Small Biz Startup Presents:
YOUR FIRSTBUSINESSTHEHOW-TO REALLYSTART YOUR OWNBUSINESSE-WORKBOOKA NUTS & BOLTS, FILL-IN-BLANK,STEP-BY-STEP GUIDE TO HELP YOULAUNCH YOUR BUSINESS THIS YEARfrom Small Biz Startup: www.startyoursmallbiz.blogspot.com
(This e-workbook is offered with the understanding that its contents are in no wayrendering legal or other professional advice or services. The workbook is offered as a guide based on the author’s experiences. If legal, financial or other expert assistance is required, the services of a lawyer, financial and/or business counselor should be sought. The necessity of licenses and insurance coverage should be checked on a federal, state, county and local basis as they vary accordingly. It is suggested that readers conduct their own due diligence research in starting their particular business.)THE JOURNEY BEGINS
THE BE-YOUR-OWN-BOSS EXPLOSION
More than 800,000 hard working Americans have lost their jobs this year and that figure is estimated to hit more than 1 million as we approach year-end pink slips.
Many of our newly unemployed will never be able to transfer their knowledge into a similar position for a comparable salary—the only solution might be to start a small business.
The Be-Your-Own Boss Explosion
It’s a small world afterall--a small business world,
that is. It is small business that is fueling our economy today not the Fortune
500 giants. In fact, small businesses account for about 90% of all new jobs
created.
Small business owners are the innovators who bring us inventions, and
faster,cheaper, smarter ways to get from A to B.
In the past two decades we’ve witnessed an explosion in entrepreneurship. Everyone dreams of being his or her own boss--and for many good reasons.
Being one’s own boss will always be associated with freedom and to a great extent, pure joy and satisfaction. It is difficult for employees to find this satisfaction on their jobs working for others.
For a long time, American workers have not been able to rely on the comfort and security once associated in working for a mega-giant corporation. There was a time when employees could count on protected pensions, health care and job security.
At the close of each year, CEOs and top management still pocket multi-million dollar profits, while the workers who drive corporations, teeter on shaky ground.
We’re all too familiar with the devastation caused by layoffs, plant closings and corporate downsizing in the last few years. Since 1979, 50 million Americans have watched their jobs vanish, and according to The New York Times, only 29 million have replaced them.
We’re now searching for fulfillment and livelihood in new places, in new ways. We’d rather work 14 hours a day for ourselves doing something we love than work for “the man”. Having a small business means freedom from the 9 to 5 shackles. We’d gladly work twice as hard in our own venture.
Owning a small business gives us pride and identity. In the 19th century, Americans worked and plied their trades. Villages usually featured one shoemaker, one clothing retailer, one grocer, and so on down the line.
Late 19th and early 20th century entrepreneurs ventured into oil, steel and railways and made a bundle overnight. They struck gold.
Throughout the first half of the 20th century, Americans fulfilled dreams by taking over the family business. After World War II new ideas, technologies and politics came into place changing the business climate as well. Sons and daughters were no longer content to work in the family business. College was the dream and working for a large corporation became the fantasy.
Business students earned MBAs and turned their sheepskins into big buck fortunes. But with the greed of the 1980s came the stock market crash and insider trading scams. Social awareness, invisible since the 1960s, turned many of us off to the notion of big business. Government let us down, too.
Environmental devastation along with concern for human needs, such as health care and shelter, took center stage. Global alarms on AIDS, famine and natural disasters brought us closer together.
Americans started to reject the notion of the big business machine and once again moved toward small business. We watched garage-based ventures like Apple and Microsoft become world-class empires. It was proof that entrepreneurship--the New American Dream--was alive and well.
Advances in technology have made it easy for small businesses to be launched from home. With the Internet, It’s never been easier to be an “Open Collar” worker than right nowand it gets easier all the time as one person operations run from a kitchen table rack up profits and respect.
Running a business is fun and exciting. It has been written and said time and again: If you choose something you love to do, you will love working on it, at it, with it, for it. The money will follow.
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ARE YOU READY TO JOIN THE BOOM?
Many folks who want to start their own business are afraid to jump in all the way and prefer to test the waters with a part-time venture. This is certainly a good option. You can keep your present job--and healthcare benefits and any other benefits it offers--and start your business working nights and weekends.
Others know they are ready to take the plunge full force and are prepared to do it. Your individual situation will determine whether your enterprise begins on a part-time or a full-time status.
Are you ready to join the boom?
Take this simple test. Do you “Agree” or “Disagree” with the following statements:
∑ I daydream at work--a lot! ______
∑ I ‘m always thinking of a better way to do my job but it’s often unappreciated_______
∑ My boss is not as smart or creative as I am ______
∑ I’m basically optimistic_______
∑ I like responsibility_______
∑ I’m a control freak______
∑ I had a biz as a kid_____
∑ I didn’t have a biz, but I started a club_____
∑ I’m not a daredevil risk-taker_____
∑ I’ve been fired_____
∑ I have a partner in life who supports my dreams_____
∑ I enjoy “connecting the dots” and making things happen_____
∑ I’ve had no formal business education and no experience_____
∑ I’m motivated by something other than money______
Let’s review your answers. The more you “Agree”, the closer you are to an entrepreneurial personality.
Entrepreneurs daydream and are always coming up with new ways to do things. They often feel they are unappreciated at their jobs and therefore have a desire to branch out on their own. They are positive and remain fairly optimistic even when the chips are down. Entrepreneurs enjoy a challenge and learn to accept and even enjoy responsibility. This makes them become control freaks which to a sane degree is not necessarily a bad thing for a business.
Many entrepreneurs report they did have businesses as a kid or started and ran a club. Clubs are very similar to businesses. There is organization, a hierarchy, a name, rules, dues and so on.
Contrary to popular belief, entrepreneurs are not daredevils when it comes to taking risks. In fact, many successful entrepreneurs report that they came up with many different ideas for businesses but rejected them for one reason or another. They preferred to wait until the right business idea came along.
The majority of entrepreneurs have been fired at least once. Most say they have a special person in their life who keeps them buoyed up during the rough times. They enjoy “putting things together” whether it’s assembling a dresser, baking a cake, or doing research for a dream business.
Most entrepreneurs are not motivated strictly by money. In fact, most businesses that start just to pick up money usually don’t make it. Entrepreneurs who pursue their venture and succeed make it because they were motivated by the freedom and flexibility that is associated with being one’s own boss.
If you said “yes”--you’ve had no formal business training or experience--take heart. Entrepreneurs haven’t had much either. They rely on instinct and research (to confirm their instincts).
Review your answers to check out your “climate” for a great entrepreneurial forecast.
WHAT TYPE OF BUSINESS ARE YOU STARTING?
No matter what business you are considering, it will fall into one of the five basic business type categories:
Manufacturing: You produce a product. Manufacturing businesses are usually associated with a factory in an industrial zone surrounding a city or a large suburb. Entrepreneurs who run manufacturing facilities need to create channels of distribution for the goods they manufacture and/or need to find customers to purchase these products. Starting a manufacturing business usually entails a plant and employees.
Wholesale: Wholesalers take products from the manufacturer and sell them to the retailers. Wholesale businesses usually require a warehouse to stock inventory and need transport such as trucks.
Retail: A retail business sells a product usually in a store. You need an outside facility to display and sell your wares. You’ll be selling your goods directly to the consumer.
Service: Most of the businesses you’ll probably consider fall into this category. A service business provides a “service”. You’ll be selling your time, your expertise, rather than a product.
Service businesses could range from home inspection, word processing or residential cleaning to car detailing,
Service businesses can be run from home and usually don’t require elaborate start-up costs. The overhead is much, much lower than starting a retail operation or a manufacturing facility.
There are many businesses you could start that do provide a product--such as a gift basket or a personalized book for children--but are still considered “service” businesses. A service is implied and you don’t need to open a shop to sell your “goods.”
In the next year or two, small business experts and writers will probably agree on a new term to describe this “service oriented businesses that provide a product”. For the time being, we’ll put these service oriented businesses in our service category.
Information/Social Media: Thousands of blogs, websites and pages on social media such as MySpace and Facebook are launched every day to promote businesses, bands, authors and other money-making agendas.
START FROM SCRATCH? BUY A BUSINESS?
There are several ways to start a business.
The Classic: The Independently-Owned Biz:
This is the type of business we usually think of when we think of the word “entrepreneur.” We envision an individual who gets an idea for a product or a service, develops it, takes it to the marketplace, finds customers, gets rich.
If you are thinking of starting a lawn care service, for example, you would be starting this type of business. You don’t need to purchase a start-up kit or package from anyone else, nor do you need to buy expertise or equipment from any one source.
You get the idea, you develop it, you create it “your way.” You own it. You are usually the owner and the operator.
The Business Opportunity: You pay anywhere from $29.95 to $5000 and up to purchase a “kit” or a system of doing business. You also pay for the equipment involved and will probably receive a book, a manual or a videotape on how to conduct business. These are often referred to as “turnkey” businesses. You get everything in the start-up package and simply “turn the key” to begin.
Business opportunities advertise in a wide variety of magazines. They also set up booths at “business opportunity trade shows.” (We’ll discuss investigating business opportunities in an upcoming section.)
The Franchise: Franchise operations come in two forms. We usually think of the business format franchise when we think of this term. McDonald’s is a well-known example. Entrepreneurs purchase the rights to use the golden arches, the menu, products, signage, uniforms, playground equipment, etc. from the franchisor, McDonald’s Corporation. The franchisor is selling you a proven system of doing business. You are paying for their expertise and for their actual products and image.
In the product and tradename franchise, the franchisor and franchisee establish an independent sales relationship. The supplier (the franchisor) offers the product and identity to the sales dealer (the franchisee). Examples are Texaco gas stations and Singer sewing centers. The franchisee runs the business pretty much as they choose, but purchases products from the franchisor.
Buying An Existing Business: Another way to become an entrepreneur is to buy a business. Businesses are offered for sale through business brokers and can be found in the “Business Opportunities” advertising section of your local newspaper.
Multi-Level Marketing Programs: These programs are often positioned as “business opportunities” but they’re pyramid marketing systems in which you don’t make money unless you “sign up” others to sell. “Direct selling” programs, such as the one from Avon, are different. You make money from the goods sold. They are more straight-forward. For many reasons, I don’t consider multi-level marketing programs as truly “entrepreneurial” and they won’t be the focus of this book.
The following pages contain charts on the pros and cons of each type of business.
The type of business you start will determine whether or not you need to incorporate and it will also determine how you file your taxes.
Many small businesses that start today begin at home as independently-owned businesses. It is estimated that there are as many as 53 million Americans now working at home.
Your resources--both personal and financial-- will often determine what type of business you start. Franchises generally require much more money than a business that is launched from a kitchen table. You might start from home and develop a business that you one day choose to franchise yourself.
The following charts of advantages and disadvantages should help you decide.
STARTING AN INDEPENDENTLY OWNED BUSINESS: THE PROS & THE CONS
THE PROS THE CONS
o All the glory, all the fun is yours. o All the work is yours.
o You select exactly what type of business o Might have to wait until you turn a profit
you want to start. in order to draw a salary.
o You decide where the biz is based. o Might be more difficult to borrow money.
o You decide when to open and close o Harder to establish credibility.
each work day. Harder to acquire “merchant
status” if you work from home
o You pick the legal form. (right to accept credit cards).
o You establish your own marketing and o Must convince friends & neighbors that
advertising system. you’re engaged in a serious pursuit
and that they shouldn’t drop by for
coffee without notice.
SHOULD YOU INVEST IN A FRANCHISE? THE PROS & CONS
THE PROS THE CONS
o You don’t have to start the biz all on your own. o You’re not independent.
o Franchisor helps with marketing & advertising. o There are rules & regulations to follow.
o Payoff can be great. o Start-up fees total tens of thousands
of dollars.
o Training is provided. o Variations in business style are not
permitted.
o Will assist in site selection. o Can’t select any site you want.
o You can draw on franchisor’s experience. o Franchisor is a forever partner.
o Benefit from ongoing consultation, research. o No room for creative growth.
ADVANTAGES & DISADVANTAGES OF BUYING A BUSINESS
THE PROS THE CONS
o Possible bargain price. o You could pay too much.
o Saves time and money. o Could have a bad image.
o Built-in customer base. o Location could be a loser.
o Built-in employees. o Owner could start over.
o Built-in business records. o Might need to renovate.
o Easier to determine costs. o Competitors could move in.
o Seller might offer financing. o Records might be inaccurate.
o Seller could be available for advice. o Unknown costs could be incurred.
FOR MORE INFORMATION:
-The United States Small Business Administration can help you start a business, assist with financing, and keep you informed on all aspects of running a business in your area. Call your local SBA office (see listing in the U.S. Government section of your local phone book.) Ask for their free
STARTER KIT. Visit www.sba.gov/ for more information.
-The Small Business Administration Answer Desk helps answer questions and directs callers to other information sources. Call 800-U-ASK-SBA from 9 am to 5 pm Eastern Standard Time.
-The Senior Corps of Retired Executives (SCORE) is a division of the SBA. SCORE provides retired executives as volunteers who share their business knowledge with small business owners at no charge.
-The Small Business Institute is available at universities and colleges. Offers courses in entrepreneurship. The Small Business Development Council offers training, counseling and help with research. Call your local SBA office for more information on these programs. There might be a college in your area offering these programs.
FOR MORE ON FRANCHISES:
-The Department of Commerce publishes a Franchise Opportunities Handbook, Washington, DC 20231. Visit www.commerce.gov for info on their guides and brochures.
-The International Franchise Association publishes a Franchise Opportunities Guide, 1350 New York Avenue, NW, Suite 900, Washington, DC 20005-4709. Visit www.franchise.org for info on their guide and seminars.
-Francorp is a company that helps businesses franchise their operations. They offer seminars also. Visit www.francorp.com/ for information.
YOUR AGENDA
For the next few days, think about the following and jot down your thoughts and considerations.
1. Is this a good time for me to start a business?
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2. I plan to run my business from (home) (other)
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3. I’ll probably start on a (part-time) (full-time) basis
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4. What are the reasons I want to have my own business?
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5. What qualities do I have that will help me to launch a business?
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(Remember: an element of fear and doubt is not only permissible, it’s normal!)
Additional notes & things to do:
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In the next section, we’ll come up with ideas for your small business by examining
your interests, hobbies, skills, and experience. We’ll inventory your talents and cross-reference them with what’s needed in your community. If you already have a business in mind, this next chapter will help you confirm whether or not it is the right one for you.
10 WAYS TO CHECK OUT A BUSINESS OPPORTUNITY
Before you send any money to anyone advertising the “business opportunity of a lifetime”, you must investigate the company offering the program, the manual, the turnkey operation, or the book or videotape. There are many ways you can investigate companies who advertise their money-making programs in magazine ads and on television. Here are 10 things you can do to check out a company before you part with any hard-earned money:
1. Contact the Better Business Bureau: Call the office of the Better Business Bureau in the city and state where the company is based. Have they ever heard of the company? If not, don’t jump to negative conclusions. It could mean that the company has never violated any laws or that they are providing the product or service they claim to offer. Ask the Better Business Bureau if they have had complaints about the company. Ask if they have compiled a “Reliability Report” on the company. If they have, they will let you listen to a tape recorded “backgrounder” on the company. If you hear anything you don’t like, run the other way.
2. Ask the company to supply references: If a firm offering a business opportunity package, can’t provide you with a list of satisfied customers, there could be something wrong. Perhaps the company is too new and they haven’t gathered a core of satisfied customers as yet. If they suggest in their ad that their “distributors or dealers make $XXXXXX a week,” ask them to put you in touch with these individuals. If they can’t produce a list of satisfied clients, then this is not the business opportunity for you.
3. Call the Chamber of Commerce: Contact the office in the city where the company offering the materials or business opportunity is based. Are they a member? If not, ask if they’ve heard anything about the group. If the company is a mail order company, the Chamber of Commerce has probably not heard of them. Mail order companies are often sole proprietorships and don’t even have a telephone listing for the company. This does not necessarily indicate that the company is out to scam you. They could be perfectly legit, yet they work from home and prefer to deal with customers and clients via the mail rather than on the telephone.
4. Call the Inspection Services Division of the Post Office: Again, this is for mail order opportunities or for those companies that ask you to send money through the mail such as a book, a manual, a videotape, a mailing list, a product or any other service. Call the local post office where the company is based. You can get the number of the local post office by calling information in the city or town where the company is headquartered. Ask to speak to the Inspection Services Division at the post office. They will be able to tell you if any complaints of mail fraud have been filed against the company.
5. It’s important to know what you are buying: Some business opportunity ads are very misleading. They hook you in with stories of “easy riches while relaxing at home.” It’s often difficult to figure out exactly what it is the company is selling. If you can’t figure out what the deal is, don’t send your $19.95 or $59.95 to a company that may be offering nothing in return. Consider the case of a Florida man who placed ads in local newspapers all over the United States. The ad read “Love, Sex, Riches, Power” “Send $1 to............” The individual who placed the ad made $2 million dollars in about 3 months. He was brought up on charges of mail fraud because he never sent anything to anyone who sent him a buck. At his hearing, the judge had to dismiss all charges as the advertiser never promised to send a thing. He offered nothing in return for the $1. Make sure you know what you are buying before you send a thing. If the ad is too confusing, it is most likely a scam. Another example is the Home Mailing Scam. There is no company that will pay $400 a week for you to stuff envelopes from home. What they send you is advice: they tell you to place ads in local papers and offer to pay folks $400 a week from stuffing envelopes at home. They tell you to send people the same advice! What a vicious cycle.
6. There are many who are very legitimate: Remember that not all business opportunities are frauds. There are many who offer valuable books, videos, products and full-scale business opportunities or turnkey packages that will help you start a particular business. You can even call the editorial and advertising departments of the magazines that carry these business opportunity ads. Ask the editor and the publisher for information on the company: how long have they been in business? how long have they been advertisers? have there been complaints from other readers? were they resolved?
7. Ask each company about follow-up and support: Once you purchase the video/DVD to learn about car detailing, will they help you if questions arise as to how to handle a particular situation? Some provide follow-up assistance for a fee. It’s important to know if you can contact the company for assistance and support in the future.
8. Make an appointment to visit the facility or company headquarters: This might not be appropriate in the case of businesses who are selling products from their homes. However, if you are buying a small engine repair home training course, you might want to see the company headquarters. How professional are they? Are you purchasing products at wholesale prices to resell at a profit? Could you drop by and see the warehouse? If a company is legit, they will welcome you.
9. Ask about turnaround time: If you are purchasing goods and products from a company who will act as your supplier in say, your button making business, ask them about turnaround time. How accessible will these supplies be to you when you have a special job to fulfill--a party or a sports rally, for example.
10. Go with your instincts: “If it sounds too good to be true, it probably is.” This is, unfortunately, very true in many cases. However, there are some gold mines out there waiting to be tapped. Let’s revise the statement to say, “If it doesn’t feel right, or if the program or business opportunity makes you feel suspicious, then there could be something wrong.” Use your sixth sense, your instincts, and don’t let any Mr. Nice Guy or Miss Nice Girl take you for a ride.
Notes:
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QUICK Q & A ON INVESTIGATING FRANCHISE
OPPORTUNITIES
The key to checking out a franchisor is investigation. Your decision to buy a franchise should be followed up with research and information gathering on the franchisor, the industry and the relationship you will have with your franchisor. This partnership is a marriage. Here are a few questions--and answers--to ponder:
Q: What types of control will the franchisor exercise over my franchise:
The degree of control will vary. Some franchisors control everything from the hours of operation, personnel policies, inventory and the repair of products to site selection, accounting principles, displays and signage. Other franchisors are more flexible. It’s important to know where you stand.
Q: What are some of the basic ways a franchisor will help me in getting started?
A franchisor is selling you a proven system of doing business. Some of the business systems that should be included in your package are: accounting, management training, marketing, site selection, counsel on hiring, assistance in inventory selection and training.
Q: What is a “disclosure document?”
The disclosure document will give you tons of information on the franchisor, the company principals and the business itself.
You’ll learn whether or not they’ve ever been sued, whether or not they’ve ever filed for bankruptcy and more interesting details. Most franchisors don’t send it out until a franchisee candidate has completed the franchisee questionnaire. It should be the very first item a prospective franchisee asks for when contacting a franchisor. Some states require franchisors to register their offerings. This registration means that the state requires the franchisor to provide the state with certain information prior to offering the franchise operation for sale in that state. These states include: CA, CT,HI,IL,IN,MD,MI,MN,NY,ND,OR,RI,SD,TX,VA,WA,WI.
Q: What questions should I ask a franchisor?
Ask the following: Do you provide financial assistance? Do you own your own franchise near where my franchise will be located? What type of training will I receive? What about my employees? Is there an additional training fee? How much do I pay for advertising? What type of marketing program do you have? How many franchises are there? Are the territories exclusive? What is the cash required to get started? What is the franchise fee? What is the total investment? What is the support or follow-up assistance program? Is there any on-site training? Could I have a list of references? Could I have a list of franchisees I can call about their operation? When can I visit your headquarters? Don’t forget to ask if you can sell your franchise in the future and also ask if the agreement expires in 10 or 20 years. If so, how is it renewed?
For additional information on a franchisor contact the The Better Business Bureau, the local Chamber of Commerce, the Federal Trade Commission, the state bureau of Consumer Affairs, and the State Attorney General’s Office.
Notes:__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
QUICK SURVEY: WHAT DO I KNOW SO FAR ABOUT MY SMALL BUSINESS?
I’m interested in:
a)starting from scratch
b)buying a business opportunity
c)buying an existing business
d)buying a franchise
Answer:_______________________________
I’ll run my business from:
a) home
b) mobile:a car or van
c) an outside facility
Answer:_______________________________
I’ll work:
a)part-time
b)weekends only
c) evenings only
d)full-time
e)other
Answer:________________________________
The top 3 businesses I am interested in pursuing at this exact moment are:
1)______________________________
2)______________________________
3)______________________________
Why am I interested in these 3 businesses?
1)_______________________________
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2)_______________________________
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3)_______________________________
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Where do I see myself in 5 years?
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In the next section of your workbook, you’ll get down to the business of choosing a business that’s right for you. After you find a business you’ll enjoy, we’ll go through the various ways you can test market this business in your community or region of the country.
Other questions to ponder: Do you have a clear picture of what type of business you want to start, or at this point, do you just know that you want to be your own boss?
Do you dream of a family-run business? Do you include your children in your dream business?
Do you envision a large skyscraper with your name emblazoned on it? Or do you just see a spare room in your home transformed into your office?
Do you see yourself as an employer, a boss with employees? Or do you see yourself working alone, or perhaps with just one other person?
The answers to all of these questions will help you on your journey to start your own business.
FINDING THE BIZ THAT’S RIGHT FOR YOU
TURN YOUR “DAYDREAM” INTO YOUR “DREAM DAY”
Where do ideas come from that will help you start your business? We’re going to present some ways that will help steer you toward coming up with small business opportunities that you’ll enjoy.
Use this chapter as your workbook “assignment” for the next week or so. You can think about business ideas while commuting to your current job, while eating lunch, ironing and daydreaming. You are going to assess your talents, interests and hobbies in terms of what is needed in your marketplace until you find a good match.
What do you love doing that could be translated into a money-making opportunity? That is the subject of this chapter.
Ideas for business ventures do come from interests, skills, hobbies, dreams, needs and trends. Most entrepreneurs will tell you that when they started a business to merely make money, they had a rough time of it. Yet, when they chose a business pursuit that they loved, they were much more likely to succeed.
You are going to spend a lot of time working on your new business venture, so it is absolutely essential that the business you start is something you truly love and enjoy doing.
Let’s begin by taking inventory of what you love to do, what you’re good at doing and then search for common denominators. We’ve included sample inventory lists from a hypothetical character we’ll call “Small Business Bob.”
My Hobbies:
1. Gardening
2. Nature
3. Walking
My Interests Are:
1. History
2. Science Fiction
3. Herbs
4. Gardening
I’m Good At:
1. Landscaping
2. Details
3. Cooking
My Personality Traits:
1. Like to be alone
2. Perfectionist
3. Stubborn
4. Stick-to-it-tive-ness
My Work Experience:
1. Technical Writer
2. Worked at a garden center.
3. Spent summers as a lifeguard.
What are “Bob’s” common denominators?
The common demoninators in this case are:
Gardening
Nature
Landscaping
Like to be alone
Worked at a garden center.
It seems Bob would be great at and really enjoy establishing his own landscaping business or garden design service. His next step should be to analyze the marketplace
(we’ll get to this more in the next section) to determine if there is a need for a landscape design business in his community.
Let’s look at another workbook inventory example. “Small Business Betty” has worked as an office manager for the same firm for 10 years. There’s a rumor going around that her firm will be acquired by a larger company and that most of the employees will lose their jobs. Betty has always dreamed of owning her own business and this threat of losing her job has intensified her search for the perfect business to start.
Betty’s inventory:
My Hobbies:
1. Cooking
2. Computers
3. Crafts
My Interests Are:
1. Small business
2. Computers and technology
3. Nutrition
I’m Good At:
1. Helping people
2. Research
3. Organizing
My Personality Traits:
1. Outgoing
2. Upbeat
3. People pleasure
My Work Experience:
1. McDonald’s
2. Worked in retail store.
3. Office manager
Betty’s common denominators:
--Likes helping people.
--Worked in a store.
--Office manager
-- Likes technology & computers.
-- Good at organizing.
An ideal small business for Betty could be establishing and running a Business Services store in her community.
These stores contain photocopy machines, fax machines, computers, modems and other products needed by small business people who work from home.
These shops also provide wrap-and-ship services, handle Federal Express, and much more.
Betty has experience as an office manager and that implies that she is a very organized individual that can handle inventory demands and she likes people so she’d be helpful with customers.
Even though Betty has no experience running her own store, she has many of the attributes needed by a retailer. She might seriously consider opening this business services center if her research reveals that there is a real interest for this business in her town.
If her research tells her that she doesn’t have enough money to open this business, she might consider running a similar office manager service for other small businesses in her area. She works from home and makes routine calls to assist small businesses in her town get their acts together.
There is one daydream you must have before you complete your inventory list.
Make a list of three people--real or imaginary--that you would like to be.
Bob’s List:
Jacques Cousteau
Bill Gates
Jay Leno
Bob lists Bill Gates an entrepreneur and Jacques Cousteau--an adventuring marine biologist. This is in keeping with his love of being outdoors and his clear desire to start some type of gardening business.
Betty’s List:
Audrey Hepburn
A successful businesswoman
or Mayor of my town
Jane Pauley
Betty would like to emulate successful women who, in their own ways, have helped people. She also aspires to be a successful businesswoman or a prominent person in her community. Having a business would fulfill these dreams.
Don’t be intimidated by naysayers who tell you that you lack the proper “experience” to start the business you are most interested in launching. Just because you don’t have specific experience in that business doesn’t mean you can’t successfully establish and launch the business venture.
There are many types of experiences we have that can be related to a wide variety of businesses.
If you lack accounting, legal and computer skills, for example, don’t let that deter you from starting a business. There is plenty of help today! We recommend that advisors be consulted on a regular basis just to make sure everything is running smoothly. Fine tune your venture with assistance from an accountant and an attorney.
You should think about who you would like to be or emulate and jot down your answers. Don’t analyze them as you write them down--you can reflect on your daydream later.
The three people--real or imaginary--that I would like to be are:
1.________________________________
2.________________________________
3.________________________________
Now, review each of your choices and write down the reasons why you would like to be these individuals: (fame, fortune are acceptable reasons--you will delve into your motivations as you complete this workbook assignment)
1.__________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
2.__________________________________
____________________________________
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3.__________________________________
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Ready to work on your inventory list of interests, hobbies, personality traits and experience?
Turn the page and indulge yourself thinking about what you really like to do and reflect on how you really see yourself. Remember, this workbook is confidential. No one has to see your personal daydreams.
It’s important to be honest and while you’re trying to come up with positive traits, it’s also important--during the analytical phase of this exercise--to realize your limitations.
I knew I couldn’t sing like Whitney or play pro golf and it helped me find the business of my dreams!
TAKING INVENTORY:
My Hobbies:
1._________________________________________
2._________________________________________
3._________________________________________
4._________________________________________
5._________________________________________
My Interests Are:
1._________________________________________
2._________________________________________
3._________________________________________
4._________________________________________
5._________________________________________
I’m Good At:
1._________________________________________
2._________________________________________
3._________________________________________
4._________________________________________
5._________________________________________
My Personality Traits:
1._________________________________________
2._________________________________________
3._________________________________________
4._________________________________________
5._________________________________________
My Work Experience:
1._________________________________________
2._________________________________________
3._________________________________________
4._________________________________________
5._________________________________________
Additional Notes & Thoughts:
___________________________________________
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What if, after taking inventory, you just can’t find any common denominators in your interests and in what you’re good at, and in what you’ve done before? Don’t despair! There are plenty of successful entrepreneurs who have had very scattered work experience and interests who went on to find one thing they were very interested in and thought they could turn it into a winning business.
When coming up with ideas for your small business, think about your interests and your obsessions. We’ve all heard the expression: do what you love and the money will follow. Can you turn your favorite pastime into a money-making operation?
For example, do you love to play tennis? Could you teach tennis? Do you love to canoe or kayak? Could you get a few canoes and kayaks together and rent them out?
Are you fluent in a language? Could you teach it? Do you enjoy tinkering with small engines? Could you establish a repair business?
How about your computer? Could you tutor adults (as well as kids)? Love pets? How about a petsitting service?
You might dream of running a grand hotel but don’t have the funds to open such a business. What about a bed & breakfast business run from your home?
During the next week or so, think and dream of what you like to do, what you’re good at and what you know. Isolate the common denominators and think of a business that encompasses those interests and experiences.
If you fail to find obvious common denominators, think about your obsessions and great interests. You might be interested in surfing even though you’re not good at it and even though you don’t have much experience at it. If your community could support a surf shop, however, you are on your way to making a small business dream come true!
Love cooking? No restaurant experience required! What about a small catering business run from your home?
TRENDS CAN CREATE SMALL BUSINESS IDEAS
Ideas for small businesses can also come from trends. Experts tell us that some of the hottest trends for the remainder of the 1990s and for the next century include:
--an active group of seniors
--marketing to Millenials—born after 1980/have never known life w/out the Web
--a focus on our environment
--an emphasis on the home
--interest in health and self-help
--desire for convenience and quality
--fitness and health
--continued corporate downsizing
--information age/technology
--staying at home
--takeout/delivery services
--home entertainment
By looking at trends, you can zero in on consumer needs. Finding a need and filling it could be your key to small business success.
INVENTING A BUSINESS
Trends can help us come up with new ideas and these new ideas very often make perfect small businesses.
Home delivery is an example. In the 1950s and 1960s, Americans were content to go to the pizza parlour and either pick up the pie to take out or sit down and eat it on the premises. During the 1970s, pizza delivery became fairly common, but the concept is still not available in some parts of the United States. The pizza delivery business didn’t exist before innovation “created” it. It is very possible to invent a new business. It often involves bringing a new theme to an old, familiar song.
One of the best examples of inventing a business is the story of real-life entrepreneurs Kevin and Bill. They were employees who were increasingly depressed by going to work each day.
Real-Life Case Study
They spent each lunch hour walking around their community to try and figure out what type of business was needed. They really wanted to open a fast-food franchise, but didn’t have the funds or the resources to come up with the large amount of capital required to open most fast-food operations.
They didn’t have any experience in running their own business. They had always worked as employees for someone else.
The duo knew they wanted a business and felt they could pull it off if they could only find the right business to start.
They saw that their neighborhood had a few photocopy stores and almost ruled out opening another one, until they did a little research and found out that there were art students at nearby colleges and universities whose copying needs required special paper and detailed work.
They determined that they could open a very small photocopy shop that would cater to local artists and musicians with special photocopying needs.
They promoted their business in the college newspapers through ads and via fliers in dorms and built an instant and steady clientele. Word-of-mouth on their great service spread quickly. Soon local modeling agencies were sending their models over to have portfolios copied. Business doubled and continues to boom.
The motto of this story:
Don’t let lack of experience in a specific area discourage you from starting a business that you feel will do well if given a chance. Entrepreneurs have great instincts.
Use yours in your inventory process.
As you work through the exercises in this book, you are actually completing some of the essential steps in creating a business plan. By the time we get to “writing” this very important document, we will have gathered many of the statistics and data and concepts needed to create the plan. Preparing a business plan will give you the confidence to start your business. By the time you’ve written the plan, you will have asked--and will have answered--every question you can possibly have about launching and running your particular business. Each of the workbook exercises will make writing your business plan a virtually painless experience. Think of this book as your partner!
YOUR AGENDA:
During the next week or two, begin to take inventory of your hobbies, skills and interests.
Use the worksheets provided.
Think about your inventory lists as you drive to work, wait on lines, shop, cook, etc.
Use trends to inspire you.
Don’t dismiss the idea of inventing or creating a new way to provide an old service or product.
Entrepreneurs can thrive on offering something to the public that hasn’t quite been offered before.
Creativity is key to your success. Think about innovations you could bring to existing businesses.
Take a walk around your neighborhood. What’s missing? What could be improved?
Notes:_________________________________________________________________________________
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In the next section, we’ll examine ways you can confirm whether or not your business idea is a good one for the area in which you live.
Small Biz Info You Can Use
*The Virtual Office Is Booming! Workers are equipped with the tools, technology and skills to perform jobs from wherever the person needs to be: home, office, hotel, car. The trend is booming. It’s possible to run a small business in just about any--including mobile--location.
*Multi-cultural marketing is booming. Mainstream companies are missing out on a vast market of nearly 70 million people: African-Americans, Hispanics and Asian-Americans. This multi-cultural marketplace makes up the most important consumer growth area in the U.S.
It is important to customize marketing approaches for each of these target audiences. The Hispanic market is segmented into separate markets: Cuban, Mexican, Puerto Rican, and South American, for example. Each should be considered as distinct with different lifestyles and interests.
DETERMINING THE NEED FOR THIS BUSINESS
At this point, you have isolated a business that you would like to start based on your interests and on what you perceive is a need in your community, region of the country, or need of a specific market to which you will sell your product or service. I suggest that you read through the next few pages before you pick up your pen or pencil. After reading through, take a walk through your community, perform a search on Google.com or scan The Yellow Pages and then return to this section.
You also know whether or not you will base your business at home or in an outside facility. Renting
an outside space, naturally, significantly increases your start-up costs. Your overhead will consume a large part of your launch budget. Starting from home is always a good option if possible. You can then grow into an outside facility as you build your bottom line.
Let’s recap:
The business I will start is________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
I am planning to run this business from__________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
I will work (nights, weekends, full-time, mornings)________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Before you can determine whether or not there is a need for this business, let’s get a handle on your ideal customer. Who is your customer?
He or she is___________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Knowing who your potential customer is will help you market your small business.
In the case of our “Small Business Bob”, Bob’s customer is a homeowner or a
business owner who needs to hire a landscaper or gardener to maintain the-
residential or commercial property on a weekly or bi-weekly basis.
In the case of “Small Business Betty”, Betty’s customer is a small business owner
who needs a one-stop shop where he or she can fax, modem, use a computer-
get something laser printed, rent a private post office box, get photocopies and
in general perform all of the business services task that this small business owner__
can’t do at his or her home or office.
Who is your target customer? Who will buy your product or service?______________
_________________________________________________________________________________
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_________________________________________________________________________________
_________________________________________________________________________________
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Where will your customers purchase your goods? Will they buy directly from you? From a store that will carry your goods? Will they come to your home? Will you provide your product or service “on-site”--meaning at their home or place of business? Will they come to a shop you rent?: ___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
(Don’t worry about licenses and permits--we’ll get to those in the next few chapters to help you make sure everything is legal!)
Do you have any competition for this product or service? Conduct a search on Google.com for competitors in your area. Scan The Yellow Pages, take a walk, ride around on your bike or take a drive in your car. Are there obvious competitors? Some businesses may offer a similar service or product, but not exactly what you offer. You might also find an existing small businesses that lists itself as a “Florist” in the phone directory, but you discover they provide “Gift Baskets”, too. If you are interested in starting a “Gift Basket” business list this “Florist” on your list of competitors. (They are in that business too, even though it isn’t “obvious.”)
List all of your potential competitors:_________________________________________________________
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If you’ve managed to fill in all of the blanks, you might want to consider fine-tuning your business idea. There might be too much competition for your business. However, if you can offer this business better, faster, cheaper than the competition, you have nothing to worry about, no matter how many businesses are listed among your potential competitors. You have, perhaps, figured out the way to offer a similar product or service in a new way.
Let’s look at some examples of how a product or service could be offered “better, faster, cheaper.”
EXISTING BUSINESS YOUR BUSINESS
GIFT BASKET BIZ You’ll offer gift baskets, too, but you’ll
deliver in your car or van, and you
will fulfill mail orders, too.
LANDSCAPING You offer one week’s service free to
clients who refer new business to you.
You also offer firewood (during the
off-season) to existing landscaping clients
at a discount.
USED CAR LOT You don’t actually sell the cars : you rent
the space to car sellers. Buyers come &
see the car & then make an appointment
with the seller to clinch the deal.
PET SITTING You provide an extensive questionnaire to
the pet owners so they can fill you in on all
of the important details of their pet’s life.
The competition doesn’t show this care in
their operation.
WORD PROCESSOR SERVICE You pick up and deliver.
HAIR CUTTER You also offer to cut hair in the client’s home.
BOOK SEARCH BUSINESS Guarantee next day progress report.
WATER GARDEN SET-UP Offer a “garden to fit any budget.”
AQUARIUM SET-UP & MAINTENANCE Accept old tanks as “trade ins” when
clients buy a new tank from you.
BED & BREAKFAST Offer homemade popovers with
breakfast (very easy to make & a nice
change from boxed cereal.)
BIRTHDAY PARTIES FOR KIDS In addition to the standard parties you
offer to throw for kids, include special
customized parties based on the child’s
favorite movie or character. Of course,
this costs more.
SPECIALTY CAKE MAKING Offer to create cakes based on any theme
and make sure you offer free delivery service.
SMALL ENGINE REPAIR Free pick-up and delivery.
CATERING SERVICE Clients get a free serving dish.
Beginning to get the idea? Your service or product does not have to be “competition free”, it just needs to be improved in some way--if there is, in fact, competition.
What could you offer to your clients to improve on the existing way or ways this product or service
is delivered?
Could you make the service or deliver the product FASTER? HOW?__________________________
____________________________________________________________________________________________
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(An easy way to make the service or product FASTER is to offer free pick-up and delivery)
Could you make the service or deliver the product CHEAPER? HOW?________________________
____________________________________________________________________________________________
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(One way to make the product or service CHEAPER is to base the business in your home and
reduce costs because you have a lower overhead than the competition.)
Could you make this existing product or service BETTER? HOW?______________________________
___________________________________________________________________________________________
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(One way to make anything better is to provide greater convenience, better service, more courteous consideration, customize it, and offer extreme attention to every detail.)
LEARNING FROM THE COMPETITION
As you survey your community searching for competitors, you will probably say to yourself, “Gee, I wish I could just ask that guy how he got his hardware store started!? Where did he get his inventory? How did he figure out how to charge?” Or, if you’re thinking of launching a food delivery service you might want to know “Do I have to deliver the food in special trucks with heaters and refrigerators? How should I charge for this service? Where is the best place to advertise?”
Chances are, the competition will not reveal any of its marketing or selling secrets to you, a potential competitor. So, where could you get some of this information? There are two very good sources:
1. Find Biz Owners In Other Parts Of The State Who Are Doing The Same Thing:
You’ll be able to ask them questions that won’t threaten the well-being of their business because you are located very far away. If you’re thinking of starting a mail order business, for example, find a mail order maven who deals in a product that you will not carry in your catalog.
Entrepreneurs are healthy egomaniacs--they love to talk about their businesses--and you will likely become one yourself as you start your very own empire. (It’s healthy, so don’t feel you have to hold back. You are doing what everyone wants to do and you should be very proud of yourself!)
When you travel to visit relatives check out the “long distance competition.” You might want to schedule a trip to another state just to check out how others did what you now want to accomplish.
Here are a few questions to ask: (you can use the blanks spaces provided to record their answers: that way, you’ll keep all your research info in this workbook.)
1. Please tell me about the anatomy of your start-up? How did you decide to start this business?
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
2. Did you have any experience or background in this business?
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
3. Without getting too personal, could you tell me roughly how much money you invested in your start-up?-______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
4.Please tell me a little about opening day? Were you swamped? Scared? _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
5. How did you figure out how to charge for your service/product?
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6. How did you generate customers during the very early months of your small business?
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7. Were there/are there any important resources you would recommend to me as someone just getting started in this particular business?
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8. Were there/are there any tricks in particular you picked up along the way that helped you develop and grow your business?
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9. How much money do you think I can expect to make in three months? six months? one year?
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10. Are there any secrets to your success that you could share with me?
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________11.Could I call you from time to time with questions?
12. What is the single most important piece of advice you can give to me about starting this business?
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Not all entrepreneurs will be forthcoming with information. Some might even want a “consultation fee.” I’m confident you will find at least one successful entrepreneur doing something along the lines of what you want to do who will be willing to help you for no charge. If you can’t locate such an individual, take heart, and read suggestion #2:
2. Contact The Senior Corps Of Retired Executives Program At Your Local Small Business Administration Office:
The SCORE program offered by the SBA is an extremely valuable source of information--not just start-up info, but ongoing consultation that is given to you at no charge. The SCORE volunteers are retired executives who will assist you in starting and running your business. They have been there! For example, if you are interested in opening a restaurant in your area, contact SCORE. Perhaps they can assign you to a former restaurateur who misses the business. He or she will be full of hardcore information and valuable anecdotes to help you get your business off the ground.
Contact your local SBA office and make an appointment to meet with a SCORE representative.
In the next section of this workbook we’re going to examine the marketplace in which you live to determine whether or not the business you’ve selected will be viable in the years to come. Is your customer base growing or shrinking?
To determine this, we must compile a Customer Profile Worksheet.
(But before we move on to the next section, take a walk or drive around your community or scan your Yellow Pages to compile a list of competitors. What do they do that you could do better, faster, cheaper? Is the population in your area large enough to support another business doing the same thing? What do they charge? Do you think you could beat that price? How could you adapt your business idea to swamp the competition?)
YOUR AGENDA:
1. Walk or drive around and check out the competition.
2. Make a list of your competitors.
3. Call some of the competitors (as a consumer) and ask how they charge.
4. Make a list of how you could provide the same product/service better, cheaper, faster.
5. Find a long-distance competitor you could talk to and/or contact the folks at SCORE.
CHECKLIST FOR YOUR FIRST BUSINESS: Jot down your thoughts_________
Are you really interested in this business?:__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Will you remain interested in this business?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Do you have enough time to pursue this business?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Do you have enough money to start this business and support it for the first few months?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What do you hope to gain from this business venture? Money? Fun? Self-esteem?_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Does this business suit your lifestyle? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Do you have any concerns about launching this business?_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What steps can you take to resolve these concerns?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
DEFINING YOUR BUSINESS
This exercise will give you confidence that you understand your idea for a new business and that you are thinking it through.
Sum up your business purpose, product/service, market and unique qualities in a few paragraphs.
Let’s use Bob and Betty’s small business definitions as examples:
Example One:Bob’s Green Thumb Landscaping:
A full-service landscaping and gardening company geared to residential and commercial customers located within a 35 mile radius of the home-based headquarters.
Shrubs, trees and plants will be purchased wholesale from Jim and Jean’s Nursery on Grand Street. The markup on these goods will be 100%. The labor rate is $20 per hour and $10 an hour for a helper (son Timmy) on an “as needed” basis.
An old pickup truck rigged with hoses, shovels and other gear will serve as “the company car” until a new truck can be purchased. Business will be generated from an ad placed in the town’s weekly newspaper and fliers distributed on cars at the local shopping mall.
Example Two: Betty’s Southside Small Biz Service Center:
A retail store offering entrepreneurs complete small business services ranging from private post office boxes, faxing and photocopying, to word processing, graphic design, and bulk mailing.
The business will be headquartered in a 400 square foot shop on Taylor Court currently being renovated by the landlord. Rental is available July 1.
Photocopy machines are being rented from Canon, and the phone company will install dedicated phone lines for the fax machines and for the modem. There will be 2 Pcs and 1 Mac available for rental on an hourly basis.
A laser printer will also be available.
An ad will run each Monday and Thursday in the business section of the local daily newspaper.
A one-month long grand opening will be staged during which all small business owners will receive a 10% discount on all jobs. Rates will be competitive with the nearest small business service center located 15 miles away in Granville.
Use the next page to define your business as you see it so far:
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You might find yourself continually redefining this statement as your go through this workbook.
CUSTOMER PROFILE WORKSHEET:
In compiling this customer profile worksheet, we will be working on what marketing executives would call “a feasibility study.” In our terms, this means we’re figuring out if our business idea is a good one, if it’s do-able. We’re also compiling information that will go into our business plan. The business plan is a roadmap of how to execute our idea once we’ve determined that it is a viable one.
To begin, we’re going to look at the demographics of our customer.
Age:____________________________________________________________________________________________
Gender:________________________________________________________________________________________
Income:_________________________________________________________________________________________
Ethnic Group:___________________________________________________________________________________
Own homes? (significant if you’re thinking of a landscape biz, for example)_______________________________________________________________________________________
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How do they buy?(mail order, mall, flea markets)_________________________________________________
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How large is your potential market?______________________________________________________________
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Will this market “grow” with your product? Or will your customer base grow out of your
product (baby clothes)(cigarette vending) _________________________________________________________________________________________________
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Will this market continue to develop/grow/exist?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What can they afford?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
After you examine your potential customer, it is very important to examine the business climate of your area.
Is your community economically vital? Is it financially strong? Or, is it rather depressed?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
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If you determine that your target market is not financially strong, then that upscale coffee bar might not be a good business to start at this time. A second-hand store carrying baby goods, might be a much better bet.
If you reside in an upscale community that is thriving, you might want to open the first upscale sunglass shop, however, and abandon the second-hand bookstore idea.
Talk to your friends and ask strangers what they think of how they spend their money. Analyze their answers. Would they buy what you plan on selling?
WHERE TO GET DEMOGRAPHIC INFORMATION:
The United States Department of Commerce: Look under “U.S. Government” in your white pages telephone directory. You’ll find the Department of Commerce. Call and ask them to send you a list of their publications and seminars. You might find exactly what you need. Ask them to point you in the right direction on how you can gather more information about your community.
Government Directories: Write to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, and ask for a catalog of their publications. The Statistical Abstract of the United States is published each year and contains info on the wealthiest and poorest areas of the U.S., info on inflation, where is the busiest airport? how big is the deficit?, etc., etc. You can order from the Government Printing Office.
The local Chambers of Commerce: Contact the local Chambers of Commerce. They have usually quite a bit of information on the population of their citizens. Tell them you are starting a business and need assistance on determining your target market and finding out more about your customer. They will help you and point you to other resources.
Online Resources, Newspapers & Magazines: The Internet is a powerful tool. Local newspaper and magazines often feature trend stories on our population. Check out the regional magazines in your area of the U.S.
Associations: There is an association for just about anything you can think of or anything you are interested in finding out. There are associations on egg decorating, crafts, photography, tourism, accountants, cottage industries, you-name-it. The Enclyclopedia of Associations lists them all. The book, published by Gale Research Inc. of Detroit, Michigan) can be found in a good reference library. If your local library doesn’t have a copy, ask them to order it from Gale and to call you as soon as it arrives. (You can purchase your own from Gale, but the book is about $500.)
E-COMMERCE CRASH COURSE: AMERICA'S NEWEST GOLD RUSH
15 easy steps to your own dot.com
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After reading this section, you'll know how to purchase a computer, get online, start a business, take credit card orders and click your way to your very own .com empire.
Estimates say that 1.5 billion people are now online. That's quite a customer base that you can access from your home with a few taps on your mouse. If you had your own online business, that is.
It's easy for anyone to have a global presence today thanks to the Internet. You can have a small start-up company and be accessed as easily as IBM or Sprint. Many feel the Internet is the greatest invention of the 20th century because it has the capacity to link all of us around the world. It's a force that we all can use and benefit from in our personal and professional lives.
Experts predict that online commerce or electronic commerce--e-Commerce, for short--will become a $100 trillion industry by the year 2020. It's a figure that is no longer unfathomable when we consider that right now online computer dealers each makes millions a day from online sales!
Thanks to the Internet and a neat commodity called the "website" anyone can have an "electronic storefront." Retailing is referred to a "e-tailing" on the Internet. We normally think of stores and shopping malls constructed of "brick and mortar." Internet jargon calls these electronic storefronts "click and mortar" businesses.
If you are tired of hearing about all the Ernie and Ernestine Entrepreneurs working from home with an online business and you're frustrated because you don't know how to get started, let's begin.
There are many ways you can make money online. You can sell a product or service from your website, you can set-up net affiliations and make commissions from sales on the products of others, you can become a service provider, you can offer special services to online businesses and customers, you can create an online ad agency, you can...well, the possibilities are limitless and we'll introduce you to tried and true opportunities.
When Jeff Bezos conceptualized what to sell online to create Amazon.com, he figured he should sell something that is easy to pack and ship. Books were his ticket. Thanks to the success of his online enterprise, more and more individuals are learning they can do it, too. They might not duplicate the victories of Amazon.com, but they are learning ways to pocket an extra $1000 to $50,000 a month with an online venture.
PowerSellers on eBay make $150,000 and more a month.
If you plan to sell a product online, look for something that is simple to pack and inexpensive to ship. Products such as hardware, jewelry, even apparel, might not be as easy to sell online as they are in a brick and mortar shop where customers can touch, feel and try them on for size.
How It All Began
It was the U.S. Department of Defense that is responsible for creating "the Internet." In the early seventies, the Advanced Research Project Agency (ARPA) was responsible for creating an information network to transport data. First known as ARPANET, the goal was to enable different computer systems to share information and data. Because of security concerns, the U.S. Department of Defense wanted no central hub so that if one part of the system was destroyed, the network would continue to transport data and info.
Research facilities began to use ARPANET to send messages (e-mail) to communicate ideas and resources. These early messages contained no graphics or color. There was no graphical user interface. Eventually, Mosaic was created by the National Center for Supercomputing Applications and the World Wide Web was born. The World Wide Web, also referred to as the Web, is a graphical interface for the Internet that is composed of hyperlinks. These hyperlinks are graphics or different-colored text that contain programming instructions that provide the connection to the next site.
The Internet and the World Wide Web are not synonymous. The Web is only a portion of the Internet.
The Internet is the "information superhighway" and the Web represents the exit ramps to other roads that contain various documents/information. The information on the Web is "tagged" so that when you click on a work, you will receive more information on the word. These "tags" are "hyperlinks." It is through hyperlinks that we are able to navigate the Web via a "web browser" on the Internet.
We click and bounce along the Web thanks to these hyperlinks. When clicked with a mouse they automatically open another file for viewing. The Web is made up of millions of documents written in Hypertext Markup Language (HTML).
When information is sent along the Internet, there is not a direct link between its users. When a message is sent, it is split into small pieces called "packets." Each of these packets contains a small portion of the entire message, as well as information about the person who sent the message as well as the recipient, and the message as well.
The small packets might even take different routes. When the packets get to their destinations, they re-group and become a single message once again. This is in keeping with the guidelines established by the Department of Defense so that messages could not be read or deciphered.
When messages are sent over the Internet they are encrypted and de-encrypted when they arrive at their destination. That is why so many consumers find it perfectly safe to shop over the net and offer sensitive information such as credit card numbers, addresses and phone numbers.
Thanks to advances in the 1990s--inexpensive PCs, higher speed modems, browsers like Microsoft Explorer and Netscape, and easy-to-remember web domain names, the Internet is accessible and affordable to many. It is possible for start-up entrepreneurs to have a huge web presence to sell products and services and get their name around the globe. The size and the location of your small business is irrelevant thanks to the Internet.
Step 1: Get A Computer
You need a computer to start your online business. Should you buy an Apple or a PC? Many find the Apple's operating system easier to use than a Personal Computer. An Apple or a Mac is compatible with a smaller base of computers. Mac users also have a smaller selection of software from which to choose. More than 80% of corporate America relies on the PC so that could influence your buying decision.
The PC is used by more people and has a greater selection of software. Consult with your friends and ask them if you can try their Mac or PC. Visit dealers. Hewlett-Packard, SONY, Dell, , IBM are all PC brands. Macintosh and Apple are viewed as one in the same.
You can purchase a computer in a store or through mail order or the Internet. You can buy systems today for less than $1000 but they often are attached to rebates, Internet service provider offers and the lower priced models deliver less in terms of memory and modem speed. Most people that are online quickly upgrade to broadband connections via their phone or cable companies.
To become connected to the Internet you'll need a modem that will connect you. The modem enables you to "talk" to the Internet. Most people that are online quickly upgrade to broadband connections via their phone or cable companies.
Step # 2: Select An Internet Service Provider/Online Service
Now that you have a computer, you'll need to select an Internet Service Provider or subscribe to an online service to get access to the Internet.
An Internet Service Provider (ISP) will offer you Internet access in exchange for a monthly or hourly usage fee. They often will give you a discount if you pay your fee in one annual installment. Fees vary greatly from one ISP to another. Make sure you investigate the options and that you have ISP access with a local phone call. Otherwise, you will be paying costly long distance rates just to get online access. The company will send you software, that you'll load in your CD-ROM to get set up with their service. They often provide telephone help lines, too.
Many beginners choose online services because they receive a free software package and a free trial service run. Whichever you choose, ask the following questions: How long have you been in business (ISPs) ? Do you offer additional services such as e-mail or a personal web page? What are the dialing charges? What speed connection is available with your service? Do you offer a help line? Are there any additional charges?
Whichever you choose, guard your password and change it frequently if you feel its privacy has been jeopardized.
Step # 3: Choose A Web Browser
A browser is your personal limousine. You tell it where you want to go and it will take you there. The most popular browsers are Safari and Leopard.
In Internet Explorer, the marking feature is referred to as "Favorites."
Step #4: Get An E-Mail Address
Get a free email account by visiting one of the following services. Choose a username and a password and get started:
The big ones that offer this e-mail service are:
www.hotmail.com
www.yahoo.com
www.gmail.com
www.aol.com
Step # 5: Find What You Need
You'll be using "search engines" to locate the information and specific documents you need. You just type in your query and you'll be given a list of sites to check out and explore. Often it is appropriate to conduct more than one search, using several different search engines. This referencing several options will ensure that you'll find the most information on the topic you need to research.
The search engine is made up of a large database that organizes the content of web pages; the engine is software that uses the keywords you provide to find and match results. The search engine sends software robots affectionately known as worms, spiders, webcrawlers and wanderers out on the Web to find new things and bring them back into the search engine database.
Here are some of the most popular search engines. Some are more sophisticated, specific, limiting or in-depth than others. They are:
www.yahoo.com
www.ask.com
www.google.com
Directories will also help you locate information you need. They work similar to organized phone directories such as the Yellow Pages. You type in the topic you are interested in finding more about, and a list of relevant sites will appear.
The largest Internet directory is Yahoo! By the way it doesn't mean "Golly gee, Yahoo, I finally found it!" It means "Yet Another Hierarchical Officious Oracle." Go to www.yahoo.com and you'll discover lots of humor and information.
Step #6:Map Out Your Website:
There are so many ways to get your website up and running. You can design it yourself with the help of one of the many hundreds of website design software programs, you can hire a web designer/developer to create and/or maintain your site, or you can take advantage of some of the many free website packages out there (with these, you might have to include a banner ad from a company that is in effect running advertisements all over your website).
Many businesses choose to hire a web designer/developer to create the look and feel of a Fortune 500 website. If you do work with a web designer, check their references to make sure they can provide what they promise. Make sure you maintain ownership of your website and that they won't try and draw a commission from the products/services you sell on your website. Read the fine print and get recommendations from non-competitive companies who have websites that you like. Write a contract for the web designer and use the words "work made for hire." This will ensure that you are hiring the web designer to create work for you and that you own whatever is created in the process.
It is also important to determine whether or not the web designer you've hired will maintain and update your site. Make sure you understand the particulars such as timing and frequency of updates. Termination, confidentiality and pricing schedules should all be spelled out before any work begins or ideas are exchanged.
If you are a do-it-yourselfer, don't be dismayed. Check out software programs and do investigate free websites such as the one from www.yahoo.com. See what these companies have to offer.
Website Hosting:
Where will your website be placed? A hosting service will make sure your website is connected to the Internet so that potential customers can find and access your site.
The website hosting service will charge you a monthly, quarterly or annual fee and should offer great customer service and a fast connection to the Internet in the process.
The hosting services will charge you a one time fee (about $50-$100) to set up your service and a monthly fee ranging from $10 to $50 to keep the website out there. In exchange for this they will sell you about 50-60 megabytes of storage space and that is enough for a basic website. That's more than 8500 pages of text.
For your small business, you can even set up a store online and use a service like PayPal.com in order to process immediate payments from your customers.
Ask if the hosting service will provide you with an account of weekly or monthly tracking data of your customers and visitors. Also, determine how difficult it will be to make changes on your site, once it is up and running. You'll want to make sure your connections are fast and that your potential customers don't have to wait too long for information on your website to be accessed. Ask your potential hosting service about bandwidth, the size of the electronic pipeline through which information flows in and out of your website. The higher the bandwidth, the faster your site will operate and sustain viewer interest.
Discuss termination policies, too, in case you want to change your hosting service.
Lastly, talk to your potential hosting service about security. User data and credit card numbers must be kept secure. Make sure the hosting service you are considering has a policy of respecting and protecting your data.
Step # 7: Choosing A Domain Name For Your Site:
A domain name is the text version of the IP (Internet Protocol) numerical addresses that are assigned to every computer hooked up to the Internet. Domain names are useful as they are usually very easy to remember. You can use your company name, product or special attribute in your domain name to keep it catchy and memorable for the consumer.
Network Solutions is the company that registers the domain name and you'll need to do this to finalize your agreement with the hosting service you've selected. It cost about $70 for the first two-year period and $35 a year after that. Your hosting service should do this as part of your agreement, but if you have negotiated that you will handle it yourself, visit www.networkssolutions.com and do-it-yourself. Prices for this service are coming down thanks to increased competition.
You can choose either the ".com" at the end of your domain name or the ".net"; organizations take ".org" and there are some companies that have their domain name registered with all three endings.
Choose a name that you will like because you are going to be using it a lot on stationery, letterhead, business cards, your car or van, pens, caps and t-shirts.
Just as you should be careful to choose a name that can grow with your business, choose a domain name that won't limit you to the one product that you sell at this point in time. Yes, you sell evergreens through your website, but what if you decide to add groundcovers? Rather than trying to use www.evergreens.com try something that incorporates avidgardener.com. With a domain name that can be stretched, you can incorporate more products in the future.
Choose a name that is very easy to spell or it can be very frustrating for your customers to find you. Keep it short and simple. Try not to use a lot of dashes, hyphens, and slashes as it makes the domain name harder to read.
Choose a name for today and tomorrow and you'll be a happier online entrepreneur. Once your company is established, it is virtually impossible to change your domain name—without losing your following.
Step #8: Review Website Design Software:
If you are going to design your own website, you'll need to purchase some website design software. Don't panic. You won't need to learn HTML (Hypertext Markup Language) to create your own website. You won't need to learn any programming. There are four features in the website design software you'll want to have:
a)Universal Compatibility
This means your page(s) will be able to work with anyone's browser.
b)Visual Page Design
Often called WYSIWYG (What You See Is What You Get), which signals that whatever you see on your screen is exactly what a visitor will see on their computer monitor. This is also referred to as pixel-point accuracy.
c)Design Templates
These are professionally designed helpers consisting of banners, buttons and other "bells and whistles" to give your site a good look instantly.
d)Site Management
This tool makes it simpler to you to organize your website and view it like a company's organizational chart if you so desire. It will help you put your homepage first and keep the subsequent material/pages looking neat and organized.
Step #9: Design Your Site:
In starting to design your site, visit some experts and professionals who make a living out of website design. Design tools such as sitebuilder.com or sitesolution.com make it easy.
Including FAQ
Include a section on Frequently Asked Questions about your small business. This will help you deflect e-mails on a wide variety of topics. Visit other websites to see how companies handle their FAQ section.
Step # 10: Making Money From Net Affiliations:
You establish a website and provide "links" to other websites. Every time an online user visits your site and then jumps to another website because of your link, and then purchases a product from that link, you receive a commission. This is how to make $1000 a month while you sleep!
There are individuals out there who have established websites that only consists of links to other websites.
These are called "online affiliate programs" or "partner programs" or "associate programs." Even if you have a website where you are selling your own goods, consider adding a few links that could keep you in the green while waiting for your own products to sell.
The beauty of the online affiliate program is that you don't need to actually take the orders, you don't have to collect payment, track inventory or ship anything. You don't even need a customer service department. Just sit back and the commission will be sent to you. The commissions range from 5% to 25% and you are paid on a monthly basis.
If this idea excites you, visit the companies that are eager to have you create a link to their website. Do a search online to find the latest listings.
Also, do a net search for "affiliate programs" for information on the latest crop of prospects/partners.
Step # 11: Get A Merchant Credit Card Account:
You need to be able to accept credit cards to have an online website that sells goods. If you are going to succeed in e-tailing this is a must.
It's gotten easier and easier for small business owners to be able to accept credit card orders. This is called a merchant credit card account.
Monthly fees vary so check out the details. They can range from $10 to $50 a month. The transaction fees will range from 10 cents to 50 cents for each transaction.
You can buy or rent the credit card terminal to manually input the transaction or you can use software to process the transactions. The monthly rental fee for the terminal is $30 to $40 a month and the purchase price ranges from $400 to $1500. Talk to the companies listed above about software you can use for your e-tailing transactions.
Also, visit PayPal.com to find out about their program.
Step # 12: Market Your Site
Try to promote your site as much as you can.
Step # 13: Advertise On Your Site:
You can get companies to advertise on your website with a banner ad. This could pay for all the costs associated with keeping and maintaining your website. Most of the ads are glorified links to their company's website.
You'll have to consider if you want to provide this ad option. You can also run "text ads" in your website. These are little boxes or paragraphs of text that announce or promote a product or service and provide information and contact data.
You can also consider the idea of "sponsorship" of your website from an appropriate company. If you are selling a book you wrote on the history of games, consider having a local toy store or game shop sponsor your website for a three month period. This is an appropriate tie-in as your product could inspire your web visitors to go to the game shop and purchase some games you write about in your book/website.
Step # 14: Market Your Products Via Online Shops:
Don't want the hassle of establishing your own website but still want to cash in on the online selling phenomenon? Then consider an online shop linked to another company's website.. These are online stores that will charge you a monthly fee to list your items for sale. For example, store.yahoo.com charges $100 a month to list up to 50 items for sale. You'll need to build a web storefront for your section of the online store, but you will be assisted and walked through the process as you create it.
Manufacturers can list their products and goods via Amazon.com shops called zShops. It costs $9.99 per month, plus a fee for each sale. Amazon.com excludes guns and live animals from being sold through their zShops. Shoppers can pay directly by credit card, money order or check or use Amazon.com's I-Click payment option which retains a record of the buyer's credit card number and address for use on future orders. Learn more by visiting the Amazon.com website.
Step # 15: Quick-Glance Glossary
address:
The location of a site on the World Wide Web.
analog line:
A pathway on which information is transmitted using variable signals and electrical frequencies to transmit info.
bookmark:
Your favorite websites can be saved in a file.
browser:
A program that displays and navigates web pages.
chat:
A typed conversation among computer users.
cyberspace:
The Internet.
database:
A collection of related information in an easily accessible format such as a table, report or form.
encryption:
The method of scrambling a message before delivery.
FTP:
File Transfer Protocol. A standard that enables files to be copies from one computer to another.
freeware:
Free software distributed on the Internet.
home page:
The name for the main page in a website.
hyperlink:
An icon, graphic or word in a file that, when clicked with the mouse, automatically opens another file for viewing.
IP address:
A numeric representation of a computer's location within a network.IP addresses are written as four groups of numbers separated by periods (907.877.66.908)
IRC:
Real time communication on the Internet. It's called Internet Relay Chat.
ISDN:
Integrated Services Digital Network. Digital telecommunications network that can transmit data at 128 kilobytes per second.
newsgroup:
A virtual area on the Internet reserved for the posting of messages to discuss a certain topic.
push technology:
Technology that "pushes" info from a website to a user's computer, specified by the user's preferences without a web search. One must subscribe to push service technology.
shareware:
Software distributed on the Internet that could require a fee.
URL:
Uniform or Universal Resource Locator is a standardized naming or addressing system for documents and media accessible over the Internet.
webmaster:
The person who develops and maintains a website.
Types of businesses one can start online:
*Sell a product via an online cyberstore.
*Visit existing businesses in your area and ask them if they have a website. If they don't, invite them to piggyback on your website, for a fee.
*Start a website service that contains listings for events, concerts, and other activities that will attract a dedicated group of followers. Sell ads to firms that are compatible with your products and service listings.
*Host discussions and/or Q&A sessions with guests on your website. Banner advertisements that scroll through the conversations could generate an income.
*Become familiar with electronic payment methods and help other entrepreneurs achieve merchant card status.
*Start a website to specifically sell your own CD, designer outfit, book or accessory.
*Add online capabilities to your existing business. If you have a coffee bar, install a few terminals for your customers to rent by the hour.
*Start a business as an Internet business development manager and help other small business owners investigate possibilities for moneymaking options online.
*Become a web editor and manage the website of a company/individual.
*Start an import shop online.
*Start a auction site business via Ebay or other online auction houses.
*Help others develop promotional activities for their websites.
*Start a data tracking venture for online businesses.
*Launch a data mining service. Analyze sales information that will help client's increase effectiveness of their sites.
*Start a research service for clients who don't have the time/inclination. Book travel, order books, organize data, information.
*Start a translation service for companies who want to expand their reach.
*Make money via commissions from network affiliations.
*Conduct Internet tutor workshops for folks who want to become "webizens."
*Write web content for companies who need to change info on their sites frequently.
*Become a web designer.
*Sell services and products related to online ventures.
*Select a topic that interests you and launch a website about it. Sell ads.
*Generate e-mailing lists for other small business
CHOOSING A LEGAL FORM FOR YOUR BUSINESS
Soon after you decide what business you want to start, you’ll have to make a decision on what legal form or structure you should choose for your enterprise.
The legal form you select will have a bearing on your how you structure your business, how you manage your business, how you pay your taxes and it will also affect the degree of liability for which you are personally responsible.
The are 5 forms to consider: sole proprietorship, partnership, limited partnership, corporation, and the limited liability corporation.
Let’s review each form.
Sole Proprietorships are the most common form chosen by first-time entrepreneurs. It is the easiest form to set up. You simply contact the local city or county clerk’s office to obtain a business license. A small registration fee is usually required.
A sole proprietorship means you are the sole owner of the business. You are in total control. There are no partners to consult with on any decisions and all of the profits belong to you.
There are some disadvantages. Bank and other financial sources might be reluctant to loan money to sole proprietors because of their limited net worth.
Unlimited personal liability is the biggest drawback to this form of business. Sole proprietors are personally responsible for debts and lawsuits. Business income is treated as personal income so taxes are filed on the Form 1040 (Part of Schedule C, Profit and Loss from a business or profession).
You might want to submit your taxes to the IRS on a quarterly basis (January, April, June and September). If so, you’ll file Form 1040ES, Declaration of Estimated Tax for Individuals. Your IRS office can give you vouchers to submit your estimated quarterly tax payments. You’ll also file Form 4562, which records your company’s property and its value.
If you’re going to be working alone, a sole proprietorship is probably the best form for you.
About 76% of all small business ventures are sole proprietorships. They are easy to create and the owner is the only person responsible for the activities of the business.
Entrepreneurs who start a business with another individual can choose the Partnership form.
There is no limit to the number of partners a business can have. Each partner often brings a different skill or talent to the business. General partners are liable for all claims. Profits are shared as is control of the business. In a partnership, each partner is liable for the obligations another partner incurs in the course of doing business. For example, if one partner signs a contract with a supplier in the name of the partnership, the other partner(s) are also bound by the terms of the contract. However, creditors of an individual partner can only attach the assets of that individual partner, including their interest in the partnership.
If you have a partner, then choose a partnership.
Limited partnerships are formed to raise capital. A typical limited partnership includes a general partner who manages the day-to-day operations of the business and a group of limited partners.
Limited partners do not exercise any control over the general operations of the business. They provide extra capital needed and share in the profits (or the losses) of the company.
Want to raise money but don’t want partners involved in the day-to-day operation of your venture? Investigate the limited partnership option.
Limited partners do not share responsibility for day-to-day company management and operations.
A Corporation is a legal entity that is completely separate from the people who create it. A corporation is owned by shareholders and run by a board of directors. Corporations must file “Articles of Incorporation” with the state in which they are created.
It is the corporation that pays taxes and is liable for all debts--not the individuals who formed the corporation.
Corporations must adhere to strict registration and taxation guidelines. Registration can be costly and corporations must pay an annual state tax. Shareholder meetings must be held and minutes recorded and kept.
Stock may be sold to raise capital. The advantage of selling stock to raise money is that the corporation is not required to repay the stock loan. The shareholders acquire a share ownership and share in future profits or losses. Tax reporting is more complex.
Different from the sole proprietorship and the partnership forms as the corporation is a legal entity in and of itself. The United States Supreme Court has defined the corporation as “an artificial being, invisible, intangible, and existing only in contemplation of the law.”
If you have questions about liability, or need to raise a lot of capital, then perhaps you should investigate incorporation.
The S Corporation is not a tax-paying entity. It is merely a financial vehicle that passes the profits and losses of the corporation to the stockholders. It is treated much like the sole proprietorship and the partnership in the sense that if the business earns a profit, that profit becomes the income of the owners/stockholders and it is the owners who pay the tax on that profit at their individual tax rates.
Another option is the Limited Liability Corporation. This form combines the benefits of the partnership for tax purposes with the benefits of the corporation structure for liability purposes. Like the S Corporation, this form enjoys the pass-through tax benefits of partnerships. It is, however, far more flexible in the way it views certain ownership issues and income tax. Only privately held companies can choose this form of doing business and they must be formed following very strict guidelines.
The number of share holders is limited to 35.
If you are interested in the tax benefits of a partnership, but need the personal liability protection of a corporation, consider the limited liability corporation for your legal structure.
Consulting an attorney can help you decide which legal form to choose.
Let’s review some pros and cons:
Sole Proprietorship
Advantages:
∑ Easiest to get started.
∑ Less red tape and government restrictions.
∑ Provides greatest freedom of action.
∑ Gives the owner maximum authority. Only start-up cost is to file
∑ May have tax advantages. “doing business as” form or
∑ Social Security advantage. “fictitious name statement.”
∑ All profits go to the owner.
Disadvantages:
∑ Owner is solely liable for all debts.
∑ Death or illness can shut down a business.
∑ Difficult to separate business from personal life, both emotionally & financially.
∑ Can be difficult to raise money,
Getting To Know Your County Clerk
In the pages that follow, we are going to meet a very important person/office in your community. The County Clerk is responsible for helping you process several of the forms you will need to file to start your business. The forms are uncomplicated and the process is quite simple. We’ll be reviewing the steps and specifics in the next few sections of the workbook.
Once you select a legal form for your business and choose a name, you will be ready to call or make a visit to the County Clerk’s office. The office is usually located in the county administrative building at “the county seat.” Usually this is located in the largest city/town in your county. If you’re unsure of where it might be in your county, call your local town hall or the local chamber of commerce. They will point you in the right direction.
Partnership
Advantages:
∑ Two heads are better than one.
∑ Shared responsibility Start-up costs required include
∑ Shared liability. filing fees needed for “doing
∑ Additional source of capital. business as” form and attorney
∑ More work force. fees for writing up the partnership
agreement.
Disadvantages:
∑ Difficult to find a good partner.
∑ Shared authority can lead to disagreements.
∑ Unlimited liability to partners.
∑ Profits must be shared.
∑ Death or illness could disrupt business.
∑ Must deal with partnership like a marriage--’til death do you part?
Corporation
Advantages:
∑ Limited liability for stockholders (owners)
∑ Continuity-perpetual life.
∑ Easier to raise capital.
∑ Change of ownership is easy by transfer of stock.
Disadvantages:
∑ Higher taxes. Start-up costs include attorney fees for
∑ Less freedom of action. incorporation documents, filing fees.
∑ Expensive government regulations.
∑ Much legal formality.
Limited Partnership
Advantages:
∑ Additional capital for start-up money.
∑ Partners can pool their knowledge to advise the general partners.
Disadvantages:
∑ Problems can arise if partners fail to get along.
∑ Partnerships can be difficult to dissolve.
Limited Liability Corporation
Advantages:
∑ Capital can be raised through the sale of corporate stock.
∑ Easier to get loans from financial institutions.
Disadvantages:
∑ Lots of paperwork and red tape that must be filed on state and federal levels.
SETTING UP A PARTNERSHIP:
Just like a sole proprietorship a general partnership requires “no permission” from the state in which you live to exist legally. (A corporation, however, does.) All states--with the exception of Louisiana--have adopted a Uniform Partnership Act (UPA) which establishes laws governing partnerships.
Your business becomes a legal partnership once a partnership agreement is reached. This agreement can be written, oral or even suggested by two or more partners. A written document outlining the purposes, intent and responsibility is not legally required, but it is a good idea.
Write down the goals and responsibilities of all involved. It will be a key tool to resolve disputes, especially if one partner is not carrying his or her fair share of the work load. The agreement will also be helpful to settle other business matters that evolve.
To set up a partnership, prepare the following:
1. Letter of Intent: Prepartnership Agreement. It can be simple and non-complicated.
2. Partnership Agreement (See points below on what to include).
3. Register your business as a Partnership with the IRS to receive a “Partnership Identification Number.” The Partnership will also file a separate income tax return.
The partnership agreement should include the following:
--date the partnership was formed --business name & address
--names & addresses of all partners --statement of business purpose
--financial contributions of each partner --length of partnership
--responsibilities and powers of each partner --division of labor
--how profits & losses will be distributed --salaries
--how expenses will be handled --accounting system
--how taxes will be handled --how a death will affect partnership
--filing of annual reports & statements --how disputes will be settled
--how property will be used --how assets will be distributed if
--company officer partnership is dissolved
To set up a Corporation, ponder the following points:
1. You’ll need to choose directors and officers (could be you and one or two other individuals).
2. You’ll have to write and vote on and adopt by-laws (rules on how the corporation will be run).
3. You’ll have to issue stock.
4. You’ll have to open a corporate bank account and you must fill out a particular bank form with your bank that lists instructions for your corporation.
5. You’ll have to choose a “fiscal year”--usually based on the calendar year, but some businesses, such as retailers, choose to have their fiscal year end after spring to reflect holiday sales, white sales, etc.
6. You’ll need a “corporate seal”--stating your corporation’s name and state in which the company does business. This seal is issued from the secretary of state’s office.
7. You’ll need to hold meetings for your board of directors and shareholders and take minutes (notes) and you’ll need to hold votes at these meetings on issues and elections.
If you are choosing “corporation” as your legal form, get all the forms and guidelines from your secretary of state’s office (who must approve your “incorporation.”
The forms you’ll need to fill out and file address the following points:
--Choose a name and reserve the name with the secretary of state’s corporate division office. If you are creating a corporation in another state, check to see if it’s o.k. to use your company name in that state (your secretary of state’s office will advise you to check with the secretary of state’s office in the state in which you intend to conduct business.)
--You’ll need a specific mailing address for your corporation and in some states a post office box is unacceptable.
--You’ll need to state that your corporation is formed for perpetuity--as most businesses are not formed to end at a specific time (there are exceptions, however) and if your corporation is one, justify it.
--You’ll need to state the purpose of your business. What will you be doing to make money?
--Who comprises the board of directors? In many states, only one (you) director is required.
--You’ll have to address the issue of shares. How many classes of shares are there? How many shares of stock are/will be in each class? Will the corporate board of directors increase or decrease the number of shares?
--You must list the name and address of the corporation’s founder (you).
--You will have to specify when the corporation will officially come into existence.
--You might have to notarize your forms of incorporation.
--You’ll need to list a “registered agent”--needed to incorporate your business.
YOUR AGENDA:
1. Select a “legal form” for your business. If you plan to work at home, on your own, the choice is clear and one preferred by 76% of all small businesses in the United States: sole proprietorship.
2. If you are choosing a Partnership for your legal form, prepare a Letter Of Intent and write up a Partnership Agreement.
3. If you are choosing Corporation, go through the motions discussed above and it might be prudent to consult with an attorney. Draw on the resources of your local Small Business Administration office as well.
4. After we work through the next few pages in the workbook, you will be ready to pick a name, register your name, set up a business bank account, create stationery and find out what, if any, permits and/or licenses you will need to start your business.
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_WHAT’S IN A NAME......& LOGO?
Plenty! Let’s review 5 tips on choosing a name and logo for your business. This will be the “identity” for your small business.
1. Choose a name for today & tomorrow:
Name your business for tomorrow, too. The name “Sally’s Bike Shop” sounds good for a shop that specializes in bicycles. But, what if Sally wants to expand her inventory to include dolls and toys or video games in the future?
Not only will Sally have to change her business cards, she’s have to have a new awning put up or painted and change her delivery van paint job as well.
Select a name that will enable you to easily expand in the future. Sally’s Bike & Toy World might have been a better name.
2. Make sure you select a font or graphic that can be easily read:
The name of your business might look great on a giant billboard, but does it translate well to a small, teeny-weeny business card?
Avoid gothic lettering or other intricate styles that will cram or crowd your name when printed in a smaller type. If you use a logo, make sure it can be readily identified and understood.
3. Does the name & logo look as nice in black and white as it does in color?
If your name and logo relies on color to get the point across, then look for something that will do well in black and white type.
For example, the logo for Rainbow Dry Cleaners might look great in color, but what about when you run a black and white newspaper ad? Does it fade into the background?
4. Choose a name that will translate well when it is abbreviated:
Sure, you might not plan on abbreviating your business, but your local chamber of commerce might or the golf club running the local charity event might. Make sure people know it is your business and that it still makes sense.
Take the case of National Utility Tools Specialty company. It sounds good, but when their name appeared in the paper after their grand opening event and it was abbreviated by the reporter to save on space, it appeared NUTS.
Try to anticipate how your business name will be used and how it will look.
5. Pick a name that describes what your business does:
With more than 1000 businesses being launched every week, you need a name that describes exactly what you do. Keeping it simple and to the point is a good idea.
Technical Perfection sounds like an attractive name but what do they do? Technical Perfection Film and Video Services gets the point across.
Another example is Elegant Corporation. It sounds fine, but Elegant Fare Corporation ensures that the consumer will know the business deals with food.
Describe what you do, but don’t limit yourself either as in the case of Sally’s Bike Shop.
When you come up with a name you like, try it out on your friends and family. Try to choose “critics” that are supportive, who can offer constructive criticism. You don’t need naysaying from jealous relatives! Select a name you like. After all, it is your business that we’re talking about here!
After you choose the name, you are ready to print up a stationery system and perhaps, incorporate a logo into your design. But first, let’s register your business name.
REGISTERING YOUR BUSINESS NAME
This is a key moment in setting up your small business. It separates you from “the dreamers”. By registering your small business name, you move into “the doer” category.
Registering your name is relatively easy. You’ll probably be doing business under a name that is considered “fictitious”, meaning it’s a name other than your own given name.
“Bob’s Green Thumb Landscaping” or “Betty’s Southside Small Biz Service Center” are two examples. But, if you intend to open an accounting service, you might still need to file a “fictitious business name.” For example, “Mary Ross, Accountant” as a company name is considered “fictitious” even though the sole proprietor’s name is Mary Ross.
If you are going to render your services or sell your product as “Mary Ross” or “John Doe” or “Jane Doe”, then you do not have to file this “fictitious name statement” also known as “doing business as” statement or also known as “assumed name certificate.”
Laws vary state-by-state, so it’s a good idea to check out the requirements within your state. The “fictitious name statement” has to be renewed every 5 years or so. Again, check with your state for specific requirements.
Let’s walk through the steps:
1. Call the County Clerk’s Office: The office is usually found at “the county seat” in the town/city where most of the official county business takes place. Call the local chamber of commerce or your town hall if you don’t know where the county clerk’s office is based in your county.
2. Tell them you want to file a “fictitious name statement” for your new business: They’ll either send you 3 copies of the form you need, ask you to come and pick them up, or advise you that you can purchase them at a local stationery store. (The cost for the forms is less than $2 if you purchase them in a local stationery store.) Find your State’s website to download forms.
Filing or registering this form will prevent others from using your business name in your county. (To investigate how to register/protect your name statewide, call the Secretary of State’s office in your state capital.) For most local businesses catering to the county, the county filing is sufficient.
3. Fill out three copies of the “doing business as” form and have them notarized.
4. Bring the forms back to the County Clerk’s office.
5. Pay a filing fee: Varies from state to state. Usually less than $30.
6. County Clerk will stamp all three copies: They will keep one copy for their files, you keep one copy and take the third copy to a local bank. The bank needs this form to open up a bank account in the name of your business. This will enable you to write and cash checks made out to “Bob’s Green Thumb Landscaping” or “Reliable Roofers” or “Ken’s Cleaning Service.”
7. The County Clerk will tell you to publish your new name in the newspaper: A local newspaper “of general circulation” will print your “fictitious name statement.” The theory is that the public has a right to know who’s in business and with whom the public will be dealing.
For the specific requirements of registering your small business name in your county, contact the county clerk’s office, usually found in the county administrative building at the “county seat.” If you’re unsure of where to call, ask the local chamber of commerce or call your town hall.
Filing this “doing business as” statement is the first official step to starting your business.
Once you’ve decided on a business and on a name, go for it! You’ll need to show this statement to other agencies and state departments before you can apply/receive other documentation you might need, so register your name as soon as you select one.
You also have a number of years before the name has to be re-registered, so even if you don’t start your business immediately, there is no harm done.
You might also want to register your name statewide through the secretary of state’s office located in your state capital. Ask both the county clerk and the secretary of state’s office to let you examine the registry of names to make sure there is no other business operating with your name.
You can check this out on a national level by examining national telephone books and CD-ROMs and through a federal search conducted in the Patent and Trademark Depository Library. To register a name nationally, contact the U.S. Patent & Trademark Office. (We’ll examine copyrights, trademarks and patents in an upcoming section).
Before your finalize your decision on the name for your new business, read over the section on TRADEMARKS in this book that follows in just a few pages.
If you intend to grow your business to cross state lines, expand nationally and perhaps, internationally, you should really think about coming up with a name that will be granted a TRADEMARK so that you can protect your name.
We’ll see what happens to the name our Small Business Betty selected when we consider trying to get a trademark on her chosen name: Betty’s Southside Small Biz Service Center.”
CREATING A LOGO FOR LOW OR NO COST
You might want to add a logo to your business name. It is not necessary, but it could add zest to your over image if you plan to use your name/logo on a van, an awning, or even just on your business card.
If you’re not handy with drawing and lack the computer skills to run a graphics program, call a local art school or contact the head of a high school art department.
They probably have plenty of talented students who would be happy to design your logo in exchange for putting the finished product in their portfolio. It would be nice if you could toss the student some money for their work, too.
If you don’t have access to a local art student, call a graphics designer to get an estimate on their fees. Also, visit free logo design sites like cooltext.com to play around with creating your own logo.
THE BUSINESS LICENSE
While you’re at the county clerk’s office, ask if you need to apply for a business license. States have different laws on who needs to file a business license. The cost varies from state to state. Some states have a one-stop shopping department to get all the permits and license applications/forms in one office. Your county clerk will tell you if your state has established such a division.
EMPLOYER IDENTIFICATION NUMBER
If you plan on hiring other employees, you’ll need to apply for an “Employer Identification Number.” This number is often referred to as a “FEIN”. If you don’t have any employees, your social security number is your tax identification number.
Sole proprietors need a Federal Employer Identification Number only if they have employees.
A partnership and a corporation must have them whether or not they hire employees.
If your employees will be involved in a manufacturing operation, you must also register with the Labor Commission through your state Department of Labor.
There is no cost to obtain a FEIN. Call the Internal Revenue Service in your state, and ask how you file Form SS-4 with their office.
PROFESSIONAL/OCCUPATIONAL LICENSES
Licenses and permits are issued as a form of protection to consumers.
Some businesses do require a license in order to operate legally. Depending on what you do will determine whether or not you need a license.
A psychotherapist needs a license in most states, but there are exceptions. In the state of Florida, one doesn’t need a license to dispense advice and collect a fee for the services.
Haircutters and pet groomers usually need a license. So do massage therapists in many states.
If you are going to be handling food, you might need to apply for a “Food Handler’s Permit” to make your business legal.
Again, each state has different requirements. It is best to check with the county clerk, the secretary of state’s office and the state IRS office to see exactly what you are required to do in your state.
For more information on licenses and permits in your state, contact the state agency governing consumer affairs.
You can also check the Blue Pages in your telephone directory under “Government Offices--State” for phone numbers on state licensing boards.
SALES TAX & SELLER’S PERMITS
Unless you are starting a service business with no products sold or inventory kept, you will be required to collect sales tax from your customers and turn the tax over to the state--unless, of course, your state does not collect sales tax.
By now, you see that each state has different laws. Some states will even let you keep some of the sales tax you collect as a form of payment for collecting the sales tax.
If you collect sales tax, you will be issued a “seller’s permit” (also called a “resale number” or a “resale permit).
Some states--such as New York State--will demand a “security deposit” in order for an entrepreneur to get a seller’s permit.
Then if sales tax is not collected, the state takes the money from the security deposit.
Ask your state if they require a security deposit, and if they do, if they can put the money in an interest bearing account.
If you can’t afford the security deposit,you could call insurance companies in your area and ask if they could sell you a “sales tax bond.”
Most states will accept this type of bond in lieu of cash.
Mail order companies are only required to collect sales tax on items shipped to buyers within the state where the mail order company is headquartered or has an office. That’s why when you buy goods mail order, you very often don’t have to pay the sales tax.
YOU CAN GET IT WHOLESALE
The seller’s permit or resale number or resale permit also gives you access to buying goods at wholesale prices. You will also use your seller’s permit to avoid paying sales tax on items you purchase for your small business. When you resell you collect the tax from your customers.
For example, if you are starting a gift basket business, you will want to buy your baskets in bulk at wholesale rates. Your resale permit will give you access to wholesale shops and showrooms.
We’ll explore how you find these wholesalers in a later section.
The “resale number” can only be used to buy goods for your small business. It is not supposed to be used to avoid paying sales tax on items that be used for personal use.
Wholesalers are required to keep a record of what goods are purchased with which resale number.
FEDERAL LICENSES & PERMITS
Most small businesses do not have to navigate the federal license waters, but here goes:
Federal Trade Commission: If your business concerns the preparation of meat products, investment counseling, drug manufacturing, radio and television station construction, and common carrier transportation contact the Federal Trade Commission, Washington, DC 20580, for specific licensing rules and regulations.
The FTC has rules related to the Consumer Products Warranty Law, mail order, telemarketing, clothing and textile labeling, and advertising of credit terms.
All labels and package information must be based on rules and regulations set forth in the Federal Fair Packaging and Labeling Act.
Rules change periodically. To get a free copy of FTC rules and regulations, write to the Federal Trade Commission , Washington, DC 20580.
ZONING REQUIREMENTS
Call your local zoning administration office in your county to determine who can and who cannot work from home.
You’ll probably find that your home is located in a “residential only” zoning area and that, technically, any commercial operation cannot be run from home. But, there are exceptions to these rules and they are changing every day.
Manufacturing and agriculture zoning ordinances are, in most cases, very strictly enforced.
Back in the 1930s, our federal government passed a lot of labor laws to protect women and children from unfair labor practices. For example, women’s clothing cannot be made in private residences in many states.
Most entrepreneurs who work quietly from their homes never bother to investigate the laws, but it is a good idea to know what’s on the books.
Most residential communities have laws on the books restricting the amount of traffic that can come and go to a home--large trucks, vans, etc.
Many communities have restrictions on the types of signs that can be hung outside a home. Check to see what the requirements are in terms of size and color.
You might be starting a business that does not need a sign outside the home.
If you are starting a word processing service, for example, you most likely won’t have truckloads of goods delivered and a steady parade of clients driving up and down the block looking for a parking space.
Some local zoning laws restrict the types of goods and items that can be stored in a residential area--gasoline and fertilizer, for instance.
There are many types of home-based businesses that go completely unnoticed by the neighbors.
It’s a good thing to check out the local zoning ordinances, however, because you might encounter a disgruntled neighbor who resents the idea of someone working from home.
If you are reported to the local zoning officials, your business could be shut down on a temporary basis or even permanently.
If you live in a cooperative apartment or condominium, check the bylaws. They might restrict usage of your coop or condo.
CHANGING THE ZONING LAWS
If you find out that your community is just too restrictive when it comes to zoning and home businesses, there are steps you can take to resolve the roadblocks:
Apply for a variance: You can ask the local zoning board to waive the zoning restrictions. It happens all the time.
Apply for a use permit: Ask the local zoning authorities to come in and examine what you are doing and how you are doing it. They could issue a permit to let you conduct this business regardless of the zoning laws.
Become a local Norma Rae: Remember when Sally Field played “Norma Rae” and took steps to unionize the factory in which she worked? You can work to amend local zoning laws for the good of all small business men and women. Some of these zoning laws are more than 100 years old. You can get together a number of home-based small business owners and band together to fight these arcane rules and regulations.
YOUR AGENDA
We’ve created quite an agenda for the next couple of weeks. Let’s review the list:
1. Select a legal form for your business.
2. Choose a name for your new enterprise.
3. Register your fictitious name statement at the local county clerk’s office.
4. While your at the county clerk’s office, inquire about other business licenses and permits you might need.
5. Follow through on what it takes to secure this business license (often just filling out a form) or acquiring these permits.
6. If you are forming a partnership, prepare a letter of intent.
7. If you are forming a partnership, prepare a partnership agreement.
8. If you are forming a corporation, prepare to deal with articles of incorporation, stockholders, special filings and forms. In fact, if you are thinking of forming a corporation, it is advisable that you consult with an attorney that specializes in forming a corporation to review the steps and procedures.
9. Open a business bank account at a local bank.
10. Check with local zoning departments to determine how the laws effect your new business.
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YOUR STATIONERY SYSTEM
Now that you’ve come up with a name, registered the name, and created a logo, you are ready to print up some stationery.
It’s possible to make excellent letterhead on a computer and print it out with a laser printer. If you’re not comfortable with a computer, drop into a local print shop or photocopy store and see what they can whip up.
It’s important to create nice looking letterhead in any event, but particularly important if you are home-based. Many of your clients will never see your home office and the only thing they see that represents you is your letterhead and your business card! Make those first impression pay off.
Start with:
1. Letterhead: you can use it to create invoices, too. Select a color if you think it will enhance your image.
2. Envelopes: many purists say spend less money on envelopes because they get thrown away.
3. Labels: have labels printed up for use on large envelopes and packages.
4. Business cards: get plenty of them printed up because they will be your first advertising campaign for your new venture. Give them out to everyone.
Creating a flier is optional. You might need it to advertise your business in the beginning. A flier could also list your rates and fees. It contains your telephone number and fax number. It is a valuable marketing tool, albeit a very simple one.
Develop a website and possibly, a blog, to promote your business. They don’t have to cost a fortune, either. Visit yahoo.com to check out their Web Hosting Program for Small Business; you can get started with an easy-to-design site for less than $11 a month. Websites are a necessary tool to showcase your business and to enter the global marketplace.
YOUR AGENDA
1. Play around with a computer graphics program if you have access to one to create a logo for your business.
2. Call a local school to find a student to create a logo for you.
3. If these options are not available, drop into a local printer or quick copy shop and see what they can do for you.
4. After you settle on a logo you like, get some prices on how much it would cost to print up about 500 to 1000 pieces of letterhead, envelopes , labels and at least 1000 business cards.
5. Could you benefit from fliers? If so, start thinking about what you would feature on a flier.
6. If you are thinking of expanding your business on a national or international level (or if you are considering opening a branch office in a nearby town) read the next section on Intellectual Property--TRADEMARKS before you settle on a name for your small business.
7. Go online and establish your website with an inexpensive web hosting tool such as those from yahoo.com. You can start a blog today for $0 at blogger.com.
The name you choose might have to be protected on a much broader basis than you are now considering.
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A WORD ABOUT HOBBIES & YOUR NEW BIZ
While it’s true that nothing can be more enjoyable than getting paid to do something we love, not everything we love to do, is likely to generate the type of income we envision when we set out to start a small business.
It’s a very good idea to critically evaluate whether or not your particular hobby would translate into a successful small business.
If you love kites, you could very likely set up a business selling them if your area or market attracts a population that would like to fly a kite. A resort town or beach area is very good for this type of business--especially if it is a four season town.
If, however, your hobby focuses on a very obscure topic--surfing in Hawaii in the 1920s--you might not be able to establish an entire business on one topic that is this specific and not as likely to involve the general population or even the general surfing population, for that matter.
We must check our obsessions, passions and love and see if they could translate into a successful small business. There are always possibilities. Even our specific surfing buff could turn this love into a more generalized surfing store or shop.
INTELLECTUAL PROPERTY & PROTECTING YOUR IDEAS:
A CRASH COURSE IN COPYRIGHTS, TRADEMARKS & PATENTS
“Intellectual Property” is the category of law governing the rights to use various “creations.”
Protection comes in three basic categories:
Copyrights, Trademarks, and Patents.
There are plenty of good books available on each of these topics and they cover the finer legal points in depth. It is suggested that you do as much research as you can on each topic that relates to your concerns as an entrepreneur.
If you need to consult with an attorney, look for an attorney that covers “Intellectual Property.”
Let’s review these three forms of protection for your ideas, names and creations:
Copyrights:
These are used to protect artists, writers, photographers, software designers and others who develop expressive works. Only the WAY the creation is expressed can be copyrighted--not the content or the idea itself.
For example, you can copyright a specific, written poem about the destruction of the ozone layer, but you cannot copyright an idea suggesting a poem about this topic or idea.
The “creator” can register the work with the U.S. Copyright Office. The copyright lasts for the life of the copyright holder plus 50 years. If issued to a business, the copyright can last from 75 to 100 years.
A creative work must meet the following criteria in order to be granted a copyright:
1. It must be an original work.
2. It must be expressed--not merely described. The expressed can be on paper, video, computer disk, canvas, etc.
3. It must be creative.
There are two ways to enforce a copyright:
1. Use the copyright notice on your published works.
2. Register your work with the U.S. Copyrighted Office.
There are several copyright forms for different types of creative works:
Form TX: For non-dramatic literary works, including computer programs.
Form PA: For audio-visual works.
Form VA: For graphic art and sculptural works.
Form SR: For sound recordings.
Form SE: For serials and periodicals.
Your Rights In Cyberspace:
There is not, as yet, no real or practical way, to enforce the copyright on any work carried or created in cyberspace.
For more information on copyrights, contact:
Registrar of Copyrights
The U.S. Copyright Office
Library of Congress
Washington, DC 20559
For information: 202-707-3000
Trademarks
A trademark is a name or a symbol that is used to market products or services. It’s a means of identifying goods and services in the marketplace. (A service mark is used for names used to market services.)
To simply file a “doing business as” form or a “fictitious name statement” is not to protect the name from attack. You can register your name in your state (through the secretary of state’s office) but even that will not protect you nationally or internationally should you choose to expand.
Filing a “doing business as” or a “fictitious name statement” identifies your biz and identifies you to the public, to your creditors and to state tax officials. It does not give you exclusive ownership rights to use the name wherever and whenever you like.
If you plan to operate your business locally, such as “Bob’s Green Thumb Landscaping”, and have no desire to expand, then a DBA might be enough protection. (Should a large firm called “GREEN THUMB” trademark their name, however, they could force you to stop using their name.)
Suppose you are Small Business Betty. Betty thought “Betty’s Southside Small Biz Service Center” would make a great name. It describes what she does and it also states to whom her services are directed.
But, Betty does intend to expand. She has already dreamed of franchising one day. If you are like Betty and would like to expand your business at some point in the future, you should trademark your name to prevent others from capitalizing on your fine operation, reputation and your clever name.
Betty has now found out from calling the U.S. Patent and Trademark Office in Washington, DC, that she can’t get a trademark on a name that simply describes what she does. It is not unique enough.
Also, Betty realizes, that if she wants to expand, her “Southside” name is rendered useless. Not everyone has a “southside” area in their town or city or region.
The description and the geographical aspects of her chosen name are not unique or distinct enough to be granted a trademark.
Betty, having read over the requirements and rules, has now decided to invent a word that will describe her business. This word will also be used to market her various products and services.
The name she has selected is:
BIZZY: YOUR Home OFFICE Away From Home.
The word BIZZY suggests “business” and in filing for a trademark, she will make sure that her application states that the words YOUR and OFFICE should be highlighted in terms of color and typeface so that they stand out from the rest of the name.
BIZZY is distinctly Betty’s. She can also use BIZZY to describe her products and services:
BIZZY Brochures
BIZZY Business Cards
BIZZY Overnight Wrap & Ship
BIZZY Fliers & Banners
In effect, she’s created her own FedEx, her own PIP Printing, her own XEROX, her own distinct name like CompuServe.
Now she must enter the trademark maze to secure the exclusive rights to use this name.
Name Must Be Unique And Not Merely Describe The Product and/or Service
Another example is “Sammy’s Skylights.” It probably would not be granted a trademark as the name merely describes what Sammy does. There could be dozens of folks named Sammy in the U.S. who install skylights. It is not truly unique.
In order to qualify for a trademark, Sammy decided to call his business:
ULTIMATE DAYLIGHT Skylights
He plans to use “Ultimate Daylight” to describes his products and services.
In attempting to secure a trademark, you will be barred from using a “confusing” name or from using a name that “diminishes” or “tarnishes” an existing or well-known mark.
For example, McDonald’s use of “Mc” cannot be copied. McDonald’s has the exclusive rights to use “Mc” (Chicken McNuggets, etc.).
If you start a fast-delivery service, for example, you will be barred from using the name
“McErrand”
Using a “confusing” name in legal mumbo-jumbo is known as “dilution.”
The Classification System
When applying for a trademark, the U.S. Patent & Trademark Office uses a classification system. These classes are categories of products or services.
There are 42 classes:34 for products and 8 for services. You must specify the class that relates to your mark. This task is often confusing.
For example, Class 14 reads:
“Jewelry, including precious metals and their alloys, clocks and watches, but not gold used by dentists (see Class 5) or gold writing pens (see Class 16).
But when we examine Class 5 it says:
“Pharmaceuticals (and other substances used for medical purposes), but not deodorants for personal use.”
And Class 16 says:
“Paper goods and printed matter, including writing instruments and other office tools, but not artists’ tools.”
The U.S. Patent & Trademark Office will help you decipher their forms and their classification system. Visit www.wspto.gov/ for more information.
Conducting A Trademark Search:
There are three types of searches:
1. Direct Hit Trademark Register Search:
Quick & cheap, this search combs state and federal records for identical or very similar marks that are already registered.
2. Analytical Search:
Searches all federal and state marks for similar and all that might even be confused with your mark.
3. Common Law Search:
Searches through business directories, telephone books, trade and industry journals, association books, databases for names and trademarks. This is a good method for researching your name against unregistered trademarks.
DOING BUSINESS ON THE INTERNET?
Register your Internet domain name and address with the clearinghouse organization, Network Solutions, Inc.
It costs about $100 to get started, and your online provider can help you get more information on how to protect your domain name. Or, use a service such as yahoo.com Web Hosting that includes domain search and registration.
How You Can Conduct Searches:
1. Call the state department of corporations--usually a division of the secretary of state’s office to check out corporate names.
2. Check the “state trademark register” (usually found in the secretary of state’s office).
3. Check the federal register (via the Patent & Trademark Depository Library).
Call the U.S. Patent & Trademark Office to find out where it is in your state. Some states have several offices.
4. Use online databases, The Yellow Pages, trade and industry journals, CD-ROM directories, trade associations.
5. Pay a search firm. A full search ranges from about $350 to about $800.
Nolo Press
Publisher of self-help law books and software, the company has been in business for 25 years. They publish a number of books on trademark law and other aspects of Intellectual Property. Visit www.nolo.com for information on their books and products.
PATENTS
A patent permits the inventor from having others benefit from his or her idea without his or her permission.
A patent is a document issued by the U.S. Patent and Trademark Office. It usually takes about 2 years to complete the process and receive a patent that is good for anywhere from 14 to 20 years depending on what type of invention is patented.
There are three types of patents:
1. Utility Patents: a process, a machine, a composition of matter or an improvement on an existing idea.
2. Design Patent: design must be innovative, nonfunctional and part of a functional manufactured article. For example, a special casing for a hair blower.
3. Plant Patents: These are the patents least used and/or issued. They are for any asexual or sexually reproducible plants. For example, if you breed a new tulip hybrid, you might qualify for a patent.
Most individuals who are granted a patent don’t go on to manufacture the item they patented. They rather “license” the rights to do so to a manufacturer. The license can be exclusive or non-exclusive. It can include U.S. rights only or grant worldwide rights.
To begin, an inventor files a Preliminary Patent Application. To do this, he or she describes the invention. Within one year, the inventor must file a formal patent application.
A “patentability search” must be conducted to determine if there are previous or existing patents filed. This will help you avoid wasting time and money on an invention that can’t be patented.
The patentability search can be conducted by business devoted to this pursuit. Most of them are based in Arlington, Virginia, home of the Patent and Trademark Office library.
To conduct this search, you can hire a patent attorney, a patent agent or a “lay searcher.” The latter is not licensed. Attorneys are the most expensive way to go. The patent agents are licensed by the Patent and Trademark Office and have passed a test issued by the Patent and Trademark Office.
You can find all of these types of patentability searchers in your Yellow Pages under “attorney” and/or “patent.”
Conducting The Search Yourself:
If you want to try and do it yourself, you can get a list of the 80 or so libraries around the U.S. that are called Patent and Trademark Depository Libraries.
These libraries contain copies of all patents as well as reference methods and tools you can use to conduct your own patentability search.
The libraries contain two CD-ROM databases you should know about. One is the CASSIS/CLASS and the other is the CASSIS/BIB.
The CASSIS/CLASS enables you to locate the classification of any patent and a complete list of patents in any class.
The CASSIS/BIB database contains materials about patents issued during the past 20 years as well as information on the classification for any type of invention.
Some of the Patent and Trademark Depository Libraries offer online access to their databases.
The formal patent application contains descriptions and drawings to demonstrate how to make and use the invention. The description must also demonstrate why the invention is different from other “prior art” (previous inventions).
If there are multiple applications for the same invention, the patent office will hold a hearing that could involve affidavits and other declarations before issuing a ruling on who has the rights to the patent.
Costs:
Once the patent is received the applicant pays the “patent issue fee” –costs vary. To keep the patent, additional fees must be paidIf someone tries to steal your invention after you have it patented, you can get a court order to bring the issue to a hearing.
If you need more information on patent and trademarks, contact the U.S. Patent and Trademark Office, an administrative branch of the U.S. Department of Commerce 703-557-4636.
visit www.startyoursmallbiz.blogspot.com for a wide variety of information on launching your new small business. The blog includes interviews, checklists, trends, strategies & resources.
A FINAL NOTE ABOUT PATENTS:
Several inventors say that it’s not always a good move to apply and wait up to 2 (sometimes 3) years to receive a patent.
In that time, someone could come along and copy your idea and get it out in the marketplace without ever applying for a patent.
The patent office says they are completely confidential about plans, drawings and documents.
A patent also entitles the inventor to collect royalties from any individual or company that “rips offs” a design or invention. That’s why it’s important to file the Preliminary Patent Application as soon as you decide you want to go for a patent.
POINTS TO PONDER & NOTES TO MAKE:
Should I register my business name with the state in addition to registering it locally with my county clerk’s office?
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I’m in this business for the long-haul and might want to expand or franchise someday. I should get as much protection for my business name as possible.
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I’ll call the U.S. Patent and Trademark office and ask them to send me forms to register my Business
name/trademark –or download the forms from the website ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Or ask them to send me forms to apply for a patent____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I might one day write a business manual on how to start my business. I think I’ll contact the copyright office and ask them to send me information on how I can copyright my business manual______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Calls to make today:
1. Secretary of State’s office to ask about registering my business name statewide.
Ask about forms and fees.
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2. Call the U.S Patent and Trademark office—visit their website-- for information on getting a:
trademark_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
patent____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
3. Call the U.S. Copyright office in Washington, DC . (Call 202-707-9100 to request ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
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4. Contact several patent attorneys (either look them up in The Yellow Pages or get a reference from your state’s bar association). See if they offer free consultations. If so, make an appointment to learn more about patenting your invention.
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5. Contact local art schools and see if there is a student available who can work on a logo for no or low-cost .______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
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6. Additional thoughts and considerations:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
MONEY: HOW MUCH DO YOU NEED? WHERE WILL YOU GET IT? HOW WILL YOU MANAGE IT?
Determining how much money you’ll need to start your business is very important. As you’ve probably read and heard, under-capitalization is one of the main reasons why small businesses fold. Some entrepreneurs fail to accurately figure out how much money they’ll need and wind up borrowing from one source to pay off another bill or loan. Once this starts happening, it is hard to catch up and get on track.
This next section is designed to help you prevent this from ever happening to your business.
The type of business you are starting will determine how much money you need.
Are you starting a service business? If so, can you run it from home cutting down on costly overhead? Will you need a van? A new computer? Inventory? A part-time employee?
Or, are you interested in a retail shop? That means you’ll be making a substantial commitment to rent, utilities, signage, lighting, display cases, employees (possibly), insurance, decorating and remodeling, equipment (computerized cash registers, etc.).
Let’s use our two prototype businesses, Green Thumb Landscaping and BIZZY Business Services to illustrate how to determine start-up costs. (We’ll get more specific in upcoming sections. This is only meant to be a basic introduction to budgeting for your small business.)
Green Thumb Landscaping
Type Of Expense Cost
Garden Tools (have most of them) $ 75
Business Cards & Stationery 100
Doing Business As registration fee 25
Fliers 50
Ad in Weekly Paper (3 months @ $24 per month) 72
Answering Machine 75
Subtotal = $397
Plus, extra phone expenses (3 months @ $25 per month) 75
Gasoline (3 months @ $40 per month) 120
Total = $592
Bob will need about $592 to get his Green Thumb Landscaping business up and operational.
He will file all “Doing Business As” forms himself and will not require services of an attorney.
He already has a lot of the gardening tools he’ll need, but is going to budget $75 to pick up an
extra hose and some really fine pruning tools.
He’s included advertising for 3 months and has even budgeted extra phone use and gasoline for 3 months. He has not budgeted salary and this is often what small business owners do. Let’s
say Bob would need to clear $300 a week to support himself and his wife and son. He needs to then include $1200 a month as part of his start-up cost. In business lingo, the owner’s salary is referred to as “owner’s equity.”
Knowing what he needs to make to pay his mortgage and other bills each month, will determine what Bob needs to make each week.
Knowing what he needs to make each week will help Bob determine how much he needs to charge per hour or per job. (This will help him establish his “breakdown point.”)
If Bob needs to bring home $300 a week for a 40 hour week, then he needs to charge at least $7.50 an hour for his time. But, in calling the competitors, he realizes that in his region of the country he can charge anywhere from $17.50 to $25.00 per hour and still be competitive. He has decided to charge $20 an hour and therefore needs to work at least 15 hours a week.
(Bob will charge a mark-up on supplies. For example, if a client wants organic fertilizer, Bob will make a deal with a local supplier to purchase it for $10 a bag. He will then charge his clients $12 a bag for the product and pocket the $2 profit.)
Bob’s start-up costs and operating costs are low. He selected his business, in part, because of the low-start up costs. He’ll use his old truck and he doesn’t need an outside office.
He doesn’t want to borrow money from friends and family and has enough money in the bank to get started and run his business for 3 months. He must now develop a more formalized budget called a CASH FLOW PROJECTION. (We’ll get to it in the next few pages.)
Betty, on the other hand, needs considerably more money to get started. Her BIZZY Business Services Center requires an outside facility. Let’s look in on Betty’s notes on her start-up budget.
Remember, these are only rough, preliminary figures. (We’re just trying to get our feet wet financially speaking.)
Let’s take a look at Betty’s BIZZY Business Services: Betty’s doodle sheet looks like this:
Type Of Expense Cost
Rent ($400 a month for 12 months) $ 4800
Doing Business As registration 50
Seller’s Permit 300
Seller’s Deposit 500
Business cards & stationery 250
Utilities ($85 a month for 12 months) 1020
Remodeling of store 1000
Trademark design & registration fees 400
Advertising ($75 a week for 52 weeks) 3900
Salaries (3 part-time employees at $100 per week
for 12 months) 15,600
Fax machine (plain-paper) 379
Copiers from Canon (two rental units at $200 month
for 12 months) 2400
Copy paper (varied stock) 900
Macintosh computer/monitor 2300
2 IBM-compatible personal computers 5000
1 laser printer/cartridges 1500
Opening Day Giveaways (key chains, pens) 1750
Miscellaneous expenses 5000
Legal expenses 1500
Total = $48,549
Betty has saved $30,000 in the bank targeted to start a business. She also has a 40lK profit sharing plan from her job, but she doesn’t want to touch it to start her own business. Betty needs to find outside financing to come up with the additional $20,000. Let’s review her options.
Types Of Financing:
In addition to do-it-yourself financing (like Bob’s Green Thumb), there are two basic types of financing available to start a business: debt financing and equity financing.
Debt Financing:
You borrow from friends, family, banks, etc. and pay back the debt with interest.
Bank loans are often hard to get for first-time entrepreneurs. If you need to borrow money from family or friends, put the agreement in writing. Include name, address, amount of the loan, terms of the loan, interest, pay back schedule.
Have all parties sign and date two copies of the agreement. When the loan is paid off, have the agreement stamped or write in FINAL PAYMENT across the document and have all parties sign it.
If you do go to a bank and manage to secure a bank loan for your business, the bank will most likely ask you to purchase “business liability insurance”. This will ensure that the bank will get their money back should you fail. (To get a bank loan, you’ll need a business plan. Further down the line we’ll be working on your business plan. You’ll write one by the time you finish this workbook.)
Equity Financing:
With equity financing, you receive the money from a partner, a limited partner or a venture capital firm, but they acquire an interest (they get equity) in your small business. A partner shares the burden of work, a limited partner gives money and does no work, and a venture capitalist gives the money, does no work, but often requires as much as a 51% interest in your small business. A local accountant or lawyer can recommend venture capital firms in your region of the country.
The Small Business Administration:
Lots of entrepreneurs turn to the SBA for a loan, but the SBA, in most cases, does not make the loan. Rather, it works with a bank and guarantees up to 85% of the loan the bank makes to you.
This is called the 7(a) Loan Guarantee Plan.
Disabled people and Vietnam vets can get money directly from the SBA via the 7(a)11 program.
Other SBA programs include:
Micro-Lender: Loans are made from several hundred dollars up to $25,000.
Community Development Corporation: Commonly referred to as CDC’s, these are loans for non-profit community-based companies.
Small Business Investment Companies: Referred to as SBIC’s this investment program involves organizations who invest in businesses and in exchange they acquire an interest in the company similar to a venture capital firm.
The bulk of the loans made by the SBA (70%) go to existing businesses who want to expand and grow and not to new businesses.
For more information on Small Business Administration loans, call 202-205-7717 (the Small Business Answer Desk) or visit www.sba.gov/.
To find the Small Business Administration office nearest you call local telephone information in the city nearest you or ask the Answer Desk at the SBA. Or you can write to: Small Business Administration, Washington, DC 20416. You can also request a National Directory of SBIC’s and ask for additional information on their other loan programs.
For free guides on consumer affairs, write or call: Office of Consumer Affairs, U.S. Department of Commerce, Washington, DC 20230 or visit www.commerce.org.
We will get into a more specific and more involved budget and cash flow projection in the next section, but let’s outline some very basic start-up costs for your business.
If you are starting a service business and plan to work from home, then you can follow Bob’s outline for the Green Thumb Landscaping business start-up budgeting notes.
Perhaps you are starting your service buisness from home, but you’ll need to purchase goods from wholesalers. Then you’ll need to budget for a Seller’s Permit (also known as the Resale number) Seller’s Deposit and you’ll need to budget inventory.
Let’s say you are starting a gift basket business. You can follow Bob’s outline, but you’ll need to budget for the Seller’s Permit, Seller’s Deposit, Inventory and perhaps a brochure to help you sell your gift baskets to potential clients.
Each business will have slightly different items in the budget--some more, some less.
You also might need to purchase a computer, a fax machine, an answering machine and pick up some desk supplies to create your home office. These items should also be included in your start-up costs.
Analyze what you have currently available to you in terms of equipment and home office supplies and then budget for the items that you’ll need to purchase. Make lists of what you need, what you have, and start costing-out these items to come up with a workable budget.
It is true, that million-$ empires have been launched on a shoestring. Ben & Jerry, the benevolent ice cream kings, are fond of saying that they started their business for $5. That’s what it cost them to take a correspondence course on ice cream making from a school in Pennsylvania. When they decided to transform an old garage into an ice cream parlour, all they had for bank loan collateral was a couch and an old van.
Banks may choose to underestimate optimism, dedicated and stick-to-it-tive-ness, but entrepreneurs don’t. If you truly believe in your idea, and if you believe you will enjoy working at your business 18 hours a day in order to not work 8 hours a day for “the man,” then you will very likely succeed.
Take an inventory of your small business and what you’ll need to purchase to get it up and operational for six months or 12 months. It’s important to budget for at least 12 months if you are opening up a retail store as you will very likely have to sign a lease for at least 12 months.
And now, let’s prepare a list of start-up expenses for your small business. Prepare by making a list of what you need in terms of equipment, etc. You might find that you already have a lot of equipment, supplies and start-up tools on hand.
What I Need:
(Let’s say you are turning your crafts hobby into a professional business. You plan to supply your crafts to local flea market entrepreneurs. They’ll sell your goods at shows all over the United States)
Type of Expense:
--work table
--light
--boxes and shipping supplies to send crafts around U.S.
--computer with new inventory software program
--business cards, stationery, shipping labels
--inventory and supplies
--brochure to help generate business
--ads in flea market newsletters to alert dealers
Review of Existing Resources:
--current work table is fine
--work light is adequate
--current computer is fine, but need to update software
Start-Up Expenses:
--”doing business as” registration
-- stationery, business cards, shipping labels
--brochure
--additional inventory and supplies
--ads
--seller’s permit (resale number) and seller’s deposit
--packing materials
By cross-referencing your wish list with supplies and equipment you already have, you can cut down considerably on your start-up costs.
If you are turning a hobby or a great interest of yours into a small business, then you’ll find that you probably have a lot of the tools, supplies and equipment that you’ll need to start the business.
This was the case for Bob’s Green Thumb Landscaping and that’s why his start-up costs were relatively low.
If, after working on your start-up expense sheet, you find that you cannot possibly afford to start the business, it’s time to regroup and reflect and go back to the drawing board. Contrary to what many of us are told, entrepreneurs are not risk-takers. They often pass on many, many different business ideas, until they come up with the right one. The one they know will work and the one that can be launched with an appropriate amount of start-up capital they either have on hand
or that they can easily obtain.
Should you find that you can’t afford to start the business you are currently contemplating, don’t despair. Start thinking in other directions. You might not be able to finance your dream venture
right off the bat. You might start another business that will make you enough money to one day
start your dream enterprise.
START-UP EXPENSES:
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Try to factor in every conceivable cost you can imagine for your business. You might want to talk to your local Small Business Administration office and ask them for guidelines on budgeting for your specific small business. Perhaps, they have dealt with your business category before and have inside information on start-up specifics for your particular business.
One additional aspect of running your small business we should cover before we establish a true cash flow projection and help you set up your first balance sheet and profit-and-loss statement is insurance.
INSURANCE ASSURANCE
You’ll want to investigate insurance options for your small business. If you are planning to work from home, phone your home insurance company representative and ask about their experience in working with homeowners who have opened a small business and run it from their homes.
What types of insurance are necessary? In many cases, it is only necessary to beef up liability insurance. If you are going to have anyone coming to your home, you’ll want to have greater coverage in case someone slips coming in the front door or on the stoop.
Certainly, if you are planning to open a retail store or other type of shop you’ll need
liability insurance.
Fire insurance will cover loss from fire and sometimes lightning to your home, shop, equipment and inventory.
Property Damage liability gives you insurance coverage should any property owned by others be damaged. For example, a flood occurs in your office. It leaks through to the office below and destroys some art work and the hardwood floor. Your insurance will cover this property damage.
Extended Coverage protects against storms, smoke damage, riots, and explosions.
Check with your insurance company to see what the specific coverage includes.
Vandalism Insurance will give you protection from break-ins and robbery. You might be able to save money on this type of insurance if you install special security alarms and other anti-theft devices and/or services.
Business Interruption insurance covers you if you cannot work due to renovation, repair of the premises, an unforeseen circumstance or if you are hospitalized. Some policies cover all business expenses and include taxes, too. Check with your insurance company to determine the specifics.
Credit insurance will make sure that your bills are paid even when your clients don’t pay you for services rendered or for the shipment they just received from you. Credit insurance is expensive but could prove worth it if you are dealing with large amounts of inventory ordered from another country or other “unknown” entities.
Automobilie insurance can be beefed up to include the additional amount of time you will be using your car or van in your small business. Premiums for business use are usually higher, but check with your accountant. You might be able to deduct these expenses. If you are going to hire an employee who will occasionally drive your van or car, check out Non-Owned Auto Liability Insurance. This will cover you if they hit someone while driving your vehicle.
Environmental insurance is, unfortunately, on the rise. This insurance coverage is required by the federal government for some businesses (such as gas stations, dry cleaners, quick lube car facilities). It protects you should your business prove to operate (by accident) in some unsound environmental fashion.
If you are thinking of starting a pet sitting business or maid service or any type of business that puts you in your client’s home, then consider getting “bonded.” This means that should anything happens to the home or anything you are caring for in the home, you will be covered.
Call your insurance company and ask about insurance options for small business owners. Ask them how you can get bonded.
If your insurance company can’t help you, shop around. You might even ask other home-based entrepreneurs who insures them. If you are opening an outside facility, ask entrepreneurs with shops who insures them and whether or not they are satisfied with the coverage.
NOTES:
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We are about to begin the “fiscal fitness” portion of this workbook. Once you have completed a more in-depth analysis of money and how you are going to handle it, you will feel a lot more secure about starting a small business.
Many of us resist financial statements and bookkeeping because it seems like a lot of work in an area that we’re not really that interested in and it is an area that intimidates many of us.
A lot of individuals dream of having their own business and see themselves as hard-working entrepreneurs but hold back when they think of keeping basic financial statements on their business. It is, afterall, not thought of as a particularly glamorous aspect of running a small business. Most entrepreneurs want to engage in the fun and sizzle of their enterprise, but fail to focus on the steak, or on the meat and potatoes. The bookkeeping system you establish now will be one of the building blocks of your business.
The bookkeeping system will help you in many ways, too. It will make it easier to predict growth or slow seasons, it will help you pay your taxes by keeping fairly accurate estimates, and it will provide you with a document to show to potential investors in case you need money to expand your venture.
Most entrepreneurs want to create their magic, sell their product, watch their service business boom. That is an enjoyable pursuit indeed, but so it monitoring and watching profits grow.
If we can just learn to think of a cash flow projection as a way of building a healthy profit-and-loss statement and balance sheet, then we are half-way to conquering any resistance we have to doing our own bookkeeping.
It is fun to see how your profits accumulate and it is fun to record them. Whether you do this in a notebook or on a computer is up to you. There are many systems in use. We will present the basic and easy bookkeeping-on-paper system. You might want to talk to your software dealer about different types of software to help you run your accounting systems. You might prefer to keep very basic “books” on your business and then turn your materials over to an accountant at tax time. That’s fine, too.
However, it is very important to get into the financial fitness of your business from day one. Even if you plan to hire an accountant to take care of all your bookkeeping needs, your should still make it a top priority to learn about the financials of your small business.
Understanding the accounting aspects of your venture will give you more confidence to run a business, too.
RE-CAP OF BASIC EXPENSES/COST ESTIMATES/ AND ACTUAL COSTS
Type of expense Cost Estimate Actual Cost
Doing Business As fee $15-50 ___________
Doing Business As newspaper fee $15-50 ___________
Business cards, stationery, labels $50-250 ___________
Local business license fee (if needed) $15-200 ___________
Seller’s permit fee $25-350 ___________
Seller’s permit deposit $300-1000 ____________
Inventory ___________ ____________
Equipment ___________ ____________
Insurance premiums--
liability $100-1000 ____________
fire $100-500 ____________
vehicle $450-950 ____________
Telephone expenses (extra phone line) $50-100 ____________
Telephone expenses (per month) $50-$300 ____________
Utility expenses (per month) $50-300 ____________
First & Last Month’s Rent ___________ ____________
Security rental deposit ___________ ____________
Signage ___________ ____________
Newspaper advertisement ____________ ____________
Fliers ____________ ____________
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You can adjust the above cost estimates and actual costs as you learn more about “costing out” various segments and categories of your individual small business.
BOOKKEEPING BASICS
All first-time entrepreneurs have dozens of questions on how to set up a bookkeeping system. What types are there? How do I choose the best one for my business? What types of taxes do I have to worry about? Do I need a computer? How do I record income?
Let’s go over the most often asked questions--and answers--on bookkeeping and accounting.
Q: How many types of bookkeeping systems are there?
A: There are two types: the single-entry system and the double-entry system. The single is less complicated, more basic. It requires only one entry be made for any transaction. There is a lack of double check of your arithmetic with the single-entry system, however, and the single-entry system does not provide a complete record of inventory-on-hand, loans, equipment, etc.
The double-entry system is more complete and provides cross checks in that every transaction requires two separate entries: a “debit” and a “credit.”
Most of the systems in this book are single-entry for simplicity’s sake. The IRS suggests that first-time entrepreneurs choose the single-entry system.
Q: How many types of accounting methods are there?
A: There are basically two basic accounting methods: “cash” or “accrual.”
In accounting lingo, “cash” also includes checks and money orders. In the “cash” system, you’ll record income when the cash is received and expenses are recorded when they are paid. So, when you offer your product or service on a credit basis, no cash is received, so no cash is recorded. (You’ll record it when you do receive the cash payment.)
“Accrual” accounting records all of the income and expense transactions whether they are paid for in cash or by credit.
Once you select an accounting method and start keeping your books with this system, you can not change the system to the other method without receiving written permission from the Internal Revenue Service. The IRS requires companies that stocks and sells parts to use the accrual method for its inventory system. If your business has no inventory--as in the case of most service businesses--then you can use the cash or the accrual method.
We’ve all seen ads to promote “inventory” sales. Businesses might launch such a sale to get rid of their products by the year’s end so that they don’t have to carry over sales from one tax year to another. They are probably using the accrual method and don’t want to sell goods in December on a credit basis and not receive cash payment until January. If they do, they must report December’s income as income received in December. When payments come in during January, the income is reported on next year’s taxes.
If you are not going to offer credit to your customers, then the cash system is fine. Your bookkeeping will be fairly straightforward. If you offer credit, then you must choose the accrual system. It is also fairly straightforward until the year’s end. Then, a consultation with an
accountant--perhaps the one who will handle your taxes--could be very beneficial. He or she can make whatever adjustments you’ll require with the accrual system to keep each tax year accurate.
If you choose the “accrual” method of accounting, then you will need to establish an “accounts payable” system. You’ll need to give unpaid bills and unpaid expenses extra care. These items are deductible the year they were incurred. Even though they will be paid in the next year, they cannot be deducted again. Mark all unpaid bills and unpaid expenses as “ACCOUNTS PAYABLE;” then when you post them to your summary, you’ll know not to deduct them a second time.
Q: What is a balance sheet?
A: By looking at this sheet, you can determine what you own and what you owe. This is a standard financial document that states the value of the assets and the liabilities of a business. It is usually prepared on the last day of the month, quarter or year. The balance sheet is not the same thing as the “Profit-and-Loss statement” that will be covered in the next several pages.
On a balance sheet, both “sides” (one listing assets, one listing liabilities) must always be equal.
Q: What is an “asset”?
A: An asset is anything that the business owns. It includes cash, inventory, supplies, business materials, land, a building, trucks, vans and cars, etc.
A “liability” is anything that the business owes to others. These are loans, debts, money owed for supplies, inventory, etc.
Q: What is “equity” of a business?
A: The equity of a business is the value of the ownership of a business. It is the value of the business after all debts are paid.
All of the debts of a business and its equity are referred to as the business’ liabilities.
Liabilities of a business are both “equity” and “debts.” Therefore:
Assets = Debts + Equity
And:
Equity = Assets - Debts
An accountant will tell you that:
Assets = Liabilities
This equation means the “books balance.”
Remember, it would be a good idea to look into an accounting course at a local school or community college. An overview of the process is necessary to understand the mechanics of running a small business. Often, partnerships are formed because one individual has the creative drive and desire to work hard and make a business grow, and the other partner brings ace accounting skills to the venture.
Even if you hire an accountant to handle your “books” and taxes, it is still a sound business practive to understand the fundamentals of what’s happening with your business bank account.
Q: How do I record income?
A: There are two steps in this process. Each time you make a sale, “record” it with an invoice or a cash register receipt. Then, when you go to fill in your “income ledger”, you’ll record the sale there, too.
If you don’t make too many sales in a day or a week, you can write an invoice for each sale. If, however, you are working a flea market or crafts show and are making dozens of sales an hour, you might want to invest in a quick “cash receipt” book (available at the stationery stores) or invest in a cash register.
Q: What about recording income in a ledger?
A: Your income ledger should be filled in every month and then summarized at the end of the year. Your income ledger is a series of columns that show the date you posted the sale, the sales period (how many sale days are included in the posting), the taxable sales, the sales tax collected, and finally, the total sales amount. ( A sample income ledger is included.)
Q: What if a customer returns an item to me and I have to give them a refund? How do I adjust the income ledger?
A: You’ll need to write a sales slip for each return and write Return or Refund on it. Put the return slip with your pile of sales receipt. Add up your current receipts to post to your income ledger, and then subtract the amounts on the return slips from your income total.
It’s best to keep a monthly total, and then at the end of the year, you’ll be in good shape to record your 12 monthly totals and prepare a year end summary of your small business.
Q: For how long should I keep all of those sales receipts?
A: Keep your sales receipts for a minimum of 3 years. You’ll need them if you ever get audited. Keep them together in an envelope(s) and file them away.
Q: What if I receive a loan...should I record it as income?
A: No, write in any loans you receive on your monthy income ledger, possibly below your monthly totals. Don’t include these amounts as part of your monthly sales totals.
Q: What should I do if a customer bounces a check?
A: Your bank will give you an explanation of why the check bounced. “Insufficient funds” means there was not enough money in the customer’s account to cover the check. Get in touch with your customer and tell him/her you’ll redeposit the check in a few days. If it bounces again, the bank might not accept it a third time. You can post a sign that you’ll charge $20 for each bounced check.
If the bank tells you the “account is closed” it means the customer skipped town or switched banks.
“Stop payment” means the customer stopped the check payment.
To collect on a beat check, you can “put it in for collection.” You return the check to your customer’s bank and they hold it for a month. If the customer puts money in his/her account, any checks “held for collection” will be paid first.
If all of these methods fail and you are just beat by a bum customer, put the bounced check in a “bad debt” folder and hold it for year end assessment. You can write off “bad debt” on your taxes as a business loss.
Q: I want to offer credit to my customers, but not the type where I extend it on my own. How do I set up a system whereby I can offer sales on credit cards such as VISA and MasterCard?
A: Not particularly easy for first-time entrepreneurs--especially those working from home. You can set up a account at your own bank or research other banks that handle a lot of credit card sales for small business owners. Many banks have been defrauded by shady companies so they are reluctant to offer “merchant status” to just any small business owner. If you are rejected, keep applying.
When a sale is made with a credit card, you deposit the credit slip/tag in your bank account as if you were depositing cash. The bank will process the tag/slip and credit your account. Once a month, the bank will issue an activity statement and at that time will take their percentage. The bank charges a fee for offering you merchant status. It is usually a percentage of all of your credit transactions for the month. Shop around as these percentages vary from bank to bank.
You can also buy an electronic terminal from your bank to process credit card transactions.
Q: And how do I handle expenses for my business?
A: You’ll set up a separate ledger for “expenditures.” Here you’ll record all payments and expenses of any type--including the salary you pay yourself. This will include all inventory, rent, supplies, overhead, etc.
The categories can be endless, but you’ll have to narrow them down. A sample “expenditure” ledger is included in this section.
Some small business owners prefer to use their checkbook as their expenditure ledger, but this won’t be very accurate as it won’t record payments and expenses made in cash. Your checkbook will provide you with a record of your account balance.
Some of you might prefer to do your bookkeeping on your computer. There are software programs available to help you set up both income and expenditure ledgers. Visit your local software shop for a demo on what would work best for you.
Q: I plan to use my car/van/truck to run my small business. How do I record these expenses?
A: The tax man permits you to either keep track of actual expenses, or you can take a “standard mileage allowance.”
If you take the standard mileage allowance, you receive a certain amount toward each mile you drove your car on behalf of your business. It has varied in the last few years, so check with current tax laws. You can also keep a record of all of your actual car expenses. Keep a book or a log of these expenses. Keep a record of how many miles you drive on behalf of your small business.
If you plan to keep records on actual costs, you’ll have to get into depreciation of your vehicle. If you plan on using the standard mileage allowance, you will not need to depreciate your vehicle.
Q: What is petty cash and do I need to keep a record of it?
A: Petty means “small” and these are expenses that are too small to be paid for by check. Cab fare, a magazine, a pad and a pen. Some small business owners do not keep a petty cash fund. They prefer to keep these expenses in their “expenditure” ledger. Others prefer to take $50 a month out of the expenditure ledger and mark it “petty cash”. Keep a record of what you spend so you know where your money went.
Sample Petty Cash Ledger
Date Description Amount Balance
----------------------------------------Beginning Balance------------ $50.00 $50.00
6/6 Can of decaf coffee for office 5.00 45.00
6/19 Stamps 7.00 32.00
6/22 Pad & Pen to keep in car 3.00 29.00
That’s an example of a petty cash ledger. You can buy a book full of charts like the one above at your local stationery store.
THE PROFIT-AND-LOSS STATEMENT
Business books always refer to the “profit-and-loss statement” (P&L) as a way to get an instant reading on whether or not a business is making a profit. Basically, the statement is a summary of the income and expenses of the business during a given time period.
If the P&L statement shows more income than expenses, there will be a profit. If the business shows more expenses than income, then the business has suffered a loss.
If you think of the items we’ve reviewed so far, none of them can give you a reading on how well you are doing. They’ll tell you how much you’ve spent, how much you’ve taken in, how far you’ve driven, how much petty cash you have, but they won’t give you a solid indication of whether or making a profit or operating at a loss (i.e., “in the red”).
You will prepare your profit-and-loss statement from information in your monthly ledgers. The P&L statement is a reading showing your income and your losses.
The income on your P&L is the monthly income total computed from your ledger.
The expenses are derived from two groups: inventory and all other expenses.
Your income minus your inventory expenses gives you “gross profit.”
Gross profit minus all your other expenses will give you either a net profit or loss.
CASH FLOW
We all need to develop a “cash flow projection” to help avoid a sudden crash in our cash. We need to figure out how much cash we’ll need on hand during the month or quarter and be ready to handle any upsetting shortages.
If you own a home and pay your own taxes you know what this is like. You know that once or twice a year you need to come up with a considerable stash of cash and have it ready to pay those property and school taxes.
When you run your business, you’ll need to calculate your monthly, quarterly and annual expenses in similar fashion.
Once you get in the groove and prepare this statement on a monthly basis, you’ll be better equipped to forecast your cash-on-hand for any given time of the year.
Do you have peak seasons? If you run a gift basket business, you’ll probably need to have more cash on hand just prior to top holidays so you can purchase extra baskets and supplies to go in them.
Do you run a driving range? You’ll need extra money on hand to hire help at the start of each season. Do you run an errand service? You might find you need about the same amount of money on hand every month, except during the busy summer season when many of your clients are on vacation.
If you can calculate that you’re going to have a shortage of cash you can better prepare for it by arranging a loan from a friend or relative, or planning more carefully to avoid spending more than you have --or will have-- on hand.
Here’s a sample of a cash flow projection. There are many ways to set up this type of statement and you might find a better way to do it on your own:
Sample Cash Flow Projection August
Cash In Cash Out Balance
Cash available August 1 $1000
August rent $500
August utilities 100 400
First week receipts $600
First week inventory purchases $400
First week supplies purchases 30 $ 570
Second week receipts $500
Second week supplies purchases $100 $ 970
Third week receipts $300
Third week inventory purchases 400
Third week supplies purchases 30 $840
Fourth week receipts $600
Fourth week supplies purchases $ 100
Fourth week personal draw $ 400 $ 940
Available cash August 31 $ 940
The Small Business Development Centers provide one-to-one counseling for small businesses to help develop business plans, map out strategies, develop a bookkeeping system or help in other phases of the small business start-up. These centers are located in community colleges. If you would like more information on these development centers, please contact the local office of the Small Business Administration, usually located in a city near you. See Appendix section for contact information.
The local Small Business Administration office can also refer you to certified public accountants if you prefer to have your bookkeeping systems set-up and run by an accountant. Professional accountants keep up on the latest tax laws and concerns affecting your particular business. While this bookkeeping section is meant to give the reader an overview of accounting principles and concerns, it can, in no way, act as a substitute for the know-how and experience of a professional accountant. We strongly urge all readers to contact a pro for advice on specifics. Tax laws concerning small businesses change frequently on a federal and state level. Accountants know the lowdown on current tax law status in your state.
Make up a company and compute your own cash flow statement for a one month time period.
Sample Cash Flow Projection September
Cash In Cash Out Balance
Cash available Sept. 1 $3000
September rent payment
September utilities payment
First week receipts
First week inventory purchases
Second week receipts
Second week supplies purchases
Third week receipts
Third week personal draw
Third week inventory purchases
Fourth week receipts
Fourth week supplies purchases
Fourth week inventory purchases
Available cash September 30
INVENTORY RECORDS
No matter how small your business is, you need to keep records of your inventory. How much do you have? From where did you order it? How much did you pay for the item? Good records will help you sort out what you’ve got and will also help you turn a profit.
You don’t necessarily need to run out and purchase lots of elaborate software to set up a good inventory system. You can do it the old-fashioned way, too, with a pencil and a ledger book. There is nothing wrong with a noncomputerized system that’s worked for hundreds of years!
Sample Inventory Record Green Thumb Landscaping
Item: 3 foot tall tomato plant stakes
Ordered from: Hans’ Village Landscape Center
Date Ordered # Ordered Date Received # Received #Sold Balance
2-15 200
2-21 200
100 100
ACCOUNTING PERIOD
You’ll have to choose between a fiscal year and a calendar year. Most entrepreneurs choose to run their small businesses on the calendar year accounting period. It simplifies taxes and record-keeping.
SUMMARY ON SETTING UP A BASIC BOOKKEEPING SYSTEM:
1. Open a business checking account.
2. Determine if you’re going to use the “cash” or “accrual” accounting system.
3. Establish a way to record income (sales receipts, invoices, cash register).
4. Get copies of forms you’ll need to set up books/ledgers (or software).
--Income Ledger (monthly)
--Credit Ledger (if you offer credit)
--Expenditure Ledger (monthly)
--Vehicle & Travel Log
--Accounts Payable (accrual system only)
--Petty Cash
--Profit-and-Loss Statement
--Projected Cash Flow
--Inventory Record
5. Will you file for merchant status to accept credit cards? Contact local banks.
6. Look into accounting courses at community colleges, Small Business Administration offices and civic centers. The SBA has lots of material on money, financing and accounting.
7. Browse through bookstores for a bookkeeping guide for more in-depth information.
8. Make an appointment with an accountant to determine what other special requirements your specific business might have. Rules vary from state to state (so check them out).
9. Talk to other small business owners and listen to their anecdotes about setting up an accounting system.
10. Photocopy the ledgers in this book and practice with made-up companies and accounting statistics. Soon the math will be second nature.
You need to establish a bookkeeping system for three reasons: 1. IRS and tax purposes 2. It is a way of gathering information about your business and how you are doing 3. A system can help you present your business to bankers and other investors if you are looking for a loan.
YOUR BUSINESS BANK ACCOUNT
1. Open a separate business checking account.
2. Keep all your
3. Pay all of your bills by check. Your expenses will be easier to record and better documented when you pay with a check.
4. Deposit all of your income, checks and cash into the business bank account. Then, you’ll have a complete record of all of your earnings.
5. When you take money out of your business account for non-business/personal use, it is known as “withdrawal” or “personal draw.”
6. Avoid writing checks out to “cash”--as it is important to know and write down how the money was used.
7. Balance your business bank account every month.
8. Keep your bank statements and canceled checks for at least 3 years. This is the normal statue of limitations set by the IRS for income tax audits although many business advisors recommend that their clients keep business records for 7 years.
HANDLING PAYROLL FOR YOUR EMPLOYEES:
Will you hire employees? Handling payroll can be a frustrating quagmire of state and federal taxes, rules and regulations. The topic is beyond the scope of this start-up guide, primarily intended for businesses that will have no employees at start-up.
You will need to:
1. File IRS Form SS-4--The Application For A Federal Identification Number (FEIN).
2. Each employee must fill out an IRS For W-4: Employee’s Withholding Allowance Certificate.
3. You must determine the wages you will pay each employee and set up a payroll record and prepare quarterly payroll time sheets.
4. You will have to consult the tables in the IRS Circular E: Employer’s Tax Guide. You’ll then be able to figure out what the deductions are for each of your employees.
5. Open a separate business bank account to handle business payroll tax deductions and payments. The separate account will enable you to deposit all taxes due so you’ll have them ready when tax time comes around.
6. Summarize all payments and taxes.
7. You’ll need to calculate your share of social security and Medicare taxes, too. You’ll have to deposit the money into your business account, so the money will be there when payments are due. You can pay monthly via a Tax Deposit Coupon (IRS Form 8109) or by making the payment on a quarterly basis when you file IRS Form 941: Employer’s Quarterly Federal Tax Return.
8. Each quarter or year (depending on your system) you will need to make a tax payment to cover Federal Unemployment Tax, using IRS Form 940 or IRS Form 940-EZ: Employer’s Annual Federal Unemployment (FUTA)Tax Return. For payments being made on a quarterly basis, choose IRS Form 941: Employer’s Quarterly Federal Tax Return.
9. At the end of year business year, you’ll need to fill our IRS W-2 Forms: Wage and Tax Statement for each employee and File IRS Form: W-3: Transmittal of Wage and Tax Statements.
10. Check out state and city tax rules also. They will have their own regulations for your to follow.
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FORMS AND PUBLICATIONS FROM THE INTERNAL REVENUE SERVICE;
If you have questions on your business taxes, call the IRS headquarters in Washington, DC visit www.irs.gov/. 5000 The IRS lists all of their publicationsThey will also send you the appropriate business tax forms you’ll need for your particular business.
Here’s a summary of the different forms currently in use:
FOR SOLE PROPRIETORS:
o Schedule C: Profit or Loss From Business: File with your IRS 1040, unless you are using Schedule
C-EZ.
o Schedule C-EZ: Net Profit From Business: If your gross sales are under $25,000. and your expenses fall below $2000, you may use this form.
o Schedule SE: Self-Employment Tax: This form is necessary for any sole proprietor who shows
$400 or more income from their business on Schedule C or C-EZ.
o IRS Form 1040-ES: Estimated Tax for Individuals: This form must be used by all sole proprietors who expect to make a profit requiring estimated taxes.
o IRS Form SS-4: Application for Employer Identification Number: Must be filed by all sole proprietors who will hire one or more employees.
o IRS Form W-2: Wage and Tax Statement: Must be filed by all sole proprietors who have one or more employees.
o IRS Form W-3: Transmittal of Wage and Tax Statement: Must be filed by all sole proprietors with one or more employees.
o IRS Form W-4: Employee’s Withholding Allowance Certificate: Must be given to employees of sole proprietorships. This form is not filed with the IRS.
o IRS Form 940 or 940-EZ: Employer’s Annual Federal Unemployment Tax Return: Must be filed by all sole proprietors with employees.
o IRS Form 941: Employer’s Quarterly Federal Tax Return: Filed by all sole proprietors who have one or more employees.
o IRS Form 8109: Federal Tax Deposit Coupon: Filed by all sole proprietors with employees and tax liability of more than $500.
o IRS Form 8829: Expenses for Business Use of Your Home: Filed with the annual 1040 by all home-based sole proprietors.
o Local and state tax forms must also be filed.
FOR PARTNERSHIPS:
o IRS Form 1040: Filed by all partners.
o IRS Form 1065: U.S. Partnership Return of Income. Filled out by all partnerships.
o Schedule K-1: Partner’s Share of Income, Credit, Deductions. Filed by all partners.
o Schedule SE: Self-Employment Tax: Filed by any partner who shows $400 or more in income from their business on Schedule K-1.
o IRS Form 1040-ES: Estimated Tax for Individuals: Filed by all partners who expect to make a profit requiring estimated taxes.
o IRS Form SS-4: Application for Employer Identification Number: Filed by all partnership businesses that hire one or more employees.
o IRS Form W-2: Wage and Tax Statement: Filed by all partnerships who have one or more employees.
o IRS Form W-3: Transmittal of Wage and Tax Statement: Filed by all partnerships with one or more employees.
o IRS Form W-4: Employee’s Withholding Allowance Certificate: Must be given to all employees. This certificate is not filed with the IRS.
o IRS Form 940 or 940-EZ: Employer’s Annual Federal Unemployment (FUTA) Tax Return. Filed by all partnerships with employees.
o IRS Form 941: Employer’s Quarterly Federal Tax Return: Filed by all partnerships who have one or more employees.
o IRS Form 8109: Federal Tax Deposit Coupon: Filed by all partnerships with employees and a monthly tax liability of more than $500.
o Local and state tax forms.
TAX FORMS FOR CORPORATIONS
o IRS Form 1040, 1040-A, 1040-EZ: One of these forms must be filed by each shareholder.
o IRS Form 1120 or 1120-A: U.S. Corporation Income Tax Return: One of these forms must be filed by all C Corporations. (For S Corporations, see next page).
o IRS Form 1120-W: Estimated Tax for Corporations --Worksheet: To be completed by all corporations expecting a profit requiring estimated tax payments.
o IRS Form SS-4: Application for Employer Identification Number: Filed by all C Corporations.
o IRS Form W-2: Wage and Tax Statement: Filed by all C Corporations.
o IRS Form W-3: Transmittal of Wage and Tax Statement: Must be filed by all C Corporations.
o IRS Form W-4: Employee’s Withholding Allowance Certificate: Provided to all employees. It is not filed with the IRS.
o IRS Form 940 or 940-EZ: Employer’s Annual Federal Unemployment (FUTA) Tax Return: Filed by all C Corporations.
o IRS Form 941: Employer’s Quarterly Federal Tax Return: Filed by all C Corporations.
o IRS Form 8109: Federal Tax Deposit Coupon: Filed by all C Corporations with a monthly tax liability of more than $500.
o Local and state tax forms.
TAX FORMS FOR S CORPORATIONS
o IRS Form 1040: Filed by each shareholder of the S Corporation.
o IRS Form 2553: Election by a Small Business Corporation: Filed by all S Corporations.
( the Tax Forms list is continued on the next page)
You can learn a lot about your taxes by spending some time with state tax officials and by making an appointment with a local Internal Revenue Service office.
You needn’t be intimidated. They have plenty of brochures and publications that can help you better understand how you will handle tax season. Check the appendix section for more information on how to contact tax officials in your state.
We also recommend that each small business owner sit down with an accountant who is savvy to the rules and regulations governing taxes for the sole proprietor, partnership and corporation.
An hour of consulting time could be worth quite a lot more when it comes to interpreting and filing taxes for your business. It’s a good idea to review your individual situation with an accountant. We can’t stress how they can save you not only money but time.
Tax accounting specialists stay current on all the local tax laws and federal tax regulations. No matter how you intend to stay on top of tax rules and regulations, they will know more. They have access to the very latest information.
Think of yourself as a first-time investor in the stock market. It’s often wiser and less risky to invest in a mutual fund that is run by experts rather than try to do all of the research on particular companies and their stock offerings on your own.
o IRS Form 1120-S: U.S. Income Tax Return for an S Corporation. Filed by all S Corporations.
o Schedule K-1: Shareholder’s Share of Income, Credit, Deductions: Filed by all S Corporations.
o IRS Form 1040ES: Estimated Tax for Individuals: Filed by each shareholder of S Corporations
who file estimated taxes.
o IRS Form SS-4: Application for Employer Identification Number: Filed by S Corporations with employees.
o IRS Form W-2: Wage and Tax Statement: Filed by S Corporations with one or more employees.
o IRS Form W-3: Transmittal of Wage and Tax Statement: Filed by S Corporations who have one or more employees.
o IRS Form W-4: Employee’s Withholding Allowance Certificate: Provided by employer to all employees of S Corporations. Not filed with the IRS.
o IRS Form 940 or 940-EZ: Employer’s Annual Federal Unemployment (FUTA) Tax Return: filed by all S Corporation employers.
o IRS Form 941: Employer’s Quarterly Federal Tax Return: Filed by all S Corporations with one or more employees.
o IRS Form 8109: Federal Tax Deposit Coupon: Filed by all S Corporations with a monthly tax bill of $500 or more.
o Local and state tax forms.
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AT-A-GLANCE ACCOUNTING DICTIONARY:
Accounting: Used by businesses to keep records and books in order to compute income, taxable income, financial condition. Accounting is the process of measuring and communicating financial information.
Accounting method: The method of recording income and expenses for a business. The accounting method can be either the accrual method or the cash method.
Accounting period: The time period covering the financial statements of a business; can be based on the calendar year or the fiscal year.
Accounting system: The system of record-keeping used to keep the financial records of a business; can be either single-entry or double-entry.
Accounts payable: A list of all debts owed by a person or a business.
Accounts receivable: A list of money owed to a business by another for any items or services purchased on credit.
Accrual accounting method: Accounting method in which income and expenses are included in the taxable income or expense when they are earned or incurred, even though they may not yet have been received or actually paid in cash. Taxpayers having inventory must use the accrual method.
Accrued expenses: Expenses that have been incurred but have not yet been paid.
Accrued income: Income that has been earned but has not yet been received.
Assets: Everything a business owes, including amounts of money which are owned to the business.
Audit: An examination of a taxpayer’s books and records by the Internal Revenue Service. The exam can be conducted either through the mail or at the taxpayer’s home or office or at a local IRS field office.
Balance sheet: A financial statement that gives an accounting outline of the company on any specific date. The balance sheet summarizes the assets and liabilities of a business.
The left side of the balance sheet lists the assets; the right side (credit) shoes the liabilities and the owners’ equity. The two sides must balance.
Barter: The trading of goods and services without the use of money. Income from barter transactions is taxable.
Bona fide: Latin for “good faith.”
Bookkeeping: The actual process of recording the figures in accounting records.
C Corporation: A business equity owned by shareholders that is not an S corporation.
Calendar tax year: A period of time, beginning on January 1 and ending December 31.
Capital: The possessions or the assets of a business. The owner’s equity in a business.
Cash flow: The amount of money available to a business after all payments have been made.
Cash method: An accounting method used in which income and deductions are recording when they are received or paid.
Corporation: Legal entity, chartered by a state and completely distinct from the persons owning it. It is regarded by the court’s an entity that may own land, incur debts, sue or be sued. The business entity is owned by shareholders. It can be a C or an S corporation.
Cost of goods sold: The amount that a business has paid for the inventory that it has sold during a specific period.
Credit: In accounting, credit is an entry that increases liabilities, owners’ equity, revenue, and gains, while decreasing assets and expenses.
Creditor: A person who has extended credit and to whom money is owed; a lender.
Current assets: The cash, accounts receivable, inventory, and other assets that are likely to be converted into cash within a year.
Current liabilities: The debts incurred by the reporting entity as part of normal operations and expected to be repaid during the following 12 months.
Current ratio: This amount is determined by dividing the current assets by the current liabilities.
Debit: In double-entry accounting, a decrease in liability or income accounts or an increase in asset or expense accounts.
Debt: The amount a business is obligated to pay to another. Debt is also known as liability.
The debt ratio is determined by dividing total liabilities by total assets.
Dividend: A payment made to shareholders by the corporation.
Double-entry accounting: An accounting system in which each transaction is recorded twice, once as a credit and then as a debit.
Equity: Debt which a business owes. Owner’s Equity is owned to the business owners and liabilities if owned to others.
Expense: Costs related to a business.
FICA: Federal Insurance Contributions Act. A small business owner withholds taxes from employees for Social Security and Medicare.
Fiscal year: A 12-month accounting period used by a business ending in any month but December.
FUTA: Federal Unemployment Tax Act. Federal business unemployment taxes.
Gross profit: Gross sales minus the cost of the goods sold.
Gross sales: The total amount received for goods and services.
Gross wages: The total amount of what an employee makes before any taxes are deducted or benefits taken out of the paycheck.
Income statement: A financial statement that indicates all income and expenses for a business.
Intangible personal property: Property such as trademarks, copyrights, etc.
Inventory: property for sale or for use. The products or goods you are storing that you intend to sell.
Invoice: A bill for goods or services presented to your clients/customers.
Joint Venture: An agreement by two or more to work on a project together. This differs from a partnership.
Kiddie Tax: The tax liability for children under age 14 on net unearned income over $1200.
The liability is subject to indexing at their parents’ highest marginal tax rate.
Ledger: The books you use for accounting.
Liabilities: The debts of a business. The money owned.
Lien: A charge against a property making it security for the payment of a debt, judgment, mortgage or taxes, etc. A specific lien is against property; a general lien is against all property owned by the debtor.
Liquid: Term used to describe funds or assets available in ready cash.
Long-term assets: Assets that will be held for more than a year.
Long-term liabilities: The debts of a business which will not be due for more than a year.
Natural business year: Same as a fiscal year.
Net income: The amount remaining after all expenses have been made and all deductions have been taken.
Net loss: If a business has expenses and costs greater than what they make they have a net loss.
Net profit: If a business sells more than they spend, they have a net profit.
Net worth: The value of a business after debts are deducted from the assets of the business. The net worth is also known as the owner’s equity.
Nonbusiness Income: Income from passive sources such as interest and dividends.
Occupational tax: A state or local tax applied to any of various trades or businesses such as hair- cutters, cab permits, liquor licenses.
Offshore: This term refers to any organization with headquarters outside the U.S. Businesses use these offshore headquarters to conduct practices that would be either heavily taxed and/or regulated if it were headquartered in the U.S.
Operating statement: Financial statement which shows the income and expenses for a business. This statement is also referred to as income statement or profit and loss statement.
Owner’s equity: This is the capital of a business or the value of what the owner has in the business.
Partnership: A business entity featuring two or more individuals who pool their knowledge, skill and money to establish a venture.
Petty cash: This fund is for small expenses that cannot be paid for by check or credit card. Petty cash is for those miscellaneous items like cab fare, a pack of peanuts or a magazine.
Petty cash is recorded on a petty cash register so you can keep track of what how you spend this money.
Posting: In double entry accounting, posting is the process of taking data from journals and placing it in ledgers.
Prepaid expenses: Expenses that are paid before they are to be used including items such as rent and insurance.
Profit-and-loss-statement: Financial statement which summarizes the revenues, costs, expenses of a company during a specific accounting period.
Reconciliation: The process of bringing a bank statement into agreement with the business check register. In other words, balancing your checkbook.
Revenue: Revenue is the income from the sales of goods or services and does include investment gains.
S Corporation: A corporation in which all of the expenses and profits are passed on to its shareholders to be accounted for at tax time individually in the manner of partnerships.
The number of shareholders is limited to 35.
Single entry accounting: Bookkeeping that tracks income and expense accounts.
Sole proprietorships: Unincorporated business entities having one person owning the entire kit and caboodle.
Wage: Wage is the hourly rate you pay an employee. The salary is the week rate or annual rate.
Scan your bookstore shelves for a dictionary on tax and/or accounting terms. It will help you converse more efficiently and effectively with your banker, accountant or investor. It is nice to have a pocket guide, but you could also conduct a Google.com search for these terms. Bookmark the site you like best.
ARE THEY EMPLOYEES OR INDEPENDENT CONTRACTORS?
The government has cracked down on this distinction because it found that many employers were abusing the system and getting around paying employment taxes, social security, Medicare tax, etc.
If you hire someone to help you out on a particular project, say, as a consultant or hire a worker to perform one specific task and then they’re out of your business life, you can pretty much assume they can be categorized as an “independent contractor” and that you won’t have to concern yourself with these taxes and employer obligations. But, increasingly, small biz owners are hiring individuals and thinking they are independent contractors when, in fact, the IRS would say they are “employees.”
Here are the 20 Common Law Factors devised by our government to determine whether or not your worker or helper is an independent or an employee.
If you answer “yes” to the following questions, then get ready to welcome a new employee to your staff and get set to pay appropriate payroll taxes and/or benefits:
1. Do you give instructions about when, where and how he/she is to work?
2. Do you train the individual in a particular method to do the job the way you want it done?
3. Are the services performed integrated into the business?
4. Do you specify who does the job--does it matter if this person performs the job or service, or
could it be done by anyone?
5. How do you hire, supervise and pay the person? How much control do you have over this person? If you have a lot of control over the worker, then he/she is an employee.
6. Do you have a continuing relationship with this worker? Then he/she could be viewed as an employee.
7. Do you set the working hours of this individual?
8. Do you expect the worker to work on your project on a full-time basis?
9. Does your independent contractor do the work on your premises? If so, this implies control.
10. Do you set the way the work must be performed, that is, do you determine the sequence? If so, that too implies control and control is the key distinction between employee & independent worker.
11. Do you require written or verbal work progress reports?
12. Is payment made by the hour, week or month?
13. Do you pay for the worker’s business expenses? This indicates control over the worker.
14. Do you furnish the tools, materials, etc. needed to get the job down?
15. It’s o.k. to provide facilities for the worker or equipment necessary to complete the work, but do you supply tools, instruments, clothing?
16. Independent contractors generally realize a profit or suffer a loss as a result of being hired by your firm. Employees are not in such a position.
17. Does the individual work exclusively for you? Independent contractors work for more than one firm at a time.
18. Employers exercise control with the threat of dismissal. Can you discharge this individual? Independent contractors cannot be “fired.”
19. Can this person end their relationship with you by quitting? Then he/she is an employee. Independent contractors have a contract or a specific job to fulfill before they can split.
20. Do you direct the person doing the job or task? Are they supervised in any way?
The IRS says that is an individual derives all his/her income from one employer then “the likelihood is that the individual is an employee and not an independent contractor.” Consult your local tax authorities and an accountant to set up the proper procedures if you’re not already following them.
GENERATING BUSINESS OR HOW TO GET CUSTOMERS TO BUY WHAT YOU HAVE TO SELL
You’ve targeted your dream business. You’ve found what you believe is the perfect name. You’ve registered your name, opened a bank account, met with an accountant to review your bookkeeping options. You’ve contacted a lawyer and have determined that it is just fine to choose “sole proprietorship” for you new business. You’ve created a budget of monthly expenses and have charted out a cash-flow projection sheet.
You are ready to host your “grand opening.” You have everything your need to start your new venture. There is only one additional factor you require to make your enterprise successful: customers.
How will you generate customers and business? You don’t need to launch a zillion dollar ad campaign. You need a basic “marketing” plan. One that can be created on a shoestring budget. Your “marketing” plan consists of three parts: advertising, public relations and publicity.
Let’s review each segment of your marketing plan:
Advertising: When we think of advertising we think of placing ads in the local newspaper. You write ad “copy”, create an ad on your home computer or ask your graphic designer friend to help you create an ad; you give it to the ad department of the local paper and it appears a day or two later. You pay for the ad based on the size and based on the circulation of the newspaper in which you are advertising. You pay for the ad and it runs on the day, dates you specify.
If you are shooting for the major daily newspaper in your region or city, expect to pay several thousand dollars for even a small ad. If, however, you focus on your local weekly newspaper, you can get a lot for your buck with even a small ad. You can spend $50 a week and get a fairly good sized ad.
Call your local newspapers (weekly and daily) and ask for the ad department. Ask the ad rep who takes your call to send you a “media kit.” It will contain the ad rates and the specifications for the size of the ad. Ask them if they could help you create the ad: lay it out, choose typeface, etc. Oftentimes they will because they want you as a customer.
Make calls to local news television stations and to your local cable television station. Inquire about their rates, too. You might be surprised at how affordable a television package might be for your small business. If you can determine their “ad closing date”--the last day an ad may be ordered--you might be able to swing a better deal. If you call on these days, ask if they have any “remnant” space available. This is space that they were unable to sell. They don’t want to print the newspaper with fewer ads or run the TV show with less ad time, so they’ll likely cut you a good deal in order to fill this very last minute space.
There are other ad venues you need to consider. Call your regional phone company and ask them to send you rates on placing an ad in The Yellow Pages. This could, in fact, generate all the business you need. If you are a locksmith or a gift basket service, The Yellow Pages is a valuable marketing tool. Folks who need your service or product very often refer to The Yellow Pages to find a source for what they need.
Another form of advertising you might want to consider is a Direct Mail Letter. You send a letter to folks in your community announcing your new business. For example, Bob’s Green Thumb Landscaping could send a letter to everyone in the nearby vicinity announcing his new landscaping service and could even offer a 10% discount or free consultation.
Another way to distribute your Direct Mail Letter is through your local weekly newspaper. Call the distribution department and ask them how much it would cost to include your letter or Flier (see below) in the weekly paper. It might be a lot cheaper than spending all that money on postage for individual letters.
A Flier is another option. A flier is a one page photocopy (or computer generated) sales tool that contains just about everything one needs to know about your business. It could contain a “coupon” on it that offers a discount to first time customers. Again, ask your local weekly newspaper if you can distribute your flier in their paper. You can also distribute the flier yourself. You can’t put it in mail boxes--a federal offense in many states--but you can give it out to passers by or possibly leave it on windshields in large venue parking lots. Remember, your flier and/or your business card can act as mini-billboards in your community. Leave them in non-competitive businesses, post on bulletin boards, etc.
Your website is your global calling card. It can give even a kitchen-table run business, a Fortune 500 look.
Public Relations: Public relations deals with another type of marketing. Public Relations can help your generate a lot of interest in your business without spending money on advertising.
Public relations campaigns can involve a variety of vehicles to help generate interest in your business.
--You could sponsor a contest.
--You could announce a “frequent customer” program. (Get one haircut free after the first 10.)
--You could host an event in your office or other local space in the community.
(Bob’s Green Thumb Landscaping service, for example, could annouce a “Plant Doctor” day during which folks bring their ailing plants to Bob’s house (on one particular afternoon) and Bob tells plant owners how to care for the plant.)
--You could announce that “10% of each sale will be donated to a local charity.”
--You could offer “giveaways.” These are advertising specialties and are usually pens and key chains emblazoned with the name of your business.
--You could position yourself as an expert and offer yourself to local news media for interviews.
If it’s holiday time and you have a small business decorating homes and businesses with holiday lighting, you could offer yourself as a guest with “great holiday decor tips” you can do at home.
If you are a locksmith, you can offer yourself as a “security expert with tips on how to protect your home or small business.”
--Investigate local speaking opportunities. Call the library and ask if they are sponsoring any informal talks, lectures or seminars. See if you would be appropriate for any of the slots. Are there other potential speaking engagements in your town? Our Small Business Bob could book himself as an expert on plant care and offer himself to local gardening clubs, civic groups, and even offer to speak at senior citizen meetings in the town. All audience members are potential clients!
There are dozens of other things you could do to promote your business in your community. Read a lot of local newspapers at your library and see how others do it.
Publicity: You can get local newspapers, television stations and local cable news to cover your events, promotions, giveaways. This is publicity.
You’ll need to create a few “publicty tools” in order to have something to send to local media in order to get them interested and excited enough to “cover” your business in their publication or on their local news show.
Publicity and public relations is very valuable as the coverage in the local media can very often imply an endorsement from the newspaper or television station. Everyone knows that anyone can buy an advertisement and get it placed. It’s another thing to generate media interest and get them to cover your business for free.
You’ve got to create a story, a reason why they should cover your business.
POTENTIAL MEDIA OUTLETS:(NEWSPAPER, RADIO & TELEVISION)
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POTENTIAL CLUB, LIBRARY AND OTHER SPEAKING ENGAGEMENTS:
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Watch TV news and read local papers and see how others go about creating media interest.
You’ll need to create a “press kit” that tells the television station news director or newspaper assignment editor who you are and what you are doing.
Your press kit should consist of the following:
1. Pitch Letter: The one page letter states why you are sending the kit. It offers the
“hook” or the reason why the editor should even consider covering your business.
2. Backgrounder on your company. This one page document is a mini-history of your company and what it is all about.
3. Media Alert: This one page document offers the who, what, where, when and how of your event.
4. Photograph: A photo of you in action as an entrepreneur might just wind up in the newspaper. Remember, they are looking to fill those pages each week and each day. Put a clever caption on your photo and they just might insert it in the paper. Include a photo credit if the person who took the shot wants one.
Let’s create a press kit for Bob’s Green Thumb and let’s announce his publicity-generating event:
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BOB’S GREEN THUMB 10 Linn Drive
LANDSCAPING Easton, NY 11940
516-555-1234
September 5, 20__
Mr. Thomas Morrow
Community Editor
The Easton Weekly News
2 Pier Street
Easton, NY 11940
Dear Mr. Morrow:
For several months your newspaper has documented the lack of progress in the town board’s effort to clean up Monument Park on Barrow Street.
On Saturday, October 7th, I will be on hand from 8 am to 5 pm to clean up the lot and plant some shrubs and trees in an effort to beautify what has become a town eyesore.
I am asking all members of our community to come by and bring a perennial for planting.
As a small business owner in our town and as a landscape specialist, I approached the town board and requested permission to “take back the lot” for our community. As I am offering my services on a voluntary, non-paid basis, that won’t cost the taxpayers a dime, the town board agreed.
Please join me on October 7th, and bring a bulb or a plant to help make our park the beautiful square it once was!
This is a great photo opportunity showcasing a positive approach to cleaning up our town.
Sincerely,
Bob Livingston
Proprietor
That’s all you need to create a pitch letter. Keep it short and sweet. The rest of your materials will tell enough about you and the event to let them know you’re serious and that you have contacted them with a story they should cover.
Your backgrounder can be a one page document (also written on your company letterhead) that tells the history of your small business.
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BOB’S GREEN THUMB LANDSCAPING OVERVIEW
Bob Livingston started Green Thumb this summer after working for a number of nurseries in the county for the past 15 years.
Green Thumb is dedicated to providing a high-level of customer service and attention to detail, something Bob found lacking in other landscaping services.
“Many of the large nurseries and landscaping services in the community are too big to cater to the owner of a smaller home or commercial property. My goal is to work with each homeowner to create a landscaped environment that truly reflects their own personal vision of paradise.
“I have been the main designer and installer of water ponds for a large nursery for a number of years and I’m pleased to bring this expertise to homeowners. Having created large ponds for industrial parks and commercial spaces such as the mall in Freemanville, I am delighted to now offer a personalized water garden option for any size backyard.”
Bob’s Green Thumb officially opened for business in August and the company already has generated more than 50 accounts in the area.
Bob sees a link between his small business and the community and hopes to establish a number of community events and tie-ins regarding his enterprise and the local environment.
FOR INFO, CONTACT: 516-555-1234
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The backgrounder can be quite simple. It can be updated periodically to include the latest company happenings. You don’t have to be a “writer” to put together your press kit. All you have to do is tell your story. Keep it simple and you can’t go wrong.
There are two more pieces of information you should include in your press kit. You can package these elements in a folder and send in a mailing envelope.
The next piece is the Media Alert that lets your reader in on the details in a nutshell:
BOB’S GREEN THUMB LANDSCAPING
*****************************MEDIA ALERT*************************
WHAT: Beautification of town square won’t cost tax payers a
dime. Bob’s Green Thumb will plant shrubs & trees.
Local residents asked to donate perennials for
planting.
WHERE: TOWN SQUARE PARK
BARROW STREET
WHEN: Saturday, October 7
8 a.m. to 5 p.m.
CONTACT: Bob Livingston
Proprietor, Bob’s Green Thumb Landscaping
Phone: 516-555-1234
GREAT PHOTO OPPORTUNITY.
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The last item to include in this press kit is a photo. Bob would include a photo of himself planting a tree or shrub. He would attach a caption that would announce his event.
Bob might not receive front page coverage of his event, but he could wind up with a photo and a brief story about it. This will go a long way in building good community relations. The next time someone needs a tree or their lawn cut, they just might remember the guy who tried to help the town, and give Bob a call.
DAVID VERSUS GOLIATH
We live in an age where mega-malls and mega-stores are creeping all over our landscape threatening local businesses on America’s Main Street. Main Street has responded by trying to market small businesses as a more personalized way of doing business and have tried to create events to bring the shoppers back to Main Street. Many small towns are sponsoring First Nights on New Year’s Eve. It’s sort of an open house in the community inviting residents to walk around on the evening of December 31st and experience how delightful Main Street can be.
What do you do if you are a small business owner and you find you must combat a mega-giant corporation?
There’s been a lot written about this David vs. Goliath concept. You open a bookstore only to have a Border’s Books or a Barnes & Noble open one town away in a supermall. Do you throw in the towel?
Thousands of small business owners are reacting strongly to this big time competition by fine-tuning marketing strategies. We know of one bookshop owner who decided to continue running a bookstore, but who incorporated different events each weekend as a way of pulling shoppers into their store.
While the mega-giant chain bookstore offered book signings, the local shop featured a Mystery Night showcasing the talents of the local community drama group who acted out a mystery play.
Another day was devoted to children’s puppet shows.
Still, another bookstore owner decided to make their bookstore cater to the booming How-To market. They still carry books on every conceivable topic, but now offer a large section of How-To books and videos. They feature local small business owners to give demonstrations. For example, the local hardware store, set up a “How To Hang Bookshelves” night in the bookstore. It was a raging success for both the bookstore owner and for the hardware store.
Don't ever underestimate the idea of personalized service. Many consumers would rather go to a local hardware store for their garden hoses and nails than to the very impersonalized giant home centers. Local business owners have found ways to become competitive with the mega-giants. Many local businesses offer free delivery service and will go the extra distance to make sure customers are satisfied. This is a business-building commodity.
Let’s review some of the principles of your marketing campaign. Let your imagination go as you jot down your marketing ideas for advertising, public relations and for generating publicity.
What types of information do I want to get across about my business? Am I the fastest? The most personalized? 24-hour? Offer free delivery? What are some significant aspects of my business that I want to get across?_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What are my options in terms of advertising? Flier? The Yellow Pages? Local newspaper ad? Ads online? Radio, drive time in my local market? Television news? Cable? Make a list of local media outlets, phone numbers and people to call at each place:
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What type of rate can you get to print up fliers? Call local printing shops and business services stores and see what their rates are:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What type of information would you include in your flier? Use this space to create a sample flier:
What local businesses could you tie-in with on an event or sales drive?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Are there organizations in your community that you could tie-in with to develop events that would generate goodwill for your business? List potential candidates:_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
What publicity events could you host in your community to focus interest on your business?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Study ads in your local newspapers (both classfied and display ads--display ads are the larger ads). Study ads in The Yellow Pages. See how they are written in their typically short and punchy style. Write a draft for an ad on your business for a newspaper ad (classified), a larger display ad, and for The Yellow Pages:
You are well on your way to creating a dynamite marketing program. You might want to drop into your local library or bookstore to scan new books that devote themselves to publicity, public relations and advertising. It would also be helpful for you to talk with other small business owners in non-competitive fields to see what they do to generate business.
Remember it is just as important to come up with ways to keep old customers satisfied as it is to build new clients for your small business. We can never underestimate the value of positive word-of-mouth. It is an extremely strong business builder.
Don't forget the little things: send thank you notes, send holiday greetings, send notes of congratulations to community members who receive awards, and keep in touch with local events in your town. You might want to look into joining the local Chamber of Commerce. Call your local Chamber for details.
Becoming an active member in your community can help you generate business for your new venture. But don’t do anything that you sincerely don’t want to be involved in--there’s nothing worse than making a commitment to a group, a cause or a project that interferes with your real goals, interests, desires and time. Look before your leap.
NO BUSINESS LIKE SHOW BUSINESS
Trade Shows are another money-making opportunity for entrepreneurs. Many entrepreneurs create a product and never deal with the public, the consumer. They sell their wares to retailers or to other small business owners who sell those goods directly or indirectly to the consumer.
For example, we know of a small business owner who makes gift baskets at home. But, she attends trade shows from where she buys all of her supplies on a wholesale basis. She goes once a year to a major gift show and purchases baskets, cellophane, products, etc. to put in her baskets.
If you make baskets, for example, or import them, you could be the entrepreneur at the trade show who sells goods to other entrepreneurs. Or, you could be the entrepreneur who attends shows to find goods to then resell.
Some shows are not as good as others. You’ll want to carefully evaluate the audience that attends the show to show their wares and you’ll also want to know who attends the show to buy goods.
Find out how many exhibitors attend the show and how many attendees drop in to survey the products and services available.
To locate trade shows, you can check out directories that are published just for this purpose. Go online and search for trade shows in the industries that concern your small business venture.
Here are a few you might want to explore. See if your local library has them or can order them for you:
Trade Show and Professional Exhibits Directory Trade Show Week Data Book
Gale Cengage (www.tradeshowweek.com)
(www.gale.cengage.com)
You can also check with local sources to see what trade shows might be rolling into your region. Check with: the Chamber of Commerce, the local civic center, hotels, associations and networking groups.
You can also visit a large newsstand and pick up trade magazines that cover the industries you are interested in learning more about. They usually feature editorial and advertisements highlighting up-and-coming shows.
Once you find a show you think you might want to attend--as a buyer or as a seller--call the group or company that is putting the show together and request a “Show Prospectus.” It will outline essential data on the show and how much it costs to get in as an exhibitor or as an attendee.
Some shows are so popular that there is a waiting list, but it could be worth the wait. We know of one entrepreneur who paid to set up a small booth at a gift and novelty show in New York City. He went home three days later with $14,000 in checks written for his novel clock-in-a-briefcase item. Then, he hustled to hire part-time help to complete the orders. You see, he sold to buyers based on 3 prototypes that he created just for this show.
HOME $UITE HOME: YOUR OFFICE
There really is no place like home--to launch your small business. Millions of Americans now work from home and it is a very real and viable option.
Thanks to technology, small business owners can appear professional and savvy even when their home office is set up at their kitchen table. Working from home is a great way to go and you can’t beat the commute.
The ideal is to have a separate room. Not just for noise, space and work considerations but to comply with Uncle Sam’s stricter tax code on home office deductions. The Internal Revenue Service has clamped down on wanton home office deductions and it is important to have a separate space or dedicated space that is only used for the pursuit of your small business.
The best way to make sure you are up on all of the home office deductions is to call a local IRS office in your county. Ask them to send you information on how to comply with the home office deduction.
Here in a nutshell is the criteria the IRS has established in order for you to meet and take a home office deduction. You must meet one of the following three criteria:
1. Your home office should be the place where clients, customers and your business associates meet on a regular basis.
2. You should not be using your home office as a den, a playroom, or even a family library or TV room. The home office must be used exclusively for the pursuit of your small business. No shared functions are allowed. You may set aside a “dedicated space” for your home office in a room used for other functions. Partition it with a decorative screen, bookcases or filing cabinets.
3. If you can set your home office up in a separate building on your property--go ahead and do it. Even if you work from that space just 2 or 3 days a week, the fact that it is a separate facility will ensure that your costs in maintaining the structure are all tax deductible.
For all the information on your home office deduction, contact the local IRS office and ask them for their free publication: Publication Number 587: Business Use Of Your Home.
If you feel you qualify for a home office deduction, then you’ll have to fill out a separate tax form to attach to your return. The form is FORM 8829. The fact that you are filing this form at all will be a major red flag to the IRS so be cautious. Many folks, in fact, don’t even file it even though they do qualify. You can check with an accountant who specializes in small business and see if you should file the 8829. There is more information on home office set-ups in the Appendix.
Your Home Office
The particular type of business you are starting will dictate what types of equipment you need and how technologically advanced you need to get.
Here’s a basic list of what you might want to include in your home office:
1. Computer
2. Fax machine(many fax machines also now have a photocopy, scan, printer function)
3. Answering machine
4. Phone
5. Printer (for your computer; many good ink jet printers can rival a laser, though nothing can quite compete with the laser printer’s quality and speed.
6. Desk—could be your kitchen table
7. Filing cabinets
8. Good “back friendly” chair
9. Comfortable lighting
You don’t need a lot of space to set up a complete home office.
Other items you might want to consider:
Cell Phone: You pay a service provider a monthly fee. You purchase a phone with rechargeable batteries. You are charged for all outgoing and all incoming phone calls.
Headset: If you’re on the phone a lot, you might want to get a headset. It’s a lot faster and easier than answering the phone by picking it up all the time.
Software: Stop into a good software store and tell them about your small business. They will be able to suggest what types of software can help you. Spreadsheets, graphics, desktop publishing, etc.
Scanner: A scanner translates images, pictures, words, photos from a sheet of paper and transforms them into an electronic picture than can be stored in your computer. Graphic artists need them for their businesses, but you might not.
You don’t need to build a big deal home office. A simple desk, a good chair, a good light, some storage space for files and documents and a thinking area--a comfortable armchair, perhaps are about it. You might consider a work table--try buying a luan door and putting four legs on it--for projects that require sorting of papers or putting together materials.
An important question to ask yourself is: will my customers ever see my office? If the answer is no, then you have free reign. If you must have clients visit your home, set up a conference space with a small table and two or three chairs. If you must make a good impression a couple of times a year, consider renting out a room in a local hotel or contact other small businesses and see if you can rent their conference room on a mutually convenient basis. Your local Chamber of Commerce might have some ideas on how to rent low-cost conference space for those special meetings.
Use the space below to create a blueprint for your home office. Put in a desk, a chair, other items you think you’ll need. Consider many options in your home: attic, garage, spare bedroom, etc.
You can refine this plan as you get closer to setting up shop.
Don’t forget to explore “green” options for your business, whenever possible. If you have to buy a car consider a hybrid; as an eco-preneur, you’ll be helping the environment and possible save $$ with tax advantages that might be available.
Are you involved in mail order? If so, you might want to purchase your very own postal scale. You can save money and time with your own postage meter and scale. Metered mail moves much faster and you won’t have to wait on line.
Another item to check out is a binding machine. If you are working on reports and documents for your clients, it might give you a nice edge to bind those documents in an attractive package. There are lots of options available at stationery stores or office supply stores.
It’s a good idea to take a stroll through your local office supply stores to see what is available to help you run your home business. Many new items and options appear in the marketplace on a regular basis. There are many mail order catalogs that offer good prices on office supplies.
Saving space is a prime consideration and many units designed to house a desk are very efficient indeed. The Sauder company makes a number of very affordable computer desk units that also feature enough space for files, paperwork, office supplies such as tape dispenser, paper clips, pens, labels, calculator, etc.
Many of the units actually close at the end of the work day so that you’re truly taking a break from the office. Many entrepreneurs enjoy working at a rolltop desk. In addition to looking pretty darn good in your home, it can be closed and even locked so that paperwork doesn’t need to be put away at the end of each day. Eager hands of rambunctious little rascals can’t get to the documents on which you are working.
You can also ask the salespeople what the popular options are and how they are incorporated into different home office set-ups. They might have some good advice. The two filing cabinets that hold up an old door is a very popular and inexpensive option that works very, very well as a work table. You don’t have to spend a fortune to create a wonderfully efficient home office environment!
E-MAIL
There are hundreds of free email options available to you. Choose .com, .biz., .net or explore new options that include .tv and codes for other countries, too.
YOUR VERY OWN BUSINESS PLAN
Your Blueprint For Success......or Your Roadmap To Profit!
By the time you’ve reached this page in the workbook, you have questioned, probed, asked, researched, dug up, and discovered just about everything you need to know about your small business venture.
This research is essential to success. It is very important to know all of the answers to every single question you have about your small business before you launch your venture.
First-time entrepreneurs who don’t put together a business plan, proceed on the “wing and a prayer” approach. They feel they know enough about the business to launch it and have it grow without spending time on research, analysis, forecasts and predictions about the industry. If you put together a business plan you will have a much better idea of where you are going and how you will handle potential problems--if any do arise--in the near or distant future.
There are three reasons to put together a business plan:
1. It will help you answer all the questions you might have about your small business. This will give you more confidence as you proceed. You will have the knowledge to back up your dreams. A business plan can help alleviate a lot of anxiety about your venture. It will also help you set goals for your business one year, five year or even 10 years down the road. The business plan will help you set these goals and will help you continually update and fine-tune your direction. It will help you predict and forecast your business growth. Write a plan even if you don’t need to attract investors for your small business. It will help you focus and it will act as your blueprint for success.
2. Your business plan will also give you credibility. When others realize you have invested time to research and plot your business growth and future, you will be perceived as someone who is serious about success and as someone who is serious about having that business succeed.
A well-thought out business plan can help you dismiss the Doubting Toms’ in your midst.
3. Your business plan will be an extremely valuable and necessary tool to present to bankers and other investors. Your business plan is your calling card. It says a lot about you and how you perceive yourself and your business. Investors will want evidence that you have thought about all aspects of launching and running your business. They will want to know that you are serious.
Your business plan will act as your representative.
One of the main reasons that many business fail is lack of planning. A business plan will help you to plan carefully and therefore it will give you a much, much, much better shot at succeeding.
A Synopsis Of What To Include In Your Business Plan
You’ll want to give your readers an overview of your company. What you do, how you’re structured (your business form), who your customers are, your position in the industry, who your competitors are, who’s on your staff or board of directors (if appropriate).
You’ll also want to state your objectives, where you are going, how you distinguish yourself in the marketplace, how you’re positioned for growth, the reasons why you’ll succeed during hard times, your goals.
Another group of data you’ll include will be your economic forecasts: your profit, your cash flow, your balance sheet. For first-time entrepreneurs, you’ll create summaries of how much money you need and where and how it will be channeled or utilized.
If the purpose of your plan is to borrow money, you’ll need to include statistics on how much you need to borrow, along with a timetable on how and when you intend to pay off the business loan.
Your business plan will consist of anywhere from 5 to 50 pages depending on how extensive your company’s structure is, how large your management team is, how grand your advertising and promotional plans are, how involved you are in research and development, etc.
In short, your plan and the number of pages needed to complete it, will truly reflect Your Company.
There is no reason to prepare a 100-page document with pie graphs and charts, if you can say it all in a 10-page business plan.
It is important, however, to make your plan look professional and to present it in an extremely business-oriented fashion. Remember, one very important purpose of your business plan is to give your new enterprise credibility. Many of the folks you will show your plan to, have no creative vision. They might not “get” your idea if it’s too creative, too “off-the-wall” or, quite frankly, too clever. But (!) if they see a lot of structure, some research and that you’ve “colored within the lines” so to speak, then they will be more likely to judge your business as a “legitimate venture.”
Remember, you are presenting your plan to folks who wear ties, buttoned-up collars, wingtip shoes or ladies who wear corporate outfits or business suits. You on the other hand are an “open collar” worker who is pursuing a dream, a vision. You might not make as much money as the banker, but who is truly living the cherished and sought after American Dream?!?!?
Let’s Begin!!!!!
In this section, we’ll go over each of the pages you should include in your business plan. Remember, this is just a model. You can customize your business plan to reflect your company. We’ll cover the basics. You don’t have to jot anything down at this point. We’ve included a do-it-yourself, fill-in-the-blank plan in an upcoming section of this workbook.
Cover Page
This is the first page or the title page of your plan.
It should include the following pieces of information:
--Company Name
--Company Address
--Company Phone/Fax
--Logo
--Names and titles and addresses of company officers.
--Month and Year the plan was written.
--Some plans include a tracking number: Copy 2 of 10, for example.
Statement of Purpose/Introduction/Summary
This next section of your business plan is also known as the “mission statement.” It will include the purpose of your plan discuss your market potential, your customers, your desired loan amount (if any) and exactly how you will use the loan.
This part of your business plan summarizes the what, where, why, how and when of your business venture. (We’ve already answered the “who” on your cover sheet.)
The reader should feel that they “know everything there is to know” about your small business, your company purpose, your objectives, your goals and your financial picture, after they’ve read this part of your plan.
What:
Review the business name and the legal structure of your company.
Include a line on what service your provide or on what product you make.
State exactly what the loan will do for your small business: enable you to expand, conduct research, etc.
Include a line on exactly what you intend to put up for collateral.
(Note: Many of you who are writing a business plan, will not need to borrow money at the outset of your business. You are writing the plan to prepare yourself for anything that comes along. You are using the business plan as a strategic tool rather than as a way to increase growth capital. You can leave the parts of the plan concerning loans out of your plan, but do include the other information mentioned in each of these sections.)
Where:
State where your business is located.
Why:
State why you need the loan. Is it to generate or to increase growth capital?
How:
Summarize how much money is needed, how the money/loan will be used, and how the loan will be paid back.
When:
State when the business was established, when the loan is required and re-state when repayment can start.
The Company
In this section of your business plan, you will offer:
--a paragraph or two describing your company, including the size and ownership.
--a history of your company; new companies can state “that the company has been formed” to perform such a task or to provide such a product, and offer a description of the proposed product or service.
--short-term goals and long-term objectives should be included in this section.
--include a mini-backgrounder on the industry to show readers that you know what you are getting into.
--state who the primary customers are/will be, who is the target market; is there any spin-off potential?
The Product Or Service
In this section, you will explore in greater depth, the product or service your company will offer:
--list your main product or service.
--review any experience you’ve had with this product/service.
--suggest reasons why your product/service is more advanced, easier, faster, better than the competition.
The Marketplace
Review all of your research that suggests that there is a ready market for your product/service.
--review the market size and potential growth
--analyze your customer base and why it is growing rather than shrinking
--list the percentage of the market share you hope to capture within one year, five years, etc.
--review the advantages of your product/service
The Competition
Review the competition in your community and in the industry in general.
--compare your company to the competition
--comparisons can include cost, degree of customer service, delivery time, location, quality, convenience
Marketing Strategy
Demonstrate in this section of your plan that you’ve done your homework.
--state what you think your share of the market will be when your start your business
--state your projections on future market share
--review your pricing structure and why you think it will keep you profitable or “in the black”
--include information on how you plan to distribute your product or sell your services
--list your pricing structure
--include your analysis of how you’ve timed your market entry
--list the reasons why you are in a good location for such a business venture
--list any plans you have for advertising, public relations, promotions, direct mail, special events, flier distribution, trade show activity, telemarketing, etc.
--review industry trends that make your business viable
Operations
In this section, you’ll review where your business will be based and consider some of the nitty-gritty of supplies, manufacturers, labor force, and other equipment you might need to operate your business.
Management
Include a rundown of all of the principals connected to your business. If you are a sole proprietor, you can beef up this section of your business plan by including a breakdown on advisors and consultants you plan to utilize. Include relationships you have with lawyers, accountants, lenders, investors, small business consultants, community leaders.
If you have a board of directors include a rundown on all of the board members.
List responsibilities and experience of your management team.
Include plans for future labor forces, if necessary.
Financial Data
In this section of your plan, you should include your balance sheet for the last two or three years.
If you are just starting out, include a profit and loss/cash flow forecast by month or by quarter for your first year of doing business. Review the recordkeeping systems you plan to use
Demonstrate that you have an understanding of the money and financial situation of your company and of your industry.
If you have insurance this would be a good section to include the various forms of insurance you plan to keep. You might also mention security systems if you feel one is necessary to keep your home-based business secure or to secure your outside facility.
Proposed Financing
If you are in need of a loan, then include a summary on why you need the loan, what it will be used for, and how you plan to repay it. Include a timetable on when you plan to repay it, as well.
Do you have collateral? Include it in this section. If you are not planning on asking for a loan at this point, you obviously do not have to include this section at this point in your small business journey.
The Future:
Do include a forecast for your business. Offer your opinions and research on where your company is going and how you plan to get there.
Demonstrate that you have vision not only for your small business but for the industry you are in, and show that you have vision for the economy as well. Show that you have started a business that is not only ripe for right now, but will continue to grow and boom.
Offer examples as to why you feel this is an opportune time to begin or expand your venture.
Supporting Documents
In this section you can include “backup” materials in an effort to demonstrate that you really know what you’re doing.
Include personal resume(s), your financial statement, credit reports, copies of leases (if appropriate), letters of reference, any patents you hold, trademarks on your business products, services or logos; miscellaneous documents--suc as copies of studies that support your positions.
BUSINESS PLAN SUMMARY:
1. Cover Page for the bound document.
2. A Summary
3. A Cover Page for the business plan
4. Table of Contents (if your plan is more than 10 pages)
5. Body of the Business Plan
The Body of the Business Plan will include:
--purpose and description of your business
--an overview of the industry
--target market
--operations
--marketing plans
--financial data
--management team/consultants
--the future
--backup documents (these documents can include resumes of team (if you are a sole proprietor you can include your own resume), job descriptions, lease agreements, license agreements, trademarks, patents, contracts, letters of intent, partnership agreements, personal financial statements)
In your business plan, you want to answer the following questions: who you are, what is the company, what do you sell, who will buy your product or service, why will they buy your product or service, how sound is your financial health?
Visually, you will want to present your plan in a spiral binder or folder or some other type of “booklet” package. The plan should be printed in a font that is very easy to read.
Use subtitles, your logo, and remember to proofread your document several times before it is printed and photocopied or laser printed. Have a friend or company partner review the material also. Typos are very easy to miss especially if you are the one who researched and wrote the plan.
Be prepared to orally present your plan to a banker or other investor if necessary.
Let’s review some worksheets as a final preparation to writing your own business plan: First, let’s
practice articulating about your company--what you do and how you do it--
What is your company’s business?____________________________________________________________
_____________________________________________________________________________________________
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What do you do?____________________________________________________________________________
______________________________________________________________________________________________
Who is your target market?___________________________________________________________________
______________________________________________________________________________________________
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Where do you perform this business?__________________________________________________________
______________________________________________________________________________________________
How do you carry out your business?__________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
Now, let’s string these answers together into a statement by filling in the following blanks:
My company, (fill in the blank with your company name)_______________________________________
sells/provides (fill in the blank with your company’s
product(s)/service(s)____________________________________________________________________________
to (jot down your target market)_________________________________________________________________
_________________________________________________________________________________________________.
I operate my business (state where you do business/home/shop/on-site/mail order)
_________________________________________________________________________________________________
_________________________________________________________________________________________________
________________________________________________________________________________________________.
My business form is (sole proprietorship/partnership/corporation)___________________________________.
Example: High Energy Productions is a full-service catering operation providing complete party planning and all phases of party execution to individuals, corporations, civic groups and social clubs located in the greater metropolitan area. Parties may be held at the individual’s site or in a suitable locale available off-site.
Example: Green Thumb Landscaping is a landscaping service covering all aspects of lawn, nursery, water garden, shrub, bedding and hedge needs. Green Thumb offers complete landscaping and gardening services for homeowners and businesses alike. No job is too big or small for this Green Thumb. Customized gardens are our specialty.
Example: Bizzy Business Services is a conveniently located retail shop providing small businesses and
individuals with a wide variety of technology and support to complete their office needs. Bizzy is devoted to assisting clients in getting the task completed precisely, on time and on budget. We offer desktop publishing, Internet access and laptop computer rental in addition to resume preparation, word processing, shipping and packing, mailing list distribution,bulk mailing as well as photocopying services.
We’re open seven days a week to serve you, your business and your client. Strict attention to detail with a no-nonsense work force are our hallmarks.
How would a brief synopsis on your company read? Use the following space to test out a few versions of what you would say about your small business:
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Or:
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Or:
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Congratulations! You are now writing your business plan!
On the next few pages you are going to answer questions about your small business in final preparation for writing your business plan. As you write out your answers, be prepared to stop and reflect and possibly do more research or planning on a particular topic.
You will probably refer to other sections of this workbook for some of the material you’ve already prepared.
Take your time in filling out the next section of this workbook. As you get to the sections that relate to your finances, consider talking to an accountant for a one or two hour consultation session. It could prove to be one of the best hours you’ll spend in setting up a proper and easy-to-manage recordkeeping system. We also urge all computer owners to check out software programs such as Quicken & Excel to assist in recordkeeping, financial managing, budgeting and financial forecasting.
What Does Being An Entrepreneur Mean To You?
To most, it means:
--more freedom --more creativity --ability to make one’s own rules
--fun --can follow a dream --can do something meaningful
--be more independent --set and achieve goals --increase self-esteem
(and yes, make money, but that is not the top goal for most successful entrepreneurs!)
Circle or check the appropriate response:
I will conduct my business hours on a part-time/full-time basis
I will work from home/work from an outside facility/other.
(if other, describe:_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I will work every day/ several days a week/weekends only.
My work day will be 9 am to 5 pm/ 5 pm to 9 pm/other.
(if you answered other, describe your typical work schedule in terms of hours you’ll operate your small business:__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
My first year goals include:________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
My five-year goals are:_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
The climate is right for the type of business I want to start because: ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
My market research tells me that my competition is:________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I would describe my typical customer as:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
My start-up costs are estimated as follows:
What I Need What It Costs
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TOTAL COST FOR START-UP = ___________________________________
(Your start-up costs will consists of supplies and equipment to get your business launched and
operating. Remember to include costs for business licenses and permits, if applicable.)
My estimate for my “fixed costs per month” are as follows:
(Your fixed costs each month will consist of ongoing expenses that you can’t escape. These include phone bills, utility costs, rent, postage, mailings, advertising, gasoline, and any other cost that you must pay out each month to keep your business in operation.)
What How Much It Costs
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Analysis Of Prices Charged By Your Competitors:
(Will you need to cut prices to generate business, or do you offer an additional service or product benefit that enables you to increase the price you charge?)
Conduct a survey of what the
competition charges in your region:
Name of Competitor What They Charge
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What do you do that your competitors fail to do? What distinguishes you from the competition?
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
How much will it cost you to do your job? In other words, if you are starting a gift basket business,
how much will it cost you to produce the gift basket?
$ .50 for the basket
$9 for the goods to put in it
$ .50 for wrapping
It costs $10 to produce your best basket. What will you charge? $20? $25? $30? What do your competitors charge? Do they deliver? Offer mail order service? What will your market bear?
Don’t forget to calculate cost for your labor, too. You’ll either come up with an hourly rate for your business, or you’ll set a flat fee for the project or service you are providing.
Even if you are establishing a business that delivers stones for driveways and slate for walkways, you’ll still be setting an hourly wage as you budget for your business.
Example: Tom’s Gravel Pit delivers a truckload of stone to one customer. He charges $300;
making a nice $150 profit on the stone he bought wholesale from a local quarry. BUT Tom also charges for his labor to pick up and haul the stones to the customer. That adds $100 to the bill. The total cost for Tom to sell the stones to the customer and deliver them is $400. Tom’s profit is $250; not bad for two hours work!!!!
To figure out how you will charge, calculate your costs for goods and add on what your labor should cost. Remember , you are in business to make a profit, so if your labor will be intensive
(as it would be in sewing wedding gowns) remember to charge top dollar for your hourly rate. If your customers can’t afford it, then perhaps you need to consider starting a different type of business in your region.
Where will the supplies for your small business come from?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Where will the money come from to start your business?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
According to local zoning requirements, I have learned the following about running a business from my home(Note:many localities now waive “residential vs. commercial zoning status” for folks that want to run a non-disruptive business from home):
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I plan to generate customers and clients by the following means (Yellow Pages advertising, fliers, direct mail, newspaper advertising, word of mouth referral, cable TV advertising, etc.): _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I plan to use the following recordkeeping or accounting system:____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
I prefer to consult and possibly hire an accountant to do my bookkeeping for me. I plan to call the following accountant(s) and schedule meetings:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________My Profit/Loss Statement could look like this:
Month: December
Revenue: $5000
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Less: Costs:
Rent $300
Phone $200
Advertising $100
Utilities $ 80
Travel $ 50
Office Supplies $25
Equipment $150
Insurance $ 75
Online expenses $40
Total Costs: $ 1020
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Income: (Revenue Minus Costs) $ 3980
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December Taxes: $ 220
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Total Profit After Taxes, Expenses, Costs: $ 3760 __________________________________________________________________________________________________________________________________________________________________________________________________
(Prepare A Monthly Profit/Loss Statement for each month of the year. It’s also a good idea to estimate what a One Year Profit/Loss Statement would look like. This can be significant for your business success as you will be able to spot “down time”--meaning the months of the year in which you experience low sales. For gift basket businesses this would be summer. For a landscaping business, it would be the colder winter months. This estimate can help you predict when sales will be slow so you can have funds available to get you through the lean times. It can also help you plan additional sources of revenue for your business. What can you do during these lean times to increase, improve or build your business? Are there other services or products you could offer to sustain you through these down times?)
PROFIT LOSS ESTIMATE FOR ONE YEAR------------------------------------------------------------------------
Month: 1 2 3 4 5 6 7 8 9 10 11 12
Income:
Costs:
Fixed
Other
Profit/Loss:
(Profit/Loss is equal to income minus total costs)
SETTING UP A SIMPLE BOOKKEEPING SYSTEM:
Pick up an accounting ledger journal at your local stationery store.
Make a column for each of the following items:
Date: You must date each entry/transaction.
Check Or Invoice Number: Make sure you include these numbers. If you pay for anything in cash, write down “cash”.
Payment Made To--
Payment Received From--: Jot down who paid you or who you paid.
Description: Jot down what you spent money on or jot down what you received.
Income: Jot down the amount you received.
Refunds: Jot down the amount you returned to your customers.
Your Capital: If you put some of your own money into the business, record it in this column.
Your Withdrawal: If you must take money out of your business account for personal use, record it in this column.
Expenses: List all of your expenses such as rent, utilities, advertising, equipment, supplies, phone,
At the end of each month add up the columns. At the year’s end, you’ll have a tidy system and you can total up all the months to make a year-end Profit/Loss Statement.
Remember, as we discussed in our earlier sections on bookkeeping, you’ll need a more elaborate recordkeeping system if you have a partner, if you are a corporation, if you manufacture products, if you have employees. You’ll also need to keep track of depreciation of business related equipment. We like the idea of callin on the services of a good accountant who knows “small business accounting.”
BEFORE WE BEGIN TO WORK ON YOUR FILL-IN-THE-BLANK BUSINESS PLAN, LET’S REVIEW A BUSINESS PLAN PREPARED FOR OUR OLD FRIEND BOB, PROPRIETOR OF THE GREEN THUMB LANDSCAPING SERVICE.
BOB’S PLAN WOULD LOOK SOMETHING SIMILAR TO WHAT APPEARS ON THE FOLLOWING PAGES. BOB’S DONE ALL OF HIS HOMEWORK, MADE ALL OF HIS CALLS, ANSWERED EVERY QUESTION HE HAS ABOUT HIS SMALL BUSINESS AND HAS TRACKED DOWN HIS COMPETITORS TO DEVELOP A VALID PRICING STRUCTURE THAT WILL BRING CUSTOMERS TO HIS LANDSCAPING SERVICE.
HE’LL BASE HIS BUSINESS AT HOME, AND USE THE TALENTS OF HIS SON WHEN HE NEEDS A HELPER. HE HAS MOST OF THE EQUIPMENT HE NEEDS ON HAND SO HIS START UP MONEY IS A FAIRLY LOW SUM.
HE KNOWS WHERE HE’LL ADVERTISE TO GENERATE BUSINESS AND HE EVEN HAS A FEW TRICKS UP HIS SLEEVE FROM WHICH HE’LL TRY TO GET PUBLICITY IN THE LOCAL NEWSPAPER AND ON THE LOCAL NEWS SHOW.
SINCE BOB IS NOT LOOKING FOR HEFTY CAPITAL TO LAUNCH HIS BUSINESS, HE WON’T NEED TO SHOW HIS BUSINESS PLAN TO ANYONE. IT IS A WORKING DOCUMENT TO HELP HIM GET HIS BUSINESS FINE-TUNED AND LAUNCHED. BOB PLANS TO SIT DOWN AND READ HIS BUSINESS PLAN AT LEAST ONCE A YEAR TO UPDATE IT AND REFINE HIS GOALS AND HIS VISION. LET’S TAKE A LOOK AT WHAT BOB’S PREPARED
Cover Sheet
(In the case of a sole proprietorship, where the business plan is 10 pages or less, it is not necessary to repeat the Cover Sheet information in a Cover Page For The Business Plan. In Bob’s plan, we have eliminated the Cover Page For The Business Plan as the information it contains is redundant. Where there are partners, company officers, etc., it is more likely to be included.)
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A Business Plan For
Green Thumb Landscaping
12 Chestnut Drive
Maple, New York 11937
516-555-1234
November 17, 20__
A Summary
The business plan for Green Thumb Landscaping consists of background on the industry,
the target market, operations overview, marketing plans, financial data, consultants, the future and pertinent back-up documents.
An Overview Of The Industry
According to the U.S. Department Of Commerce, landscaping businesses are growing in leaps and bounds. In fact, 3 of 10 homeowners in America today now engage the services of a landscaper as compared to 1 in 20 just five years ago.
As Americans search for more free time in their hectic lives, businesses that provide services to the homeowner will continue to thrive. We are a nation of backyard dwellers and the popularity of decks, patios, pools and water gardens suggests that the American love of hanging out in the yard is here to stay. We spent more than $5 billion on backyard pools, arbors, gazebos, walkways and another $5 billion on trees, shrubs, hedges and flower seeds, plants and bulbs.
Landscapers have a unique opportunity to cater to this American love. Landscapers and gardeners enhance these backyards and front lawns and create wonderful havens for the customer. The number of customers is growing--that is clear. And, the love affair with nature in our yards and gardens is growing. It’s a reaction to the cold, techno, mega-giant corporate world we are a part of in our everyday lives. Our own personal turf gives us an opportunity to escape the rest the world--and its problems--and Americans want to do everything they can to ensure that these gardens are as perfect a world as they can be.
Businesses catering to creation of these perfect worlds will continue to do well in the 21st century. The services of a landscaper will, perhaps, become more significant and key to our lives.
Target Market
The target market for Green Thumb Landscaping, is any homeowner within a 20 mile radius of the village green. These customers are upscale homeowners who enjoy a refined lifestyle and good quality of life. Many of the homeowners stated in our customer survery--taken Labor Day of this year--that they do not presently engage the services of a landscaper. They did, however, state in the survey (results contained in the plan) that they would contract the services of a landscaper if they could locate a reliable gardener/landscaper to take on tasks and lawn cutting services if the price were right.
There are presently only 3 landscaping companies in the community and two of them cater to commercial customers as well as residential customers.
Green Thumb Landscaping will emphasize the residential market.
Operations
The business will be home-based as local zoning requirements now favor the entrepreneur. No customers will visit the home-based site. All landscaping work will be done on the premises. Fertilizers and other needed composting items will be picked up and stored at the customer’s site. No inventory of this nature will require that it be stored at the home-based site.
A pick-up truck will be the primary vehicle used for the operation.
Marketing Plans
A classifed ad will be placed in the weekly town newspaper and will be 1 inch by two columns. The ad will be paid for on a quarterly basis.
Business cards will be distributed at various shops and will be posted on bulletin boards.
A flier will be created announcing a “frequent flyer” program. For every 10 lawn cuttings, the customer will get one free. Similar deals will follow.
A direct mail letter will be drafted and sent to 1000 homeowners in the immediate area announcing the business and will include information about the frequent flyer lawn cutting plan.
A variety of community events and services will be planned throughout the year to publicize the business. Some of these include:
Holiday: Create decorative landscape ideas to complement the holiday season. Beginning in September with hay bales and corn husk displays and going through December with holly boughs, outdoor Yuletide creations and holiday lighting for commercial and residential customers.
Spring: Spring planting seminar to be held on the grounds of the local civic center.
June: Plant Doctor Day--town residents bring their “sick” house plants for a free diagnostic consultation.
Summer: Xeriscaping seminar to be held at evening town meeting--how to save water while planting drought-tolerant plants and shrubs.
Financial Data
Start-up costs for this business will be less than $1000. There will be no need to borrow funds at this time. The start-ups funds are as follows:
Filing “doing business as” forms $100
Consultation with small biz attorney $ 75
Business cards and stationery system $150
Fliers $ 50
Ad in local paper for three months $135
Forms, invoices, misc. stationery items $ 45
Tools, gloves $ 50
Bookkeeping software $300
TOTAL = $905
The hourly rate for Green Thumb Landscaping will be $20. This rate was determined by research on the rates of the competition and by survey data.
Management Team/Consultants
As a sole proprietor, I plan to act as chief executive officer for the company. I will consult with the following experts as needs arise:
Ms. Lorraine Hanson, Attorney
44 Apple Drive
Old Meadow, NY 11958
516-555-1244
Fax: 516-555-1245
Mr. Benny Smith, Accountant
77 Peachfuzz Lane
Old Meadow, NY 11958
516-555-9999
Fax: 516-555-6677
I do plan to join several small business organizations and have contacted the necessary parties and groups for membership information.
The Future
Within the next year, I plan to take on 50 clients and have set a realistic goal of earning $35,000 a year--after taxes.
Within the next 5 years, I plan to branch out to include commercial businesses and will also consider starting a landscape lighting business to capitalize on what I see as a growing trend in ambient landscape lighting. I plan to look into this form of expansion beginning early next year.
Back-Up Documents
The survey of 250 homeowners is included. It demonstrates that there is a need for a business such as the one described in this plan and it also indicates that many of the homeowners filling out the survey would consider hiring Green Thumb at the rate of $20 an hour.
This is all you need to prepare your basic business plan. In these couple of pages, Bob has answered just about every question he has about how he will start his business, what form it will take, how he will market his business, who will his customers be and how he plans to grow his business in the next five years.
The plan demonstrates that he has really worked out a lot of details about his small business.
Your plan should reflect the same thoughts. In many cases it will be more involved. If you are seeking to raise money, for example, and need the business plan to show to investors, you will have to include a lot more in your financial data section on your financial situation and outlook.
Try filling in the following blanks. You might want to photo copy them and use them for periodic updates as you conduct more research and jump over more hurdles on your start-your-own-business journey:
Business Name:
Business Address:
Business Phone/Fax/E-mail:
Business will be operated:
Days/Nights:
Home/Off-site:
Part-time/Full-time/Weekends:
Business Form:
(If you are starting a Partnership, prepare letter of agreement)
Experience I have to start this business:
Why this is a good business to start:
Why this is a good business for me to start:
I have checked with the Secretary of State’s office and other necessary data banks and I can call the business by this name:
I have filed the “Doing Business As” forms:
I have opened a business checking account:
I have created a website, business cards and a stationery system:
I have conducted a market survey of potential customers:
Who are my potential customers?:
Who is the competition?
How much do they charge?
What will I charge for my product or service?
Who will create my product?
How will I market my product or service?
What type of bookkeeping system will I use?
Keep walking yourself through every aspect of starting your business; when you feel you know the answers start writing your own business plan. Here’s a fill-in-the-blank plan you can use as a guideline. Again, you might want to photocopy it so that you can update it as you refine and revise it:
THE COVER PAGE
PRODUCT/SERVICE & DESCRIPTION:
AN OVERVIEW OF THE INDUSTRY:
THE TARGET MARKET:
OPERATIONS:
MARKETING PLANS:
FINANCIAL DATA:
MANAGEMENT TEAM/CONSULTANTS:
THE FUTURE:
BACK-UP DOCUMENTS (if appropriate):
CHECKLISTS FOR YOUR BUSINESS START-UP:
Use the following three checklists to organize your start-up. You probably won’t need to follow-up on all of the items listed in each of the categories, but it will ensure that you do cover all bases.
Top Ten Startup Checklist:
In starting your small business, you'll have lots of details to check and fine-tune. Here is a checklist of 10 things you should do as you prepare your business launch:
1.Choose a business and pick a name. Pick a name you can
live with as you grow and expand. For example, Gary’s
Hedge Fund sounds like a great name for a wholesale nursery that sells hedges and shrubs, but what about when Gary expands into flowers, herbs, fences and more? Gary’s North Fork Landscaping might make it easier so that he won’t have to change his website name, etc. Use an easy, cost effective web hosting service such as Web Hosting At Yahoo.com to set up a basic website.
2. File a "doing business as" form with your county clerk's office so that you can open a business bank account. The county clerk is usually located in the largest town/city in your county.
3. Open a business checking account.
4. Prepare a marketing plan and outline ways you will generate business.
5. Brush up on basic accounting and bookkeeping techniques and choose a system--that you plan to follow. When you file your taxes, however, it is worth it to use an accountant that
specializes in small business so that you can maximize deductions, etc.
6. Call the local Small Business Administration office in your area. Ask about their free programs, literature and seminars.
7. Call local community colleges and schools and ask about their programs in entrepreneurship.
8. Go online to brush up techniques you need to know: marketing, advertising, etc.
9. Write a business plan. It can be 2 or 20 pages, but a good business plan will help you answer all the questions you need to know about your business. It will also be a valuable tool if you need to borrow money from a bank.
10. Work on a plan to grow your business. Yes, you're starting on a shoestring with $100, but where will you be in one year? In two years? In five years? What are your plans and where are you going?
*If you are going to be working with food preparation, investigate whether or not you need a food handler’s license.
Your county clerk or local hospital can help you on this one.
*Investigate getting a tax resale number so that you don’t have to pay taxes on goods you purchase—(because you’ll be charging tax when you sell these items). This will enable you to purchase goods on a wholesale basis. Google your State Office / Department of Taxation and Finance.
Equipment:
____A computer--desktop, laptop, notebook accessories
____Software--word processing, data processing, file management, spreadsheet, desktop publishing, mailing list, bookkeeping, other
____Internet/ On-line service
____Modem
____Printer (Ink Jet or Laser)
____Office supplies
____Fax
____Tape recorder
____Business phone
____800 number
____Answering machine
____Voice mail
____Electronic mail (“E-mail”)
____Office furniture
____Copier
____Cell phone
____Stationery--letterhead, business cards, mailing labels
____Marketing materials
Experts to consult:
____Attorney
____Accountant
____Bookkeeper
____Benefits consultant
____Insurance agent
____Marketing consultant
____Public relations consultant
____Advertising agency
____Desktop publisher or designer
____Writer
____Banker
____Financial planner
Start-Up To Do List:
____Call local Small Business Administration office and ask for their free start-up materials
Ask about their free seminars and other programs to assist you
____Determine business name
____Create logo and business identity
____Choose a legal form
____Call county clerk’s office for information on filing a “Doing Business As” form
____Obtain proper licenses and permits (if necessary)
____Set up bank accounts
____Set up a bookkeeping system
____Contact the local IRS office for information and forms appropriate for your business
____File documents for your business structure (partnership agreement forms)
____Obtain resale license (often referred to as a “tax resale number”)
____Register with local tax authorities
____Obtain insurance
____Develop a site in your home for your business OR investigate outside facilities
____Look into local zoning laws
____Design your home office or develop a set-up in an outside facility
____Review equipment and material needs
____Develop office systems and production capabilities for your small business
____Call the chamber of commerce and introduce yourself
____Join networking organizations in your area
____Develop a budget for your business
____Develop a mission statement for your business
____Develop ethical standards for your business
____Develop a customer service policy; develop a refund policy
____Write a job description for yourself
____Consider hiring employees. If you need to hire employees, call the state tax authorities and get appropriate information and forms for your employees
____Identify what supplies and equipment you’ll need. Should you purchase it or lease it?
____Locate potential mentors for your business
____Develop a staff of advisors
____Get set for your grand opening!!
THE TEN STEPS TO SUCCESS:
We can summarize the above checklists in 10 easy steps. Please remember that each step could involve several different procedures and/or processes. For example, step one involves thought, reflection, market research, surveying your community, developing options and pinning yourself down to a final decision.
1. SELECT A BUSINESS TO START
2. CHOOSE A NAME FOR YOUR BUSINESS & DEVELOP A LOGO
3. SELECT A LEGAL FORM FOR YOUR BUSINESS
4. INVESTIGATE ALL ZONING, LICENSING AND PERMIT REQUIREMENTS THROUGH YOUR TOWN, VILLAGE AND COUNTY CLERK’S OFFICE
5. DEVELOP A BUDGET FOR YOUR START-UP
6. SELECT A RECORDKEEPING OR BOOKKEEPING SYSTEM FOR YOUR BUSINESS
7. SET UP A SPACE FOR YOUR SMALL BUSINESS (AT HOME OR OFF-SITE)
8. CHOOSE INSURANCE POLICIES TO MATCH YOUR SMALL BUSINESS VENTURE
9. WRITE A BUSINESS PLAN THAT OUTLINES YOUR MARKETING, PUBLICITY & ADVERTISING PLANS
10. STAGE A GRAND OPENING AND GET SET FOR SUCCESS!
