So, You Want to Start Your Own Business? – Part One

As you may know, Small Businesses are the backbone of this country.  So, by now, if you've told someone you are interested in starting your own business, you've gotten a lot of business advice probably from everyone you've talked to.

How do you know what to do?  Who do you listen to?  What advice to you take, and what advice do you run away from?

These are all good questions, and I had to process through them myself when I started my own business.  While I don't have the definitive answer, I do have some suggestions I can share that helped me.

Before actually opening the doors I consulted with a CPA and one of the first things I had to decide was what type of business style I would use:

  • A Sole Proprietorship – an individually owned and operated business
  • A Corporation – a legal entity that exists separately from it's owners
  • A Limited Liability Company (LLC) – similar liability protection as a corporation but is taxed differently
  • A Limited Partnership – one general partner who acts as the controlling partner and the other partners share of the liability is determined by the amount of control or participation they are engaged in
  • A General Partnership – when two or more people form an association
  • A Limited Liability Partnership – designed for people in the professional services business

I also had to choose the accounting method that would be the best for my business:

There are two major types:

  • Cash Basis Method: This is what the name implies; you recognize income when you receive the cash and you recognize expense when you pay the bill. Most service businesses operate on the cash basis because it is much simpler to understand.
  • Accrual Method: Here you match revenue with expense regardless when the cash may or may not be collected. If you sell a product to a customer and he doesn't pay you for 30 days, the sale is recorded in the books on the day that you made the sale. When the money comes in the "accounts receivable" is then turned into cash. The same with expenses: if you incur an expense on one month but don't pay until the next month, the expense will be recognized in the month in which you incurred the expense. If you're in manufacturing or deal with inventory, the Internal Revenue Service generally requires that you be on the accrual basis.

Additionally I needed information on how I could fund my business, so I checked on the Internet and found several sources for both financial and technical assistance:

  • The Small Business Administration (SBA).
  • SBA guaranteed loans to businesses, handled through banks.
  • Local community banks, funded by the federal government
  • Tax incentives available for hiring minority employees.
  • Trade organizations.
  • Service Corps of Retired Executives (SCORE), which is a nonprofit organization whose goal is to help small businesses become successful. SCORE offers workshops and seminars on various business topics and may give you the opportunity to talk to someone who has been down the same road before.

And one of the most important things I needed before I started, was a business plan.  A business plan is going to be useful in a number of ways:

  • First and foremost, it will define and focus your objective using appropriate information and analysis.
  • You can use it as a selling tool in dealing with important relationships including your lenders, investors and banks.
  • Your business plan can uncover omissions and/or weaknesses in your planning process.
  • You can use the plan to solicit opinions and advice from people, including those in your intended field of business, who will freely give you invaluable advice. Too often, entrepreneurs forge ahead ("My Way!") without the benefit of input from experts who could save them a great deal of wear and tear. "My Way" is a great song, but in practice can result in unnecessary hardships.

You can register for an on-demand course – Creating a Business Plan and Marketing Your Small Business – at Dell SB360.

Stay Tuned for Part Two of:  So, You Want to Start Your Own Business, where I'll discuss topics such as:  Naming your Business, Finding the Right Location, and Tips on Marketing Your Business.

About the Author: Robert Peek