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A Roadmap to Starting a Successful Business Presented through the National Institutes of Health Office of Strategic Management Planning and Small Business Office Facilitated by Thomas Sides, M.A. Symbols “Buzzwords” are key terms relating to the chapter topic. You should become familiar with these definitions, as they’ll assist you in making critical business decisions. The icon that indicates a Buzzword is shown to the right : A “Caution” warns the reader about challenges or precautions that relate to the chapter topic. Failure to pay attention to these Cautions could lead to delays, legal problems, fines, or even the end of your business. The icon that indicates a Caution is shown to the right: Additional Resources and information that may be helpful to the reader are indicated by the following icon: At the end of each chapter, the most “Important Points” for the reader to take away are indicated by the following icon: Getting Started Is business ownership right for you? An “entrepreneur” is a person who starts his or her own business Self-assessment questions: Are you a self-starter? How well do you plan and organize? Can you work long hours? How will the business affect your family? What Type of Business Do You Want? A startup: Follow your own dream Buying an existing business: You will have current customers and a known track record of performance Franchising: Brand recognition reduces marketing costs Questions to Ask When Starting Up A New Business Does the idea suit your personality and interests? Will you use your own name to brand the business? Will it be financially viable? Do you have startup money to invest? What will your monthly expenses be? Is there a current need in the marketplace? Who are you competing with? How the Small Business Administration Can Help The SBA assists, counsels, and protects the interests of small businesses: Training network with many free courses, workshops, and publications Local Small Business Development Center Programs Three SBA loan programs Volunteer counselors through the Service Corps of Retired Executives (SCORE) Choosing a Business Structure Different legal structures protect you in different ways and offer varying tax advantages: Sole Proprietorships General Partnerships and Joint Ventures Corporations Limited Liability Company (LLCs) Sole Proprietorship A “sole proprietorship” is the establishment of a business by an individual; there is no legal entity that owns ands operates the business The owner is personally responsible for all debts ands contracts Profits are disclosed on the owner’s personal income tax return and he or she can deduct business losses General Partnerships A “general partnership” is an agreement by two or more persons or entities to establish and operate a business A written agreement should be prepared between the partners Each partner discloses business profits in his or her personal tax return and deducts proportionate losses A “joint venture” is a general partnership set up to make a profit on a one-time basis Corporations A “corporation” is created by filing articles of incorporation with the appropriate agency in the State The corporation is separate and distinct from the owners of the corporation Owners of an interest in the corporation are called shareholders or stockholders They are protected from liability from the corporation’s debts and obligations Limited Liability Companies A “limited liability company” (LLC) combines liability protection with the tax status of a general partnership Owners of an interest in the LLC are called members Members have no personal liability for the debts and obligations of the LLC Members disclose profits and deduct losses on their individual tax returns The Business Plan A “business plan” is a roadmap that describes where you’re going and how you’re going to get there A guide to achieving your goals A tool to spark investor interest A document that helps employees understand the company mission Key Elements of the Business Plan Description of your products and services Market and industry analysis that demonstrates the need for your business List of competitors, including their strengths and weaknesses Marketing strategy (sales approach) Management team and operations plan Financial analysis: the investment needed Federal, State, and Local Taxes Federal taxes are paid at intervals with IRS coupons, usually through the Electronic Federal Tax Payment System (EFTPS) States tax structures vary; most require some form of tax on small businesses Local authorities may tax business property or all businesses operating in the area Research the laws that apply to you; accountants or tax lawyers may be needed Employment Taxes Federal income tax withholding Businesses must withhold Federal income tax from employees’ wages based on W -4 information Federal unemployment tax Pays unemployment compensation to workers who lose their jobs Social Security and Medicare Required under the Federal Insurance Contributions Act (FICA), also called self- employment tax Self-Employment Tax “Self-employment tax” is the combination of Social Security and Medicare taxes for individuals who work for themselves Social security coverage provides various types of retirement and disability benefits You must pay self-employment tax if your annual net earning from self-employment is $400 or more Types of Insurance Business property insurance Liability and excess liability coverage Worker’s Compensation Health insurance Life insurance An insurance agent should be included in the business startup process The Five “C’s” of Credit How banks determine whether to loan you money: Character: Credit history is very important! Capacity: What is your track record of debt repayment? Capital: How long will personal resources support both you and the business? Conditions: Current economic conditions Collateral: Assets the company pledges as a source of repayment for the loan Secured and Unsecured Lines of Credit If you have trouble getting financing, a “secured line of credit” can be used to purchase equipment Property or equipment is used as collateral, which guarantees repayment An “unsecured line of credit” does not require collateral This is given as a personal loan to the company’s officers, based on the individuals’ credit histories Effective Marketing A “marketing plan” serves as a blueprint for you to follow to get your products and services known and recognized. It has: Competitor and issue analysis: challenges and opportunities facing the business Objectives: What do you want to achieve? Action program: A “to-do” list Budget: Detail expenses Strategy: The Four “P’s” The Four P’s of Marketing Product: Describes features and benefits Price: Lists prices and pricing strategy Promotion: Tools or tactics to achieve marketing objectives Placement: Sales philosophies and methods Licensing Licenses or permits are required to operate certain types of businesses One or more licenses may be required from the city, State, county, and/or Federal Government You may need multiple licenses if you work in more than one jurisdiction Failure to obtain the proper licenses can result in fines or the loss of your business The application process varies according to jurisdiction; research the requirements in your area Bonding “Bonding” guarantees that a business will perform its assigned tasks. A bond is issued by a bonding company after the business is thoroughly investigated Surety bonds: The surety company agrees to compensate the customer if the business fails to pay a debt or meet an obligation Fidelity bonds: Protect against the actions of employees (such as embezzlement) You must have an agent or broker to guide you through the application process; the SBA also provides assistance Zoning “Zoning” specifies where residential, industrial, recreational or commercial activities can take place Business owners must check on local zoning ordinances (e.g., a business may not be allowed in your home) A variance is a request to make an exception to current zoning requirements Copyrights, Trademarks, and Patents Copyrights, trademarks, and patents all deal with intellectual property and how to protect it “Intellectual property” is a product based on an idea and it has some type of commercial value Intellectual property includes a wide range of products, such as books, musical compositions, and works of art. Copyrights Copyrights protect individual creative expression. The Federal Copyright Act of 1976 specifies how to register a copyright; there are no State copyright laws If a work is in the “public domain,” anyone can use it without permission from the author or the author’s heirs The U.S. Copyright Office explains how to register literary works, visual art works, performance works, sound recording, serials and periodicals, and mask works Trademarks A “trademark” is a brand name--a distinctive sign, logo, slogan, symbol, or other emblem used by businesses to distinguish their products from others Trademarks do not expire and can apply indefinitely Although trademarks can be registered, it is not required; just using a mark establishes a common law right to it Patents A “patent” gives an inventor exclusive use of his or her invention Patents are issued by the United States Patent and Trade Office (USPTO) Most inventors use a patent lawyer to help with the application process Accounting Sound accounting and bookkeeping practices are essential to any business Many businesses rely on an accountant to handle financial recordkeeping Computer programs such as Quicken, Peachtree, or Quickbooks can simplify some bookkeeping tasks Cash and Accrual Methods of Accounting The “cash basis” method of accounting requires only that you record financial transactions when money is paid or received Not adequate for businesses that give credit to their customers or maintain a large inventory The “accrual basis” method reports income when earned and expenses when incurred, not when money actually changes hands Human Resources The Human Resources function deals with hiring and managing employees Be specific when interviewing candidates Avoid inappropriate and illegal questions during the interview Provide competitive compensation and benefits Maintain detailed employee records Consider an Employee Stock Ownership Plan (ESOP) Getting on the Web A Website can attract customers and boost earnings Sales through the Internet can take place internationally, 24 hours a day A professional Website designer can develop your site at a relatively low cost Promote your site through major search engines or a link exchange program Resources for Additional Information SBA, SBDC, & SCORE NIH SBO Web site http://sbo.od.nih.gov/ Library of Congress SBA, Small Business Classroom International Trade Administration U.S. Government Printing Office Government Information Locator Service Chamber of Commerce State, County, & City Government Offices Trade Associations Banks & Financial News Publications Internet Final Thoughts Build on every success Learn from your mistakes Take time to relax and reduce stress!
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