Secrets to Successfully Starting
Your Own Business
The American Dream has always been the hope of coming up with a new and attractive idea, starting a business, and becoming fantastically rich from your own efforts. Even with this motivating goal thousands of businesses fail each year, primarily out of ignorance of the basic skills necessary to run a business.
This brief report will inform you of the basic business skills, and will give you a number of suggestions that you can use to better guarantee your chances for success. Be forewarned that any and every business venture contains certain inherent risks in any number of alternatives. The report does not imply that any one way is the right method, nor does it propose that these suggestions are the only way. On the contrary, it is advised that before investing substantial sums of money in a business venture you seek counselling and help from a qualified accountant and attorney.
The first thing you should consider before deciding to start or purchase a business is the legal form under which you'll be operating. There are basically four choices:
(1) Sole Proprietorship
Each choice has a number of advantages and disadvantages. This report will seek to enumerate the pros and cons of each system.
For many people, starting a business is a form of ego gratification, and they form a corporation because it sounds prestigious -- just to say, "I own a corporation." With just a little observation you'll find that one major cause of business failure is wasting start-up capital on frills such as an impressive store-front office, expensive furnishings, and corporate legal costs. To be successful in business, you must establish a tight hold on your expenditures. In fact, as a rule of thumb anything that does not make money for you or protect your investment should not be purchased. This axiom definitely applies to the expense of setting up your own corporation.
Unless you have a partnership and start your business as such,
the only advantage to forming a corporation is that a corporate
structure will partially protect your personal property should
a financial calamity befall the business. For 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 win a judgement against your possessions. If you have
invested 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
As a sole proprietor or partner of a business, you'll be paying taxes on your overall earnings in much the same way as if you were holding down a salaried or hourly job. Whether or not you 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 is that you can manipulate your salary in order to save on tax dollars. However, the IRS frowns on this practice. After your business is successful and making a lot of money, check with your accountant on the advantages of incorporating.
As a corporation, your company will be subject to a number
of other drawbacks: higher state taxes, stricter business operation
laws, more elaborate accounting procedures, and the filing of
required legal papers just about every time you make a major
move or sign
As a sole proprietorship, you'll find many cities require the registration of your business name. The cost however, is minimal, ranging from $5 to $100. The best way to find out what laws apply in your area is to call your bank and ask if they need a "fictitious" or "assumed" name registration card or certificate in order for you to open a business account.
Selecting a name for your business is important, particularly
in relation to your 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 customers to the
beauty shop across the street that calls itself Patti's Beauty
Salon or Jane's Hair Styling shop. The use of 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. However, there is also the
disadvantage of confining your services to a local or regional
Immediately after you decide to open your business, open a
business bank account. Scout around and look for a bank that
can and will help you with your financial needs. Determine what
your banking needs will be and then telephone the managers of
the banks in your area. State your needs and listen to their
suggestions. It is important
The closer you can make the relationship between you, the bank staff, and the bank manager, the better your chances are going to be for approval on loans 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 special courtesies they'll be extending 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 consult with him concerning your money problems. You'll find that very often, different banks specialize in different types of businesses. Some prefer real estate transactions, export-import businesses, or manufacturing operations. Thus, if you're planning to sell a fairly expensive item your customers will probably need and want financing. It will behoove you to select a bank familiar with your type of product and that will extend to your customers, through you, contract financing.
Some of the questions you should ask of your banker include:
* What qualifications must I 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?
* How quickly will my deposits be available for transactions?
* Is this type of account interest bearing? What is the interest rate?
* Is there a monthly service charge or a limit to the number of checks I can write each month?
In almost all types of businesses it will be to your benefit
to set up with your bank a method of handling VISA, MasterCard,
Discover, American Express, and regional credit cards. The best
method is to establish an account that will service all of these
credit transactions for you - one stop for all your banking needs.
In most instances
City business license departments are designed both to regulate the operation of specific enterprises and to collect additional tax revenue for the city. Depending on the type of business for which you're asking a license, the building and zoning commission may wish to inspect your premises for soundness of structure and safety. Generally, you won't encounter any difficulties. You simply pay your fee to establish your business in your city, and the clerk enters your name onto a city license certificate.
Each state's rules and regulations vary widely relative to
sales tax permits and licenses. It is best to call your state
comptroller's office 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 you generally
are not required to collect taxes from your out-of-state customers.
However, a number of states, particularly in the northeastern
United States, have implemented laws insisting upon collection
of taxes for sales made to business in their state, although
this requirement generally does not apply to small businesses
with gross sales under five million dollars. Thoroughly check
into the applicable laws in your area. You may also find that
your particular business requires the collection of Federal Excise
Taxes. For information,
Some states require certain businesses to hold state licenses for trades such as plumbers, barbers, hair stylists, real estate agents, or television repairmen. These are known as "occupational permits". If you have any doubts, check with your state offices for a list of those occupations that require licensing.
Any business operating interstate is subject to federal regulations,
usually through the Federal Trade Commission. This means that
any business that sells or advertises in more than one state
is subject to such regulation, including even the smallest of
mail order operations. Normally, very few business people ever
have any contact with the
Any business that sells or distributes food in any manner
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 are generally around $25, depending on the size of your
business when it is first
Several other regulations may apply to your new enterprise.
There are a number of businesses that require inspection by a
fire marshal. Businesses that handle flammable materials or attract
large numbers of people, such as a theater, fall into this category.
in general, the local fire department has to be allowed to inspect
your premises whenever they desire to do so, whatever your occupation.
If you are a manufacturer, you may be required to apply for an
air and / or water pollution control permit. These regulations
control any business that burns or discharges anything into the
air, sewer or waterway
Check on local regulations regarding advertising display signs.
Each city or township makes its own rules and then enforces those
rules according to its own thinking, so 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, especially to
If you intend to employ one or more persons you'll be required to deduct federal income taxes and Social Security taxes 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 and disability taxes which you will be required to pay as an employer. A number of states have state income taxes that you may be required to deduct from an employee's pay. Again, the best thing to do is check with your accountant or the local office of the IRS. Above all else, you must comply with the rules governing the minimum wage law.
When your business grows to the point of needing additional help, don't be afraid to seek 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. Local colleges are also a source of good employees. Businesses either grow or die, and those that grow eventually need more people in order to continue their success. 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 only something to keep you busy in your spare time. Anyone with an attitude of that kind is foolish. You begin and make a business successful in order to realize financial freedom. Establish your business with that goal as your motivation. Put it on its feet and then hire other people to do the work for you. For those businesses that require an operations manager or someone to run a phase of the business that you are too busy to handle, find a qualified manager and pay him/her sufficiently or the business will surely suffer.
To protect the financial investment in your business, you may want to purchase business insurance. If you've never had any experience with business insurance, simply look under that heading in your phone directory. Ask for bids from several different companies or agents. Basically, you should have a policy that gives you general liability, fire, workmen's compensation, business interruption, and vehicle coverage. You may 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 will not be paid as an employee, so there will be no income tax deducted from whatever you withdraw from the company's earnings. Check with the IRS Office for a Tax Guide For Small Businesses Handbook. This will instruct you as to how you can file estimated tax returns on a quarterly basis.
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 visit to the person with the power
to approve or disapprove credit at the company where you want
to set up an account. Show him your financial statement and explain
your prospects for
We won't go into the importance 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 for which you do not pay - publicity. When something unusual happens to you, your business, or your employees, that's news. Be sure you tell the news media in your area about it.
In closing, 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 if you've done your
homework well and set up a detailed business plan before starting,
your setbacks will be minimal. Success takes planning, and this
report has given you a basic checklist.
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