Obviously you’re here for one reason, and one reason alone: you want to learn how to make money. There are many ways to make money.  Some are legal, some are illegal, and some are somewhere in between.  In today’s bad economy everyone wants to know how to make money online.  This is a very good option for many laid off employees because it requires minimal funds, and less work than opening an office or retail outlet.  Notice how I said, “less” work.  It still requires a ton of work to start a successful online business and make money online.

First, you need to have an idea, and it needs to be a good idea.  Don’t say, “I want to do something like ebay, but better,” or, “I’m going to start youtube, but for country music.”  Yes, these are real things that people have actually said to me before, and yes, these are awful ideas.  I wouldn’t even call them ideas at all, at least not that would help you learn how to make money.  These are things that have already been done and they have made others rich, but they will not help you make money online.  You either need to come up with an original idea or improve on something that already exist.  You’re probably not going to improve Google, so you’re better off coming up with an original idea.  Think of something people need, but don’t know it yet.  Google made a better search engine than Yahoo and now that’s why they dominate the search engine advertising industry.  What about cell phones?  20 years ago we didn’t need to be able to talk to people when we are driving or out running around, but now I can’t leave my house without my cell phone.  Ok, maybe you don’t have the knowledge to invent something like a cell phone, but what about the guy who invented post-its?

In 1968, Dr. Spencer Silver, a scientist at 3M in the United States, with the help of Jesse Kops, a fellow scientist, accidentally developed a “low-tack”, reusable pressure sensitive adhesive. For five years, Silver promoted his invention within 3M, both informally and through seminars, but without much success. In 1974, a colleague of his, Art Fry, who had attended one of Silver’s seminars, came up with the idea of using the adhesive to anchor his bookmark in his hymnbook. Fry then developed the idea by taking advantage of 3M’s officially sanctioned “permitted bootlegging” policy. 3M launched the product in 1977, but it failed as consumers had not tried the product. A year later 3M issued free samples to residents of Boise, Idaho, United States. 90% of people who tried them said that they would buy the product. By 1980 the product was being sold nationwide in the US; a year later Post-its were launched in Canada and Europe.  In this example 3M didn’t make any money from the post-it right away.  Can you imagine if they had just given up after that?  Instead they figured out how to make money from their product.  The reason people weren’t buying is because they hadn’t tried it yet.  After giving people free trials they were able to make some money.  Sam Adams Beer grew in popularity this same way.  They developed a brew of beer that they knew was good, but they needed a cost effective way to let others know how good their beer was.  Well, why not let them see for themselves?  One of the co-founders went up and down the east coast giving bars free samples of their beer.  What’d ya know, soon enough they started to make money from all the orders they received for their beer.

This is a common method used by companies, especially when first starting out, to get potential customers interested in their product.  Offer a free trial, and after they sign up for a trial you know they are interested, so give them an extra incentive to sign up for a paid membership, or to make future purchases.  This method shows how to make money with minimal investment of cash.  Depending on exactly what you do, it’s usually just an investment of time and resources.

This whole method of making money is part of the marketing process.  When you first start a business most of your time and money should be put into marketing.  After you have some customers and steady revenue from your new business, then the next step is to outsource some of your time consuming tasks.  You want to free up your own time so you can focus on running your business and how you’re going to make money.  You can easily outsource to people in India or the Philippines because they speak English and it’s cheap labor.  You can also open an office and hire employees.  This is more expensive, but gives you a more hands-on approach to running your business.  Another option is highering free lancers.  This is a great option for short-term employment without the costs of benefits.

Before I give you the steps to setting up a business, I first assume that you already have an idea for a business.  This might sound dumb for me to even mention, but it blows my mind how many people have said to me, “I heard you can make money on the internet,” and I respond with, “some people do, but do you have an idea for a product or service that you want to sell?”  Then there’s dead silence!  How can you decide you’re going to start an online business and then not even have a clue as to what type of business.  Ha ha, LOL.  Second, I assume that this is a GOOD idea.  For example, you have done market research that has revealed that there actually is a demand for this product or service.

1. Write a Business Plan.

This is not required, but it’s a good idea just to get an upfront estimate of all your costs.

2. Secure a(n) DBA, LLC, S-Corp, C-Corp, etc.

There are different ways to set up your business and declare that you are ready to do business. Which method you chose depends on you and your business goals. When deciding which business entity to go with you will consider potential business risks and liabilities, formalities and expenses involved, income tax situation, and your need to raise capital.   The costs for each article of incorporation will vary for each person depending on the state and county where you are forming the articles of incorporation.  No matter where you live, however, the most expensive option is hiring a lawyer to incorporate your business.

C-Corporation

Limited personal liability, owners can split corporate profit among owners and corporation, paying lower overall tax rate.  Separate taxable entity.  May have an unlimited number of shareholders, good if you plan to have an IPO to raise capital.  C-Corps are more expensive to create than partnership or sole proprietorship, but have certain tax benefits and allows the owner to sell shares of stock to raise capital faster.  There are certain formality requirements (i.e. annual reports, minutes, meetings, etc.) that are required to maintain corporate status.

S-Corporation

Owners have limited personal liability for business debts.  Owners report their share of corporate profit or loss on their personal tax returns.  Income must be allocated to owners according to their ownership interests.  Owners can use corporate loss to offset income from other sources.   Fringe benefits limited for owners who own more than 2% of shares.  An S-Corporation is more expensive to form than a partnership or sole proprietorship, but enjoys certain tax benefits.  However, it requires more formality than a limited liability company, which offers similar tax benefits.

Non-Profit Corporation

Tax benefits available only to groups organized for charitable, scientific, educational, literary or religious purposes.  Contributions to non-profit corporations are tax-deductible.  Fringe benefits can be deducted as business expenses.  Same formalities as other corporations, but if the non-profit corporation ends, then all it’s profits must go to another nonprofit corporation.

Limited Liability Company

Combines the best of both worlds (the corporation’s liability protection and the pass-through tax structures of a partnership).  IRS rules now allow LLCs to choose between being taxed as a partnership or a corporation.  More expensive to form than a partnership or sole proprietorship, but depending on where the formation occurs the tax benefits the first year may be more than enough to pay for the expense.  The sale of member interests may take place per company policy.  LLC’s are significantly easier to maintain than a corporation.

Sole Proprietorship

The owner is personally liable for business debts and he or she reports profit or loss on his or her personal tax return.  This is a simple and inexpensive option.  There is no filing required.

General Partnership

Owners (partners) are personally liable for business debts and they report profit or loss on his or her personal tax return.  Simple and inexpensive to create and operate.  No filing necessary.

Doing Business As – DBA

This is not a type of incorporation, but I thought it was still important enough to mention.  Let’s say your name is Jane Smith and you’re going to start Jane’s Lawn Care.  If you are planning on receiving payments in the name of “Jane’s Lawn Care,” then you will need a DBA.  This tells the bank that you are “doing business as” Jane’s Lawn Care.  If you are only going to receive checks made out to Jane Smith, then you don’t need a DBA.  If you get an LLC or another type of incorporation, then you don’t need a DBA.

3.  Apply for your EIN (tax id)

You don’t really need to do this right away.  Technically, you don’t need your EIN until you do your taxes for the year.  Therefore, this could be the last thing you attain, but I decided to put it right next to getting your letters of incorporation because it just makes logical sense to do it now.  Besides, it only takes 15 minutes to apply online for your EIN.

4. Open a business checking account.

There are a lot of banks offering free business checking accounts. This will help you to keep your money for the business separate from your personal funds. Remember, keep the revenue from the business going back into this account and don’t withdrawl for any personal expenses. This is how you will grow your business. Buying Quickbooks is a good investment to help keep business expenses separate from personal ones, and it makes it easy to see where you are making your money on your business. You can also use Excel to track debits and credits to your business if you don’t have the money to buy Quickbooks.

5. Open a website

I have spent the last 10 years of my life teaching and consulting people how to set up their own online businesses, and how to improve on their existing business so that they can actually make money.  Therefore, I decided to start this blog to reach a larger audience and show people how they can start their own business.  Everyone knows that this is the worst economy since the Great Depression, so a lot of people might ask, “why show people how to start their own business in such a bad economy?”  Well, I’ll tell you, THIS IS THE PERFECT TIME TO START YOUR OWN BUSINESS.  If you really take in what I have to say here and act on my advice, then you WILL be successful.  I have helped people who just lost their job start making five times what they made last year at their job they got laid off from.

With everyone who’s closing their doors to their businesses, this leaves you with the opportunity to get some great deals on equipment like computers, office supplies, and not to mention you will be in a great position to negotiate very low leasing rates for office space.  Now, you might not be in the position to move into an office right away.  Most people just start a business from home and after they start making a good profit, then they move into an office and hire employees.  This is a very real possibility for you as well.

I’ll be honest, starting your own business is hard work and you won’t make a lot of money at first.  You should expect to lose money for at least your first six months to a year.  This is not some get rich quick scheme.  I’m not going to promise you that you’ll make $100,000 your first month or even your first year, but after some time you can be independent (not have a boss) and make more money than you ever dreamed.  There are several nice things about running your own business, but I think the main one is financial freedom.  There is no limit to how much money you can make.  While it’s still hard work, it is now easier than ever to start your own business online with all the available tools on the internet for free or cheap.