Business Launch Blueprint: Chapter 6

Published July 15, 2012 in Business Launch - 0 Comments

Chapter 6: Paperwork

Not only must you have sufficient funds in place to begin, there is going to be a great deal of paper work in the beginning.

A. Initial startup paperwork: City/County/State/Federal

I’m assuming that the first step in this process has already been completed; namely the creation of your business entity. If not, that should be your first step in the startup paperwork process. There are at least two reasons for this, first, in the process of creating your entity, you or your representative will have selected a name that is not a duplication of another business name within your state, and second, you will report this business name and entity type to the IRS when signing up with them.

The creation and naming of your business entity is filed with your Secretary of State or equivalent.

Also, at the state level:

• You will probably need to get a license from your state department of licensing.

• If you have a state income tax, you will need to create an account through which to file and pay your business income taxes

• If your state has sales tax, you will need to apply for a resale certificate if you’ll be manufacturing goods or purchasing for resale, and create an account with your department of revenue or equivalent, to whom you will pay any collected sales tax.

By the way, I recommend setting up a liability account in your financial system for “sales tax payable”. Whenever you receive sales tax, make an entry for the sales tax that you owe to the state, and don’t spend it! Keep track of the total payable so that you don’t spend money that doesn’t belong to you, and not have it when it’s time to pay it.

If you have employees, you will probably have to file documents for:

• Industrial insurance
• Unemployment insurance

If you will hire minors, there are often special work permits you are expected to obtain.

In addition, depending on your type of business, there may be additional licenses or permits specific to your type of business. How does one find out about them all? It’s not always easy.

You may want to use some or all of the following methods:

• Retain the services of an experienced accountant
• Ask others in similar businesses
• Call the various agencies and ask questions
• Research online or at your local library

At the federal level, you will need to register your business and obtain an Employer Identification Number or EIN. Now there’s a few cases in which an EIN is not required, generally if you’re a sole proprietor with no employees, but I’m going to suggest you obtain one for privacy reasons. Often there are forms that require a federal tax ID, and if you don’t have an EIN, you’re stuck with using your Social Security number.

You may also need a business license from your city or county, and one or more permits to perform certain functions. No one likes to have to obtain these, but they are a cost of doing business.
If, for instance, I owned a brick and mortar store or operated heavy equipment, I would have to deal with my county to get required licenses and permits. You will want to check with your own city and county to find out what they require.

A good accountant can handle most or all of the above paperwork for you, although you will generally need to sign the applications.

B. Ongoing paperwork: City/County/State/Federal

Much of this ongoing paperwork will be related to taxes. You will have taxes at the federal level, in most cases at the state level, and possibly the county and city level. Not only must you factor in paying these taxes, the process of computing them and filling out the required returns is not always simple. Here’s a couple of tips to help you get a handle on them.

First, create a calendar on which you list all of the required returns. This can be handled in different ways. I like to use Google calendar, it’s very easy to set recurring items that repeat every week, month, year or whatever, and I can share my calendar with whomever I choose. Many people like to use the scheduling feature in Microsoft Outlook.

If you want to go low tech, you can just keep a schedule in a 3-ring binder and fill it out once a year, adding to it as necessary. For maximum effectiveness, you will actually need two entries for each return, one for the actual due date and the other for the date you will be doing the work, because you don’t want to fill them out at the last minute.

For example, your Federal income tax return will be completed once per year, though your estimated tax payments will be due once per quarter. If you have employees, you will have a 941 tax return to complete once per quarter. This is how you document your withheld Federal payroll taxes and the employer’s side of Social Security and Medicare tax. Your federal unemployment tax return, if required, will come due once per year.

Be aware that Federal taxes generally must be deposited on a more frequent basis, either estimated in the case of income taxes, or actual in the case of employment taxes.

At the state level, you will probably also have an annual income tax return, and if you collect sales taxes, you will be reporting and paying those once per month or quarter. If you have employees, all states of which I am aware will have industrial insurance returns to file and pay, along with state unemployment tax.

I’ve just hit the highlights here. Unfortunately, there may be other ongoing requirements as well.

No one likes paying taxes, but they are a cost of doing business. If you ignore them, you will pay dearly in the long run. So do whatever you can to reduce your taxes legally, and make it your aim to get them paid on time. If you follow my advice in this section, I believe you will find keeping up with them much easier.

The second thing you can do to keep up with ongoing paperwork is create checklists and informational sheets if you or someone on your team is completing these, versus an outside professional. An outside professional will generally know what do without your help and also remember that they do many of these returns on a fairly frequent basis. The reason for this is simply to save time and aggravation.

Some of these returns will be filled out only once per year or every three months, and often there will be one or two steps that are difficult to remember. By creating your own personalized checklists to follow each time, and including reminders about problem areas as you discover them, you will be miles ahead of the person that has to re-create the wheel each time.

The third recommendation I have for keeping up with paperwork, is put all of your startup paperwork in a 3-ring binder for easy access. You will receive a notice from the IRS with your Employer Identification Number, and each state and local agency will have something similar for the various accounts and records you are responsible to report on. Keeping it all accessible in one location will make your life much easier later. I personally like to use sheet protectors for this purpose, plastic sleeves that you slide pages into.

While taxes and record keeping is required, it’s not going to keep you in business.

Business Launch Blueprint: Chapter 5

Published June 20, 2012 in Business Launch - 0 Comments

Chapter 5: Financing

Identify potential sources of funding if needed

It may be that you will be financing the startup yourself. If so, that will simplify your life immensely.

If you do not have funds required to finance your startup, other options include:

• Personal loan from family or friends

This is an area in which you will want to tread lightly, if at all. Many relationships have been soured by misunderstandings and broken promises when friends and relatives borrow money. If you decide to go this route, keep the transaction as businesslike as possible.

Don’t assume that anyone must loan you money just because they are your friend, father, brother, what have you. Remember, the money they possess, they have probably worked very hard to earn it. Whatever you do, don’t adopt the “entitlement” mentality. They don’t “owe” it to you.

Have an agreement written. It doesn’t have to be as detailed as a bank loan agreement, just state how much you are borrowing and what the terms are, including penalties for late payments.

• Investment by family member or friend

A similar option is for a family or friend to invest in your business. Give them a percentage of your company. I wouldn’t recommend this option for most people, again due to the potential for misunderstanding. There may be differences of opinion as to how much involvement the investor should have in your business. Be aware of those pitfalls before proceeding.

You will also want to ensure that the business you select will be amenable to this arrangement, especially if you will be allocating expenses, revenues, and profits on percentage other than the shares in the company.

• Bank loan

Of course, a bank loan is always an option too. If you have done a good job with your business plan, it will make the process much smoother.

For many small businesses, what we are talking about is an SBA loan. What is an SBA loan?

An SBA Loan is a business loan that is made by a local bank. The loan is guaranteed by the United States Small Business Administration. If the borrower doesn’t pay the loan, the SBA steps up and pays back the bank for a portion of the loss. The SBA guarantee encourages the bank to make loans that is would not make, if the guarantee were not in place. As you might expect, there’s a number of qualifications and hoops you must jump through.

The positive side of programs like this is it gets experienced professionals to look at your business or business plans, whether that makes you comfortable or not.

Whatever option you choose to finance the startup of your business, any funds of your own that you can include will induce confidence in your business. If others can see that you believe enough in yourself to risk your own money, they will be more likely to do so too.

There are numerous examples of people who have borrowed money for their business startup and had it backfire, whether borrowing from more traditional sources such as banks or from family or friends.

One positive example is Debbi Fields, the creator of Mrs. Fields’ cookies. When looking for startup funds for her business, she was discouraged from even trying by her family, and almost all of the bankers she approached wouldn’t touch her business. This was in the late 70’s. One banker did finally agree to loan her the money, at 21% interest.

That was clearly a gamble, and in her case, as we all know, it paid off. She is probably a multi-millionaire today due to her tenacity in doing whatever it took to get her business off the ground and running successfully. Today, she could have started an internet-based business, for very little money and used the funds from her business to finance her cookie business.

I want to be clear: I think the best scenario is not to have to borrow money at all. If you must borrow, negotiate the best terms you can, and do whatever you must to pay it back.

Business Launch Blueprint: Chapter 4

Published May 14, 2012 in Business Launch - 0 Comments

Chapter 4: Mission Statement/Planning

A. Mission Statement

Here’s a helpful definition of a mission statement:

A Mission Statement defines the organization’s purpose and primary objectives. Its prime function is internal – to define the key measure or measures of the organization’s success – and its prime audience is the leadership team and stockholders.

A mission statement is what you place on your wall, to remind you of what you are doing and why.

B. Business plan, including costs

A business plan is often required if you go to a bank for financing, and we’ll be talking about that in a later section, but in reality it should be completed for any business…whether financing is required or not. All of the research you conducted and the decisions you made will be reflected in your business plan. There are many guides available to help you with your business. One resource for U.S. residents is your local SCORE chapter, where you can get help with your business plan if necessary.

In essence you are putting to paper what your business is, or will be, what it will be doing, what are the challenges you will probably face, and what will be the result of your operations? It doesn’t have to be long, convoluted document.

A well written business plan can help you stay on track if you lose track of what you’re supposed to be doing. If you bring on employees for key positions or even joint venture partners, your business plan can help to communicate what your business is trying to achieve.

Business Launch Blueprint: Chapter 3

Published April 9, 2012 in Business Launch - 0 Comments

Chapter 3: Decision Time

A. Target Market

In the chapter, I suggested that you pick 3 or more markets to study in depth…now select one that seems to be the best bet for you and has the most viable market. You may need to narrow the market down. Especially if you are marketing online you may need to focus on a narrower niche. As an example, if you chose bicycling, you should look at mountain biking, or biking over 50, or bike racing and the reason is that the tighter the marketing niche, the more clearly you’ll be able to understand their needs and desires.

This is important because your goal should be to become a trusted advisor for your customers. The more directly you can speak to their real or perceived wants and needs, the more they will trust you. This task is much easier to accomplish if you narrow your niche.

B. Develop your USP

USP stands for “Unique Selling Proposition”.

What makes you unique, standing out from everyone else? The average person is hit with thousands of marketing messages every day, through the various media they encounter. But your prospect only cares about his or her wants and desires.

That is how it should be!

The best way to get and hold their attention is to communicate exactly how you will benefit your prospects, in terms that make sense and matter to them.

There’s a lot of helpful material available on the issue of crafting your USP. Jay Abraham teaches extensively on the subject, as does Mark Joyner in his book The Irresistible Offer.

C. Company name

When choosing your company name you should look at the following criteria:

1. Do you want your own name in the company? If you plan to sell the company later, probably not.

2. If you want your domain name to be the same as your company name, then you will have to check to see if the domain name is available. If so, then buy it before you register your company name with your state, or your domain name may be gone.

3. Try to convey some benefit to the prospective customer in your company name (try using your USP in the name). A good example of this is the company Guaranteed Resumes. From the name, I can tell they provide a resume service, and in some sense offer a guarantee for their service.

D. Domain Name

You should have at least one website, describing what your company does and giving customers and prospects a way to connect with you on the web. A domain name can be purchased for about $10, and once you have found the one you want, you should buy it even if you’re not ready to put up your website. Otherwise, someone else may buy it in the interim.

If you already have one or more domain names picked out and are comfortable with the process of selecting a domain name, great? If not, I’ve included some pointers to guide you.

These are some tips that I have picked up by experience. None of them is unique to me but I think it’s helpful to review them because if you’re just starting out, you might not be aware of all of them.

First, in almost all cases, you will want to choose the .com name. There are three reasons for this.
A. Some browsers will automatically put in the .com if the person types a domain without the extension.
B. Many people put in the .com unconsciously, so if you choose a different extension, you will be sending traffic to someone else’s site.
C. Some experts argue that the .com has a slight search engine benefit.

There are some exceptions, the main one being if you are doing business in another country and you primarily sell to people in that country, then you will likely want to choose that country’s extension. For example, in the United Kingdom, the extension is .co.uk. In Australia, it’s com.au, and so forth.

Now why are people sometimes tempted to use something other than the .com? Well, the reason is that many of the good .com names are taken, and so people look at the .net, .org, or other extension. While that might be acceptable for an informational type site or if you’re not a commercial enterprise, for your company’s main web site you should go with the .com.

The second factor in choosing a domain name is you want it to be easy to spell. In other words, you will want to avoid words which have multiple ways of spelling, or are easily confused with other words. Examples of these words would include the word, “to”. Is the word “t-o”, “t-o-o”, or “t-w-o”? If someone types in your domain name but gets even one character wrong, the traffic will not go to your site and may even end up at another person’s site. So you can see that selecting a name with easy to spell words is a must.

The third factor in choosing a domain name is you want it to be easy to say over the phone. If you’re talking with someone on the phone, or you have a radio ad, or a recorded interview and you mention your domain name, the person will have to write it down or remember it later if they are going to visit your site. Therefore, easy to spell words are important, as I just mentioned, but also consider things like having words that end in the same letter that the next word begins with, like SamsSports.com. This can be confusing for the end user, is there one “s” after “Sam” or two? Also avoid the use of dashes for the same reason. It’s difficult to convey to someone unless in print.

The fourth factor, and this is a little harder to get a handle on, is the domain should be memorable. If you can include some alliteration, anything to make is stand out, it will be to your advantage. A great example is Ralph Wilson’s site WilsonWeb.com.

And that is also why domain names that are too long can be a mistake; they are often simply too difficult to remember.

Now I’ve spent a lot of time on domain names, and it’s important because the domain name is your real estate on the internet. It’s where you are located. It’s been often stated for a brick and mortar business that the three most important factors are location, location, location, in other words the actual real estate where you are located. And on the internet it is no different.

There are many tools available to help you select a domain name, and one that I like is domaintools.com.

One other point about selecting names, and this refers both to domain names and business names, there are professional naming companies. There really is a science to it and while I wouldn’t recommend this step for everyone, it may be worth consideration if you’re willing to pay the fee.

E. Location (If Physical Business)

If you will a brick and mortar business, obviously it needs to be housed somewhere. Even if you will only be operating virtually–on the internet or via mail order– your office will need to be located somewhere.

Will it be in a spare bedroom, or dedicated office space in your home? I can tell you from experience that this is a challenge with young children in the home.

One way around that challenge is to discipline yourself to get up early–before the kids do– and get as much work done as you can before the kids get up.

F. Business Entity

Your choice of business entity is an important one, and has at least three aspects: legal, tax, and image.

The legal aspects mainly have to do with liability management. You want to have liability protection to counteract the effect of someone suing you unjustly. A properly structured business entity will protect your personal assets even if you business loses everything.

The tax aspects refer to reducing your taxes to their absolute minimum. I have in mind here Federal taxes, though you will also probably have state and local taxes you must pay.

I recommend doing some research on your own, and then going to an attorney and CPA or Enrolled Agent for advice on your choice of business entity.

An attorney will be more interested in the legal aspects of your choice, unless they also specialize in taxation, and many do. The CPA or Enrolled Agent will be more in tune with taxation issues. Some attorneys are also CPAs so bear that in mind as well.

I’m going to recommend that you get several recommendations before seeing professionals on this issue, and then try and get some sense of how much they are going to charge to give you the advice, and whether they are amenable to having you file the documents yourself if you choose.

Another strategy is to decide which tax preparer you are going to use, and ask for their recommendation on a local attorney to advise you on the entity issue.

The third aspect, image, may or may not be important to you. The prestige of a corporation is important in some markets, and in others it doesn’t matter.

Business Launch Blueprint: Chapter 2

Published March 5, 2012 in Business Launch - 0 Comments

Chapter 2: Market Research

Knowing Your Market

A. General Economic Conditions

Be aware of the economic cycle we are in right now. In periods of economic downturns, as we have experienced for a few years now, people’s spending habits are different than when the economy is booming. Unnecessary purchases are cut back. That doesn’t mean you should rule out any particular market based on the economy, but you may have to work a lot harder to get the same sales you could if things were brighter. Marketing and positioning come into play here.

B. Specific Market Research

By now you should have some idea of potential market that you want to explore, based on your work history and other interests.

If you are not sure, you want to be in a market where people spend money. Makes sense, doesn’t it? Don’t get caught up in the trap of trying to “create” new markets; i.e. manufacture demand where people are willing to spend money where they were not before.

One easy test is to check a local magazine rack to see if there are one or more magazines on the topic. OR if you want to start a brick and mortar business…just look around and see if there are other people doing what you want to do.

Come up with at least 3-4 potential markets and get an understanding of who the market is and their demographics. How often do they buy, how much do they spend… and ultimately, what motivates them to buy in this market? This knowledge will help you later when crafting your sales messages and may also be a guide to joint venture projects to join and create.

If you get stuck in the research phase, there are numerous places online to do market research… eBay, Amazon, other book sellers, Google trends, and many other places that are in most cases free.

Once you narrow down your choice to a handful of markets, consider actually participating in that market as a consumer, if you have not already. Buy a product and take note of the sales process, and learn all you can.

C. Competition

Competition is another form of market research. You can learn a great deal from what other people are doing to serve the same market.

If there are no competitors, then you may want to consider that your marketing idea is not the best because there are very few untapped markets today. In other words, there may not be enough business in that market.

It is not a hard and fast rule, but especially if you are starting out, you should work where you know people are buying.

When you find competitors in your niche, you should study your competitors carefully and look at how they communicate, and observe the sales process… if they do upsells and down sells, and related services, coaching and extended programs. What they do and how they do it will teach you about what works, if they are successful.

Ideally, you will find a market with lots of demand and you then identify some segment that is underserved. For example, there are thousands of people every day that are looking for dog training information, and many sellers of that information. What you could do is serve a segment of that market and be the best at doing so. You might focus on a certain breed of dog or a certain type of training.