18 MONTHS IS KEY !Have you started or are you considering starting a business? Want to ensure a higher probability of success? Lay out your intentions for 18 months. The first “6 quarters,” as most business folks call it. This is a magical number. Why? >>-> MORE >>->
Dated December 8, 2009 Topics: Business Planning, Tip of the Month
Is It Right for You?
Hundreds of thousands of individuals decide to start a home-based business each year. Many succeed. About 70 percent of all home based businesses are in operation after two years. Before entering this venture, entrepreneurs should consider several key questions… >>-> MORE >>->
Dated December 8, 2009 Topics: Ask SCORE, Business Planning, Entrepreneurship
Here is a proven, simple approach that can be used to accurately forecast the market-for and sales-of your product or services. It consists of 5 easy steps. Follow them and arrive at a good estimate of your opportunity. Your market and your share. >>-> MORE >>->
Dated November 7, 2009 Topics: Business Planning, Chairman's Message, Marketing and Sales
You have a fantastic idea for starting your own business. But, will others get excited about it too? Who will find that it meets their needs or desires? Business ideas can appear in many forms, but all ideas need to be analyzed to help make decisions that will increase your chances of success. Here’s how to do it. >>-> MORE >>->
Dated June 29, 2009 Topics: Ask SCORE, Business Planning, Marketing and Sales
Below are a dozen videos selected for their valuable business tips and example cases about diverse topics. Cash Flow is one of the most critical as is Sales Tracking.
Dated April 1, 2009 Topics: Business Planning, Cash Flow, Finance and Accounting, Management, Marketing and Sales, Video
What form should my business take? This is often the first question aspiring entrepreneurs ask themselves. Should I form a corporation? Does a sole proprietorship make sense? Do I need to name my business? How do I register my business’s name and what does that mean?
BE SURE TO SEE ACKNOWLEDGMENTS AND DOWNLOAD OPPORTUNITIES BELOW.
While these should not be the first things that you think about when kicking off a business—business planning should be—it is worthwhile considering some of pros and cons of the various business forms. The business form you finally select can affect your taxes and can serve to protect your personal wealth. Sometimes, the selection can save you time, money, and legal worries, as well.
The objective of this article is to demystify the process for you. We’ll discuss some of the business entity basics, refer to what experts have to say about each form, and present you with access to two excellent presentations on the subject.
This is only a start, though, and no substitute for consulting one-on-one with experienced experts. It is always wise to seek legal and financial accountant advice—and seek out advice from SCORE®.
There are three basic forms for you to consider first.
The simplest form of business entity is a sole proprietorship (refer to diagram 1 below.) Recommended for many small businesses, a sole proprietorship is your best choice if your legal risks are minor, you don’t plan to employ more than a few people, and your tax implications are not significant.
The second choice, the S-Corporation is good for small businesses who expect to encounter some legal risk and more tax challenges (refer to diagram 2 below.)
Limited Liability Partnerships, the standard Corporation or C Corporation, makes sense for the rest. (Limited Liability Corporations and Partnerships will not be discussed here, but are discussed in the PDF presentations accompanying this article.)
1 SOLE PROPRIETORSHIP TOP-LEVEL STRUCTURE
2 CORPORATION TOP-LEVEL STRUCTURE
If you are just getting started, the Sole Proprietorship and S Corporation are worth considering. They appear to be the lowest cost to manage & maintain. In the case of the S Corporation, it provides a sensible balance of tax and liability advantages for the small business owner.
3 Sole Proprietorship pluses and minuses
4 S Corporation Defined (Note the tax points.)
If you expect to build a large business and have many stockholders, a regular C Corporation might be a better choice (refer to diagram 5 below.) It should be noted that you can change your business form as circumstances warrant. Your business form should be reviewed periodically to ensure it is aligned with your business type and interests.
Home businesses, by default, are sole proprietorships if they involve one person. You need not do anything to assume this form. It is the default form assumed by the IRS and other governmental institutions. For tax purposes, all you likely need is your social security number.
However, this form is not the best if you think you may encounter liability exposure such as personal injuries, product warranty issues, etc., in your business. Also, there are some tax related “downsides” to the sole proprietorship, as shown in the diagrams. In this case you may wish to consider a form of business that separates your personal wealth from that of the company. You might need to go directly to one of the Corporate forms.
5 S Corporation LIMITATIONS
When the time has arrived to consider the form of business, perhaps sometime after you plan and begin to build the business, we recommend you visit SCORE® or some of the other free business counseling services, such as the SBDC (Small Business Development Center) at Kirkwood, to get some pointers and advice regarding how to step logically through this process.
If you have a family lawyer, you can also consult him or her. There are also some very low cost legal advisory services in the state of Iowa that can help you make decisions. Contact SCORE® Counselor for further information. There is no reason to spend a lot of money in forming a business, so look for sensible, high quality yet affordable advice. Study, learn, understand completely and then act.
If you wish to read more, please download the presentations below. They are in PDF form.
CLICK ON IMAGES TO DOWNLOAD EITHER OR BOTH.
ACKNOWLEGEMENT AND THANKS
The helpful diagrams in this article were provided courtesy of Amanda M. D’Amico, of Moyer & Bergman PLC, Attorneys at Law.
Ms. D’Amico is a past presenter in SCORE®’s “How to really start your own business” business startup course which is offered 3 times a year for a modest price. It provides a wonderful opportunity to learn about business forms and all other topics related to starting and managing a business. See THIS LINK for more information.
Dated March 1, 2009 Topics: Business Planning, How To's, Tax Info
Constructing a business plan can intimidate many aspiring entrepreneurs. In this special lesson, we will demystify this often scary business necessity; discuss how it can be a valuable learning experience and perhaps even fun. We will walk you through four simple steps to arrive at a Plan and clarify how it vastly improves your chances of success. While there are many volumes written on the subject, we thought you might benefit from the basics that have built successful global businesses right here in Cedar Rapids.
Business planning can be a fabulous and joyous exercise if you view it as a sales pitch for the “doubters” in your world; the people who have implied your idea won’t work. Entrepreneurs, by definition, are folks who know they have a better idea than others who have gone before—regardless of what anyone else thinks. If you view the business plan as a production to unequivocally convince others that you are about to take the world by storm, you will find yourself in the right frame of mind. Better yet, if you keep asking yourself “Am I crazy?” until you have documented your business well enough to answer “No Way”—and have others say the same thing―the result will be an outstanding Plan.
(This is not to say you should not exhaust yourself reading, studying, considering and collecting information about the business you want to start, but all of this does not need to go into the plan. You may fill a file drawer with background information and calculations, but this is not your plan, this is research.)
Have fun, spend some time on it. Three to six months planning usually results in a winner. If you adhere to the following four steps, you will greatly increase the chances of your business succeeding. Do any one wrong and you risk failure. They are that critical.
a. What is it the business sells and how do you describe each specific “product.” A product can be a service, part, system, project, program or whatever you choose to call it.
The key is to first describe to a layman what it is in general terms; Example: We will produce a robot that walks around a room while singing the ‘Sound of Music’.
If you expect to have more than one product, one product definition per page is strongly suggested.
b. Once described in general terms, define each product as precisely as possible and give it a label. How is it built and what specific pieces make it up?
This helps to determine cost properly—which is critical. (Product definition in too fine a detail is not possible—the more precise the better.) Example: Cup of Coffee consists of beans, grinder, water, means of flowing the water over the beans (brewer), containers, cups, cream, sugar, spoons, saucers, etc., etc. Exhaust yourself thinking of these things.
c. If in doubt about how to do this, learn from an expert such as those at SCORE®. They counsel businesses at no cost.
Fancy word: Market Characterization.
a. FIRST, how do you describe your typical customer? List their characteristics with the key attributes first.
b. SECOND, how many customers will you plus your competitors have for each product in each month for 18 months? (Not how many you will sell each month but how many are out there to sell to. You must assume you will not be alone.) Write this down for each month over 18 month period—preferably in 18 columns. (Note: Spreadsheets are great for this.)
If the market is the same size each month for all of your products, that’s great. If not, and you feel the available customer number is growing or shrinking, do the forecast/prediction for each month and product.
c. THIRD, how many of the potential customers will you sell your product to each month for 18 months? (Example: Month 1: 1; Month 2: 4; Month 3: 7; ….etc. to Month 18). If necessary, calculate this based on some assumptions. Be very conservative early on. The best businesses work very hard on this. Fancy word: market size and share.
Write down the things you can and will do that the competitors cannot or do not do. These are called your “competitive advantages.” They must be good enough to get the unit sales you outlined above. The more, the better. One compelling advantage may be enough.
Write down, by month, what tasks that you will undertake to make the sales you predicted above. This must support/justify the unit sales above.
Anticipate and write down how your competitors may be able to outmaneuver you.
Construct strategies you will use to counter each of the competitor moves if they make them.
Then, by month:
a. Subtract the COST of the product you sell (materials, assembly labor, other production costs). Work hard on this to get your costs right—missing nothing. (Again, recommend 1 page per product cost exercise in rough form.)
b. Subtract any other costs (good to group in classes like General & Administrative, Marketing/Sales, Research, Product Development, Shipping, Other.) Your sales minus these two items (a. and b.) is your before tax profit.
Business thoroughness requires you do the sales and financial forecasts for three (3) scenarios at a minimum. The three scenarios should always be: Plan (what you expect), High (if things go much better than planned), Low or Wipe-Out (if things go badly.) You may factor your base forecast up and down, if you wish, or do a “bottoms-up” plan considering a set of outside factors quite different from your “base” plan.
Financials are the last thing to do: The financial “wraps,” meaning a complete financial package to include things like the Income Statement and Balance Sheet over time, are pretty straightforward for someone who helps with your accounting and/or finances. They won’t help if the first three (3) steps above are done wrong. Get those right first–always.
That’s it. You’ve completed your business plan. Now that you’ve seen it all in four easy steps, it doesn’t’ seem that hard, right?
For deeper detail, and if necessary, CALL ON THE EXPERTS at SCORE®. We can serve as no-cost instructors, mentors, advisors and a sounding board as we develop your plan. All the mentors in SCORE® are proven “winners.”
Dated March 1, 2009 Topics: Business Planning, How To's