Legal Entity:
Determine
whether you are going to be doing business as an
individual
proprietorship, partnership or corporation.
The
individual proprietorship is the form of entity used
by
most small businesses at start up. If
you need
additional
capital or expertise a partnership may be the
best
entity. You can always incorporate later
if
practical. The expense to incorporate a small business
is
nominal
but since the latest income tax changes unless
incorporating
will make you more money or better protect
your
investment there is not much benefit in forming a
corporation. Even though there is limited liability as to
your
personal assets with a corporate entity when
obtaining
outside financing, or in the event funds are
misused,
you can still be personally liable.
The
strict laws, higher State Income taxes in some states,
the
legal work involved and the heavier accounting and tax
reporting
requirements are some of the disadvantages of
running
your business as a corporation. Also, if
you
decide
later to close out your corporation, the paper work
involved,
especially to conform to the provisions of the
Internal
Revenue Code, is difficult and often runs into
more
problems than the initial incorporation.
Of
course when interest rates are high incorporating may
be
the only practical method to get sufficient capital to
start-up
and run your operation. However when you
go
public
with your stock you are looking at a whole new ball
game. Federal regulations, State requirements,
etc., will
make
it imperative to hire a good corporate attorney and
in
most instances you will need an investment company to
sell
the stock. The costs involved to go
public are
enormous
and sometimes cost up to one-third of the
proceeds
from the sell of stock leaving the working
capital
and fixed assets in peril.
Business
Name:
To
make the public better aware of just what your firm
offers
it is generally good practice to choose a business
name
that describes your product or service.
Apply for a
fictitious
business name with your state or county offices
when
you plan on going into business under a name other
than
your own. Also, the bank will require a
certificate
or
resolution pertaining to your fictitious name at the
time
you apply for a bank account. Your
county clerk can
tell
you where to apply for the name.
Location:
The
location of your business will of course vary
depending
on the kind of business or service. 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. Is it a Net-Net lease requiring the tenants
to pay
all
center 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. In the event your
venture is
unsuccessful
you will not be stuck with future rent as you
would
if you were under a long term lease. The
landlord
is
in control. You must get his approval in
the event you
want
to sub-lease to another and even if he agrees you are
still
secondarily liable for the term of the lease.
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 know how
and are capable
of
running the business your 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.
Bank
Account:
Get
to know the manager of your bank. He
will be one of
your
best references. 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 it
will
be there 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.
Payroll
Taxes:
One
of the first things to do when starting your new
business
is to get Federal and State application forms for
ID
numbers. 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)
Also,
you will be required to withhold from your employees
wages
and pay over to the Federal and State:
FICA
taxes (Social Security-Employers share)
Federal
Income Taxes
State
Income Taxes (Most States)
State
Disability Insurance (Some States)
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 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. Corporation
must
also
file for estimated taxes.
Hiring
Employees:
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 pint you can afford good
employees
and/or managers, don't hesitate, 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.
Utilities:
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. Advance deposits are usually required when
you
sign
up for Power, Gas, Water and Sewer.
Licenses
and Permits:
Apply
at City or County offices for local licenses
required. 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 Franchise Tax Board or other
proper
department. You will have to add the
taxes to your
customer's
purchases and pay pay the proceeds over to the
state
periodically. 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: Persons in the mail order business sending
their
Advertising and products nationwide need only
collect
taxes for sales made to persons within the state.
Occupational
Licenses:
Persons
entering into certain kinds of business will have
to
obtain an occupational license through the State or
local
licensing agencies. These include Real
Estate
Personnel,
those in the medical profession, barbers,
beauty
operators, electricians, plumbers, contractors,
insurance
agents, engineers and many others.
Passing a
written
examination is generally required before a license
is
issued.
Other
Licenses:
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, drug manufacturers and
many
others. Any organization which 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 pay to first set
down
with the proprietor of a similar business in a
different
area or town and get full information from them.
Insurance:
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,
Business
Interruption, Burglary, Glass, Extended Coverage,
Vehicles,
etc. Have two or three agents submit
estimates.
Bookkeeping
and Accounting:
There
is probably no reason you cannot do your own record
keeping,
at least in getting started. Just use a separate
check
book and bank account for your business.
Use a
columnar
check register with several "headed up" 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.
With
just the above two records of original entry plus a
"General
Journal" to record any extraneous transactions,
and
a "General Ledger" to which accounts from the three
records
are posted at the end of each month, 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 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.
Equipment
Required:
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 at a much
lesser
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
which
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 rapid advances continuously taking place in
these
fields.
Suppliers:
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 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. 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, book stores and mail order media for
such
publications. Choose the ones which fit
your
promotional
programs or those that can be "twisted" to fit
and
get them working for you.
BUSINESS
FORMAT:
Owning
your own business is one of the better ways to gain
wealth
provided you know what is required.
Starting a
business
is risky but your chances for making good are
better
if you understand the problems you will meet and
work
out as many of them as you can before you start.
The
Business Format that follows will be a valuable aid in
getting
you started in a business of your own.
Use the
format
as a check list and guide. If the
response to the
questions
and comments is favorable you are in a preferred
position
to go into business for yourself.
How
about you ... Are you the kind of person who can get a
business
started and make it go?
The
first thing you need to know is if you require someone
else
to get you started or if you do things on your own
with
nobody telling you to get going.
____________________________________________________
Do
you like other people and can you get along with just
about
anyone?
_________________________________________________________
Are
you able to lead others? Can you get
most people to
go
along when you start something or do you have to follow
the
lead of others before you act?
_____________________________________________________
Do
you like to take charge of things and be responsible
for
seeing them through?
__________________________________________________
How
good are you at organizing things; do you have a plan
before
you start and are you the one who gets things lined
up
for the group?___________
Can
you make yourself keep going as long as you need in
order
to accomplish something?
______________________________________
Are
you able to make the right decisions most of the time,
even
when you have to make up your mind in a hurry?
___________________________
Can
people trust what you say and have confidence that you
don't
say things you don't mean?
_______________________________________
Do
you stick with it and finish what you start?
____________________
Are
you in good health?
_______________________________________
Think
very seriously about why you want to own your own
business
and whether you want it badly enough to keep you
working
long hours without knowing how much money you will
end
up with.
Have
you worked in a business like the one you intend to
start?
________
Have
you worked for someone else in a management capacity?
_________
Have
you had any business training in school?
______________________
Have
you saved any money for your venture?
_______________________
How
about money? Do you know how much money
you will need
to
get started?
To
answer these questions first determine what furniture,
fixtures
and equipment you will need. List the
cost, the
down
payment or cash price, and if purchased on an
installment
plan, the amount of each monthly or periodic
payment.
Price
$_______
Down
Payment
$_______
Amount
of each payment
$_______
The
furniture, fixtures and equipment required may include
such
things as counters, storage shelves, cabinets,
display
stands, tables, cash register, safe, window
display
fixtures, special lighting, outside signs and
delivery
equipment.
Now
list the starting cost you have to pay only once, such
as
the following:
Furn.,
Fix, & Equip. (per previous page)
$______
Decorating
and remodeling
______
Installation
of fixtures and equipment
______
Starting
inventory
______
Deposits
with public utilities
______
Legal
and other professional fees
______
Licenses
and permits
______
Advertising
and opening promotion
______
Advance
on lease
______
Other
and Misc. cash requirements
______
TOTAL
ESTIMATED CASH NEED TO START
$______
Now
list the estimated monthly expenses:
Salary
of owner-manager
$______
All
other salaries and wages
______
Payroll
taxes and expense
______
Rent
or lease
______
Advertising
______
Delivery
expense
______
Supplies
______
Telephone
______
Other
utilities
______
Insurance
______
Property
taxes
______
Interest
expense
______
Repairs
and maintenance
______
Legal
and accounting
______
Miscellaneous
______
TOTAL
ESTIMATED MONTHLY EXPENSES
$______
Multiply
by 4 (4 months)
$______
Add:
Total Cash needed to start above
$______
TOTAL
ESTIMATED CASH NEEDED
$______
When
you have found the approximate amount of cash needed
to
start, determine how much money of your own you can put
into
the business.
Where
are you going to get the rest of the money you need
to
start the business?
__________________________________________________
Do
you know the credit terms of your suppliers?
____________________
Have
your prepared a projected Income Statement to know
what
profits you may expect?
_____________________________________________
Is
projected profit, including the salary you pay
yourself,
sufficient for you to live on and still generate
working
capital to help your business grow?
_____________________________________________________
How
about a partner?
If
you need a partner with money or know-how do you know
someone
you can get along with as a partner?
________________________________
Do
you know the good and bad points of being an individual
proprietorship,
a partnership, or a corporation?
_________________________________
How
about customers?
Do
most of the businesses in your community seem to be
doing
well? ____
Have
you determined whether stores like the one you want
to
open are doing well locally and nationally?
_______________________________
Do
you know what kind of people will want to purchase what
you
plan to sell?
______________________________________________________
Is
there a good demand for your kind of business?
___________________
Getting
started in your business:
How
about your building:
Have
you found a good building in a good location for your
business?
_____
Will
the building fit your business purpose without to
much
outlay for remodeling or leasehold improvements?
__________________________
Is
there adequate off-street parking?
____________________________
Have
you determined if the zoning is right?
________________________
Have
you had your attorney check the small print in your
lease?_________
How
about merchandise:
Have
you determined how much inventory you will need to
open?
________
Have
you found suppliers you can depend on for good
merchandise,
when you need it, at a favorable price?
________________________________
Have
you compared prices and credit terms of different
suppliers?
______
Have
you checked out your competition in every possible
manner
to determine pricing, good will, volume of
business,
etc.? _______________
How
about keeping records:
Do
you know how to keep track of your income and expenses;
your
accounts payable and accounts receivable?
________________________________
Do
you know how to control your inventory so you have
enough
on hand for your customers buy not more than you
can
sell? ____________________
Can
you compute payrolls, prepare tax reports, etc., or do
you
know a bookkeeper or accountant who will help with
your
accounting requirements for a reasonable fee?
______________________________
Do
you know what financial statements you will need in
order
to guide your operations?
____________________________________________
Have
you found out what licenses and permits you will need
and
have you had an opportunity to read up briefly on
general
business law? _________
Protecting
your property:
Have
you make plans for protection against theft of all
kinds....shoplifting,
robbery, burglar, employee control?
______________________________
Have
you talked to your insurance agent?
__________________________
Buying
a business someone else has started:
Have
you considered purchasing a going business rather
than
setting up a new operation?
______________________________________________
Have
you determined the "real" reason the owner wants to
sell?________
Have
you compared the cost of buying the business with the
cost
of starting a new business?
______________________________________
Is
the building, equipment and stock in good order and can
the
lease be readily transferred?
__________________________________________
How
about the suppliers of the company?
__________________________
MAKING
IT GO:
Advertising:
Have
you decided how you will advertise?
_________________________
Have
you watched the ads of your competitors?
_____________________
How
much can you afford for advertising?
_________________________
Price:
Do
you know how to figure out what you should charge for
each
item you sell?
______________________________________________________
Do
you know what other stores like yours charge?
___________________
Buying:
Do
you have a plan for finding out just what your
customers
want? ______
Will
your plan for keeping track of inventory tell you
when
it is time to order more and how much to order?
______________________________
Do
you plan to buy most of your stock from a few suppliers
rather
than a little from many so those you buy from will
be
more likely to help you succeed?
__________________________________________________
Selling:
Have
you decided whether you will have sales clerks or run
a
self service operation?
_________________________________________________
Do you
know how to get customers to buy?
________________________
Have
you thought about why you like to purchase from some
sales
clerks but not others?
______________________________________________
Your
employees:
How
are you going to train your help?
____________________________
Do
you know where and how to find good employees?
_________________
Do
you know what kind of person you need?
________________________
Credit:
Have
you decided whether to extend credit?
________________________
Have
you checked with the bank about getting set up with
Visa
and Mastercard?
_______________________________________________
Can
you recognize the difference between a good credit
customer
and a "dead-beat"?
_______________________________________________
What
Else?
Could
you make more money working for someone else and is
for,
how does the opportunity compare with future
projected
profits from a business of your own?
__________________________________________________
Does
your family go along with your plans to start a
business
of your
own?______________________________________________________
Do
you know where to find out about new ideas and new
products?
______
Do
you have a "work plan" for your employees, and for
yourself?
_______
Have
you checked to see if there are any governmental
agencies
available to help you set up your new business?
____________________________
IF
YOU HAVE ANSWERED ALL THE ABOVE QUESTIONS, YOU HAVE
DONE
SOME SERIOUS THINKING. As you proceed in
a business
of
your own don't hesitate to ask others for help.
Running
a business takes will power. Decide what
you need
then
go after if full blast!
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