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You don't have an MBA. Hell, you've never taken a business class. You spent your college years studying literature and art history, and periodically dropping out to travel the world. And now you find yourself thinking about going into business for yourself maybe restoring antiques, or illustrating books, or running a café, or selling software. "Me, a businessperson?" you skeptically wonder. You keep trudging to work each morning, but as the hours tick by you find yourself fantasizing more and more about kissing your 9-to-5 job goodbye. You jot down some notes, work out some kinks in your plan and continue to wonder whether it just might fly...
Unfortunately, most people who have toyed with business ideas this way never get to find out whether they would have worked or not. For a variety of practical, financial and psychological reasons, most folks just don't take the leap from idea to reality. This is really a shame, since there's nothing that complex or difficult about turning a business idea into an actual working business. Most prospective entrepreneurs would be surprised -- and encouraged -- to know that the line between "I'm thinking about starting my own business" and "I own and run my own business!" can be crossed in large part by completing a short list of bureaucratic tasks. This book will explain what those tasks are and how to complete them.
Stephen Parr, owner and director of Oddball Film and Video, a stock film and video footage company in San Francisco:
I started making video art in the 1970s. After a while I started collecting all these weird bits of film because it was cheaper than shooting it myself. I gathered all kinds of old, found footage like military training films, educational films, home movies and all kinds of other images and put them together into montages, which I screened in nightclubs as background visuals. I was showing them all over nightclubs in New York, Chicago, San Francisco and I made some money by selling the tapes to the clubs. Then I started getting calls from these companies in Silicon Valley who produce industrial videos, like training films and promotional programs for corporate trade shows. Video game companies were calling, too. Companies like Sega, Sun Microsystems and Silicon Graphics wanted to pay me for my footage. The guy I lived with at the time thought I should go into business selling the stock footage I had collected, but at the time, I didn't know if I could make a living doing it. I didn't know anything about the stock footage business. There were a few companies doing it, but they were in New York or L.A., and they seemed really huge.
But since I liked working with images and since the business had already started to take off on its own, I finally decided to formalize it. I started by picking a company name. I wanted something interesting that conveyed what I did. We came up with Oddball. It's a word that people don't really use anymore, more of a '40s or '50s expression -- an oddball is someone kind of weird, unbalanced, or unusual, you know? Well, from there, I just kept compiling more footage, and over the years I started logging it, and buying more.
At the most basic level, my business involves finding, organizing and preserving historical footage. And then distributing it. Our clients include ad agencies; news organizations; documentary and feature film makers; industrial, corporate and music video producers; educational filmmakers; and anyone who needs offbeat and unusual images. In one way we're like a library. We archive and license historical visual information. These days, I spend most of my time trying to organize and publicize my business. We just launched our website, and that takes time to maintain. And I spend a lot more time trying to obtain films than actually looking at them. Still, what I do at Oddball is an extension of the work I've been doing since the 1970s. I guess it became a business the day I decided I wasn't going to do anything else.
Get Started And Get On With Your Business
You undoubtedly already know that getting a business off the ground isn't easy. You've got a million different details to work out how you'll produce your product or service, how much you'll charge, what marketing strategies to use, how to manage your cash flow and you need to nail all of this down before you stand to make a dime. You'll likely find that very few, if any, other business-people have done exactly what you're setting out to do, so you'll have to answer a lot of questions on your own (or with your partners). It can be scary and lonely and while exhilarating, it's almost always stressful. But as compared to working out the details of how your business will run and become successful, clearing the bureaucratic hurdles isn't a big deal at all. Dealing with governmental start-up requirements has been done millions of times before by all types of different businesses. While the bureaucracy governing small business often seems like a convoluted maze, you can take comfort in the fact that the procedures are standard, they apply more or less the same to everybody, and that the answers are out there. Unlike your unique business strategy that you'll need your best creative wits to devise, conquering the bureaucracy is essentially a no-brainer. Yes, it requires some patience and fortitude, but by no means do you need any special skill, education or experience. As long as you do a bit of homework and arm yourself with an overview of the process (as you're doing by reading this book), you'll be able to meet all the small business registration requirements without breaking a sweat.
You can usually start a sole proprietorship (the legal term for a one-owner business) or a partnership (a business with more than owner) by registering with just one government office. And for business owners who want protection from personal liability for business debts -- often referred to by the legal jargon "limited liability" the simplest corporations or limited liability companies (LLCs) have only a couple more registration tasks to complete. In other words, once you've got your business idea developed to a certain degree, all you need to do is visit a few government offices, fill out some forms and pay some fees and suddenly your idea will have become an actual, legitimate business. Keep in mind that there's certainly a lot more to starting a successful small business than dealing with bureaucratic requirements. For starters, you'll need to have a sound business idea, and you'll need to be able to develop good management skills to guide it to success. This book, however, largely leaves these issues for other resources to cover. Unlike many other small business guides, we're not going to spend your precious time quizzing you on whether you have the right personality to be your own boss, or evaluating your business idea, or helping you to identify the personal goals that you hope to achieve by starting a business. If you need more help deciding whether or not you want to start a business or what kind of business you should start, you should probably buy a different book. If, on the other hand, you want a book that cuts to the chase and explains systematically what you need to do to launch a business in California, this book is for you.
Nolo offers free resources online for small business start-ups. If you do need more guidance on other aspects of starting a small business, consult the Small Business section of Nolo.com's Legal Encyclopedia. You'll find several articles on business start-up issues, such as starting the right kind of business and how to raise start-up money.
But this book is also for those of you who are somewhere in between: fairly certain you want to give your idea a try but not quite ready to march down to city hall to register your business. In addition to explaining the start-up requirements in California, this book also outlines the preliminary work you should do before heading out to file all your official forms. In Chapters 2 through 5, we discuss fundamental tasks such as choosing the right legal structure for your business (sole proprietorship, partnership, LLC or corporation), coming up with a catchy and legally sound business name, and choosing a location that's good for business. We also explain how to draft a business plan that will help you define your business, plan for profitability and attract lenders and investors. If you've already taken care of some or all these tasks, you can either skip these chapters or use them as a guide to evaluate what you've already done.
Finally, to help you all the way through your start-up days, in later chapters we introduce you to a number of basic issues that every ongoing business needs to deal with. These include insurance, taxes, contracts and agreements, and bookkeeping and accounting. Though they're not exactly start-up requirements, they're important to understand in the dawning days of your business so that you'll be able to handle them later when business is fast and furious. Valerie Hoecke, founder of Fire Engine Red, a Web development firm in San Francisco:
The legal steps of starting my business weren't really that bad. The hardest thing seemed to be figuring out in which order to do all the steps. My advice to people just starting would be to keep your wits about you; laugh at the fact that maybe you have been standing in the wrong line or made a trip to the wrong office on any particular day. Business owners need to have a sense of humor about their mistakes and be prepared to make errors and backtrack once in a while. Looking back, the start-up process seemed a bit trying at the time, but now I wish that all my business problems were so simple!
Finally, keep in mind that businesses with employees have significant additional responsibilities. In Chapter 11, we offer a general overview of the laws and regulations that govern businesses with employees. If you're thinking about hiring employees, that chapter will help you figure out if you're ready to tackle the many requirements that come with your first hire. Chapter 11 also explains the difference between employees and independent contractors -- an important distinction, because using independent contractors does not subject you to most of the laws that apply when you hire employees. If you do decide that you need to hire any employees, you'll probably need to do further reading. An excellent and exhaustive resource is Nolo's The Employer's Legal Handbook, by attorney Fred S. Steingold.
Making the Decision to Go Official
Some of you may be facing a different question. Instead of wondering whether or not to start a business, you may be trying to decide whether or not to formalize your business -- to go the official route and register your business with the appropriate agencies. For instance, maybe you've been doing freelance graphics work on the side for a number of years, but now you're thinking of quitting your 9-to-5 job to take on graphics work full-time. If you're not sure whether you want to register your business and open it up to the world of government regulations, the information about registration requirements in this book will put you in a better position to make a decision. Chapter 6 walks you through the many governmental requirements that apply to all new businesses, and explains how to go about finding and satisfying any additional requirements that may apply to your specific business.
Stephen Parr, owner and director of Oddball Film and Video, a stock footage company in San Francisco:
What a business really is, is you deciding you have a business. It's really nothing more than that.
Generally speaking, anyone with a good-sized or otherwise visible business should bite the bullet and complete all of the necessary registration tasks to become official. Operating under the table can all too easily be exposed, and the government can come after you for fines and penalties, and might even padlock your business, simply for operating without the necessary paperwork. And if you're making a profit, ignoring the IRS is definitely a bad idea. Besides fines and back taxes, you could even face criminal charges and jail time. On the other hand, tiny, home-based, hobby-type businesses can often operate for quite some time without meeting registration requirements. If you're braiding hair or holding an occasional junk sale out of your garage, for instance, you can probably get by without formal business registration at least for a while. Keep in mind, however, that just because it may be possible doesn't mean it's the best option. Often, formally registering your business can benefit you, the owner, as well, since you can then write off business expenses and reduce your personal taxes. In Chapter 8, Section A3, we discuss hobby businesses in more depth, including how tax laws deal with businesses that continually lose money.
Get Ready for the Ride
One of the main ideas we want you to take away from this book is that there's nothing mysterious or even terribly complex about the process of starting your own business. Whether you've drafted a highly specific business plan with the help of accountants and consultants or you've scratched it out on a cocktail napkin, the process of turning that idea into a legitimate business is the same. That process is covered in this book.
How you build and run your business, on the other hand, is where the real challenge comes in. You'll need confidence to get your business rolling -- and you'll need guts, too. Lots of times you may well find that the questions burning in your mind have no defined answer, because no one has asked that question or tried that idea before. You probably wanted to start a business in the first place so that you could make your own decisions but you'll likely find that this can often be quite a heavy burden. You may not believe it now, but some days you'll probably find yourself wishing you had a boss.
You'll need to learn to trust yourself, both when you feel optimistic and when you suspect that one of your ideas is less than brilliant. You'll also have to develop a sense for when you need help, and to be judicious in taking the advice of people around you. Part of the art of controlling your own destiny is accepting the wisdom of others, while maintaining your own focus and direction. It's not always an easy balance to maintain, but you'll undoubtedly get better at it as you gain experience in running your own show. The bottom line: Think hard, keep your mind open and fight like hell to make your ideas a reality. Take the leap.
Michele Harrell, owner of Acceptances.com, a secure transaction processing service for the Internet, in Oakland:
I think it's important to remember that by starting a business you are not only creating a way to make money, you are also designing a way in which you will spend a huge portion of your time. Many people starting businesses today are redefining the workplace, creating environments that enhance the lives of themselves and their employees. Unfortunately, others are creating their own personal versions of hell. In starting your own company, you have the opportunity to create a way of working that can make you immensely happy. I believe the real work lies in creating a great life for yourself. And it takes just as much work to build a business that makes you unhappy as it does to start one that enriches your life on a daily basis.
Throughout the text, we have included the following icons to help organize the material and underscore particular points:
Tip. A commonsense tip to help you understand or comply with legal requirements. Warning. A caution to slow down and consider potential problems. See an Expert. A suggestion to seek the advice of an attorney or tax expert. Fast Track. An indication that you may be able to skip some material that may not be relevant to your situation.
Further Reading. A reference to other Nolo books on a subject. Other Resources. A suggestion to consult another legal or tax resource. Checklist. A quick summary of the start-up steps included in each chapter. Chapter 1 Checklist Decide whether to formalize your business. Research business start-up steps. Brace yourself for start-up mayhem.