The American Dream is, and always will be, to come up with an idea,
start a business and become rich from your own efforts. Based upon this motivation,
thousands of businesses fail each year, due primarily to not being familiar
with the basics involved in running a business.
This report will enlighten you, and give
you a number of suggestions you can use to better guarantee your chances for success.
This report is written with the warning that any and every business
venture contains certain inherent risks, and any number of alternatives.
We do not espouse that any one way is the right way or that our
suggestions are the only way. On the contrary, we advise that before
investing any money in a business venture, you seek counselling and help from a
qualified accountant and/or attorney.
Just about the first thing you should
consider before deciding to start or purchase a business is the legal form
you'll be operating under. There are basically four choices: sole proprietorship,
partnership, limited partnership, and/or corporation.
Each has a number of advantages and
disadvantages. We'll try to enumerate some of them for you.
As much as anything else,
for many people starting a business is a form of ego-gratification, and they
form a corporation for some sort of prestige gain - just to say, "I own a
corporation."
With just a little bit of observation,
you'll find that one of the major causes of business failures is due to the
founder wasting start-up capital on frills, such as an impressive store-front
office, expensive furnishings, and corporate legal costs.
One of the basic traits you must develop
it you're going to be successful in business, is a tight hold on your
expenditures. In fact, a good rule of thumb is that anything that does
not make money for yo or protect your investment, should not be purchased at
this time. Very definitely, this applies to the expense of setting up
your own corporation.
Unless you have a partnership and start
your business as such, the only real advantage to forming a corporation would
appear to be that a corporate structure will semi-protect the property you personally
own.
As an example, you own a home and car.
You form a corporation to protect these possessions from business losses.
Yet, if you can be found guilty of misusing corporate funds, your
business creditors can pierce the corporate shield and come after your possessions.
Basically, if you invest everything you
have in your business, as most newcomers do, you don't usually need a
corporation because you have nothing to protect. Your household
possessions, personal belongings, generally your car, and even a portion of the
equity in your home is protected by the homestead provision of the Federal
Bankruptcy Act, and cannot be taken away from you.
As a sole proprietor or partner of a
business you'll be paying taxes on your overall earnings, much the same as if
you were holding down a salaried or hourly paid job. Whether you do or don't
take out money as a salary will have no bearing on the earnings of your
business and tax return.
The often advertised advantage of
incorporating, that you can manipulate your salary in order to save on tax
dollars, is real because of corporation laws. However, the IRS frowns on
this practice. When your business is successful and making a lot of money,
definitely check with your accountant on the advantages of incorporating.
As a corporation, you'll be subject to a
number of other drawbacks as well: generally higher state taxes, stricter
laws concerning the operation of your business, more elaborate accounting
procedures, and legal papers that are required just about every time you make a
major move or sign almost any contract. Thus, your legal and accounting
fees will be much higher as a corporation than will those required for a sole proprietorship
type of business.
As a sole proprietor or partnership, you'll
find many areas require the registration of your business name. The cost however,
is minimal, ranging from $5 to $100. About the best way to find out what
laws apply in your area, is to call your bank and ask if they need a fictitious
name registration card or certificate in order for you to open a business
account.
Selecting a name for your business is
quite important to you and particularly relative to advertising. Your
business name should describe the product or services you offer. Fancy
names such as, Linda's Clipping Service will lose potential "walk-in and passing"
customers to the beauty shop across the street that calls itself, Patti's
Beauty Salon or Jane's Hair Styling Shop.
The advantage of using your full name in
the title of your business, such as Johnny Jones' Meat Lockers, has the
advantage of making credit somewhat easier to come by - provided you pay your
bills on time - but it also includes the disadvantage of confining your
services to a local or at most, a regional area.
Should you buy, lease, or rent a space for
your business? think twice before you make any decision along these
lines. Most businesses tend to grow quickly or they never get off the
ground. There are a few exceptions, but
only a very few, that tend to
grow at a modified rate.
So, buying a piece of property and setting
up your business on or within that property, obligates you to ownership
regardless of what happens to your business.
Leases are almost always very strong contracts written by attorneys to
the advantage of the property-owner. When you sign an agreement to pay
someone for the use of their space over any length of time, you're "nailed
in" to paying for that space regardless of what happens to your business.
In the beginning, it's wise to either get
the shortest-term lease possible, or arrange to rent with an option to lease at
a later date. This does not apply to a retail business, unless your particular
business happens to be an untried one.
Definitely, you should open a business bank
account. In selecting a bank for your business, scout around and look for
one that can, and will help you. Determine what your banking needs will
be, and then via telephone, interview the managers of the banks in your area.
The important convenient bank to your business location.
A point to remember: the closer you
can make the relationship between you and the bank manager, the better your
chances are going to be for approval on loans and/or special favors you may need
at a later date.
Try to become acquainted with as many of
the bank employees as possible. The better you know them, the more
courtesies they'll be extending especially to you in the course of your
association.
Just as a doctor is a specialist in his
field, and you go to him for medical problems, your banker is a specialist in
his field and you should go to him for your money problems. In business, you'll
have to learn that everyone is an expert in his own line of work, and in your
associations with other business people, refrain from acting like a
"sharpie" and/or pretending that you know exactly how everything
works in someone else's specialty.
You'll find that very often, different
banks specialize in different types of businesses. As an example, you're
sure to find banks that specialize in real estate transactions, export-import
businesses, and even manufacturing operations only.
What I'm saying here is that if you're
planning to sella fairly expensive item, your customers will probably need
and/or want financing. It will behoove you to select a bank familiar with
your type of product that will afford your customers, through you, contract
financing.
Some of the questions you should ask of
your banker include the following:
Is it necessary to maintain a certain
balance in your account before the bank will approve a loan for you? What
qualifications must you have in order to obtain a line of credit with the bank?
Does the bank limit the number of loans,
or types of loans it will approve for small businesses?
What is the bank's policy regarding the
size of a check you might deposit that requires holding for collection?
And what about checks less than that
amount - will they be immediately credited to your account?
In almost all types of businesses, it will
be to your benefit to set up with your bank, a method of handling VISA, Master
Charge, and regional credit cards. The important thing here is to ultimately
set up your account in the bank that will service all of these credit
transactions for you - one stop for all your banking needs. In most
instances, you'll find that having the capability to fill orders/make sales via
credit card transactions, will increase your volume of sales appreciatively.
Once you've made the decision as to which
bank is going to handle your account, you'll need your Social Security Number
or your Federal Employer's Identification Number, your driver's license, the
fictitious name certificate, and if you're requesting a VISA or Master Charge
franchise, you'll also need a financial statement.
For corporations, you'll also need a
corporate resolution approving of the opening of your business account.
There are different policies exercised in
just about every state regarding installation/hook-up charges by the telephone
and utility companies. Some require a deposit, and some don't.
You'll find that a great number of city
business license departments are there solely for the purpose of collecting another
tax. Depending on the type of business you're asking a license for, the
building and zoning people may inspect your premises for soundness of structure
and safety. Generally, you won't encounter any difficulties - you simply
pay your fee to operate your business in that city, and the clerk types your
name onto a city license certificate.
Relative to sales tax permits and
licenses, each state's rules and regulations very widely. The best thing
to do is call your state offices and ask for information concerning registry
and collection procedures. Many states require an advance deposit or bond,
and you'll find that some wholesalers or manufacturers will not sell to you at
wholesale prices until you can show them your sales tax permit or number.
Should your business entail selling your
products or services across state lines, in another state, you're not required
to collect taxes except in those where you have offices or stores.
You may find also that your particular
business requires the collection of Federal Excise Taxes. For information
along these lines, check in with your local office of the Internal Revenue Service.
Some states also require certain
businesses to hold state licenses, such as those required in many states for TV
Repairmen.
These are known as "occupational
permits" and are most often required of barbers, hair stylists, real
estate people and a number of other consumer oriented businesses. If you
have any doubts, check with your state offices for a list of those occupations
that require licensing.
Any business doing business in any type of
interstate commerce is subject to federal regulations, usually through the
Federal Trade Commission. This means that any business that shops, sells
or advertises in more than one state is subject to such regulation, and this
includes even the smallest of mail order operations.
Normally, very few business people ever
have and contact with the federal regulatory agencies. The only
exceptions being when there is a question of your operating your business
unethically or illegally.
Any business that sells or distributes
food in any manner almost always requires a county health department permit.
If your business falls into this category, simply call the county health department
and invite them out to your place of business for an inspection. The fees
generally range from about $25, depending on the size of your business when
they first inspect it for permit approval.
There are also a number of businesses that
require inspection by a fire marshall, and fire department approval.
Generally, these are those that handle flammable materials or attract
large numbers of people, such as a theater. Overall, the local fire department
has to be allowed to inspect your premises whenever they desire to do so.
You may also run into a requirement for an
air and/or water pollution control permit. These specifically apply to
any business that burns anything, discharges anything into the sewers or
waterways, or use any gas-producing product, such as a paint sprayer.
Without a doubt, you'll need to check on
local regulations relating to advertising display signs. Each city or
township makes its own rules and then enforces those rules according to its own
thinking -check before you contract to have a sign made for your business.
The design and placement of your sign is
very important to your business - specifically to retail establishments - but
let me remind you that your business sign is usually the first thing a potential
customer sees and as such, it should catch his eye and leave an impression that
lasts. It would be a good idea to ride around your town and take a look
at the signs that catch your eye, and try to determine the impression of the
business that sign leaves on you. This is a basic learning formula for determining
the design, size and placement of your business sign.
Some of the other things to consider
before opening for business - If you intend to employ one or more employees,
you'll be required to deduct Federal Income Taxes, and Social Security payments
from their checks. This will involve your filing for a Federal Tax Number
and necessitates contact with your local IRS Office
.
Most states have "unemployment
taxes" which will have to be deducted from the paychecks of any employees
you hire. And there are a number of states that have income taxes -
disability insurance - and any number of other taxes. Again, the best
thing to do is check with your local office of the IRS. And above all else,
don't forget to ask for the rules of the minimum wage law, and comply.
When your business grows to the point of
needing additional help, don't be afraid to look for and hire the help you
need. when you're ready to hire someone, simply run an ad in your local paper
and/or register your needs with the local office of your state's employment
service. Businesses either grow or die, and those that grow eventually
need more people in order to continue growing.
When that time comes, hire the additional
people you need, and your business will continue growing. If you don't,
for whatever reason, you'll find yourself married to your business and your business
growth stymied.
Regardless of how small your business is
when you begin, never walk in with the thought in mind that it's something to
keep you busy. Anyone with an attitude of that kind is a fool. You begin and
make a business successful in order to realize financial freedom.
Establish your business. Put it on its feet, and then hire other
people to do the work for you. And those businesses that require an
operations manager, or someone to run a phase of the business you're too busy
to handle, hire the person needed or the business will surely suffer.
To protect the investment of your
business, you need business insurance. If you've never had any experience
with business insurance, simply look under the heading of "business
insurance" in your phone directory. Ask for bids from several
different companies or agents...Primarily, you should have a policy that gives
you general liability, fire, workmen's compensation, business interruption, and
vehicle coverage. You amy also want coverage against possible losses
related to burglary, robbery, Life & Accident, Key Man, and Fidelity Bonds.
As the sole proprietor of a business, you
won't be paid as an employee, so there will be no income tax deducted from
whatever you withdraw from the company's earnings. What you'll have to do
is a gain check with the IRS Office for a Tax Guide For Small Businesses
Handbook, and probably end up filing an estimated tax return on a
quarterly basis.
The minute you open your doors for
business, you'll have to spend some time engaged in the work of bookkeeping.
Exactly how, and using what forms, you keep books, should be on the recommendations
of a good tax counselor...The same holds true for your overall business and/or
payroll accounting system. Look for an experienced CPA that knows the
accounting problems to your particular kind of business, and solicit his
advise/counseling.
If your business is going to involve the
possible purchase or lease of operating equipment, again seek the help of your
tax counselor for the most advantageous method of obtaining the needed
equipment.
Basically, arranging for your suppliers to give you materials on credit
will depend upon your honesty and personal financial statement. The best
way is usually a personal visit to the person with the power to approve or
disapprove of credit at the company where you want to set up a credit account.
Show him your financial statement, and explain your prospects for
success. Then assure him that you've always honored all of your obligations,
and that if ever there's a question or problem, you'd like for him to call you
at home. And of course, give him your home phone number.
We won't go into the exigencies of
advertising your products, services or business here, but there is something
along these lines you should always keep in mind. The best kind of advertising
your business can receive is that you don't really pay for - publicity.
When something unusual happens to you,
your business, or your employees - that's news, so be sure to tell the news
media in your area about it.
In closing, let me say that the most
important ingredient of your eventual success will be the soundness of the
planning you did before you started your business. Any number of bad
things can really throw your business into a tailspin, but it you've done your
homework well - really set up a detailed business plan before starting - your
losses or setbacks will be minimal. Success takes planning, and within this
report, you've got a basic checklist...The rest is up to you...Good luck, and
may your life overflow with success in all that you undertake from this moment
forward.
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