10 Tips For Starting A Small Business
On January 26, I posted an article entitled Debt And The Small Business Owner. In that article , I pointed out that shortage of cash flow kills a small business faster than anything else. Since loans produce debt, and debt produces monthly payments, and monthly payments require more cash flow, business owners can find themselves on a deadly merry-go-round in a hurry.
But there are solutions to this problem that don’t involve stepping onto the endless merry go round of debt. Yahoo Small Business published an article entitled “10 Tips For Starting A Small Business.” If you are considering starting up a small business, or if you have started one recently and need some helpful hints, this is an excellent resource for you. I quote some excerpts of this article below:
Save up as much money as possible before starting.
All too often, people go into business without any savings, exclusively using loan money from friends, banks, or the SBA. They except to be able to start paying the loans back right away with their profits. What these business owners don’t realize is that it can take months or years to make a profit. And once a lender discovers a business isn’t as profitable as expected, the lender is likely to call in the loan or refuse to renew it for another year. Often new business owners then have to take out home equity loans or use credit cards to pay off their loans (which puts their home and credit rating at risk). A better plan is to save up as much of the needed investment money as possible, including your living expenses for the first year, or even two. Odds are that your business won’t be profitable for one to two years.
Start on a shoestring.
Think small. Don’t rent premises if you can work somewhere else, and don’t hire employees until you can keep them busy. (You can hire independent contractors or temps in the meantime.)
People who start their small business on the cheap, often in a garage, den, or some other scavenged space, and create their first goods or services with more sweat than cash, have the luxury of making their inevitable rookie mistakes on a small scale….
Protect your personal assets.
When you go into business for yourself, you are usually personally liable for all judgments and debts that the business incurs. This includes business loans, taxes, money owed to suppliers and landlords, and any judgments against the business as a result of a lawsuit. If you don’t protect yourself, a creditor can go after your personal assets, such as your car and your house, to pay for these debts. While you can protect yourself against lawsuits by buying business liability insurance, this won’t help you with business debts. If you will be running up big debts, consider forming a corporation or limited liability company (LLC)….
Understand how — and if — you will make a profit.
You should be able to state in just a few sentences how your business plans to make a substantial profit. For starters, you need to know your costs: how much you’ll spend purchasing inventory, paying the rent, compensating any employees, and covering what is likely to be a surprisingly long list of other costs. Then you can figure out exactly how much you need to sell each month….
Make a business plan, no matter how short.
Understanding your profit numbers and creating a break-even analysis is the first step in making a business plan. For most small companies, the key portions of a business plan are the break-even analysis, a profit-and-loss forecast, and a cash flow projection. (Projecting your cash flow is key and will make or break your company….
Get and keep a competitive edge.
Building a competitive edge into the fabric of your business is crucially important to long-term success. Some ways to get this edge are by knowing more than your competitors, making a product that is hard or impossible to imitate, being able to produce or distribute your product more efficiently, having a better location, or offering superior customer service.
Put all agreements in writing.
The laws of your state require you to put some contracts and agreements in writing:
Contracts that will last longer than a year.
Contracts that involve the sale of goods worth $500 or more.
Contracts that transfer the ownership of copyrights or real estate.
Even if not legally required, it’s wise to put almost everything in writing, because oral agreements can be difficult or impossible to prove.
Hire and keep good people.
To create a stable and happy workforce, it’s essential not only that your employees (and independent contractors) believe they are being fairly treated, but that your business is worthy of respect. Employees and contractors who like their work will represent you well on and off the job. And customers will more likely be loyal to an upbeat business — and are more likely to recommend it to their friends.
Pay attention to the legal status of your workers.
When you hire workers as independent contractors, make sure they shouldn’t really be taxed as employees. The IRS can impose substantial penalties against you for not withholding taxes and paying taxes for a worker who is really an employee. The IRS and other agencies are likely to think that a worker is an employee rather than an independent contractor under any of these conditions:
The worker works full-time or nearly full-time for you.
The worker doesn’t work for anyone else.
The worker provides services that are an integral part of your operations.
You control how the worker does the job and provide detailed instructions and training for the worker. One way to help avoid trouble is to have the worker sign a written service contract, or independent contractor agreement.
Pay your bills early and your taxes on time.
Most importantly, pay your payroll taxes on time, especially the portion that you withhold from your employees’ paychecks. The IRS and state tax authorities can hold you personally liable for these taxes, plus stiff penalties, if they’re not paid. This is true even if you operate your business as a corporation or LLC or if your business goes bankrupt — you will still be personally and legally on the hook to pay back payroll taxes.
There are no guarantees in small business. Even if you do everything exactly right, your business can still fail. But for anyone who has just started a new business or is about to start one, these 10 suggestions will give you a very good head start on the road to success.
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