I used to be gung-ho for business plans. They help you figure out if your idea is viable. You can’t get funding without one. It gives you an easy-to-follow roadmap to success.

Since figuring out how entrepreneurship really works, I’ve realized these are all lies.

I put in my five months. I did my due diligence. I wrote my 35-page business plan with five years of pro forma financial statements. And I’m here today to make sure you don’t make the same mistake.

Business Plans Kill Your Motivation

The first time you walk in to your local Small Business Development Center (SBDC) or sign-up for your school’s “Entrepreneurship” program, they’re going to tell you how important it is to start with a business plan.

More than likely, this advice comes from someone who has never started a business. Or maybe they had one 20 years ago when business plans were still relevant.

As soon as you hear this, your entrepreneurial drive gets a flat tire. You want to make money now, not six months from now. And the longer you have to wait to see a return on your time, the more likely you are to quit.

Business Plans Waste Your Time

Don’t get me wrong, I think planning is valuable. You should have a good idea of what you need to do before you do it. But spending months of action writing a document that you’ll never use is idiotic. (I haven’t touched mine since the business plan competition.)

Why not spend that time testing your idea and learning first-hand what works and what doesn’t? I’ve learned more in the last year-and-a-half from working on my business than I learned in four years of academic research at college.

We learn from doing, failing, and trying something else.

Business Plans Don’t Raise Money

Business plans don’t make money. Businesses don’t make money. The only way to make money is to actually sell something to someone. Once you’ve proven that you can sell, investors will give you money so you can sell more.

If you’re not spending your time to make money, your chances of getting a real investment are slim to none.

Banks invest in money-making businesses

Emil Motycka started a lawn mowing business when he was eight years old. He got an $8,000 loan at the age of 12 because he took real financial statements to the bank proving that he was already making money. What do you think his odds of receiving that type of loan would have been if he were a 12-year-old walking into the bank with only a plan for making money?

Angels invest in people

23-year-old Andrew Fashion made and lost $2.5 million in two years. Getting a bank loan for his next venture was impossible. So he put together a simple executive summary and a few financial models with numbers based on his real-life experience. Then he blogged about it and landed a $145,000 investment for BeModel, a social networking website for the fashion industry.

The angel investor invested in Andrew, not a business plan.

VC’s invest in profitable companies

Juliette Brindak is the 21-year-old founder of Miss O Friends, a by-girls-for-girls website. Procter & Gamble invested in Juliette Brindak’s company at a valuation of $15 million because Miss O was already a very successful business. Rarely do venture capitalists invest in startups with just business plans.

Neil Patel has 30 friends who raised venture capital and none of them had business plans.

Why do they Still Teach Business Plans?

So why do SBDC’s and business schools still preach and teach the almighty business plan? Two reasons.

1. They used to work.

Before the internet, you needed a loan to open up a shop or purchase equipment, so planning was all that you could do. Now you can test your product or service online for less than $100.

Before the financial crisis, banks invested in whimsical ideas and fancy plans. They’ve learned their lesson.

2. It’s easy.

I might be a little cynical here, but it’s much easier to teach someone how to write a business plan than how to start a business. Business plans have a structure that can be repeated from student to student. There’s no magic formula to starting a successful business.

What Should You Do?

Since you won’t be spending the next five months writing a business plan, how should you go about starting your business? Five steps:

1. Figure out what you want to do.
2. Find other people who are doing what you want to do.
3. Do what they’re doing.
4. Land three customers.
5. Scale up.

There’s your business plan.

Do you disagree?

Good. Leave a comment below with one example of an entrepreneur who wrote a business plan and was better off for it. I’ll be happy to respond .

World’s Biggest Companies didn’t Start with Business Plans

Find out how the world’s top 25 brands got started without business plans:
How World’s Top 25 Brands Got Started >>

Photo by: xchanttelx

While you’re probably starting a business to make money, you also want to take care of the people you’re doing business with. That’s where surety bonds come in.

Getting a surety bond for your new business helps make sure that you’re following all of the rules for your type of job. Surety bonds help protect your customers, too, since they work like insurance—although they offer a different type of protection.

Today, Kevin Kaiser from SuretyBonds.com will tell you what they are and why you should have a surety bond to protect your business.

So what are surety bonds?

A surety bond is a contract between three people. When a business owner gets a surety bond, he or she makes a promise to follow the rules for their job and make good business decisions.

The business owner makes this promise to a person who usually works for the government. The government wants to make sure the business owner is good at running a business. The third person involved is called a surety, and this person backs up the business owner’s promise. If the business owner messes up somehow, the surety makes sure the business owner will make up for the mistakes—or else pay extra fines.

Who uses surety bonds?

A lot of different types of online professions utilize surety bonds to protect their customers. You wouldn’t want to buy a car from an online seller who is trying to cheat you out of money. Surety bonds can protect against this, so that if a car dealer takes advantage of a customer, he or she can get the money back.

The customer makes a claim on the bond, and the car dealer would have to use the bond to pay the customer back. (Dealers hope to avoid these situations.) Surety bonds work in this same basic way no matter the industry or specific job type they are used for.

Many new businesses owners take advantage of the employee theft bond, which can reimburse the owner if an employee should steal from the business. This is good for anyone employs others to manage online funds.

Why you need to know about surety bonds

All entrepreneurs and new businesses owners should know about all the great things surety bonds can do for a business. Entrepreneurs get surety bonds either because they have to or because they want to operate as a reliable business.

Federal, state, and local governments all have different laws that require people with certain jobs to get a surety bond. This is done to make sure that the owner operates the business legally and makes good decisions for the employees and customers.

For example, new online mortgage companies emerge every day. Even though such businesses operate exclusively online they still have to follow all applicable laws set by their local jurisdiction. This means they must meet all stipulations required to maintain a business license, and in many states this includes getting a surety bond.

How to get a surety bond

If you know what kind of business you want to start, make sure you follow all the rules before you open up. Knowing where you plan to open your business is a very important part of getting started because different places have different rules. For example, getting a Pennsylvania surety bond is a lot different than getting a California surety bond.

The best way to find out if you need a surety bond is by browsing online. Most states post their bonding requirements on their official government website. Or you can contact an insurance agent or surety agency directly and have them help you.

The bonding process for online businesses works the same. Getting a surety bond for your new business is a great way to prove that you intend to do a good job. For those starting a web development company, the financial guarantee of a surety bond assures potential clients of your work ethic and dedication.

Advertising your status as a bonded business on your website will give your new business additional credibility, enticing potential customers to work with you. With a surety bond, new clients can rest assured knowing your commitment to working with them.

After all, even Sam Wyly used a performance bond to start his path to becoming a billionaire.

Photo by: DigiMatt

If you want more advice on the legalities of your business, check out our free How to Start a Business Course. “Legal Mumbo Jumbo” (Module 4) is one of the most comprehensive legal guides on the net.

Getting backed by a venture capitalist is a huge accomplishment for an entrepreneur. It means that someone very wealthy has a lot of trust in you and your business.

It’s hard to imagine what it takes to convince someone to give you anywhere from $100K to $10M. Thankfully, I had the opportunity to ask a venture capitalist, Mouli Cohen, for his advice. He makes it sound like it’s not too far-fetched to get backed by a venture capitalist as a young entrepreneur.

I asked him five questions and here is his response:

Q: What advice do you have for a young entrepreneur who is seeking venture capital for the first time and doesn’t know where to start?

A: Modern technology provides many tools and resources. I encourage young people to take advantage of the credible sources out there (make sure you’re able to decipher which is which) – journals, websites, media, etc. Construct your pitch and define it clearly, and have high-level materials that support your pitch:

• Executive Summary (2-3 pages in length)
• Financial Model
• Presentation Deck

Q: If young entrepreneurs had one slide to show you in their business plan presentation, which slide would you most want to see and why?

A: A slide with your financials – your VALUATION is key. My advice to young people is to know that your business model is your business plan. If you can defend the assumptions of your model, you win.

Q: What do young entrepreneurs bring to the table that veteran entrepreneurs are less likely to offer?

A: Hunger – a hunger to work hard, a hunger to succeed.

Q: You can bootstrap and grow slowly or you can seek funding and grow rapidly. What are the advantages to either method?

A: You want to have your business well-capitalized at all times, but until you seek your capital you must bootstrap your business. This is beneficial since it allows you to get the right milestones in place. Both methods have their advantages, but a happy medium is ideal.

Q: Would you invest in a company that helps young people become entrepreneurs?

A: Of course, if the investment was sound. Capital aside, there are many other ways that I take my time to educate young people on thinking with an entrepreneurial mindset. Social media channels (such as this site) are especially valuable in helping coach young people on how to be successful.

In his career as an entrepreneur, Mouli has founded and developed start-ups that have generated over $3B in shareholder value. Yes, that ‘B’ stands for ‘Billion’! Read more about Mouli’s viewpoints on entrepreneurship by going to MouliCohen.com.

Today, I am thrilled to present this guest post by Carol Topp, owner of Teens and Taxes. I always get asked the question, ‘how much do I need to pay in taxes?’ and I’ve never known the answer… Until now.

Did you earn money last year by running a business, babysitting, mowing grass or buying and selling on eBay? If so, you are probably going to have to pay taxes. Unfortunately the U.S. tax system doesn’t give tax breaks to young entrepreneurs.

Here you will find everything you need to know about taxes for a new business.

Every business owner in America pays at least two types of taxes: federal income tax and self- employment tax.  There are several other types of taxes including sales tax and state income tax, but federal income tax and self-employment tax are the two largest.

Federal Income Tax

If you made $5,700 or more in 2009, you will need to pay federal income tax. This income can come from being an employee or from owning a business. $5,700 is the typical amount of a deduction for a single person. It is adjusted by a few hundred dollars every year.

Americans report their income and tax due on a Form 1040. Be aware that business owners report their profit on a form called Schedule C Profit or Loss from Business and attach it to the Form 1040.  Go to the IRS website to see what it looks like: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf.

Schedule C is for sole proprietors (meaning only one owner); different forms are used if you are a partnership or a corporation. On the Schedule C, a business owner lists all his income and expenses by certain categories that the IRS picked out. You may notice that these categories may not fit your business. For example, there is no category for internet fees.

A CPA (Certified Public Accountant) can be very helpful in sorting out your records and filling out the Schedule C correctly. I put an example of a teenager’s Schedule C in my book Teens and Taxes: A Guide for Parents and Teenagers.

Your “bottom line” on the Schedule C is your profit, or what the IRS calls net income. That amount is what gets taxed.

The American tax system is graduated, sort of like a wedding cake in layers, called brackets.  The bottom layer is income under $5,700 and that is not taxed at all, the next layer up to $8,375 in income is taxed at 10% and the the next layer up to $34,000 is taxed at 15% (these thresholds are for single people in 2009).  Most American families fall in the 15% tax layer (or bracket).  Most teenagers are in the 0% or 10% brackets.

Self-Employment – The Hidden Tax

You probably know about federal income tax, but you may not be aware of another tax on the Form 1040, called the self-employment tax (or SE tax). SE tax is Social Security and Medicare taxes for self-employed people and business owners.

The SE tax rate is approximately 15.3% of your profit. If a teenage business owner has a profit of $400 or more, he will owe self-employment tax. The $400 threshold has not been adjusted in decades. Many teens who have a business may not owe federal income tax, but they do owe self-employment tax (at 15.3% of their profits).

For example, Tom is a teenager with a nice-sized profit of $7,000 in 2009 from his business. Tom will owe $81 in federal income tax. Not too bad. But, Tom also will owe $989 in self-employment tax. He owes more in self-employment tax than in federal income tax!

I call the self-employment tax a hidden tax because a lot of new business owners don’t know about it.  And it is buried in the middle of the back page on the Form 1040 and is pretty easy to miss.

How to Prepare for April 15

Taxes are due on April 15 and unfortunately the IRS wants their money.  Make sure you plan ahead for the fact that you will owe federal income tax and self-employment tax on your profit.

How much will you owe?  That’s a difficult question to answer because it depends on your expenses and other income you might have.  The best thing to do is visit a CPA who can help you estimate your taxes. But as a rough rule of thumb, save 25-30% of your profit to pay your federal income tax and your self-employment tax. You may need to pay your state and city income tax as well.

Does it sound like a lot of your hard-earned money is going to taxes? The best way to keep taxes low is to keep good records of all your expenses, plan ahead and work closely with a CPA who can advise you.

P.S. If you earned money babysitting or mowing grass, there might be special tax breaks for you. You may be what the IRS calls a ‘household employee’ and do not have to pay self-employment tax.  Visit TeensAndTaxes.com for details.

Entrepreneurship is unique in that it encompasses and concentrates all areas of business into one entity, a stool in this case. Additionally, a business grows much like a person. Except, in most cases you want your business to grow fat.

That fat person resides on your entrepreneurial stool and it’s your responsibility to make sure it doesn’t collapse.

The 3-Legged Stool

Entrepreneurship can be broken down into management, marketing and finance. Understanding and maintaining each of these “legs” of the entrepreneurial stool is critical to the success of your business. If you remove one, then the stool falls over. If one is weak, then the stool collapses.

Management

Proper management of a business is the first leg of the stool. Within entrepreneurship, management includes everything from conceiving the business idea to organizing your time to eventually managing employees.

For example, if you start a business that sells shoelaces, there are a number of things you will have to manage. You’ll have to find a supplier of your shoelaces (probably just a store). You’ll have to monitor your inventory (return to the store when you start to run low). And you’ll have to make sure your customers are happy so they’ll return to your business (maybe as simple as a phone call or email).

The management leg should be structurally sound and the first leg you attach to the stool.

Marketing

The second leg is marketing. Marketing consists of everything you do to introduce potential customers to your business and eventually sell them your product or services. As I mentioned last week, marketing is more than just advertising.

In the shoelace example your marketing will consist of finding people who need shoelaces and convincing them to buy from you. One strategy could be to go to a mall or somewhere with a lot of foot traffic and watch people’s shoes as they walk by. If their laces are frayed or coming untied, then they might need new ones. That’s when you approach them and introduce your product.

The marketing leg must be accentuated with illustrious designs and appeal to your customer. Attach this leg second.

Finance

Finance is the third and final leg of the stool. In many cases it doesn’t take too much start-up cash to create a simple business. But once you want to really grow your business, you’ll likely have to make a substantial investment. At which point you’ll probably need to find funding. Additionally, keeping track of the money you spend and the money you make (a.k.a. accounting) should be included in this leg.

With your current shoelace, guerilla marketing strategy you’re only selling about 10 packs of shoelaces a week. You realize that there are a lot of people who need shoelaces but you simply don’t have a chance to meet them. So you decide that creating a website is in the best interest of your business. However, this website is going to cost you at least a couple thousand dollars. Financial decision-making will help you determine if this is a viable option.

The finance leg is going to have a lot of unsightly knots in it but will round out your entrepreneurial stool.

The Fat Man

So now that you have constructed your 3-legged stool, it’s time to establish your business. When you first start out, your business will be a baby on the stool. But as your business grows, that baby will also grow, hopefully becoming a very fat man. However, as your business grows, you’ll also have to work on its foundation, the stool.

Infancy

The birth of your business is like putting an infant on your stool. At this point the stool doesn’t have to be very big or sturdy in order to support the baby. But it still must have all 3 legs. As you start making your first sales, the baby will start to grow. As the baby becomes a toddler, you should closely monitor the sturdiness of your stool, but probably won’t have to make any adjustments.

Coming back to the shoelace example, in your business’s infancy you’re selling a few shoelaces here and there but not really on a consistent basis. So the management and finance aspects of your business won’t have to change much. But you should start adding jewels or other decorations to your marketing leg to make your business more attractive to potential customers.

Childhood

As you start making consistent sales and building a loyal customer-base, the infant becomes a child. Children become unruly and will put extra stress on the legs of your stool. Once you have a child, you’ll have to start looking into fine tuning the legs of your stool.

Now you’re starting to sell shoelaces fairly consistently and have a couple loyal customers. This is where you can improve your management leg by going the extra mile to make sure those customers are happy. You might want to put a stained-finish on your management leg. Additionally, you’ll have to keep track of your finances by adding tick marks to the finance leg.

Adolescence

Adolescence is one of the most awkward points in life and business. You’re not sure whether you want to grow up or remain a child. For this example, the person on your stool chooses to grow up, but it’s not that easy. There are tough lessons to be learned and even tougher obstacles to overcome. This is the point in which you’ll really have to examine the sturdiness of your stool.

So you have loyal customers and you’re making plenty of other 1-time sales, but what do you do now? You can choose to settle with the current state of your business (childhood). Or you can choose to grow your business by entering other markets with new potential customers (adolescence). If you choose the latter, you’ll probably need help.

Perhaps you hire a friend/personal assistant to manage your inventory and customer service. Maybe you hire a graphic designer and web developer to provide you a logo and a website where you can reach other markets. You could possibly bring in a Certified Public Account (CPA) to handle your finances. Each one of these will provide stability to your stool so you can support your growing business.

Adulthood

Once your business hits adulthood, you’re competing with the big guns. Ideally your stool-person will continue grow fat by eating your profits. But you have to supply him with those profits in order for him to get bigger which is hard to do. However, if you do manage to consistently grow your business, then you’ll have to develop your stool at the same time.

This is when your shoelace business becomes a shoelace enterprise. At this point, you’ll definitely need help. To ensure that your stool doesn’t collapse under the pressure of your business, you’ll have to add new layers to each leg. You’ll need a team/department of people for each leg of your business. Because if one of those legs break, it’s hard to repair it and get you fat stool-person back up on the stool.

Summary

Management, marketing and finance are the 3 legs of the entrepreneurial stool. Each leg is just as important as the others to the entrepreneurial success of the stool. Stools are only as sturdy as their weakest leg.

As your baby business grows into a fat business, each leg of the stool needs to be monitored and developed accordingly. If they are not, then your business won’t grow and maybe even collapse.

If you enjoyed this article, you should subscribe by email. Thanks for reading and leave your comments below. I appreciate any feedback I can get.

Photo by: Evil Erin

(I couldn’t find a cool picture of a 3-legged stool.)