Starting A Business

Although there are no guarantees, if you answered "Yes" to a majority of the questions, you may have what it takes to be successful in starting your own business. If you really don't see yourself here, don't despair. You're now aware of the kinds of skills and traits you need to cultivate in order to prepare yourself for business ownership. You should, however, carefully rethink your plans. Every new business faces difficulties. You want to make certain that you're up to the task.

The right mind-set is just the beginning. Running a business also takes a sharp business sense. Knowing how to take advantage of market conditions and developing strategies to get through the tough times will help turn your great idea into a successful business.

First, you'll need to develop a business plan. It will be the road map you'll use to establish and guide your business. Start by defining your idea in business terms. This is not a time to focus only on the positive. You need to take a hard, critical look at your plan and all its components. Ask every question you can think of, and be sure you come up with satisfactory answers.

• What type of business do you want to own? Will it be retail, service or manufacturing?
• Who's the competition? Is the community large enough to support another similar business? Head to the local chamber of commerce for details.
• Where will you locate your business? Is there a similar business nearby? Get information on the community's plans for business growth, such as shopping malls and business park expansion.
• Will you be able to find enough qualified people to employ?
• Will you buy, lease or build space for your business? Buying space is costly. For that reason, it's usually wise to rent at first in case your plans don't work out.
• How will you identify customers for your product or service? Look at population figures-current and projected.
• How will you sell to potential customers or clients?

Find out not only if your prospective customers really are viable, but also where your product fits in the marketplace. Talk to your intended suppliers and, if possible, your intended customers. Also do some research at the library and through trade associations. Contact the Small Business Administration (SBA). Your goal here is to get as much information in measurable form as you can. These facts and figures can-and should-be used to make solid projections for your business.

Be prepared to revise your business plan if the information you gather doesn't add up to a strong possibility of success. Or make discreet inquiries about the availability of an existing business.

This is no time to go it alone. Find and consult qualified professionals-real estate agents, lawyers, accountants, public relations experts and consultants-to help you make the best decisions. Ask other local business owners for referrals, or check the Yellow Pages. Even if your dream business is small and you have a great deal of experience in that particular line of work, don't expect to know all there is about running a business. Good advice may be the difference between success and failure.

The Capital Idea

Securing adequate financing is a primary concern for most new businesses. Most people don't personally possess all the resources it takes to get a business up and running, but as a business owner you'll need to invest some of your own money. Putting your funds into a business venture helps prove your commitment to potential investors or other sources of financing.

Those sources include banks, the Small Business Administration (SBA) and private individuals. Be aware that many banks avoid new business loans as being too risky even when money is not tight. The SBA is usually eager to help new enterprises, but competition is keen for the SBA's limited loan guaranty support. Before applying for financing, you need to carefully prepare a thorough, well-thought-out loan proposal. Write up detailed figures on the capital needed, and be sure to include a salary for yourself and sufficient funds to cover start-up costs. A bank or SBA representative will review your business plan to be sure it's solid. Once you obtain a loan, you'll probably have to provide updated financial statements on a regular basis. As long as your business is profitable and you're making loan payments on time, you'll probably have minimum contact with the bank or SBA. Short-term loans may require closer bank monitoring.

You may consider seeking private investors who wish to have an equity stake in your business. Relatives or friends may be potential investors. Keep in mind, however, that these people may, understandably, expect to have a say in how the business is run.

Legal Formations

For tax and legal reasons, you'll need to decide what form your business will take. Generally, all businesses fall into one of these broad categories: sole proprietorship, partnership, corporation, S corporation and limited liability corporation. Your choice of business form will affect your exposure to personal liability, how you draw profits and pay taxes, your ability to raise capital and how you run the business.

Here's where professional advisors play a key role. Consult with an attorney and an accountant before you decide what form to use for your new business. They can advise you on tax advantages and which form offers you the best protection of personal assets.

A Sole Proprietorship is the quickest, easiest way to start a business. Simply check with a knowledgeable attorney about any licensing or legal requirements and you're in business. In a sole proprietorship, profits and losses are simply included on your individual tax returns. On the downside, if someone sues your business, they may be able to sue you personally, and your personal assets are subject to those claims.

A Partnership is an association of two or more people working as co-owners of a business with the intent of making a profit. The involvement of two or more people in the business, however, generally increases the complexity and the amount of paperwork. Also, general partners can share unlimited liability, and each is usually responsible for the acts of the other.

A Corporation is a legal entity that functions somewhat like an individual, legally and for tax purposes. Liabilities are held by the corporation, minimizing the personal liability for owners. The corporation operates as a business and can be owned wholly or partially based on registered certificates called stock. To set up a corporation, you must file an application for a legal name, pay a corporate franchise fee to the state in which you file, appoint a board of directors and corporate officers, and keep minutes of periodic meetings of the board.

There's a unique type of corporation-called an S Corporation-that provides the advantages of a corporation but, unlike a corporation, is treated for income tax purposes as a flow through entity. Income is reported individually by the owners or stockholders on their personal income tax returns. Also, the owners may deduct the corporation's losses against other sources of income. If your new business will have fewer than 35 stockholders, you may want to talk with your accountant and attorney about this option. Another alternative is a limited liability corporation, in which income and income tax are distributed among partners, but generally the partners are not personally liable for debts. This is a brand new legal form of business. If you are interested in setting up such a corporation, be sure to consult a knowledgeable attorney.

Down to Business

You've got your business pretty well defined, you know what form it's going to take and you know where you're going to locate. Now it's time to get down to the business of running your business. Here are some of the major concerns you'll need to address as you get under way:

Marketing. Identify your potential customers-they're your target market. Then identify what is unique about your product or service. Develop a strategy for telling your target market about your product or service, and that's the basis of your marketing plan.

Pricing. The amount charged for a product must cover all costs and return a profit. Many small business owners fail to consider all the variables of producing their products in a competitive manner, so they either fail to generate a profit or charge more than the market will bear. The three main components of price are material, labor and overhead costs. Do a complete cost analysis and set a price that falls in line with your marketing strategy.

Supply. Identify suppliers of the materials you will need to provide your product or service.

Production. Determine the best, most efficient way to make your product or offer your service.

Distribution. Figure out the fastest, least expensive way to get your product or service to your customers.

Staffing. If you're going to hire employees, be sure their roles are clearly defined. Prepare an organizational chart of personnel that covers the functions of sales, service, manufacturing and purchasing.

Training. Provide opportunities for your staff to learn more about their jobs and responsibilities.

Details, details. Don't neglect the following:

• Get a federal tax identification number
• Get a state sales tax identification number
• Establish a banking relationship
• Retain an attorney for the business
• Retain a CPA/accountant/bookkeeper
• Choose an insurance company

Other areas prone to error are deductions for travel and entertainment, deductions for a home office and capital gains and losses. If you do make a mistake-minor or otherwise-you should amend your return by filing a 1040X.

Open the Doors

Starting your own business can be an exciting and rewarding venture that can bring financial success, along with a sense of accomplishment and contentment. We hope the information in this pamphlet will help you get your business firmly on the road to success. Success takes planning, determination, hard work and, of course, luck. Good luck.