Starting a New Business
By
Jim W. Norman, CPA
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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