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STICK
TO WHAT YOU KNOW AND LOVE
Before starting a business, be sure you have evaluated your
knowledge and skills. Your success relies on your passion
and commitment to the product and services you offer.
GET SMART
The more you know, the better your chances for success.
Learn all the details of your industry by researching and
investigating the competition. Use the Internet, subscribe
to magazines and attend association meetings so you can
become knowledgeable and informed and make important
contacts.
CHOOSE AN ORGANIZATIONAL STRUCTURE OR “ENTITY”
Businesses can be established as partnerships, corporations
or limited liability companies. Or you can operate as a sole
proprietorship, without organizing as a separate business
entity.
There is no single best form of ownership for a business.
However, keep in mind that your decision affects both your
income taxes and personal liability, so be sure you
understand the pros and cons of each. Here are the basics:
-
Sole Proprietorship—Owned by one person, this
type of business is easy to set up and maintain. The
owner is personally responsible for paying both income
taxes and business debts.
-
Partnership—In a partnership, two or more
people form a business for mutual profit. The specific
partnership agreement details how profits and
responsibilities are divided.
-
Corporation—Corporations provide the greatest
shield from personal liability, however they are
generally subject to federal income tax—so your earnings
may be subject to both corporate and personal income
taxes.
-
Limited Liability—Limited liability companies
offer certain protections from liability, as well as
more flexibility in structuring and governance than
corporations.
NAME
YOUR BUSINESS
This is not as easy as it sounds. It’s best to select a name
that is short, easy to remember, descriptive of the type of
business you’re in, and is likely to attract attention.
WRITE
A BUSINESS PLAN
This is your blueprint for success. A business plan helps
organize your thoughts and ideas about the business, keeps
you focused, and will assist you in securing financing.
Specifically, it should include a strong
introduction/executive summary, a description of the service
or product you will provide, your market positioning and
financial objectives.
FIND
THE BEST LOCATION
This is often a critical factor in a business’ success. You
should check area competitors, and measure vehicle and
pedestrian traffic during business hours.
GET
FUNDING
There are two main types of business financing—debt and
equity. Debt involves borrowing money, such as from a bank
or credit union. Equity involves selling parts of the
business to investors—including private investors, venture
capital firms and investment clubs. Although the first place
to look might be your own assets—borrowing against a
retirement plan, life insurance policy or home equity—asking
friends and family for assistance is also an option.
MAKE
IT LEGAL
Governments often require licenses and permits to conduct
business. Some are more difficult to obtain than others.
Limited Liability Corporations must file an “articles of
organization” with the LLC division of the state government.
Sole proprietorships and
partnerships must fulfill local registration requirements,
such as obtaining a business license, an employer
identification number from the IRS and a seller’s license.
If you’re unsure of what you need, consult a professional.
INSURE
YOUR BUSINESS
Insurance serves many purposes for a business. Be sure to
obtain a business owner’s policy that protects your business
from property damage, personal injury suits and other forms
of financial loss—you can obtain business interruption
coverage. Some insurance premiums are even tax deductible.
PLAN
TO WORK EXTREMELY HARD
Many people start their own business in the hopes of not
having to work hard, and not being tied down to a job.
However, new business owners typically work longer and
harder than most employees, especially in the beginning.
LEAN
ON THE EXPERTS
Don’t make the mistake of turning to professionals only when
you are in trouble. Professional advisers who specialize in
small businesses can provide valuable, objective advice and
help strengthen your business.
Brought to you by the North Carolina
Association of Certified Public Accountants in cooperation with the AICPA.
©2007 The American Institute of Certified Public Accountants;
www.360financialliteracy.org
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