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Business Start Up Tips
Starting a New Business? Tips and factors to consider:
First, find something you love to do. That may sound cliché but it is
probably the most important factor to success. Operating your own business takes
full time dedication not just 40 hours a week and if you don’t love what
you do you will eventually resent the time commitments or even worse not put
the time in to make your business successful.
Then think of all the various ways you can do what you love. Try to narrow down
that list to those ways that will provide a product or service that others need
and would be willing to pay for. Look into businesses that may already do this
to analyze the market potential.
Check Licensing requirements for this type of business at all three levels:
1. State
2. County - Usually Department of Licenses and Inspections
3. Local (Borough or City) - Usually Department of Licenses and Inspections
Zoning: If you will be running a home based business look into Zoning Laws
or ask about “No Impact” laws if you will not have clients go to
your home.
Business Name Considerations:
Typically you will not need to register a fictitious name if you include your
last name and some descriptive word about what you do, like Smith’s Auto
Repair, Jones Books, etc. However if you only use your first name or include
other words like “Company” , “and Associates”, “and
Sons”, or include more than one last name then it is a fictitious name
and needs to be registered with your states Department of State.
After registering a fictitious name, you will be required to place an advertisement
in two newspapers of general circulation, i.e., one in the county in which your
business will be located and one in a legal paper, if any, in the same county.
The corporation name is registered when filing Articles of Incorporation. If
the corporation uses a business name other than the name used on the Articles
of Incorporation, a fictitious name form must be filed. The act of incorporating
a business automatically provides full protection of your corporate name.
What is a business plan, and why do I need one? A business plan is a road map for success in business, it is a document you put together to analyze the need for your product and services, a game plan of how to succeed in getting business, and what to do in both best-case and worst-case scenarios. You need to plan for success in order to make it big and to stay in business during the tough times.
Where do I Incoporate?
It is usually best to Incorporate in the state where you are primarily doing
business. Even though some states are cheaper than others explore all the options
fully because you may have to pay fees to your home state, thus making the total
cost higher than if you started with your home state.
Insurance Considerations
BOP – Business Owner Policy – it is usually a good idea to include
“Hired Auto” or a non-owned auto endorsement in case an employee
ever uses your automobile.
Financial and Accounting
You will need to track all of your expenses and income for your new business
venture. Probably the most important thing to do from the start is to set up
a separate account and track everything in your checking register. This will
assist you or your accountant later when you do go to either a computer software
program or a good accountant.
You are now self-employed and will need to submit what is called quarterly estimated taxes since you will not be having an employer do tax withholding for you. Make sure to plan ahead to have money to pay these taxes to avoid significant tax penalties for not paying at least 90% of taxes owed before you file your tax form.
Methods of Accounting: Do I chose Cash or Accrual?
Cash Accounting – All Income and Expenses are counted at the time the money actually changes hands. Generally cash accounting is considered the best method for most small businesses, but as always check with your accountant to discuss the best options for your business.
Accrual Accounting – Income and Expenses are counted as it is earned, so if you receive money one year but don’t do the work in that year it will not be counted for that year. Usually you must use this method if you have over 1 million in sales.
Remember you generally cannot usually change your method of accounting once you select one but you can when you move from Sole Proprietorship to LLC or Incorporating.
What can I depreciate?
Usually Computers, Furniture, Automobiles or other business expenses that will
last for over a year must be depreciated. Typically between 5-7 years (except
for Land and Buildings). Using Section 179 you can typically elect to write
off these expenses in one year for up to $102,000 but once you do so you cannot
reverse the decision. Thus you may lose deductions in future years when you
have higher revenues and are in a higher tax bracket.
How is payroll handled?
Make sure you submit tax withholding for any employees promptly according to
current regulations because there are sever penalties for not submitting payroll
withholding in a timely manner. IRS Publications #17 and #334 are good references
Why chose Subchapter S status?
When you elect to be a Subchapter S Corporation you do not pay Social Security
Taxes on Distributions. Of course legally you will need to take a “Reasonable
Salary” from the business probably of at least 50% in Salary where you
do pay Social Security.
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