Starting a New Business

By Jim W. Norman, CPA

jim@njcocpa.com

 

Got a great idea and want to start a new business to exploit it?  There is a lot to consider and professional help often smoothes the way, but here are some basic considerations and tips in starting that new business.

 

First step, select a business structure.  Should you be a corporation, partnership, an LLC, a sole proprietorship or other hybrid form of business?  Both taxes and liability are important issues here so the advice of an attorney and CPA would be helpful in determining the best form.  Once you make the structure decision you can select a name and obtain a Federal Identification Number, if required.

 

If you haven’t already done so, now is the time to formalize your business plan. Next to a good business idea, a business plan is the most important part of the process. Put it down on paper, showing the math. Estimate sales in units and dollars. Be detailed, very detailed.  Project your cost to sale and overhead to run your business.  Discuss how you will handle the unexpected such as too much or too little sales, lack of materials, and obtaining then training employees.  In addition to a narrative of the plan a projected budget based on a range of expected sales should be developed.  Rule one here is don’t fool yourself.  Be realistic with your sales forecast and budget. Bounce your ideas and plan off of family, business savvy friends, and professionals such as bankers, business attorneys, and accountants.  Don’t be afraid of criticism or discovery of weakness but rather seize those points as opportunities to fine-tune or discover missed considerations.

 

Once you have convinced yourself that the plan is rock solid it is time to determine financing requirements and marketing plans.  Do you have all the financial resources to make the plan work? Should you take in investors? Will you need to borrow? Should that be long-term or short-term borrowing?  Will you have the time and talents needed to develop a marketing plan or will that be best handled by an outside firm? What is a reasonable budget for a successful marketing and advertising campaign?  This is a good time to develop a relationship with a business banker that can help you evaluate your plan from a lenders point of view.

 

Now you should set up your tax year and accounting based on the type of structure that you chose and any natural season to the type of industry you are in. Should you be cash or accrual basis accounting?  Tax or GAAP basis accounting? Computerized or manual accounting?  Do you have the time and expertise to do accounting yourself or should you use a bookkeeping or CPA service?  What level of reporting will your banker, bonding company, or investors require: compiled, reviewed, or audited reports? What type of information will you need for timely management of the business?

 

If you didn’t already consider taxes when you were in the business planning and budgeting process, now is time for your wake-up-call. A CPA can lead you through the ins and outs of the Federal and state income, employment, sales and other tax burdens that you will encounter.  If you will be a not-for-profit organization (not an unprofitable organization) you should consult IRS Publication 557 and file for Tax-exempt status.

 

Next leap – employees. Take the time to learn about payroll withholding and social security reporting before hiring any employees. Learn about workplace requirements for small businesses by obtaining the Department of Labor’s Small Business Handbook.  Learn about unemployment taxes and reporting along with workers compensation issues.

 

During this process you will have probably determined your need for a business location.  Will you work out of your home or lease space?  Is visibility important? Is access important?  Are you in the city or county and is there a license required by either? Is your location, especially a home based business, properly zoned for your business?

 

Once you have your plan developed, your employee requirements identified, and a location identified you should get an understanding of various insurance issues pertaining to your type business or industry.  You had this in your plan, didn’t you?

 

Now its time to implement the business plan.  The more detailed you made the plan, the easier it will be to implement.  Implementation is the time to move in, obtain furniture and equipment, hire employees, develop product, make sales, and move your business into the operational stage.

 

You can do it all yourself depending on your time and talents or you can outsource many of your requirements.  In the business startup and operations scenario it’s generally a case of many heads are better than one. 

 

 

For further information on this subject:

 

A helpful Check-list for Going Into Business may be found at the U.S. Small Business Administration web site: http://www.sba.gov/library/pubs/mp-12.pdf

 

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