Insurance

Starting a Business

When starting a new business, there are many important decisions to make and many rules and procedures that must be addressed. While there is no single source for every state, the following checklist and steps have been developed to assist you in starting your business.

Choose and Register A Business Name For some people business names come easily, for others finding the right one is a major challenge. I have listed the basic steps to follow in naming a business. There are multiple "rules-of-thumbs" that tend to be contradictory. Some insist that a business name should be descriptive of the business and others suggest that being unique in the best way to be remembered.

Keep in mind that your business name is an important part of your marketing effort. It is a major component of how customers; perceive your business. Your business image is based on this perception. So, it is critical that it reflect the image that you want your customers to have of your business.

My tendency is to go with what your inner voice (gut) says is right for you. You are the one who has to live with this business day and night for a long time to come. So choose something you feel good about. One test might be to think about the name being splashed across a major headline. How does it feel to see the name in print representing your business? If it feels good, go with it.

If all else fails, there are businesses available that will help you determine the right name. If you go this route, look for a good fit for you. You want this to reflect your concept, not someone else's. Keep in mind this is one of the most important decisions you will make about your business.

As part of naming your business, you may also want to design a logo for your business. If creativity is not your strong suit, there are many businesses out there that can help you. While this may seem excessive, you will never regret the time you have spent on this part of setting up your business. This is the first and most critical part of marketing your business. Do it right and your future marketing will be much easier to plan and implement.

Legal Issues. Picking a name for your business requires much more than just creativity and a working knowledge of your target market. First you will need to decide which business structure you will use, since each structure has its own peculiarities.

Of equal importance, is finding out whether your name or a very similar name is being used by another business, and if so, what rights they may or may not have to use the name in the area where you want to do business. Keep in mind that some businesses only file trademarks within their locality, so it is possible that the same name can be used elsewhere.

Search and Registration. Trade names can be registered through the state Secretary of States offices, and for wider marketplace protection, through the US Patent and Trademark office. Businesses should first use the USPTO's online system to search all state and federal trademark registers to see if the proposed name is being used.

Domain Names. For many businesses that operate on the Web, trade names are synonymous with domain names. There are many online services available to check if your proposed Domain name is available.

Select a Name and Legal Structure

• Sole proprietorship
• Partnership
• Limited liability corporation
• Corporation

Sole Proprietorship in general can be established with little or no formalities. However, it will generally be necessary to obtain one or more local business licenses from the cities and or counties in which you will operate, and in some cases, you might need a state license as well. If you make sales of tangible property at a retail level, you will be required to obtain a sales tax license for the collecting of sales tax.

No separate tax-form filing is required. You simply report that your business financial information on standard tax forms is available for sole proprietorship. Doing business as a sole proprietor is much simpler than operating as any other kind of business legal entity. If you have no employees, you are not required to pay or withhold any employment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself.

Partnerships allow the creation of either a general partnership in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts. It is generally necessary to obtain one or more local business licenses from the cities, counties, and possibly the state in which you will operate.

Partnerships, as entities, are not subject to state income tax. Instead, the income or loss of the partnership, as allocated among the partners, must be reported on the personal income tax returns of each individual partner. However, there might be some local or state annual fees or tax required.

A partnership agreement, for any type of partnership, should spell out in considerable detail all aspects of the partnership. It is recommended that you contact both an attorney and an accountant to discuss all the legal and financial aspects of your partnership agreement and make sure it is all in writing.

Concerning corporations, a business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually complex and more costly to organize. Control depends on stock ownership. Persons with the largest stock ownership control the corporation. All corporations must file articles of incorporation with the business services office in the state you wish to operate in.

Limited liability companies (LLC) are very attractive entities for many small businesses. While offering much of the flexibility plus the flow through tax treatment of a partnership for federal and state income tax purposes, there might be fees and permits required for city, county, and state levels.

With both options, it is recommended that you contact both an attorney and an accountant to discuss all the legal and financial aspects of corporation and LLC. For someone who is just starting out, you might want to be a sole proprietor. This is the easiest and least expensive option to get started with. As your business grows and you hire employees or expand your operation, you should discuss the other options with an attorney and your accountant.

Taxation

All businesses must pay taxes. When you register your business, most states and the federal government will require pertinent forms for compliance. A business start date is very important because you will be required to file income taxes and collect sales tax from that day.

Business Plan

A well-written business plan is the story of how you are going to run your business. It is your opportunity to chart the path where you want to go. Starting a business without a plan is like going on a trip without a map or destination in mind. It might be a fun trip. then again, it might not. Running a business in not a simple jaunt. You need to map and destination already in mind if you are to stay in business. How ever, writing that map and destination for your business does not need to be a complicated process.

Your business plan establishes you checkpoints and goal along with setting a timeline for accomplishing certain objectives. Knowing who the plan is written for will help in making it a better plan.

The essential components of a business plan are:

1. Executive Summary. A concise overview of the entire plan along with a history of your company
2. Marketing Analysis. Illustrates your knowledge about the particular industry your business is in, and presents general highlights and conclusions of any marketing research data you have collected.
3. Company Description. How all of the different elements of your business fit together.
4. Organization and Management. Your company's organizational structure; details about the ownership of your company; profiles of your management team; and the qualifications of your board of directors.
5. Marketing and Sales Strategies. How you are going to attract and service customers.
6. Service or Product Line. What you are selling?
7. Funding Request. The amount of funding you will need to start or expand your business.
8. Financial. The critical financial statements to include in your business plan packet
9. Appendix. Additional supporting information.

Choosing and Open a Company Bank Account

Once you have established your business name, formed your legal structure, and taken care of all legal tasks, you have to open a bank account for your business. One simple business checking account should be fine. As your business grows, you can discuss other options with your accountant.

Many business owners do not thoroughly consider their needs when selection a bank. Although there are laws and regulations that govern the activities of banks, saving and loans, credit unions and investments firms, not all financial institutions are the same. Each institution establishes its own policies for:

1. Types of products and services they offer
2. Criteria for qualifying for a loan
3. Minimum balances for accounts
4. Interest rates
5. Fees

While one bank may specialize in home loans, or auto loans another may focus on commercial loans for businesses. Some banks may only offer basic deposit accounts while others have lock box services, sweep accounts and even online banking.

That why it is important to evaluate your business needs before you select your bank.

Consider some of the things your bank can help you with:

1. Assist you with the cash management needs of your business.
2. Offer investments products of varying maturities - overnight to long-term certificates of deposits.
3. Offer investments of varying risk.
4. Provide advice about qualifying for the loan that best meets your needs.
5. Provide special loan programs for small businesses.
6. Assist you with finding financial information on your industry
7. Compare financial institutions in order to find the one that will serve your business's needs and will also provide support and assistance during each stage of your business. Selecting and instituting that you can work with will be especially important as your business grows. Start gathering information to help you make this important decision.
8. Approach the decision as a long-term investment.
9. Ask your accountant or lawyer to introduce you to a banker who they are familiar with.
10. Check your local chamber of commerce.
11. Look for a complementary personality - someone you can relate to and are comfortable with.
12. Introduce yourself to the bank manager. If you are looking for a loan, ask to meet the loan officer who will be assigned to you.
13. Find out how long they have been in their current position.
14. Tell them about your business and the form of organization so they can tell you what special products and services or restrictions that might apply.
15. You should not make this decision on pricing alone. But do compare interest rates on deposits accounts and basic consumer loans. Also, look carefully at the fees for services.

It is a good idea to establish a relationship with a banker before you need money. The right banker will be someone that understands the needs of emerging and growing businesses.

Professional Help

There are many ways that someone well versed in their field can assist you with your business. An Accountant can help you with setting up you bookkeeping structure, tax planning and a payroll set-up. Attorneys can help you with your contacts, setting up your business structure and lease reviews. An Insurance Agent can help you with planning the best overall package for your type of business.

Insurance

You should have the proper insurance for all of your equipment and vehicles as required by law or needed. Some jurisdictions may require you to carry business liability insurance. This can be obtained for around $200.00 to $1000.00 per year.

Business Counselors can help you with your business planning, loan applications, and referrals to other professionals. SCORE volunteers and Small Business Development Centers offer some counseling for small businesses.

On reason to contact a professional would be to find out about issues before them become a problem, especially legal or tax issues. Even if you are relatively comfortable with how you have set up your business, having an experienced person look over what you are doing can be helpful.

Points to think about when working with a professional:

1. Find someone that you can talk to, and feel comfortable with. A competent professional should never be to busy to give their clients the time they need to address their business issues, or return phone calls.
2. Find out what communication method work best: phone, Fax, e-mail, in person or regular mail.
3. Ask about billing rates and payment process up front, and what fines and/or penalties that professional is willing to take responsibility for, if they occur.
4. Before you leave a meeting, review any points that have been agreed upon for services to be provided. Or, further research to be done and the projected completion timetable, including the tasks that you have agreed to complete.
5. Use a calendar to not these timelines, as well as approaching deadlines for tax filings.
6. Ask if they will consult with other professionals (in other fields) as needed, and whom they work with already.
7. If you do not understand something, ask for clarification.

Selecting a Lawyer

Chances are that you will need legal advice right from the inception of your business. There are a number of legal issues where you might need help in your business in addition to getting your company set up properly authorized to conduct business.

Selecting a lawyer to work with your business should be done carefully. A lawyer will be one of your key advisors - you will want to ensure that you are comfortable with him or her and find is easy to exchange ideas. It does you no good if you are intimidated or uncomfortable asking questions, or discussing problems. Sometimes it might be necessary to change attorneys as your business needs change, but this can be an expensive process. Before contracting a lawyer, learn about how lawyers charge for their services so that you approach them with a good sense of what to expect.

Here is a practical approach in selecting a lawyer:

1. Ask for referrals from people whose opinions you respect and who have worked with attorneys representing small businesses.
2. Set up interviews with two or three attorneys. There might be a fee involved, but many attorneys will waive the fee for the initial interview.
3. Keep the interview focused on its purpose that is, determining if you are comfortable and have a rapport with the attorney.
4. Ask for references for other small business clients and contact them.
5. After you have interviewed two or three attorneys, you will be prepared to select the right one to help you with your business.

The following questions should help you get started with the interview process:

1. How have you assisted other small businesses?
2. Do you have knowledge about my industry or business?
3. How would you charge me for your services?
4. What can I do to help reduce you fees?
5. What do you think in the attorney's most important job?

An attorney should emphasize protecting small business from legal problems and future litigation. An attorney should be able to help guide your through the maze of regulations that govern the small business. Depending on your situation you may need someone that is an expert at contracts, leases, loan documents, transactions, patents or trademarks. They should be also skilled in communication and negotiations.

Legal Requirements

To operate a business legally one need to meet all the laws for operating a business in your state and local community. In the United States that means the laws of the federal government, state governments of every state in which you do business, and in many locales, even city and/or county laws governing business operation.

All of the US states have business resource offices that provide information on the legal requirements for operating a business in that state. Not that you need to meet the legal requirements for every state in which you will be conducting business. This applies to Internet transactions if you are going to be mailing a product into a particular state. Most states consider that a form of doing business in their state.

For the U.S. government, most businesses are going to need an Employer Identification Number even if they do not have employees. The IRS provides clearly written documentation of what is required in terms of reporting. Not only are there laws and regulations governing the actual registration of the business and the business name, but there may also be licenses and permits needed to operate certain types of business. You can find out more about such regulations from your state business resource offices or the city in which you wish to operate in.

Licenses and Permits

With so many tasks involved in starting a business, it is easy to overlook the important legal requirements associated with registration, permits and licenses.

• Federal Requirements - With the exception of Sole Proprietors, most business must apply for an Employer Indemnification Number (EIN) regardless of whether they have employees.
• State requirements - While business licensing varies from state to state, if your state requires one, you have to obtain it.
• Business Licenses - A state business license is the main document required for tax purpose and conduction other basic functions.
• Tax Registration - If the state in which you operate has a state income tax, you will have to register and obtain and employer identification number from you state Department of Revenue or Treasury Department. If you are engaging in retail sales, you will need to obtain a sales tax license.
• Trade Name Registration - If your business will only be operated in your local community, registering your company name with the state may be sufficient.

Startup Financing

Finding the right financing that fits a business' goals is a continuing challenge for almost every small business. For startup businesses this can be one of the biggest hurdles in getting off the ground. Some entrepreneurs can be incredibly creative in finding ways to fund their ideas. Many others work another job as a way to fund their personal business. Most companies, however, find their startup funding in more conventional ways.

The most common sources:

1. 70% Personal Savings
2. 45% Banks and Finance Companies
3. 25% Friends and Relatives
4. 10% Individual Investors
5. 5% Government Loans
6. 1% Venture Capital

Using personal funds is very common, partly because few bank and finance companies will loan to people who will not risk some of their own personal funds. However, in the long run, most businesses will need external funding of some sort.

One of the toughest questions is how much capital is enough. A quick model for cash needs suggests determining how much capital is needed for one year of operation. That first year, keep your initial capital separate from your income. That income should be then the initial capital for the second year. Amounts you will need to finance are that initial capital and any growth you want to introduce above and beyond the initial model. Most companies that are successful today have started that simple.

Setting Up Business Operations

Running you business on a day-to-day basis is comprised of many different small decisions. While none of these decisions will make or break your business, they can each make a tremendous difference in how much time you have to get your real work done. An inefficiently designed workspace or the wrong equipment can influence greatly how harried and tired you are completing your primary work.

Given that you have done a thorough job in developing your business plan, you should have a clear idea of what equipment is needed to produce your product or service. To open your doors you need to have some basic managerial procedures in place. These procedures include everything from mail to good organization. Additionally, you need to have backup plans should one of your suppliers all of a sudden goes out of business or double its process. It may not be critical if you run out of paper for your copier, but you will definitely be stresses it is a product that is critical to your selling. Keep a list of alternates in your file. You will not regret it. It would not hurt you to review them a few times a year. You might discover that changes have occurred that make them more attractive and/or possible relationships that could be useful in renegotiating supply relationships with the suppliers you currently have.

Record Keeping System

Record keeping systems are frequently one of the biggest challenges in a small business. Perhaps the problem is that the creative side of running a small business in often at odds with "bean counting" side. Taking time to organize a good system can be tedious and time consuming, but it only takes one visit by the tax auditor to convince business owners that an organized system is useful. Why is record keeping systems important? Because they provide you the basis for all the reports you need to make to governmental agencies, banks, and potential funders, plus they provide you with an overall picture of how your business is doing and where it is headed. Financial statements are a way to track your progress towards goals and provide you with the financial information needed to make decisions as you go along.

Your basic record keeping system should be easy to use, understandable, reliable, accurate and timely. Here are some of the basics a system should include:

1. Business Journal to organize transactions (receipts, disbursements, sales and purchase).
2. A Well organized filing system.
3. Monthly reports on cash flow, accounts receivables, accounts payable, income statements and balance sheet.

Important questions

• Why should I keep records? Good records will help you monitor the progress of your business, prepare you financial statements, identify sources of receipts, keep track of deductible expenses, prepare your tax returns and support items reported on tax returns.
• What kind of records should I keep? You may choose any record keeping system suited to your business that clearly shows your income. Except in a few cases, the law does not require any special kind of records. However, the business you are in effects the type of records you need to keep for federal tax purpose.
• How long should I keep records? The length of time you should keep a document depends on the action, expense, or event of the document records. You must keep your records as long as they may be needed to prove the income or deduction on a tax return.
• What is the burden of proof? The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them. Generally, taxpayers meet their burden of proof by having the information and receipts for the expenses.

Opening Your Doors for Business

You have been over your checklists multiple times and everything seems to be in place. It is time to take the big step and open your doors for business. This is when you discover whether your are a real entrepreneur. What do you do with your time? The choices you make today will set the tone for your business from now on out.

The two biggest obstacles to getting going and keeping going are motivation and organization. Many people have no problem responding when there is a clear task in front of them. When you are starting a business, however, you do not have someone telling you what to do. You are the one making the lists and making certain things to accomplish. And this does not just mean filling customers orders, but taking care of everything.

Self-motivation in not something we are born with. As babies, we are thought in terms of immediate gratification. As business owners, we have to learn in terms of longer-term rewards. If you are going to stay in business, sometimes you have to tolerate doing things that are not fun.

Proper organization is a good way not to get behind and stressed. You have to institute good time management. In order to manage your time well, you need to have a complete list of all that needs to be done. List everything that needs to happen. Continue adding items to the list. For some people it is easier to list all the large tasks, then break them into their component parts. Once you have all these tasks on one list, put them on a calendar. That will give you a "to-do" list to structure each day. As your business grows, the list will change and grow. There is a wide variety of forms, logs and checklists available to help you

Finally, most important, give your health and well-being priority during the stress of opening your doors. Plan time for activities unrelated to your business so you can come to your tasks relaxed and clear-headed. You will not regret it and you will be amazed at what a difference it can make to your bottom line. Investing in yourself can be the hidden ingredient that adds the touch of quality to what you bring to the marketplace. Put that on you list and make certain it gets done!

Items To Be Completed Check If Completed:

• Choose and Register a Business Name
• Decide on the Legal Form for the Business
• Taxation
• Business Plan
• Choosing and Opening a Bank Account
• Professional Help
• Selecting a Lawyer
• Legal Requirements
• Licenses and Permits
• Startup Financing
• Setting Up Business Operations
• Opening You Doors for Business