The news media continues to report (with some variances) that our national unemployment rate is around 9.6%-9.8%. This number is defined as those unemployed Americans who are actively seeking new employment. By definition it excludes those persons who wish to work but have ended their search in frustration etc and those who lack the job skills demanded by the local job market. In a nutshell, the “actual” unemployment rate is much higher than the “reported” rate. For a myriad of reasons former employees may decide to start their own business rather than return to the work force. If you are thinking along these lines then the information in this article may be of interest to you.
Although they are not all-inclusive (there are many more), the key points that I wish to present are:
- Business Form – among the first decisions to make is “What business form is best for my business?” Among the choices are 1) Sole Proprietorship, 2) General Partnership, 3) Limited Partnership, 4) Corporation, 5) Sub-Chapter S Corporation, 6) Limited Liability Company (LLC), and 7) Limited Liability Partnership (LLP). Important considerations include: ease of formation, liability of the owners, management structure, transferability of ownership, and taxation. Consult with an attorney who specializes in this area. The legal fees are probably minute compared to the benefits that you will receive;
- Accounting Period and Methods – Is the calendar year best for your new business or is another 12-month period more appropriate? Should you select the “Cash” basis for reporting revenue and expenses or is the “Accrual” method more appropriate? Read through IRS Publication 538 (“Accounting Periods and Methods”) first and then consult with your CPA;
- Accounting Software – you must record all business transactions in a timely and consistent manner. You also want to have several key financial reports (Balance Sheet, Profit and Loss, General Ledger etc) available to you regularly to determine 1) where you were, 2) where you are now, and 3) where you are going.   You’ll need also these reports for your supplies, customers, and vendors. Your business will always be subject to “on-demand” audits by all of the taxing authorities and you must have records to support your reports. Many very small business owners prefer QuickBooks for simplicity, ease of use, etc. Others prefer more sophisticated software such as Sage’s Peachtree. There are also other packages that are available. Consult with your CPA;
- Pricing Your Product or Service – failing to always have and know this information is almost a guarantee for your business to fail. There are four components of every product and service: 1) direct material, 2) direct labor, 3) overhead (G&A), and 4) profit. The value of each will be continuously changing every day that your business operates. Your accounting software will provide the information but you need to know how to extract the data. If you use your Internet search engine, you’ll find that there is never a point in time or milestone in which a business can be assured of its longevity. Any business can fail at any time, even if it has been in business for over 100 years. Again, your CPA will be your best “quasi-business partner”;
- You Wear Many “Hats” – as the business owner, even though you may hire someone as the manager,  you are ultimately in charge of 1) Sales, 2) Marketing, 3) Human Resources, 4) Accounting, 5) Product/Service Development, 6) Logistics/Supply Chain Management, 7) Technical Support, and 8 ) Customer Service. It’s a 24X7 responsibility!
- Continuously Increase Your Knowledge– regardless of the number of years that you have been in business you’ll never know all that you need to know. Before you open the doors, read the following IRS publications from cover to cover: 334 – “Tax Guide for Small Businesses, 463 – “Travel, Entertainment, Gift & Car Expenses”, 535 “Business Expenses”, and if appropriate 587 “Business Use of the Home”. Talk with other business owners who provide similar products and services. Join a “network” of these owners or an association. Identify colleagues who have the knowledge which you don’t have and consult with them regularly. Find a mentor for your business.
The informaton below provides additional points to know and consider: (more…)