"What are the advantages to owning my own business?" We would love to be able to give an easy answer to that question! The brutally honest answer is that the advantages depend on the individual involved. To some people simply being their own boss is enough to keep them happy. Others wish for immense financial success. Rarely can one's own business encompass the "be all and end all" to happiness and bliss.
Some of the reasons people start or buy their own businesses are to…
These are all valid reasons to want your own business, but the success or failure of a person's business venture is as unique as their fingerprint. There is no simple or standard method for launching a successful business.
Before hazarding into the world of entrepreneurship and self-employment, you'll need to do a lot of homework. You need to research your idea and potential market, create a business plan and operating strategy and work out the financing details.
After you have had a chance to consider the big picture, you should have a good sense of whether owning your own business is for you and whether your idea is feasible. If you're confident that you can make a success of your business, you will want to start looking into financing and working on your business plan.
After going through the research and planning, you may decide that being an entrepreneur is not for you or that your business idea is not workable. You can always explore another idea. It's easier to stop early than after you've spent money.
Whatever you ultimately decide, your research will not be wasted.
First assess your own capabilities, resources and characteristics. This helps you concentrate on your strengths as well as identify the additional tools, resources and skills you'll need - from financing to market planning to bookkeeping.
Here are some more important questions to ask yourself:
If you read through all of this and still think you're up for the challenge, tune in next time! The next section will go over a whole NEW bunch of questions to consider as you develop your business idea.
Okay, you've made it through the first round of questioning and have decided that you have what it takes to seriously consider your business idea. Great! Now comes the daunting task of going through all the details you can possibly think of that will be a factor as you move forward. There is no "one" place you can go to find everything you need to start a business. We try to cover the basics here, however, research will be needed elsewhere for your particular needs. (For instance, a local clay and pottery shop needed to install a gas kiln. Even the city didn't know how to handle its request, nor did the city have anyone that knew how to inspect the kiln once it was installed!) This article is meant to provide you a quick look at most of the items you need to consider as you move forward. It is my no means all-inclusive. I've included a few extra resources for your benefit.
Attorneys, Business Advisors, Accountants,
As much as we all hate the idea of spending money up front for professional advice, it's remains a very good idea. There are a great many things that you won't think of and your attorney, business advisor and CPA will turn out to be terrific advisors. Do your homework. Check the reputations of those you want to consider as your consultants. Get recommendations from individuals in a similar business. Check their history for legal entanglements. Interview them to see if you can talk comfortably and can develop a mutual respect. In all likelihood you will be working with these individuals for a good long time.
What structure should your company assume?
It's not that easy to determine whether you are going to be doing business as a sole proprietorship, partnership, corporation, or a Limited Liability Company. We strongly recommend that you consult with your attorney and CPA before deciding on the type of entity that best suits your business. Depending on your business product or service, choosing a simple structure in the beginning may work well which will allow you to incorporate later if it seems practical. The biggest risk in assuming a sole proprietorship or partnership is that you remain personally liable for the business finances and potential negligence. Limited Liability Companies (LLC) reduce the personal liability (as do corporations) and may seem like a good idea on the surface, but we caution you to look deeper into the legal and accounting aspects before deciding on an LLC. They can be deceptively simple and leave little room for future flexibility.
For details on the requirements in your state for corporations and LLCs, you may have to look up your state and determine the filing requirements. They also offer the services of handling the incorporation process for you. Your attorney can do this as well. It's your choice.
You can also find links to individual state requirements on ABC's State Resources pages. These links will provide you access to all the small business information available in your state. Most states are very generous with start-up information and help. Use everything you can find in your state, county and city. Counties often have helpful websites, as well. Depending on the size of your city, it may also offer quite a lot of help. You'll need to know the legal requirements (such as licenses and permits) for a number of issues in your state, county and city. Your attorney should also be able to help you navigate these hurdles.
Naming Your Business:
A name can really make or break a business. If you make it too obscure people won't understand what you offer. If you make it too hokey, people will brush you off as not being a serious business. (For instance, a business opened near us named "Yummy Buns." While it's a cute name, it got more laughs than business and soon closed.) One way to begin is to name your legal entity something boring like "Smith Associates." Later, after you have analyzed your business operations and market projections, you can apply for a DBA ("doing business as").
Your bank will require a certificate or resolution with your legal entity name at the time you apply for a bank account. Your county clerk or State Secretary can tell you where to apply for the name. To find out if a name has already been registered nationally check the U. S. Patent & Trademark Office database (it's free!) at http://www.uspto.gov.
Where to "do" business:
The location of your business will, of course, vary depending on the kind of business or service. There are numerous options as you can imagine. Retail businesses should be located in an area with adequate parking space and heavy foot traffic. If you locate in a shopping center, be certain you understand the terms of the lease. Find out if the tenants are expected to pay all expenses including utilities, signs, lighting, taxes, insurance, garbage, maintenance, etc., in addition to all the usual store expenses. If you're going into an office business, or an unproven venture, get a month-to-month rental agreement so that if your venture is unsuccessful you will not be stuck with future rent as you would if you were under a long-term lease. We probably don't need to tell you this but we will anyway: READ the lease. Have your attorney read the lease. Know exactly what is expected of you and what you should expect for your landlord.
Keep in mind that advance deposits are usually required when you sign up for Power, Gas, Water and Sewer. This depends a great deal on the agreement you have with your landlord (see paragraph above).
Licenses and Permits (or Forms, forms and more
You will need to apply at city and/or county offices for local licenses required for your particular business. If you are going into a retail business and your state is subject to sales taxes, apply for a permit and number with the State Revenue Services, Treasury or other appropriate department.
Sales taxes will have to be added to your customer's purchases and you will be required to pay the proceeds over to the state on a prescribed schedule. Some states require a nominal deposit with your application. Your various suppliers will need your permit number for their files before they will sell to you. You do not have to collect sales taxes across state lines unless you have businesses in other states. For example: Individuals providing a mail order business that sends their advertising and products nationwide need only collect taxes for sales made to customers within the state.
Individuals entering into specific businesses will have to obtain occupational licenses through their state or local licensing agencies. These may include real estate personnel, medical professions, barbers, cosmetologists, electricians, plumbers, contractors, insurance agents, engineers and many others. Paying a fee and passing a written examination is often required before a license can be issued.
Federal regulations control many kinds of interstate activities with license and permit requirements. These include such businesses as common carriers, certain food processors, TV stations, radio stations, and drug manufacturers, among others. Any organization that shops, sells, or advertises in more than one state is subject to Federal Trade Commission (FTC) regulations. This includes mail order operations although no license is required in most cases. Any firm distributing food products, including restaurants, is subject to permits and periodic inspections.
Other permits required for certain businesses include inspection and permit for occupying a new building that caters to the public, fire permits, pollution control permits, and those which regulate the size, shape, style and placement of signs, etc. If you are in doubt about which permits and licenses pertain to your chosen business it may want to visit with the owner of a similar business in a different area or town and get some information from them. Again, your attorney will also be a good place for this type of information.
Don't forget about insurance. The premiums are expensive, especially business liability, but you cannot operate with peace of mind without full coverage. Check with a good agent regarding Fire, Liability, Workmen's Compensation (a legal requirement in most states), Business Interruption, Burglary, Glass, Extended Coverage, Vehicles, etc. It's a good idea to have two or three agents submit estimates. If you're unsure about the contracts have your attorney review them with you.
Potential Business Failure:
Think positive about your new venture but don't expect to make a great deal of money with little or no investment. Lack of capital has been the downfall of many otherwise good business start-ups. You may have limited take home pay for the first few months as you plow your profits back into the business to make it grow. You will need a substantial cash reserve or other source of income during the build-up phase to take care of your personal expenses. Lack of training and experience is another great destroyer of dreams. Be sure you have the knowledge and are capable of running the business you propose. Get into something you already know or can learn without getting hurt in the process.
If you are going into a retail operation know who your suppliers will be before you even start looking for a location. Buy the right kind of merchandise, at the right prices, to fit the kind of customer you will be serving. Keep your inventory in balance with sells and cash flow. Plan ahead. Learn how to promote and advertise for best results. Keep up with the trends of the time and know at all times what your competition is doing.
A few of the other things leading to quick failure are: lack of over-all business planning, inept managers or employees, incomplete accounting records, improper financial reports, lack of control over assets, bad credit policy and inability of the owner to reach or act on decisions. Make sure you establish a good return policy. You can get more information on this from our article, Returns.
You also need to anticipate an exit strategy as you develop your business plan. Your business won't go on forever; and should not go on forever. Build in some security in how you plan to exit your business smoothly.
Get to know the manager of your bank. He will be one of your best references. Greet him or her as often as possible and let him know how your business is going. If your bank is an advocate of your success, you have a great asset! Ask his advice and get his help on financial matters. The more he advises you the better he will come to know you. Develop a line of credit so cash will be available when you need it. The banks can't exist without making loans so don't hesitate to apply. When you handle high cost items your bank may be able to work up installment contracts for your customers. Get set up with MasterCard, Visa, etc. It will cost you from 3% to 5% but you must have this service available for your customers if you want to stay in business.
To establish your bank account you will need a Federal ID number or social security number along with your certificate of assumed (fictitious) business name. If you are incorporated, the bank will want a copy of the minutes and a corporate resolution authorizing the account.
Throughout the year, it takes hundreds of hours of your time to prepare and file the various payroll reports and other governmental forms required. This is no reason for you to sacrifice 24 hours a day trying to keep up with your business all by yourself without adequate help. When you have expanded to the point you can afford good employees and/or managers, don't hesitate to hire them. Properly trained and advised they will make more money for you than you can ever make going it alone in most ventures. Advertise in the classified section, take applications, set up interviews and hire the best.
One of the first things to do when starting your new business is to get Federal and State application forms for ID numbers (Internal Revenue Service Small Business Guide). Request Business Start Up application forms from the Internal Revenue Service and from the State Tax Commission. After your applications are sent in you will be notified of your number and get a packet of information. Depository forms, quarterly report forms, W-4-A's, W-2's, estimated tax forms, etc., will then be mailed periodically as needed. Payroll taxes and expenses will amount to from 13% to 17% of your gross payroll depending on workmen's compensation rates for the various job classifications. Payroll expenses include: FICA taxes (Social Security), FUE taxes (Federal Unemployment), SUE taxes (State Unemployment), WC or SDI (Workmen's Compensation). You will also be required to withhold taxes from your employees' wages and pay it over to the Federal and State governments: FICA taxes (Social Security-Employers share), Federal Income Taxes, State Income Taxes (Most States), and State Disability Insurance (Some States).
Your initial response to the previous paragraph may be shock or an audible groan. You can obtain the help of a payroll service to make all of this happen. From my personal experience, it's worth it. Keeping up with the forms and timing can be a real headache when you're trying to keep your business going from all other directions. Having someone else handle the payroll can be a real weight off your back!
Business Income Taxes
If you are a sole proprietorship business or are a partner you will have to file and pay Federal estimated tax reports each quarter based on your estimated annual income. (Some states also require periodic estimates through the year.) Partnerships file an annual information return and each partners' share of profits is included in their individual personal income tax return. Corporations must also file for estimated taxes.
Bookkeeping and Accounting:
There is probably no reason you cannot do your own record keeping, at least in getting started.
In the beginning, it's easy to just use a separate checkbook and bank account for your business. Use a columnar check register with several columns and distribute the amount of each check written to the proper columns. List your deposits on the check register and carry across a continuous bank balance. If you don't have a cash register to start with you can write up sales on duplicate sales slips, but a cash register is highly recommended. You will be able to ring up sales to different departments and by different clerks. It will pay for itself many times over in just a short time. Record receipts from the totaled out cash register tape at the end of each day to daily or weekly sheets.
If, in addition to your check register and cash register, you add a General Journal for recording any extraneous transactions you have all that is necessary for a simple cash accounting system. This cash system can be easily converted to the accrual method of accounting by simply journalizing accounts receivable, payable, accruals, prepaid insurance, etc. After posting these entries in your General Journal, the Balance Sheet and Income Statement can be readily completed.
After preparing the financial statements, reverse the accruals and you will be ready for entries the following month. You can enter your gross payroll, payroll deductions and the net amount in your check register. Give your employees a payroll slip showing all the facts and maintain subsidiary payroll sheets with all the information as to each employee.
With these individual payroll records and the control accounts in the General Ledger you have all the information necessary to complete the various payroll tax reports and returns as they come due. At the end of each annual accounting period all the information for filing your Income Tax returns will be right at your fingertips. If you know nothing about bookkeeping have an accountant set up your books on the basis of the above simple method. Let him keep the books the first few months while you learn how then, if you prefer, take them over yourself. Use your accountant as your advisor. After a short time, you probably will be able to do all the accounting without outside help.
Now, if those three previous paragraphs made you gag you need to make some other choices.
In short, if you can't or don't want to do it yourself, DON'T do it yourself. You'll just hate it and may make a mess of it (from experience I can tell you that is not a chance worth taking!).
Every business is different and will not be using the same kind of fixtures and equipment. Sometimes it is much better to preserve cash for inventories or working capital and purchase good used fixtures and equipment for a smaller price. With the recent changes in the income tax laws you will have to do extra analysis to determine whether a lease program or direct purchase is the best way to proceed. Whether to buy or lease depends on many facts that can only be determined by observation and computation. It could be better to lease electronic equipment, computers, copiers and certain other products due to the major changes taking place in these sectors. (So, you bought a nice computer a month ago? Well that's great if you want a nice paperweight!).
Suppliers are reluctant to ship their goods to new businesses. That is one reason you should get to know your banker as he can offer credit references acceptable to most any firm. You will have to convince your proposed suppliers that you are honest and hard working and that your business has a good chance for success. You may have to pay upon ordering or C.O.D. while getting started so take this fact into account when preparing your financial planning and start-up requirements. After you have become established with your suppliers send your financial data to Dun And Bradstreet so your company will be listed in their files. Most every firm in the country recognizes Dun and Bradstreet as a most reliable organization for obtaining correct credit information. Work with your suppliers to take advantage of special offers, cooperative advertising programs, trade and cash discounts, dated invoices, etc.
Advertising and Promotion:
When you are getting started give a press release to the local newspaper. See our article on "How to Write a Press Release." Depending on the type of business, it may be very profitable to have a few thousand circulars printed and distributed throughout the area. Or you can have grand opening circulars inserted in the newspaper to be distributed to subscribers. Watch the ads of your competitors. As you find time clip various ads of businesses similar to your own, from large city papers. File them for ideas when preparing your own ads. There are all kinds of promotional ideas and gimmicks to keep your business out in front of your competitor. Search the library, bookstores and mail order media for such publications. Choose the ones that fit your promotional programs or those that can be twisted to fit and get them working for you.
When you first start thinking about establishing your own business find out when the next issue of the telephone book will be printed and the deadline for getting listed. Place a reasonable display ad in the yellow pages under the classification which best describes your product or service. It could be a catastrophe if you missed the deadline for the next issue by a few days and have to wait 9 months to a year for a listing in the permanent directory.
This is a lot of information. Take it bit by bit and think about it. When you feel you have a good feel for everything that is included here, do some more research on the areas where you have questions.
You will also have to consider funding your business which is an entirely different monster. We have several resources regarding money and financing that you may peruse at your leisure.
Your next stop should be our Business Plan Tutorial series. If you take the time to follow the tutorial, you'll have a very good feeling as to whether your business idea is worth pursuing.
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