Starting your own Business
Starting your own business is tremendously exciting and also
can be a little frightening.
the small business start-up, the supposed industry gurus tend
to minimize the risks involved in starting your own business. You may
imagine yourself missing
mortgage payments when you can’t cover your business costs and having
to face angry
employees when you can’t make payroll.
Having an action plan can eliminate the fear, allowing you to get a
good start on a satisfying and rewarding journey.
There are always great small business ideas. Too many of them fall
victim to poor planning, inadequate business financing and the general
failure of their creators to understand the realities of starting a new
How To Start A Business: Reality First
Business Consulting: Professional Help For Small Business
you read how important a business plan is to building the foundation of
a sound business.
But even though a good business plan vastly improves the likelihood of
long-term success, it is not the most important single requirement for
starting your own business.
The first reality of starting a small business – perhaps, the only
thing that truly matters – is you need customers. You can do
everything else discussed below and then some, but your venture will
fail with no customers.
This may seem so obvious that you wonder why you’re reading it.
The reason? Because many entrepreneurs become so immersed in the
details of starting a new business, they forget about the customer –
who he is, where he is, what needs of his your new business will
and how to connect with him. Most of your energy in the beginning
stages of starting your own business should be keenly focused on the
customer, defining and refining your target
In short, you must have a market, because without one, you’re finished
you even start.
Your Own Business: Myth
will be your own boss
are not your own boss, your customers are.
Myth: You will be independent
Starting your own business won’t make you independent. After
you make all the money you will ever need, you will be independent.
A Simplified Plan For The Small Business Start-up
Starting your own business does not mean you have to write an elaborate
business plan. In fact, for the self-financed home-based business, your
plan may be in
your head and not on paper, and that might be enough for you. Not every
plan is the same, not every business needs the same level of detail.
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You can start simple and then prepared a detailed, written plan later
if you need small business loans, private loans, or want to seek
But you definitely need a plan. Your plan will help you move forward
decisions. And it will give you a head start toward
understanding your business. You can continue to develop your business
plan as your business evolves.
You may not be able to escape the preparation of a detailed written
plan if you’re starting a business that requires a large initial
payroll, store front or plant, intensive product development,
sophisticated packaging, office equipment, a website, and so on. Unless
you're wealthy enough to finance these costs yourself, then you should
invest the time to learn how to write a business plan that impresses
Ultimately, then, the form and content of your business plan will be
dictated by your initial small business financing
requirements. If no outside financing is needed, you are free to chose
the form your plan will take and level
of detail it will contain.
Starting your own business means spending money before you ever open
your doors. Many entrepreneurs either underestimate or fail to
adequately plan for
start-up costs, and they launch their small business start-up on shaky
footing. At best, their new business gets lucky; at worst, customers
see through the flimsy veneer, and it falls flat.
Much Money Will I Need?
When starting your own business, you have to project beyond
the initial expenses and accept another harsh reality: It is quite
likely your new company won't book a dime of profit for quite some
time. New companies fail primarily because the owners lack
sufficient business capital to both
pay the initial costs and
to finance the operating expenses until the business can support itself.
Of course, your
planning must include all the expenses associated with setting up your
business – physical plant, equipment, professional
fees, licensure and registration, and the like. But unless you're one
of the very few new companies fortunate enough to open its doors will a
positive cash flow, it's the six to twelve months of operating expenses
needed to firmly establish your firm that will consume the most
cash. Here are couple of things to consider:
• Product businesses usually require more investment than service
• “Bootstrapping” (starting a new business without start-up capital) is
much harder for product businesses than service businesses.
Licenses, Permits & Business Registration
Starting your own business it too important to make needless and
potentially costly mistakes
at the formative stage. If in doubt, see an attorney.
For example, the trade-offs involved in incorporation vs. partnership
vs. limited liability company vs. sole proprietorship are significant
an cannot be taken lightly. Avoid big problems later on with some
simple, inexpensive, legal advice.
Licenses and Permits
Licenses and permits required for your small business start-up depend
on what your company will do and where it is located. To find out what
is needed in your area, check with your local government, Chamber of
Commerce, and the Small Business Development Center.
If you are starting a home-based business, for example, you may have
local zoning laws that require a special permit (also called an
"exception" or "variance") to
operate in a residentially-zoned neighborhood. Most zoning
ordinancesrestrict commercial traffic and prohibit business signs on
lawns and houses.
Even if you discover that your small business start-up doesn’t need a
local business license, many service businesses and those operating in
regulated industries require licensure by state government. The
criteria for licensure will vary widely, from simply filling out a form
and paying a fee, to obtaining many hours of formal education and
passing a rigorous examination.
If you are starting a retail business in a state that has a sales tax,
you may have to collect sales taxes on your sales (some states also
have a services tax, as well). Before you open for
business, you will have to register for a sales tax account with the
state revenue collection agency. Once your business is open,
you will have to collect the tax from your customers and periodically
send a report of sales activity and the collected taxes to your state.
Federal Taxpayer ID and State Employer Numbers
You may need to apply for employer identification numbers from both the
Internal Revenue Service and your state tax collection agency. If you
incorporate your business, or you will withhold payroll taxes – such as
income and unemployment taxes, Social Security and Medicare – from
employees, you will need an IRS-assigned federal taxpayer ID number;
otherwise, your social security number is your taxpayer ID. In most
cases, states assign their own number.
Talking to an accountant when starting your own business is always a
idea. Look for a CPA in your area with a business practice. They are
valuable not just for business tax help, but for general small business
advice as well.
One of the key decisions you will make in starting your own business
is how it will be structured. Legal entities vary by state, so if you
not sure of what you are doing in this regard, this is one aaspectof
starting a small business where a good attorney definitely earns his
The main types of entities are the:
- Sole proprietorship
- Corporation (either the standard “C” or the small business
- Limited Liability Company (LLC)
A sole proprietorship is the easiest way of starting your own business.
By default, your firm is a sole proprietorship unless you create a
separate legal entity for it. For tax purposes, your firm’s profits and
losses pass through to your personal taxes, which you will report on a
separate form (schedule “C”) of your personal tax return.
A main disadvantage of the sole proprietorship is that you are
personally liable for its actions and debts. If your business is sued
or it fails, your personal assets can be taken from you to satisfy its
If you a starting a new business with others, a formal partnership
agreement may work for you. Be forewarned, though, that forming a
partnership can be complicated and prone to mistakes that could cause
problems and cost you a lot of money later.
Partnerships are governed by state law. Although a Uniform
Partnership Act is used in most states, it does little other than to
establish the "partnership agreement" as the legal foundation of a
partnership. So, agreements can vary widely, both among partnerships in
given state and among the states themselves.
Partnerships can include “general” partners and “limited” partners,
with different levels of risk for each type. Your partnership agreement
should define in
- What happens if a partner withdraws from the partnership
- The buy and sell arrangements for the partners
- And a procedure for dissolving and liquidating the
Partnerships are not taxed separately. As in the case of a sole
proprietorship, the profits and losses from a partnership pass through
to the individual partners themselves.
If you decide to form a partnership, save yourself headaches,
heartaches and maybe a great deal of money by finding an attorney with
experience in partnerships to draw up your agreement.
A corporation is a separate legal entity, with its own identity and
taxation. Its main advantage is that it shields the owners and other
stockholders from personal liability for its actions and debts.
Corporations are either a:
- Standard “C” corporation, or
- Small business “S” corporation.
C corporations are the entity of choice for companies that depend on
the public sale of stock for raising a significant share of their
required business capital. An S corporation, on the other hand, is used
for family-owned companies and smaller, private ownership groups.
The main distinction between the two is in how they are taxed. An S
corporation's profits and losses pass straight through to its
stockholding owners without being taxed separately. The C corporation
must pay taxes on its profits before it can distribute them to its
stockholders, who are then taxed on those distributions themselves
(double taxation). But most states limit the number of stockholding
owners an S corporation can have, and in an S-corporation, stock cannot
be held by other
corporations, only private individuals. So, when starting your own
business, your future business capital needs will be the main
consideration when deciding between the two.
You can always change your mind later, since the IRS allows a
corporation to switch from C to S and back to a C again – but not
often, and not without potential complications. Again, when in doubt,
get professional advice before you act.
Most of the professional small business advice is in agreement: When
starting your own business, give serious consideration to incorporating
it for the best legal protection and the excellent tax benefits
afforded by a corporation.
Limited Liability Company (LLC)
A newer form of legal entity, the LLC can offer new business owners
similar benefits to an S corporation – some protection from personal
liability and certain tax advantages – but many of the legal details
vary from state to state. So an LLC may be more or less advisable than
other entities depending on where you are and what your business will
do. To understand how LLCs work in your state and for your business
type, your best bet is to get some local small business advice.
Choosing Your Business Name
Chances are, if you’ve been thinking about starting your own business
for any length of time, you have also been brainstorming potential
names. You already know the choice of a business name is important and
worth your time to develop. You want something that sounds nice,
describes your business, isn’t too long, and is easy to
There is a lot of confusion about naming businesses, and once again,
the precise rules depend on where you are.
In large part, the confusion stems from the different type of laws
protecting intellectual property. Trademark laws exist to protect
product names, trade names, slogans, and logos, but no law federal law
protects business names or guarantees exclusive use of a name to just
company, just as there is no legal protection or exclusive use of your
own, personal name.
For the small business start-up, then, the two main issues with naming
a company are the legal requirements and the commercial use of the
First, find the business naming authority in your area. It could be and
agency in your state government, your local government, or both.
Find out whether the names you are considering have already been taken.
Most agencies will either search potential names for you or offer a
If you are starting a small business using your own name – common among
sole proprietorships – you might not haveto do anything at
all, though you
may have the option to register your name as a business. By
registering, your name is officially established as a business entity
and future businesses in your area will not try to use it.
If you want to use a different name, you will normally have to register
a fictitious name (also known as a “DBA” for “doing business as”) with
your local government. A fictitious name gives you the right to operate
your business – create signs, open bank accounts, advertise, an so
forth – with an identity other than your own, and, in most cases, to
enjoy its exclusive use you
within your locality (but, not always, as you will see below).
If you incorporate your small business start-up or form a limited
liability company, you will register your business name with your state
government. Even though no two corporations or LLCs can have
the exact same name in any state, you still no guarantee of
exclusivity. Non-corporate entities may use the same name as registered
the local level anywhere in your state without your knowledge or
consent. And because each state maintains its own corporate
registry, your company name can legally exist in many other states, and
in many other localities within them.
Starting your own business
is fun and exciting but also can be hard work. There is plenty of
professional help available for small business, but there are so many
free and low-cost resources available to guide people starting a small
business, you may find that you don’t need outside help. In fact, with
a little local-specific information, simple home-based businesses can
be up and
running in as little as few hours!
Bottom line? If you have any doubts about starting your own business by
yourself or your new business is complex, don’t hesitate for a moment
to pay for the small business advice you need. In the long run, it may
be the best money you will ever spend.