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Things to Consider When Starting a Small Business

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Things to Consider When Starting a Small Business Powered By Docstoc
					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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posted:5/5/2011
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