Your business may be small but it will need to comply with many federal, state and local regulations that govern its operation.  Trying to ignore the regulatory requirements may be the easy thing to do short term, but will come back to haunt you long term and make it difficult for your business to grow.  You will need to spend an equal amount of time learning the various regulations as you do studying your marketplace.

Next we will cover some of the more common regulatory requirements which could affect your business.  Regulations do vary as to the industry you’re in so don’t think that the list is all inclusive.  Just a couple examples to demonstrate would be restaurants need to deal with the health departments while environmental regulations also affect businesses that deal with solvents and chemicals.  You will need to research your industry and the regulations which affect it.  Ignorance is not an excuse and penalties could cause you legal jeopardy, penalties and legal expenses.

Licenses for Business

In order to legally run your business nearly every place will require a business license.  The location of your business will determine where you need to obtain your license.  A business in a city will require you to obtain a license from the city.  If the business is outside city limits you will need to turn to the county.  In either case you should contact the local office to determine the licensing requirements.

Business Structure

When you start a business there are many different legal structures which can be used.  Examples are Limited Liability Corporations, C and S Corporations, Sole Proprietorships and forms of Partnerships.  When choosing the structure of your business, you should consult with tax and legal counsel to determine what structure is best for your personal situation.

What is a Fictitious Business Name

When the owner of a business forms a company which is operated under a name other than the owners, the owner must register that fictitious business name with the county government.  There are exceptions to this rule for corporations that are operating under their corporate name and for partnerships that are practicing their chosen profession.

You May Need a Certificate of Occupancy

Some zoning agencies for local cities and counties will require a Certificate of Occupancy for a business that plans to occupy a new or existing building space.  To get more information on this you will need to contact your local city or county office.

Trademark, Patent or Copyright to Protect Your Concept

In some cases you may want to protect your business by filing for a Trademark, Patent or Copyright. 

A Trademark or Service mark can be either a name or even a symbol which are generally valid for 10 years and can be filed in your specific state or registered federally at the US Patent and Trademark Office.

In matters of thoughts or ideas Copyrights can be used for protection.  The owner of a Copyright should put notification on their works to hinder any un-authorized use.  To get additional information on Copyright you can contact the US Library of Congress.

If you have an invention you may need a patent and when it comes to patent procedures an attorney is highly recommended.  The process is generally complex and a patent search is completed to make sure the idea has not been previously patented.  You can find additional information at the US Patent and Trademark Office.

Tax Withholding

The law requires that any employer must deduct income taxes from any wages which are earned by employees.  Those taxes include Social Security, State and Federal income taxes.

A business is also required to pay income taxes on its own earnings and in some cases send in quarterly payments based on estimates for State and Federal taxes.  In addition, a self employment tax is assessed to the owners for their Social Security contributions. 

A good source for additional information is the Internal Revenue Service website.

Insurance

There are many kinds of insurance to protect your business against loss.  You should discuss you business and its insurance needs with your licensed insurance agent.  Some of the types of insurance coverage for businesses are listed below.

• Business insurance protects your businesses contents from losses due to theft, fire or other means.
• Property insurance comes in a variety of types to protect your business from damage or the need to rebuild.
• Liability Insurance covers things like product liability or injuries to customers on your property.
• Key Man insurance should be considered when a single key employee is so vital to the business that loss or incapacitation of that person could cause your business to cease operations.
• Interruption of business insurance is used to cover the fixed business expenses should it cease operations due to damage or destruction.
• Automobile insurance will provide coverage for any costs stemming from liability or repair and replacement costs due to damage.
• Officer Insurance provides coverage for any actions of office or director should they be held personally liable.
• Home office coverage will insure any office equipment used in a home office environment as most standard home policies do not provide coverage.

Sales Tax

A state sales tax number is needed to conduct business as nearly every tangible asset that can be sold is subject to a sales and use tax.  The number is used when reporting and remitting taxes to the state.  For more information on getting your sales tax number you should contact the government in your state.

Miscellaneous Items of Note

State and Federal agencies have set up regulations for to protect the rights and safety of employees.  Some of these are listed below with more information available from your local and state governmental agencies.  Federal information is available at the US Department of Labor.

• Unemployment taxes are required from businesses for the coverage of its employees.
• Employers must verify the employment eligibility of any person hired per the Federal Immigration Reform and Control Act of 1986.
• The Federal Occupational Safety and Health Administration was established to protect workers from unsafe work environments.
• Workers compensation must be carried by businesses employing more than 3 employees to protect workers injured on the job.
• Federal minimum wages affect nearly all businesses to establish rules for overtime, minimum age requirements and minimum wage requirements.
• Many businesses require bar coding to be placed on the packaged products they offer. GS1 US assigns an ID code for this purpose.

A vital part of getting any start up business successfully off the ground is obtaining secure and appropriate financing.  Raising capital is a fundamental part of all business activities.  What every new business owner soon comes to realize is that raising capital is not necessarily easy.  Coming up with capital for your start up can be a difficult and frustrating process.  However, raising capital does not have to be painful if you are informed about the process and plan effectively.

Where to find the money you need.

You have several options which you should consider when searching for financing.  Take the time to research all of them prior to making your decision on the best course to take.

• Personal savings is the most common source of capital when for start ups. Some will even use credit cards to finance their business, but there are much better options available even when talking about small loans.
• Some entrepreneurs will turn to private sources for funding the start up that include relatives or friends. Many loans from these sources end up being interest free or very low interest rates that help to decrease the overhead for the new business.
• The most common source of third party funding of start-ups comes from credit unions and banks. They will often make business loans if you can show them that your business proposal is well thought out with good potential.
• There are also venture capital firms that will help fund start-ups usually in exchange for partial ownership or equity.

Borrowing Money

There is a misperception that it is difficult for start-ups to borrow money, which is not necessarily the way it is.  Banks want to lend money.  It is the business they are in and how they create earnings.  What makes the process difficult is that owners of start-ups are often times inexperienced in financial matters which can cause a bank to reject requests for loans.

If you request a loan for your start-up without being properly prepared you are sending a poor signal to the lender.  What you are immediately telling them is the loan will be a high risk.  To increase your chances of success you need to organize and prepare for the meeting.  Have a thorough understanding of how much money you will need, for what purpose and how you intend to repay the loan.  If have it well planned out you will present yourself as a better credit risk.

Loan Maturities for Start Ups

Loans designed for business are typically intended to be longer in duration, but are actually dependent upon the ability to repay, the assets useful life and the general purpose for the proceeds.  The maximum loan maturities have been set at 25 years for real estate and equipment can go up to ten years depending on its useful life span.  Working capital for the business is generally limited to seven years.  If a business has short term or cyclical needs for working capital short term loan solutions are also available.

Loan Types for Business

When it comes to business there are two basic types of loans available and the terms will vary by lender.  The two types are short-term and long-term.  Short-term loans typically mature in a year or less and are most often used for accounts receivable, working capital or may be held as a line of credit.

A long-term loan typically falls between a one and seven year maturity.  It the loan is for equipment or real estate the maturity might extend for up to twenty five years.  These long-term maturity loans are used for major business expense situations such as purchases of facilities, real estate, equipment or construction.

Putting Together your Loan Proposal

The presentation of your loan request will have a major impact upon its approval.  You need to present yourself and your business in a positive light with a thorough knowledge of your financial needs and situation.  Financial institutions are in the business of lending money, but they want to make loans which they feel will be repaid.  To impress this upon them and improve your chances of success make a written proposal.

A well thought out loan proposal will contain:

General Business Information

• Business name and address.
• The names of the principals and their social security numbers.
• Spell out exactly why the loan is needed and what it will be used for.
• Provide the exact amount of financing you need.

Business Description

• Give a history of the business.
• Describe the nature of the business.
• Include business details such as age, business assets and number of employees.
• Give specifics on the company’s legal structure.
• Provide details on the ownership structure.

Overview of the Management Profile

• For every principal in your business give a short overview that includes their accomplishments, skills, education and professional background and experience.

Overview of Market Information

• Describe the products of your company and the markets served.
• Offer a profile of your clients and customers while describing how your business serves their needs.
• Explain your competitive market. Identify your competitors and how your business competes including any advantages unique to your business.

Financial Information of Business

• Give the business’s financial information for the last three years or as long as in business including the statements, balance sheets and income statements.
• Also include a projected income statement and balance sheet.
• Give financial statement from all principals to the business.
• List any collateral you are willing to offer in order to secure the loan.

The Review Process for your Loan Request

The first consideration for any lender when reviewing a loan is probability of repayment.  A commonly used method to determine that ability to repay is for the loan officer to pull a credit report on the business from a credit reporting agency.  It is a good idea to work with these credit reporting agencies in order to ensure an accurate credit picture for your business.  The loan officer will take the credit report and the information provided by you to consider the following:

• Is there sufficient cash flow for the business to make the monthly payments timely?
• Are your background, education and experience sufficient to successfully run your business?
• Have you demonstrated your understanding of your business and a commitment for its success by submitting a professional business plan and loan proposal?
• Are your credit history and work history solid as demonstrated by a credit report and letters of reference?
• Have you established a personal stake in the business by investing personal assets or equity that amounts to 25% to 50% of the requested loan. You need to understand that an outside source will not risk funding 100% of someone else’s business.

Before you sign that lease on your business space here are some questions you need to get the answers to.

• Does the lease explain how any disputes will be handled?
• Will the landlord be requiring non-disturbance agreements from future or current lenders?
• If required repairs are not made timely by the landlord can the tenant make those repairs and get reimbursement from landlord through deducting cost from rent.
• Are remedies defined for cases where use of the building has been interrupted such as cancellation of lease or rental abatement.
• Do the terms of the lease give the tenant the right to audit the records and books of the landlord?
• Does the lease require the landlord provide a CPA prepared list of expenses in support of any rent increases?
• Have the base year expenses been adjusted for full occupancy or do they reflect full occupancy?
• Are there specifications in the lease as to the buildings square footage and the total square footage of the premises that is rentable?
• What is the tenant’s share of expenses based upon? Total square footage of the building or the square footage being leased by the landlord.

The Language of the Lease

Even when a business plan is successfully drawn up remember that it will evolve as a work in progress.  A business that is growing should update the business plan in order to keep it current.

This outline can serve as a guide to writing a common business plan.  Based on the specific needs of your business you can adapt it to meet those needs.  The task of writing your business plan is made easier by breaking the task down into its smaller components.

The introduction

• Furnish a description of your business in detail along with future goals.
• Address both the legal and business ownership structure.
• Make sure to mention what you bring to the business in terms of skill and experience.
• Address any competitive business advantages your business has over competitors.

Marketing

• Discuss the various services and lines of products which will be offered.
• For your products and services you should identify the consumer demands.
• Recognize and identify where your market is. Both its location and size.
• Address your advertising and marketing plans for your products.
• Identify the pricing strategy for your products and services.

Financial Management

• Disclose your starting equity capital and the source of it.
• Work through the business’s first years operating budget.
• Project cash flow on a monthly basis and investment returns for the first year.
• Develop balance sheets and project income for a period of two years.
• Calculate out your breakeven point.
• Disclose your compensation, the method of compensation and explain your personal balance sheet.
• Address various approaches to “what if” situations for potential problems which may come up.
• Explain how your accounting records will be kept and who will maintain them.

Operations

• Develop and explain how the day to day operation of the business will be managed.
• Explain your human resources policies with hiring employees and employee relations.
• Explain any rental or lease agreements pertaining to the business.
• Cover any insurance issues for your business.
• Explain how production will be carried out and address the delivery of those goods or services.

Concluding Statement for Business

• Offer a summary of the objectives and goals for the business.
• Emphasize the importance of the success of the business.
• Review the completed business plan with a business associate or friend.
• After you have reached a comfort level with the business plan make an appointment with your financial representative to review it.
• Remember that your business plan is not written in granite. It is a document that should change as your business grows or market conditions change.

One of the most important decisions any business owner will face when starting a new business is deciding on what structure the business will take.  Some of the factors which will assist you in making that decision include.

• Your needs for capital.
• The number of people you project employing.
• How you plan to distribute earnings.
• Any liabilities you are assuming.
• How long you are planning to operate your business.
• Any legal restrictions.
• What type of business operation you start.
• The tax implications.

Listed below are some of the advantages and disadvantages associated with types of business organizations including sole proprietorship, partnership and corporation.

Sole Proprietorship

A sole proprietorship is the least expensive and easiest way to start your business.  What is simpler than finding a location for your business and opening the doors?  All right, I might have oversimplified it there, but it really is pretty easy.  You will have to register a business name and obtain other local licenses which will depend on your local government.  There will also be fees associated with obtaining them.  Hiring an attorney would be a smart move and the attorney fees will be less than other forms of business as there is a smaller amount of documents to be filed because the owner of the business has the final word in all business decisions.

Partnership

The thing with partnerships is that there are several different types.  The two most common types of partnerships are limited partnerships and general partnerships.  Two or more people can form a general partnership through a simple oral agreement.  Starting a partnership with an oral agreement is not recommended, you should get legal documents drawn up by an attorney.  You can expect the fees for this to be higher than a sole proprietorship, but they should be less than what you would expect for incorporating.  A large benefit for having a legal partnership drawn up is it will aid you in resolving any future business disputes.  A down side to a partnership is that a partner can be held responsible for the actions of other partners in the business in addition to their own actions.

Some of the things included in a partnership agreement:

• The compensation for partners.
• How long will the partnership last.
• How will the profits or losses be divided?
• What type of business is it?
• What is each partner investing into the business?
• If the partnership dissolves how will assets be distributed?
• A settlement clause for disputes.
• Provisions for dissolution of the partnership.
• Provisions for future changes to the partnership.
• Define any restrictions to expenditures or authority.
• Provisions for death or incapacity.

Corporation

Incorporating your business does not require that you have an attorney, however it is highly recommended.  The structure of a corporation is complex.  It is more expensive to organize it than the other two business entities.  Corporate control lies with the person who has ownership of the most shares of stock.  If a single stockholder or a group of stockholders own at least 51% of the stock they can make decisions of policy.  Corporations will have annual meetings of stockholders and regularly scheduled meetings for the board of directors with records kept to document their decisions.  The size of the corporation will affect how formally or informally it can operate.  Smaller corporations might operate less formally, but still need to keep proper documentation.  Stockholders can hold officers of corporations liable for any actions which might have been improper.  In those kinds of cases stock ownership is generally where the liability is limited to unless there was a fraud committed.  An attorney can help you decide to incorporate as either a C or S type corporation.

If you want to start and manage a business you should understand that it takes motivation, talent and desire along with heavy doses of planning and research.

Success with your business is much like chess, because you need to be decisive and make the right moves.  Making a mistake initially does not have to be fatal, but it will take hard work and discipline to regain any advantage you had.

There are things that you should do up front to increase your chances for success.  Take the necessary time up front in order to fully evaluate and explore your personal goals and those of your business.  When you have this information use it to build a business plan that is well thought out, comprehensive and will focus you on achieving your goals.

Developing your business plan will help you focus and consider some very important issues which you may not have thought of yet.  Use your business plan as a tool to assist you in raising money for your business in addition to being a benchmark to measure your business’s success.

The first thing you should do is make a list of the reasons why you want to start a business.  Here are some of the more common ones.

• To achieve financial independence.
• You would like more creative freedom.
• You would like to be your own boss.
• You want to challenge to fully utilize your knowledge and skills.

Now ask yourself these questions to determine which business may be right for you.

• What is it that others say I am good at?
• How much time can I devote to running a successful business?
• How do I like to spend my time?
• Have I learned or developed any technical skills?
• Are any of my interests or hobbies marketable?

From the last questions you should have identified the niche of your business.  Now you need to conduct research in order to answer the following questions.

• Who are my competitors?
• Is there a need that my idea addresses?
• What advantage will I have over existing businesses?
• Will I be able to create a demand for my business services?
• Can I deliver service that is of better quality than my competitors?

Now in your final steps prior to developing your business plan is this checklist.  You should take a run though the following questions.

• What resources do I have available?
• What is the business that I wish to start?
• Where will my business be located?
• Which products or services will my business offer?
• What will be the name of the business?
• What will the legal structure of the business be?
• Will I need any supplies or equipment to start the business?
• Will I need any financing to start the business?
• What compensation will I receive?
• What insurance coverage will I need to get?
• What skill set or experience do I bring to the business?

Answering these questions and more will assist you in creating a business plan that is well researched and can serve as a blueprint for the company.  The business plan should give details as to how the business will operate, be managed and build capital.

Make no mistake there are tough questions that need to be answered by anyone considering starting a new business.  Before you make a commitment that might not be right for you, take some time to reflect.  Make sure that you are not starting something which you are not prepared to finish.

Are you really an Entrepreneur?

When starting a small business there is no way you can eliminate all the possible risks associated with it.  Through good planning and preparation however, you can improve your chances for success.  You should start with an honest evaluation of your strengths and weaknesses as a potential manager and owner of the small business you seek to start.  Reflect on these questions.

 Is it in your nature to be a self starter?

When you are the owner it will be up to you to develop and implement new projects, follow up on the details and organize your time.  No one else will be there telling you what to do.

Do you get along well with other personality types?

As a business owner you need to have good working relationships with many different people including your customers, employees, vendors and professional support such as consultants, accountants and lawyers.  You need to know if you can cope with a client who is demanding, a disgruntled employee or a vendor who can’t be relied upon while finding solutions that are in the best interest of the business.

Are you a good decision maker?

You will need to make decisions constantly which will affect others, often times they will be under pressure and require quick and independent answers.

Are you physically and emotionally ready for the demands of running a Business?                                                       

It is true that owning your business can be fun, exciting and provide challenges.  There will also be a heavy workload.  Are you ready for a schedule that could include 12 hours a day, six or seven days a week?

Can you organize and plan?

Research on business start ups tell us that with better planning many of the failures could have been avoided.  If you have good organizational and planning skills when it comes to schedules, inventory, productivity and most of all financials, you can increase your chances for success.

Are you driven enough to stay motivated?

Owning and managing a business can be draining.  The responsibilities can cause owners to become burdened and worn down.  A high level of motivation that remains over time can help you through tough times and keep you from becoming worn down.

Is your family ready for your business pursuits?

Starting a business can take a toll on your family life especially in the initial years.  The demands of starting a business may prove overwhelming if you do not have the support and understanding of your family.  Don’t forget that there may be some financial difficulties while your start up grows.  Is your family ready to adjust to a lower standard of living or to have family assets placed at risk?

There are some positives.

Now we know that there are some risks for starting your business.  There are also some clear advantages which for the right person might outweigh the risks.

• Starting a new business is exciting.

• There will be endless challenges and opportunities for growth.

• It is good to be the boss.

• The hard work and long hours it takes will directly benefit you rather than someone else.

• Far less limited in your growth and earning potential.