A Practical Guide To Starting A Business

Starting a business can be an exciting prospect….or a frustrating, confusing task that seems impossible to conquer.

Which one will apply to your situation will depend on how well you plan, how much you educate yourself, and how disciplined you are in following through.

Many people start out with a great idea, but don’t know how to translate that idea into a viable business.

==Where Do I Start?

Your first step should be your business plan. Many would-be entrepreneurs will skip this step, choosing the fly-by-the-seat-of-your-pants method instead, but starting a business without a business plan is like embarking on a long journey to an unfamiliar place without a map.

A business plan serves to define your goals, map out your plan of how to achieve them, and will provide you with a sense of purpose and accomplishment along the way.

Your business plan should include the following elements:
1) the description of the business
2) the marketing plan
3) the financial management plan
4) the management plan

The Small Business Administration offers an online tutorial on how to write a business plan.

http://www.sba.gov/starting/indexbusplans.html

One of the first decisions your will have to make is what form your business should take. The most common forms are:

-Sole Proprietorships
-Partnerships
-Corporations

Which form you choose will depend on many factors, including:

-Legal restrictions
-Liabilities assumed
-Type of business operation
-Earnings distribution
-Capital needs
-Number of employees
-Tax advantages or disadvantages
-Length of business operation

Some of the advantages and disadvantages of each type is outlined below:

Sole Proprietorship

This is the easiest and least costly way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Operating a Sole Proprietorship is easiest as the owner has absolute authority over all business decisions.

Partnership

There are several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. Legal fees for drawing up a partnership agreement are higher than those for a sole proprietorship, but may be lower than incorporating. A partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner’s business actions, as well as their own.

Corporation

A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors’ meetings and annual stockholders’ meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a “C” or “S” corporation.

==What About Taxes?

It is very important to understand the tax laws that apply to the type of business you have chosen.

There are four basic taxes that you should be aware of:
-Income Tax
-Self-Employment Tax
-Employment Taxes
-Excise Tax

Income Tax
You have to file an Income Tax return if your earnings were more than $400 for the tax year. Even if your earnings were less than $400 from your business, you may still have to file a 1040 if you meet any of the criteria listing in the 1040 instruction booklet.

If you expect to owe more than $1,000 in Income Tax, you may have to pay Estimated Taxes. There are four ways to pay estimated taxes:

1. By crediting an overpayment on your 1999 return to your 2000 estimated tax.
2. By sending in your payment with a payment-voucher from Form 1040-ES.
3. By paying electronically using the Electronic Federal Tax Payment System (EFTPS). For EFTPS information, call 1-800-945-8400 or 1-800-555-4477.
4. By credit card, using a pay-by-phone system.

For more information on Estimated Taxes, see the IRS website at
http://www.irs.ustreas.gov/forms_pubs/pubs/p505ch02.htm

Self-Employment Tax
Self-Employment Tax must also be paid if your net business earnings were more than $400. SE Tax is a Social Security and Medicare tax that provides retirement benefits, disability benefits, survivor benefits, and hospital insurance benefits to you under the Social Security system.

You can deduct 1/2 of your SE tax from your net earnings on your 1040.

For more information on SE taxes:
http://www.irs.ustreas.gov/forms_pubs/pubs/p3340103.htm

Employment Tax
If you employ others in your business, you will need to report Employment Taxes. For specifics and tips on Employment taxes:

http://www.irs.ustreas.gov/forms_pubs/pubs/p15toc.htm

Whether or not you need an EIN (Employment Identification Number) depends on your business structure. You only need an EIN if you:
-Pay wages to one or more employees
-Have a KEOGH plan
-operate as a corporation or partnership
-File any of these tax returns:
a. Employment
b. Excise
c. Alcohol, Tobacco or Firearms

To obtain an EIN, you must fill out an SS-4 which is available through the IRS.

Excise Tax
Excise Taxes apply to certain types of businesses and certain business activities. Some examples are:
Tractor or heavy machinery sales
Tobacco, alcohol or firearms manufacturing or sales
Business activities or products that have environmental impact

For a list of businesses that apply, see the IRS website:
http://www.irs.ustreas.gov/forms_pubs/pubs/p3340105.htm

A free Small Business Tax Kit is available from the IRS. Their Small Business Corner offers advice, publications and links to useful information. http://www.irs.gov/ They also offer a Tax Calendar which tells you when to file returns and make tax payments.

You should also be aware that the laws vary by state and by industry, so it is highly recommended that you consult a tax advisor in your area. You can get information on local zoning regulations from your city hall, county court, or state department of taxation and finance.

==For More Information…

The Small Business Administration is an excellent source of information and a great place to start. You can get a free Startup Kit, download a Business Plan Tutorial and find many free publications. http://www.sba.gov/

Other useful resources:

====STAWRS One Stop Guide
http://www.tax.gov/newbusiness.htm

====Business Plan Pro 4.0
http://www.amazon.com/exec/obidos/ASIN/B00003IE59/americashomebase

====The Legal Guide for Starting & Running a Small Business
http://www.amazon.com/exec/obidos/ASIN/0873373790/americashomebase

====J.K. Lasser’s Taxes Made Easy for Your Home-Based Business
http://www.amazon.com/exec/obidos/ASIN/0028627970/americashomebase

====The Complete Idiot’s Guide to Starting a Home-Based Business
http://www.amazon.com/exec/obidos/ASIN/0028615395/americashomebase

====Business Start-Up Guide: How to Create, Grow, and Manage Your Own Successful Enterprise
http://www.amazon.com/exec/obidos/ASIN/0965321207/americashomebase

———————-
Sharon Davis, Work-At-Home expert, author and consultant,
helps people to achieve their goal of working at home,
telecommuting or starting a home business.
http://www.2Work-At-Home.Com
List of other articles of interest:
http://www.2work-at-home.com/freecontent.shtml
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This feelin’ ….

Starting a business is one thing. Getting recognition and understanding from others is something completely different. You’re business is up and running and you spend every minute of your day on business related items. At this stage in developing your business you might ask the question:

Why does nobody seems to understand me? Why does nobody understand how important this is to me?

You have accomplished quite a bit so far and are well on your way developing your new business. Fact probably is – it may have begun consuming your life.

The impression you make to your friends and family might be, that you are losing interest in things outside of your business.. Things that seemed to be important to you now seem to be less important. You can’t join your friends going camping over the weekend because you need to monitor your servers and answer helpdesk tickets.

But you might be in a place with just a few others. Welcome to the Entrepreneurial Zone! This is a place where a few brave souls who started their own business understand what you are going through. This is a place full of energy, ideas and a lot of frustration. You are no longer using energy of your surroundings – you are creating energy. You are now going after something you believe in, something that has become part of your soul. Every moment of your life seems to be filled with thoughts about your business and what needs to be done next.

Maybe you explored and discovered your true self – the real you. It takes time to get used to the fact that you are self-employed. You are the boss. Some people eventually have fear about that and because of that they see you with different eyes. Remember – you are creating energy and not everyone understands that you are going through a transition.

To survive in the Entrepreneurial Zone, accept where you are and who you are. Do not apologize for being daring and trying to risk something. You have a goal. You will create your own space around these goals. Some people will understand, others will not. Life is like a book. Chapters come to an end, new ones start. Not everyone or everything fits into every chapter of life.

Mission Statement

Every organization or business has a mission, a purpose, a reason for being. The mission statement should be a clear and succinct representation of the company’s purpose for existence. It should incorporate socially meaningful and measurable criteria addressing concepts such as the moral/ethical position of the company, the public image, the target market, products/services, the geographic domain and expectations of growth and profitability. At the very least, your organization’s mission statement should answer three key questions:

- What principles or beliefs guide our work?
- What are the opportunities or needs that we exist to address?
- What are we doing to address these needs and opportunities?

A Mission Statement should be a one-sentence/two-sentence, clear, concise statement that says who the company is, what it does, for whom and where.

The intent of the Mission Statement should be the first consideration for any employee/business representative who is evaluating any strategic decision. The statement can range from a very simple to a very complex set of ideas.

A Mission Statement can be changed over time. It does not have to be static. It is actually good to revisit the Mission Statement over time and to adjust it to the different times in society, culture and business.

Here are some Mission Statements of other companies and organizations:

Mary Kay Cosmetics
“To give unlimited opportunity to women.”

Food & Drug Administration
“The FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable; and helping the public get the accurate, science-based information they need to use medicines and foods to improve their health.”

North Carolina – Secretary of State
“To serve and protect citizens, the business community and governmental agencies by facilitating business activities, by providing accurate and timely information and by preserving documents and records.”

Sun Microsystems
“Solve complex network computing problems for governments, enterprises, and service providers”

Walt Disney
“To make people happy.”

So, from these different kind of Mission Statements you can see that most of the items mentioned above have been implemented in one way or the other. Make sure your business has a Mission Statement that you can identify yourself with. Make sure your employees know your Mission Statement and understand the purpose of it.

Funding & Financing

Even if a web hosting business can be started on a shoestring in some cases – proper financing gives you a better start and better chances to make it through the first 2 years. As you probably know – most startup businesses do fail within the first 2 years of their existence. You do not want to be one of them.

There are several ways for you to get financing or funds to start your business. The most common ones are

- Money from savings and your existing job income
- Bank loan
- Venture Capital

Often an entrepreneur uses existing funds to start a business. Money taken from savings accounts or from other financial sources of yours, are the best way to start your business. The only person you owe money, would be yourself. Nobody can require you to do this and that different from how you would like to do it. If you still have a job while starting your business – finance your business with the income from your job until you are ready to make the final step.

Startup businesses without a credit history will have a hard time to get a credit card or a loan from a bank. If you as a person have good credit, you might be able to get the loan as an individual. Keep in mind – in that case your personal assets are basically securing the loan. Depending on the amount of money – this can be risky. And as you know – banks are not hesitating to close the loan and hand it to a collection service if they feel their loan at risk because you are not making your payments. Not a good feeling. A bank loan also puts a higher pressure on you to succeed. While some people have no problem handling this additional pressure, others do have a problem with it. If you know that you are one of these individuals – do not take out a bank loan to start your web hosting venture.

Venture capital – Unless you are having really big plans, you will be locked out from receiving venture capital from one many venture capital providers out there. Don’t even try and waste your time. These people do not fund small businesses where the ROI would be minimal for them. But – there is venture capital out there, that will be available to you. Often even for less cost than what you would have to pay somewhere else. Family members, friends, coworkers and business partners are all potential sources of venture capital to help you start or to expand your existing small web hosting business. The key is approaching them the right way.

Draft the terms of your loan and review your payment schedule.

How much money do you need to borrow?
What fair interest rate would you be able to offer?
Instead of paying interest – can you offer a share (e.g. 5%) of the business? Or maybe you do not take a loan – you offer an investment opportunity?
When will you start repaying the loan, and over what period?

Identify potential lenders and investors.

Think about all people you know who might be in a position to lend you money or who might be interested in investing into your business. It could be a relative, friend, associate, just about anyone you know and trust. Prepare your proposal the same way you would if presenting your proposal to a bank or a real investor. You are asking for money – so, make sure your request looks legit and professional. Offer a fair deal and the necessary respect. Remember – in the moment you ask, you need to convince your family (just as an example) that you are not that 25-year-old college dropout, but a businessman/woman who was an exact idea of what he/she wants.

You can email your loan proposal to them along with a custom message. But – that should only be done if they live far away and you cannot drive over to the person you are asking. Also – do not surprise them just like this. Call upfront and make an ‘appointment’ where you would like to discuss something important with them and that you will email them some information before then. Be professional.

If the person you are going to ask for a loan or an investment lives in driving distance – drive out there. Bring enough time and do not start asking the moment the door opens. Be polite, be professional. Explain your idea, present your business plan, and explain why you are there. Explain every step and describe thoroughly what you will do to pay back the investment or loan. Be prepared and also explain what you will do in case of failure. How will you pay back the money if your business model does not work and you end up closing it down? Always put yourself into the position of the person being asked, too. It will help you cover questions and concerns.

The moment of truth – The lender responds to your loan proposal.

The person receiving your loan proposal can respond in one of three ways. He/She can:

Approve your proposed loan terms and accept all your terms. Congratulations – you did a great job explaining what your plan is.

Suggests alternative loan terms: your lender does like your plan, but is not accepting your terms. The lender/investor will make alternative suggestions for the terms of the investment/loan. It is up to you to respond. If you did your homework well, you already prepared a plan B with different terms (better terms for the investor/lender). Don’t feel offended, if being asked to provide different terms. You still did very well and you are almost there.

Rejection of your loan proposal: If this occurs, you should try to find out why they rejected the loan proposal. If it makes sense, you can present a modified proposal that contains different loan terms at a later time. But, to be honest – in 99% of the cases you are better off asking somebody else or to come up with a complete different idea of funding your business with venture capital.

As mentioned already at a different topic – the SBA is providing help and funding. Talk to them. It does not cost you anything to talk to somebody who is there to help.