write their checks to Joshua Sheets.
00:15:16.000 | But set up a separate business checking account
00:15:19.000 | for every business that you're running.
00:15:22.000 | And this is the simplest way to keep records.
00:15:25.000 | Just simply establish a separate account.
00:15:27.000 | Again, you can use a free personal checking account.
00:15:30.000 | A lot of banks want to charge for business checking accounts.
00:15:34.000 | So some banks will offer lots of free personal checking accounts,
00:15:38.000 | but then will charge you for the business checking accounts.
00:15:41.000 | Technically, a business checking account is going to--
00:15:43.000 | basically, the only difference between a business checking account
00:15:45.000 | and a personal checking account in general for a small business
00:15:47.000 | is going to be the fact that your business name
00:15:50.000 | will be listed on your checks,
00:15:52.000 | and the fact that you can accept checks
00:15:54.000 | written out to your business name.
00:15:57.000 | So that can be useful
00:15:59.000 | if someone's going to write out a check payment to XYZ Corporation.
00:16:03.000 | That can be useful.
00:16:04.000 | But it's probably not necessary in the beginning.
00:16:06.000 | So it may just be simpler to start a separate personal checking account.
00:16:10.000 | And then if you need to spend any money for the business,
00:16:12.000 | make sure that you spend it out of that business checking account.
00:16:15.000 | Pull out your phone, do it at the same bank you bank with
00:16:17.000 | with your personal banking.
00:16:19.000 | And if you're going to spend business,
00:16:20.000 | you need to go and buy some materials for your company or whatever.
00:16:25.000 | Just pull out your phone,
00:16:27.000 | transfer $100 from your personal checking account
00:16:29.000 | into your business checking account,
00:16:31.000 | and then swipe your debit card for $100 at the materials store.
00:16:35.000 | And that way you'll have a bank statement
00:16:39.000 | that will generally have all of your expenses
00:16:41.000 | that are associated with the business.
00:16:44.000 | And so this can be from the little to the big.
00:16:48.000 | You really want to make sure that you have everything listed on there.
00:16:51.000 | So whether this is, "I bought some pens at Office Depot."
00:16:55.000 | Are they still in business? I think so.
00:16:57.000 | "I bought some pens at Office Depot or Office Max or Staples
00:16:59.000 | or whoever the latest business people are."
00:17:03.000 | Or if it is, "I've had lunch with somebody as a prospective client lunch."
00:17:09.000 | If there's anything that you're doing associated with the business,
00:17:13.000 | and basically that's all you need to know.
00:17:14.000 | If this expense that I'm about to incur,
00:17:17.000 | this expenditure is associated with my business,
00:17:20.000 | swipe your business checking, your business debit card.
00:17:23.000 | It's a good idea to probably set up a separate business credit card as well.
00:17:27.000 | So you might set up just another credit card account.
00:17:32.000 | This can be a personal credit card,
00:17:33.000 | just like it can be a personal checking account.
00:17:35.000 | One reason to do that is just to protect yourself from,
00:17:39.000 | potentially in the future, bankruptcy laws, things like that.
00:17:43.000 | For example, in the state of Florida where I live,
00:17:44.000 | you just want to make sure things are separated.
00:17:47.000 | And then also if you are going to go into debt to start your business,
00:17:50.000 | which may or may not be a good idea, probably isn't,
00:17:53.000 | but better to out-earn it, but if you need to,
00:17:55.000 | if you want to go into debt to start a business,
00:17:57.000 | then you want to make sure that any debt that you have is deductible debt.
00:18:01.000 | So if you were going to make the choice between spending money on the--
00:18:06.000 | let's say you have $100 in your checking account,
00:18:08.000 | and you need to spend $100 on business and $100 on personal stuff.
00:18:11.000 | Better for you to go--so you're going to be $100 short.
00:18:15.000 | Better for you to go $100 in debt on the business credit card,
00:18:19.000 | which can just be a separate personal credit card
00:18:21.000 | that only has business expenses on it.
00:18:23.000 | The IRS would want to see if you're going to deduct this and you're audited,
00:18:26.000 | the IRS would like to see that you only have business expenses,
00:18:29.000 | that you're not commingling your business and your personal expenses.
00:18:32.000 | This is a big deal.
00:18:33.000 | But it would be better to go ahead and charge the $100 on the business credit card
00:18:39.000 | and pay for the $100 of groceries that you need out of your personal checking account.
00:18:44.000 | That way, if you're going to go into credit card debt,
00:18:46.000 | you don't wind up with non-deductible debt.
00:18:49.000 | You want to make sure that you can deduct those interest payments as a business expense.
00:18:52.000 | So just a little tip.
00:18:54.000 | So simple business checking account, simple business credit card,
00:18:57.000 | both of which can actually be a personal checking account and a personal credit card,
00:19:01.000 | but just a personal checking account that you only use for business
00:19:05.000 | and a personal credit card that you only use for business expenses.
00:19:09.000 | This is--you don't need to get any more complicated than that.
00:19:12.000 | And that could work literally for years.
00:19:15.000 | You don't need to worry with all the entity selection in general for most parts.
00:19:19.000 | All the books that you read notwithstanding,
00:19:21.000 | most businesses have pretty low liability,
00:19:25.000 | and most people don't have a lot of assets that they need the liability protection from.
00:19:30.000 | Now, we'll talk about--it's fairly easy and simple to set up a corporate form of some type,
00:19:35.000 | and I'll talk through that in a separate show as far as entity selection,
00:19:40.000 | LLC versus S corporation versus C corporation versus sole proprietorship,
00:19:44.000 | LLP if you're in that kind of business, and partnerships and all those options.
00:19:50.000 | But for today, just ignore it.
00:19:52.000 | Go and get your business making money,
00:19:54.000 | and if you go and get your business making money, you can deal with all the rest of that stuff.
00:19:58.000 | If your business isn't making money, no matter how perfect your corporate formation is,
00:20:03.000 | it doesn't matter.
00:20:06.000 | It's completely irrelevant.
00:20:08.000 | Keep that business checking account balanced.
00:20:11.000 | Keep that business check register.
00:20:13.000 | Because what this will turn into is this will basically turn into a very simple profit and loss statement.
00:20:19.000 | So let's say that you look in that business checking account register,
00:20:23.000 | and you see that you have money piling up in there.
00:20:25.000 | Well, that's good.
00:20:26.000 | That means you're making a profit.
00:20:28.000 | And so then once a week or once every two weeks or once a month,
00:20:32.000 | go ahead and if you need money for your personal expenses,
00:20:34.000 | go ahead and transfer the money out of that business checking account into your personal expenses.
00:20:39.000 | But you want to make sure you keep that account current.
00:20:41.000 | Put all of the money that you're earning from the business into that checking account,
00:20:45.000 | and then just write a check over to the personal checking account
00:20:47.000 | or just pull out your phone and transfer it right from your phone.
00:20:50.000 | That's fine.
00:20:51.000 | But the key is you can see how profitable your business is.
00:20:54.000 | And this is a very rudimentary but still useful form of a profit and loss statement.
00:21:00.000 | People oftentimes get bogged down with the accounting stuff.
00:21:05.000 | Don't get bogged down.
00:21:06.000 | This is a very simple, very useful profit and loss statement.
00:21:09.000 | If you write a check once a month from your business account to your personal account,
00:21:12.000 | you can sit down and you can look in there and say, "Oh, look, there's $5,000 in there.
00:21:16.000 | There's $50,000 in there," depending on your scale.
00:21:18.000 | Great. That means we're making money.
00:21:20.000 | Now, some of that money you'll need to reinvest back into the business.
00:21:23.000 | So if you have $5,000 and you're going to pull $3,000 out,
00:21:25.000 | well, you know I'm reinvesting $2,000 back into the business.
00:21:29.000 | But you'll start to get an idea of am I making money or not.
00:21:32.000 | And as silly as it sounds, that's actually a big deal,
00:21:34.000 | and many business owners don't know if they're making money or not.
00:21:37.000 | By keeping everything associated with that separate account, you can be confident,
00:21:42.000 | whether it's checking account or credit card,
00:21:45.000 | pay that business credit card out of the business checking account,
00:21:47.000 | you can be confident that you know, "Okay, I'm operating in the black.
00:21:52.000 | I'm making money." It's a big deal.
00:21:55.000 | Second suggestion that is associated is set up some kind of business journal.
00:22:03.000 | So just a 10-cent notebook is fine.
00:22:07.000 | But open up some kind of notebook and write down what you're doing for the business on a daily basis.
00:22:13.000 | So each day when you're working in the business, write down what you're doing.
00:22:16.000 | So if you're working in a service business and you have a job in the morning and a job in the afternoon,
00:22:21.000 | just write down, "Okay, job for client A in the morning, four hours, I may earned $300.
00:22:29.000 | Job for client B in the afternoon, this, you know, three hours, however much you earned."
00:22:34.000 | Write down where they were.
00:22:36.000 | Write down what part of town those jobs happen to be in.
00:22:39.000 | This is important for a couple of reasons.
00:22:42.000 | Number one, it is important from a tax perspective to have records.
00:22:46.000 | So you want to make sure that you get all your deductions,
00:22:49.000 | and you're not going to be able to know to get all your deductions
00:22:51.000 | unless you have some sort of written record.
00:22:53.000 | So you need to have a mileage log.
00:22:55.000 | So any miles that you drive for business, you need to make a note of those miles,
00:22:59.000 | and that can go right into this simple notebook.
00:23:01.000 | Every day, the simplest way, although technically it probably wouldn't pass muster with the IRS,
00:23:06.000 | but it probably would, I think it would, but you wouldn't know until you tested it.
00:23:10.000 | Simplest way is when you get in the car, from your place of business,
00:23:14.000 | wherever your place of business starts, make a note, and you zero out the trip meter.
00:23:20.000 | Drive your days done, and when you're done, at the end of the day at your place of business,
00:23:24.000 | write down what that trip meter said in the notebook.
00:23:30.000 | Technically, in my knowledge, according to the IRS regulations,
00:23:34.000 | you should have beginning odometer reading and an ending odometer reading,
00:23:38.000 | and then the difference between them, and then you need to have a listing of the trips.
00:23:43.000 | But you can basically have that if you're taking a business--
00:23:46.000 | if you're just keeping a business journal of your activities.
00:23:49.000 | And write down all of your activities. Track all of your activities.
00:23:53.000 | You don't know what activities are going to be the good ones that are going to be very productive,
00:23:58.000 | and you don't know how to coach yourself unless you have data.
00:24:01.000 | So if a business coach comes in--let's say that you're in sales,
00:24:04.000 | and you are in sales because you're running a business.
00:24:07.000 | If you're in sales, the first thing you're going to say is--
00:24:09.000 | let's say that I'm coaching you, and you're in sales.
00:24:13.000 | You say, "I'm not doing very well, Josh." Okay.
00:24:15.000 | First thing you say is, "Well, what are you doing? What is your activity?
00:24:19.000 | How many calls are you making? How many appointments are you getting from those calls?
00:24:24.000 | Of those appointments, how many appointments are resulting in business?"
00:24:27.000 | Very rudimentary tracking.
00:24:29.000 | And so all salespeople know--all good salespeople know--all highly paid salespeople know--
00:24:34.000 | you need to have a net record of that.
00:24:36.000 | Today I made 63 phone calls that were potential for business.
00:24:39.000 | Of those 63 phone calls, I reached 24 people.
00:24:42.000 | I reached 24 people. I scheduled 9 appointments, and so I've got 9 appointments.
00:24:47.000 | You go on those appointments, you know I've got--I had 9 appointments scheduled,
00:24:50.000 | and out of those 9 appointments, I was able to write--I was able to secure 3 contracts
00:24:55.000 | or 3 sales for my business, whatever it is.
00:24:58.000 | So you need to have a record of that.
00:24:59.000 | Even if you're operating a retail store, you want to have a record of the traffic into your store--
00:25:03.000 | how many people are coming into your store.
00:25:05.000 | If you don't have any metrics, then you can't figure out how to improve things.
00:25:09.000 | So if you were running a retail store,
00:25:11.000 | and you didn't know how many people were coming into your store,
00:25:14.000 | you wouldn't really know any scientific way.
00:25:17.000 | If you invest in a new sign out front, or you invest in paying a sign spinner to stand on the road,
00:25:24.000 | you wouldn't have any way of knowing if that's increasing your business or not.
00:25:27.000 | You may have a gut feeling, and that gut feeling may be accurate,
00:25:30.000 | but it's much better to have the data.
00:25:32.000 | And so set up some kind of tracking mechanism.
00:25:34.000 | In the beginning, all you need is a notebook,
00:25:37.000 | and just write down what you're doing and what you did,
00:25:39.000 | and write down any detail you can think of that might be helpful.
00:25:43.000 | Now, with these details, you can then later on, you'll be able to coach yourself.
00:25:47.000 | You'll be able to coach yourself.
00:25:49.000 | And so one of the major things that people forget about with anything--
00:25:52.000 | with financial planning, with starting businesses--
00:25:55.000 | is that you can coach yourself, but you need to be able to be a little bit disattached.
00:25:59.000 | And so it helps to be a little bit emotionally detached from the situation,
00:26:03.000 | and data and records and tracking will help you to have that information.
00:26:08.000 | So just keep a business notebook,
00:26:10.000 | and write in there your financial transactions,
00:26:13.000 | even though you're going to keep the checkbook, write in there what you're spending your money on,
00:26:17.000 | what the income was from,
00:26:19.000 | because then at the end of the month, you can go through there,
00:26:22.000 | and you're going to spend some time working on your business.
00:26:25.000 | If you read any business literature, you'll find--
00:26:28.000 | I think Michael Gerber, with his book "The E-Myth,"
00:26:30.000 | was one of the first ones who--
00:26:33.000 | or he was one of the ones who really popularized this concept in modern culture.
00:26:36.000 | But you can either work in your business, or you can work on your business.
00:26:40.000 | And both are probably going to be important.
00:26:42.000 | But most people spend a lot of time working in their business
00:26:45.000 | and very little time working on their business.
00:26:48.000 | But those who work on their business are going to experience a dramatic improvement--
00:26:54.000 | dramatically better results than those who are just simply working in their business.
00:26:58.000 | So if you sit down, and you're able to sit down and say,
00:27:01.000 | "I'm going to go back through this last month of my journal,"
00:27:04.000 | and just read through it, and you'll start to notice, "Hey, look at this.
00:27:08.000 | This job here I was at, I did this job for one hour."
00:27:14.000 | And by the way, for you, the audience,
00:27:17.000 | I'm specifically thinking of my friend as I record this show,
00:27:20.000 | and he's starting a service business.
00:27:22.000 | That's why I have a lot of service business anecdotes here.
00:27:25.000 | But you're looking at it saying, "This job, I did this job, I was there for one hour.
00:27:29.000 | It was close to home, and it was an extremely profitable job.
00:27:33.000 | It cost a lot of money.
00:27:35.000 | What were the characteristics of that job? How did I find it?"
00:27:40.000 | And then think about it.
00:27:42.000 | And then look for any trends, and look for any information.
00:27:45.000 | You need to have the data so that you can read through it,
00:27:47.000 | so that you can kind of mine it.
00:27:49.000 | Now, you will probably, over time, get fancier.
00:27:52.000 | You'll get fancier and start tracking things with graphs and charts and things like that.
00:27:57.000 | Or you may not.
00:27:58.000 | But if you just keep a simple business ledger--
00:28:00.000 | and this can be something that is very useful to you.
00:28:03.000 | Every phone call received, you write down the name and their phone number.
00:28:06.000 | That's a really useful info of any leads, things like that.
00:28:09.000 | That's really, really useful.
00:28:12.000 | So with these two things, you have a business checking account.
00:28:15.000 | You've got your financial stuff taken care of.
00:28:17.000 | You know the income that's coming into your business.
00:28:19.000 | You know the expenses that are going out of your business.
00:28:21.000 | You know if you're making money or not.
00:28:23.000 | And you have something that you can sit down with your accountant at the end of the year and give to them.
00:28:27.000 | And with a business journal, you have a journal of all of your activities
00:28:31.100 | and write down in there everything that you're doing.
00:28:33.200 | It's simple, it's low tech, it's low key, it's cheap, both of these things are free.
00:28:38.900 | But you have... they're both very important and very valuable if you implement them.
00:28:44.700 | And then, here's the key.
00:28:48.200 | Go make money.
00:28:49.200 | Go sell. Sell, sell, sell.
00:28:51.400 | Do work, do jobs.
00:28:52.900 | Sell, sell, sell. Do work, do jobs.
00:28:55.400 | Sell, sell, sell. Do work, do jobs.
00:28:57.600 | And do that until you start to make some money.
00:29:00.300 | And that could be a couple weeks, it could be a month or two, a couple months,
00:29:04.800 | that could be, I don't know, it could be a year or two if you're doing this as a sideline gig
00:29:08.600 | on top of your standard employment.
00:29:12.400 | Just go and sell and go and make money.
00:29:15.100 | And then adjust.
00:29:16.100 | And listen to the feedback that you get and ask people for feedback and listen to the feedback.
00:29:22.700 | None of this, clearly, is like rocket science business stuff as far as entity stuff.
00:29:28.800 | But I've just seen so many people get paralyzed by all of the financial planning topics
00:29:33.800 | when reality is you got to get out there and do business.
00:29:39.400 | So, that's it.
00:29:41.900 | I mean, really, that's all I've got.
00:29:43.300 | And with those two things, I mean, it sounds so simple,
00:29:46.500 | but with the business checking account and with the business journal,
00:29:50.000 | you'll be able to have the tools that you need to coach yourself
00:29:55.200 | or to be able to have somebody else coach you and help you.
00:30:00.000 | And you have all the information that you need
00:30:02.400 | so that your accountant, your financial advisor, your attorney,
00:30:07.000 | your business partners, your employees, your mentors,
00:30:10.000 | so that these people will have the data that they need to be able to help you.
00:30:13.700 | And the key is to have those data.
00:30:15.100 | So then if you were sitting down in my office and we were talking about,
00:30:18.800 | you know, should I set up an LLC, then I would just say,
00:30:21.900 | "Well, tell me about your business," or, "Should I establish an S-corporation?
00:30:25.000 | Tell me about your business."
00:30:26.200 | And then we would talk about the financials
00:30:27.800 | and we would go through the personal records.
00:30:30.200 | So, this information is the starting block.
00:30:33.000 | So, start tracking this information and go from there.
00:30:37.000 | I will do a separate show, a completely separate show on entity selection,
00:30:42.900 | and that will be the next one you want to listen to.
00:30:44.900 | So, do I want to file for some kind of corporate or partnership form of entity selection,
00:30:50.500 | or do I just want to stay as a sole proprietorship?
00:30:52.900 | Well, my message, the drum that I want to beat today, is don't worry about it.
00:30:58.900 | Go make money.
00:31:00.100 | And then once you've made money, then come back and fix all that stuff.
00:31:03.900 | Now, there are exceptions to this rule.
00:31:07.300 | If you are an established business person
00:31:09.500 | and you have a very high, you know, investment into--
00:31:13.500 | you're setting--you're planning to, I don't know, open a restaurant,
00:31:16.300 | you're going to do $100,000 of renovations,
00:31:18.900 | this is not necessarily how you would do it.
00:31:20.800 | But for just the vast majority of businesses that are starting,
00:31:24.800 | it really is this simple.
00:31:26.600 | There's not much more to it.
00:31:28.500 | My opinion also, it's easier to ask forgiveness than permission,
00:31:31.500 | so just go do it.
00:31:32.800 | And if you need some kind of business license or something like that,
00:31:35.700 | then deal with that when you find out about it.
00:31:38.200 | That's our show for today.
00:31:39.800 | I know it was a little bit different than the normal Wednesday topics.
00:31:42.200 | I really struggled.
00:31:43.600 | I hope this was interesting.
00:31:45.300 | I had about four or five different show topics I wanted to deal with today.
00:31:49.500 | And I actually started recording this show twice on--
00:31:52.700 | three times, actually, on a completely different topic,
00:31:55.000 | and it's just falling flat.
00:31:56.300 | So I said, "I'm going to go with what I'm inspired to do," and that was this.
00:32:00.000 | So I hope that this is helpful to you.
00:32:02.100 | I hope this is beneficial.
00:32:04.300 | Thank you for listening, and I would encourage you, go start some businesses.
00:32:07.500 | The cool thing about doing it the way I'm doing it, there's no risk.
00:32:09.800 | Go start some businesses, and you'll find out,
00:32:12.100 | "Hey, I like that one, I don't like that one.
00:32:13.900 | Oh, this one looks like this one's good."
00:32:15.800 | And then once you've done it a few times, it's really not that big a deal.
00:32:19.500 | There's so many business opportunities that are out there that are easy to do.
00:32:23.800 | So I'd encourage you, pick one and go for it.
00:32:26.400 | Have a great Wednesday, everybody.
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