One of the most common questions I get from new entrepreneurs is “what do I do first?” They want to know if they should you start with the business license or the LLC.
But that is the wrong question.
These are the questions I ask:
- Why are you doing this business?
If your primary reason is to make money, you are in the wrong business. You need to do something you are passionate about. A desire to change the world, or at least change the lives of the people you serve. Without that passion and desire, you will burn out.
- How many customers do you have?
If you have not already been doing the work, either in your job or free to help friends, then slow down. You need to have experience and demand for your services before you start a new business. Recently one of my IEM clients started a business in genealogy research. She is passionate about genealogy, and people often ask her to help them research their family tree. So she had a solid base of customers and experience. She went from idea to profit in one day.
What about the license and LLC? My rule of thumb is, do not bother with either until you know you have a viable business you enjoy. Oh yes, and also profit! The minute you start to take money for what you do, your legal status is a sole proprietorship. This is all you need.
Without going into detail, here are the exceptions to the above rule.
- You will be raising capital through investors.
- You are starting a high-risk venture where someone will get hurt. For example, a motorcycle theme park.
- You have significant wealth. The number varies per your risk, but if you are worth over $1 million, I would consider you a higher risk.
Other than these exceptions, just do it. Define your products and services, go find customers, serve them well, and grow your business. Once you have real profit and customers and you love what you are doing, go back and take care of the legal details.
About two years ago I did a short video on this subject, which can be found at Do I Need a Business License?