It’s another typical workday morning.  You’re staring blankly at your computer screen, but as soon as you realize your boss is headed your way, you immediately pretend to be engrossed with the CEO’s latest weekly update.  After a couple minutes of “reading”, you begin to rehash all the ideas you’ve ever had on how to start making millions of dollars on your own.  You know, professional Tweeter,  cupcake maker, knockoff bag importer - just to name a few.

Sound familiar?   We’ve all been there – daydreaming in our dreary cubes about what else we could be doing for eight hours a day.  Sadly, though, no matter how genius your business plan may be, there are numerous items (or hurdles) that need to be considered and decided upon before you can start reaping in the big bucks.  Let’s examine a few of those a little more closely:

1. Business Structure

First, you’ll need to become acquantained with the different types of business entities (i.e., LP, LLC, Sole Prop, S-Corp) and determine which type would be best suited for your business. Each type of business structure has respective advantages/disadvantages in the areas of taxes, personal liability and ownership.  However, ”the LLC is generally considered advantageous for small businesses because it combines the limited personal liability feature of a corporation with the tax advantages of a partnership and sole proprietorship”.  A small, neighborhood salon was formed as a S-Corp and, even though a S-Corp is also a pass-thru entity, it would have been less complicated (and less expensive!) to be formed as a LLC.   This is one reason why understanding the difference in structures is very important.

2. Funding

Lack of funding is probably the biggest barrier to entry.  Besides friends, family and personal savings, what are other ways that a start-up can be funded?  An entreprenuer dreams of being blessed with an ’angel investor’ or impressing venture capitalists to help fund their business (in exchange for partial ownership).   If one isn’t that lucky, however, there’s also the option of contacting the Small Business Investment Companies (SBIC.)  Founded in the 1950′s, the SBIC is one of the financial assistance programs offered through the Small Business Association (SBA).   A business qualifies as ‘small’ if it fits the following criteria: 1) the business has a net worth less than $18M and 2) the after-tax net income does not exceed $6M.

3. Naming the Business

Depending on the business structure, there maybe certain limitations and/or requirements regarding how to name your business.  For instance, in a sole proprietorship, it is assumed that the business is named after the owner.  However, if the business is not operating under the same name, then the business might be required to file a “DBA” (or a ”doing business as”). In addition, you also must perform due diligence to determine if there is another business who has the same (or similar ) name to what you were thinking of calling your business.    The SBA recommends using the U.S. Patents and Trademarks Office’s website as a starting point to search for businesses with simliar names.

4. Federal and State Requirements

These requirements will vary depending on the state and the type of business.  However, obtaining a business license and employer identification number for tax purposes are required in all states.  Some states may require special licenses if you sell specific items – such as, alcohol, firearms or lotto tickets.

5.  Protect Ideas

Using copyrights, trademarks and patents are all ways that you will be able to protect your business idea!  Another avenue to mitigate the risk of your ideas being “leaked” would be to require business partners, potential employees and/or investors to sign non-disclosure agreements (NDAs).  The business world is sometimes tricky and you might be unsure of who you can trust and who has clear ulterior motives.

Maybe one day we’ll find these tips to be useful.  Until then, I’m still thinking of possible ways to bring in the moola…all from the confines of my cube, of course.

Posted by Melanie on December 15, 2009 at 10:00 am.