Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company.
Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money.
The most common forms of business are sole proprietorship, partnership, corporation and S corporation. A more recent development to these forms of business is the limited liability company (LLC) and the limited liability partnership (LLP). Because each business form comes with different tax consequences, you will want to make your selection wisely and choose the structure that most closely matches your business's needs.
If you decide to start your business as a sole proprietorship but later decide to take on partners, you can reorganize as a partnership or other entity. If you do this, be sure you notify the IRS as well as your state tax agency.
Many people believe starting a business is a mysterious process. They know they want to start a business, but they don't know the first steps to take. In this chapter, you're going to find out how to get an idea for a business--how you figure out exactly what it is you want to do and then how to take action on it.
But before we get started, let's clear up one point: People always wonder if this is a good time to start their business idea. The fact is, there's really never a bad time to launch a business. It's obvious why it's smart to launch in strong economic times. People have money and are looking for ways to spend it. But launching in tough or uncertain economic times can be just as smart. If you do your homework, presumably there's a need for the business you're starting. Because many people are reluctant to launch in tough times, your new business has a better chance of getting noticed. And, depending on your idea, in a down economy there is often equipment (or even entire businesses!) for sale at bargain prices.
Estimates vary, but generally more than 600,000 businesses are started each year in the United States. Yet for every American who actually starts a business, there are likely millions more who begin each year saying "OK, this is the year I am going to start a business," and then don't.
Everyone has his or her own roadblock, something that prevents them from taking that crucial first step. Most people are afraid to start; they may fear the unknown or failure, or even success. Others find starting something overwhelming in the mistaken belief they have to start from scratch. They think they have to come up with something that no one has ever done before--a new invention, a unique service. In other words, they think they have to reinvent the wheel.
But unless you're a technological genius--another Bill Gates or Steve Jobs--trying to reinvent the wheel is a big waste of time. For most people starting a business
, the issue should not be coming up with something so unique that no one has ever heard of it but instead answering the questions: "How can I improve on this?" or "Can I do this better or differently from the other guy doing it over there?" Or simply, "Is there market share not being served that makes room for another business in this category?" Get the Juices Flowing
How do you start the idea process? First, take out a sheet of paper and across the top write "Things About Me." List five to seven things about yourself--things you like to do or that you're really good at, personal things (we'll get to your work life in a minute). Your list might include: "I'm really good with people, I love kids, I love to read, I love computers, I love numbers, I'm good at coming up with marketing concepts, I'm a problem solver." Just write down whatever comes to your mind; it doesn't need to make sense. Once you have your list, number the items down one side of the paper.
On the other side of the paper, list things that you don't think you're good at or you don't like to do. Maybe you're really good at marketing concepts, but you don't like to meet people or you're really not that fond of kids or you don't like to do public speaking or you don't want to travel. Don't over think it; just write down your thoughts. When you're finished, ask yourself: "If there were three to five products or services that would make my personal life better, what would they be?" This is your personal life as a man, woman, father, husband, mother, wife, parent, grandparent--whatever your situation may be. Determine what products or services would make your life easier or happier, make you more productive or efficient, or simply give you more time.
Next, ask yourself the same question about your business life. Examine what you like and dislike about your work life as well as what traits people like and dislike about you. Finally, ask yourself why you're seeking to start a business in the first place. Then, when you're done, look for a pattern to emerge (i.e., whether there's a need for a business doing one of the things you like or are good at). They Delivered
Here's a business startup story that's a great example of seeing a need and filling it. Entrepreneur
magazine is located in Irvine, California, a planned community. Many years ago, there weren't many fast-food restaurants in the business area. Most were across town, where the neighborhoods were. Two young men in Irvine found this lunch situation very frustrating. There weren't many affordable choices. Sure, there were some food courts located in strip centers, but the parking lots were really small and the wait was horrendous.
One day, as they were lamenting their lunch problem, one of them said, "Wouldn't it be great if we could get some good food delivered?" The proverbial light bulb went on! Then they did what many people don't do--they did something about their idea. Coincidentally, they purchased one of Entrepreneur
's business startup guides and started a restaurant delivery business.
To date, their business has served more than 15 million people! It's neither a complicated business nor an original one. Their competition has gotten stiffer, and yet they're doing phenomenally well. And it all began because they listened to their own frustrations and decided to do something about them. Little did they know that research cites the shrinking lunch hour as one of the biggest complaints by American workers. Some only get 30 minutes, making it nearly impossible to get out, get lunch and get back on time. So while these young entrepreneurs initially thought they were responding to a personal need in their local area, they actually struck a universal chord.
That is one way to get ideas--listening to your own (or your co-workers', family's or neighbors') frustrations. The opportunities are all there; you just need to search them out. If your brain is always set in idea mode, then many ideas may come from just looking around or reading. For instance, if you had read an article about the shrinking lunch hour, and if you were thinking entrepreneurially, you would say "Wow, maybe there's an opportunity there for me to do something. I should start researching it." Inspiring Moments
Inspiration can be anywhere. Here's another classic startup story: Ever get charged a fee for returning a video late? Bet you didn't do anything about it. Well, when Reed Hastings got a whopping $40 late charge, instead of getting mad, he got inspired. Hastings wondered "How come movie rentals don't work like a health club, where, whether you use it a lot or a little, you get charged the same?" From this thought, Netflix.com, an online DVD rental service, was born. From its start in 1999, Netflix has grown into a big business with revenues topping $1.3 billion.
Getting an idea can be as simple as keeping your eyes peeled for the latest hot businesses; they crop up all the time. Many local entrepreneurs made tons of money bringing the Starbucks coffeehouse concept to their hometowns and then expanding from there. Take Minneapolis-based Caribou Coffee. The founders had what they describe as an "aha moment" in 1990, and two years later launched what is now the nation's second-largest company-owned gourmet coffeehouse chain. Other coffee entrepreneurs have chosen to stay local.
And don't overlook the tried and true. Hot businesses often go through cycles. Take gardening. For the last few years gardening products and supplies have been all the rage, but you wouldn't consider gardening a 21st century business.
In other words, you can take any idea and customize it to the times and your community. Add your own creativity to any concept. In fact, customizing a concept isn't a choice; it's a necessity if you want your business to be successful. You can't just take an idea, plop it down and say "OK, this is it." Outside of a McDonald's, Subway or other major franchise concept, there are very few businesses that work with a one-size-fits-all approach.
One of the best ways to determine whether your idea will succeed in your community is to talk to people you know. If it's a business idea, talk to co-workers and colleagues. Run personal ideas by your family or neighbors. Don't be afraid of people stealing your idea. It's just not likely. Just discuss the general concept; you don't need to spill all the details. Just Do It!
Hopefully by now, the process of determining what business is right for you has at least been somewhat demystified. Understand that business startup isn't rocket science. No, it isn't easy to begin a business, but it's not as complicated or as scary as many people think, either. It's a step-by-step, common-sense procedure. So take it a step at a time. First step: Figure out what you want to do. Once you have the idea, talk to people to find out what they think. Ask "Would you buy and/or use this, and how much would you pay?"
Understand that many people around you won't encourage you (some will even discourage you) to pursue your entrepreneurial journey. Some will tell you they have your best interests at heart; they just want you to see the reality of the situation. Some will envy your courage; others will resent you for having the guts to actually do something. You can't allow these naysayers to dissuade you, to stop your journey before it even begins.
In fact, once you get an idea for a business, what's the most important trait you need as an entrepreneur? Perseverance. When you set out to launch your business, you'll be told "no" more times than you've ever been told before. You can't take it personally; you've got to get beyond the "no" and move on to the next person--because eventually, you're going to get to a "yes."
One of the most common warnings you'll hear is about the risk. Everyone will tell you it's risky to start your own business. Sure, starting a business is risky, but what in life isn't? Plus, there's a difference between foolish risks and calculated ones. If you carefully consider what you're doing, get help when you need it, and never stop asking questions, you can mitigate your risk.
You can't allow the specter of risk to stop you from going forward. Ask yourself "What am I really risking?" And assess the risk. What are you giving up? What will you lose if things don't work out? Don't risk what you can't afford. Don't risk your home, your family or your health. Ask yourself "If this doesn't work, will I be worse off than I am now?" If all you have to lose is some time, energy and money, then the risk is likely worth it.
Determining what you want to do is only the first step. You've still got a lot of homework to do, a lot of research in front of you. Buying this book is a smart first step. Most important: Do something. Don't sit back year after year and say "This is the year I'm going to start my business." Make this the year you really do it!Source: http://www.entrepreneur.com/article/217368
It seemed like such a great idea: You found the ideal niche market, complete with potential customers by the dozens and profit potential galore. Maybe you already found the ultimate location, or you've put together a stellar e-commerce site that would even put Amazon.com to shame.
There's just one problem. You haven't the foggiest idea where to find all the products you need in order to stock your shelves.
Don't be dismayed. This scenario happens time and again with new entrepreneurs, and it's understandable. Even if you come up with a brilliant idea of a product you want to sell, there's still the tiny detail of finding the actual product. You want to sell XYZ, but you're wondering, "Where exactly can I get a supply of XYZ to sell-and get it for a fair price?"
The good news is, finding what you need isn't quite the needle-in-a-haystack task it's envisioned to be. "My experience is, there are a lot of existing channels used to match up manufacturers and distributors of products. Trade shows and trade magazines are two of the best," says Roger Green, co-founder of Cullinane & Green Inc.
, an executive coaching, consulting and publishing firm.
Trade shows alone offer multiple opportunities for you to not only spot upcoming trends, but also to network with potential suppliers and hopefully find just the right product source. The New York International Gift Fair
, for instance, attracts thousands of exhibitors, organized by type of product. Attending a trade show also gives you the opportunity to demonstrate you mean business. "By being there, you establish yourself as someone being in business as opposed to being a consumer. The overwhelming majority [of attendees] are serious buyers," says Green, who, along with partner Joe Cullinane, has a diverse background in sales, marketing and senior management that's familiarized him with the ins and outs of product sourcing. "You also get to compare prices across a range, and you get a good sense of the business without having to put a lot of air miles into it."
Trade magazines, meanwhile, can be an inexpensive way to find companies with which you want to correspond. Scour them frequently for mentions of any companies that might offer the products you need, then try to find out whether they'll be exhibiting at any upcoming trade shows you can attend.
Trade organizations or industry associations related to the products you're interested in are yet another potential source of valuable contacts, including international companies. "[These organizations] have trade missions, and they have access to manufacturers from other countries," says Green. He notes that one of their main goals is to match up buyers and sellers.
So how do you go about finding the right industry association? Check out these resources for help in locating the proper channels:
"You should also look at companies that are regional," adds Cullinane, author of 21st Century Selling
and adjunct professor of marketing at DeVry University's Keller Graduate School of Management. "[Look at] retail stores that are very successful in one [geographic] area and not selling anywhere else."
Start by contacting someone at the company or store and asking them whether they might want to sell their product in your hometown. "If something's been successful in one area, you'll find the company will want to expand but just don't have the resources to do it," says Cullinane. Image Counts
Finding the suppliers you want is just the first step toward stocking your shelves with the proper inventory. Next, you've got some impressing to do. "You have to be perceived as a company and not a consumer," stresses Cullinane.
"You have to present yourself as someone who is seriously interested in building a business," adds Green, who advises establishing yourself as a business entity as opposed to a sole proprietorship. " 'Inc.' makes all the difference in the world in [the company extending you] credit in the future."
Keep in mind, also, that some firms, especially international ones, often prefer working with registered wholesalers of their products as opposed to retailers, says Green, so be prepared to inquire with a particular company about how you might become one. Companies that offer this option to buyers will likely ask you to fill out a few forms and provide some details on your banking history and so forth. You may need letters of credit and references in order to prove your ability to make good on your word. The advantage of becoming a wholesaler? Wholesale rates, which are often well below the retail prices of a given company.
When making that initial contact with a potential vendor, be prepared to talk about what you do and why they would want to do business with you. Letters of credit from your bank, and letters of reference from people who know you and can vouch for your credibility, are also key-those can help you get an appointment with the vendor in the first place. Green advises starting small: "Find an easy one, and then build from there. If you start dealing with someone local who knows you and can see you, in a few months, you'll have a track record and can use the first one as a reference. It's like starting a fire-use kindling first, not the log."
Look to your social network to determine whether you might know anyone who can help you. Make sure you tell friends and family what you're doing-you never know who they might know. "It's amazing the results you'll get [when you spread the word]," says Cullinane.
One caveat: If you do business with someone you know, make sure you clearly establish the terms of the relationship from the start. As Green cautions, "It's still a business relationship at the end of the day," cautions Green. "There's a saying among lawyers: The best contracts are drawn between people who don't trust each other." So enlist the help of an attorney who knows the ins and outs of drawing up the kind of contract you need-the money will be well-spent in the long run. So You've Got a Supplier
Once you've found the companies that manufacture the products you want to sell, you need to get samples and be sure they're exactly what you want. "Be prepared to invest in that," says Green. "Sometimes companies will supply samples at no charge, but not always. And don't go looking for freebies-that can ruin your credibility."
How many vendors do you need? "Just enough," says Cullinane. In B2B situations, you'll likely want at least two suppliers, maybe three. It's a good idea to have backup suppliers in case something ever falls through with one of your regulars. "A lot of times you build your business around one supplier," explains Cullinane, "and if something [happens to them], you could be out of business."
Above all, remember the most important element of a successful retail business: the customer. Even if you've got a handle on where to get your product, you'll want to make sure you haven't forgotten the crucial step of determining whether that product will be met with a warm reception. "An entrepreneur needs to look at 'What do my customers need that they can't get?' " says Cullinane. "Satisfy that niche. Be the person who provides that."Source: http://www.entrepreneur.com/article/69902
Chances are, you've heard the term "location, location, location" more than a few times. But if you're in the throes of creating a spectacular menu for your new restaurant or finding wholesalers for your first retail store, it might not be the first thing on your mind.
It's time to put location at the top of your to-do list. If you're preparing to open a food or retail business with a storefront, putting your business in the proper location might be the single most important thing you do at startup. Of course you need a winning product, too, but how will anyone know about that product unless you get them through the door?
"In the brick-and-mortar retail world, it's said that the three most important decisions [you'll make] are location, location and location," affirms Irene Dickey, a lecturer in management and marketing at the University of Dayton's School of Business in Dayton, Ohio. "Careful determination of new sites is critical for most retail and consumer service businesses."
Check Your Demographics
Making these determinations can be as simple or as complex as you make it. There are, for instance, sophisticated location analysis tools available that include traffic pattern information, demographic and lifestyle data, and competitive analyses. Adds Dickey: "For a price, a retailer can ask such questions as, 'If I'm looking to add a store to a particular market, what's the optimum level of traffic as it relates to the specific targeted trade area? What is the overall type of traffic? Once consumers are in the store, is there any way to measure the traffic patterns in the store?'"
"Do your due diligence," advises Michael Rodelle, director of real estate for the Papa Gino's Inc./D'Angelo Sandwich Shops franchise, based in Dedham, Massachusetts. "Get a demographic overview of the area you're looking at-age, income, households, etc."
In addition, you should look at neighborhood traffic generators, such as other retailers that draw people to the area, industrial or office parks, schools, colleges and hospital complexes. You'll also want to look at both highway and foot traffic. Carlos Silva, co-founder of Memphis Championship Barbecue in Las Vegas, learned all about finding a good location when he and his three co-founders (Dick Hart, Mike Mills and Dan Volland) opened their first restaurant in 1994. "We opened our first business in the middle of nowhere, and we had to work to get people to go to it," says Silva.
That's not to say it was a bad location-Silva says it fit in terms of the restaurant's theme. But it did require more of an effort to establish a presence. With three other locations now up and running, one of them inside a casino, the founders seem to have found their groove. "What we've done in Vegas is gone to each corner of the city," says Silva, who says the restaurants' sales have grown 25 percent over last year's, with 60 percent growth projected for 2004. "You're able to get to a Memphis restaurant within 10 minutes."
Look Your Competitors in the Eye
Many experts agree, though, that the answer to where you should locate is more straightforward than many entrepreneurs make it. "Quite simply, the best place to be is as close to your biggest competitor as you can be," says Greg Kahn, founder and CEO of Kahn Research Group in Huntersville, North Carolina, and a behavioral research veteran who's done location research for Arby's, Buffets Inc., Home Depot, Subway and other major and minor players. "Foot traffic is obviously important, but landing the 'perfect' customer is far more crucial. By being in close proximity to your competitors, you can benefit from their marketing efforts."
In other words, your competitors chose their locations based on the ideal demographics of a particular area, says Kahn. In many cases, they've also devoted large portions of their advertising budget toward driving traffic to their locations. "Why spend the money when they've already [spent it] for you?" asks Kahn. "It's that easy."
What's more, being located near your competition can be a boon to business, provided you're confident enough in your product to outsell your competitors. "Competition is good," concurs Blake Tartt III, president and CEO of commercial real estate firm New Regional Planning in Houston, known for his work on major malls and other commercial developments. "It makes the retailer or the restaurant better-competition breeds more business, more traffic, and that's a positive. If my clients are good, I tell them to go right up against the competition."
Of course, it's still a good idea to make your own evaluations of a particular property, even if your competitors seem to be thriving in the area. Staying ahead of the game in this regard will help your business grow should you decide, for instance, that you later want to open another location.
Do You Need Professional Help?
But your job isn't done even when you think you've found a good spot for your business. Negotiating a lease that works for you and your business is just as important as the location itself. "It's very important that you have a good lawyer who can negotiate your lease-that's another cost," says Tartt. Your attorney can help you look at things like the term of the lease, buildout allowance and the condition of the property.
He or she can also help you talk to the landlord so you ask the right questions. "Interview the landlord as hard as you look for the location," cautions Tartt. "You're marrying your landlord. There are a lot of unscrupulous [ones] out there-they tend to have a 'me' mentality."
Making use of a local real estate professional who understands your customers as well as you do is also a great idea. Depending on whether you're opening a food business or a retail store, you'll want to discuss things like the type of merchandise your target customers buy or the sort of food they like to eat. "I believe that in every town, there is some real estate professional who knows his or her city backward and forward," says Tartt. "The really with-it real estate person is studying all those trends, traffic patterns and demographics."
Having someone help you with your business plan before you even begin the location search can be invaluable as well. Entrepreneur.com has a guide to writing a business plan that offers information and resources to help you in this process, so that's a good place to start. A business coach or business plan consultant can also help you through this process; ask around in your network of colleagues for referrals, or check with your local Small Business Development Center for additional assistance.
"Know what your business plan [says] when you're looking for a location," says Tartt. "Know what your strategic objectives are."
Being aware of all the location costs involved with starting your business will do wonders for your ability to weather any storms that might-and likely will-come your way. Underestimating the costs and the time involved with launching your business-especially when it comes to your location-is one of the most common startup mistakes, and one you can avoid if you plan properly. If you take into account everything from broker, attorney, engineering and architect fees to zoning and planning hearings, you can see that both the costs and the time to startup can vary widely.
The best advice? "Talk to other people in the business-learn from them what they've experienced, what the pitfalls are, what things to look out for," says Rodelle. "You've gotta do your homework. You can protect yourself and come out ahead."
Knowing What to Ask
Answering these 22 questions for each of the sites you're considering can help you decide on the best retail location for your business:
Knowing What To Ask?
1. Is the facility located in an area zoned for your type of business?
2.Is the facility large enough for your business? Does it offer room for all the retail, office, storage or workroom space you need?
3. Does it meet your layout requirements?
4. Does the building need any repairs?
5. Do the existing utilities-lighting, heating and cooling-meet your needs or will you have to do any rewiring or plumbing work? Is ventilation adequate?
6. Are the lease terms and rent favorable?
7. Is the location convenient to where you live?
8. Can you find a number of qualified employees in the area in which the facility is located?
9. Do people you want for customers live nearby? Is the population density of the area sufficient for your sales needs?
10. Is the trade area heavily dependent on seasonal business?
11. If you choose a location that's relatively remote from your customer base, will you be able to afford the higher advertising expenses?
12. Is the facility consistent with the image you'd like to maintain?
13. Is the facility located in a safe neighborhood with a low crime rate?
14. Is exterior lighting in the area adequate to attract evening shoppers and make them feel safe?
15. Will crime insurance be prohibitively expensive?
16. Are neighboring businesses likely to attract customers who will also patronize your business?
17. Are there any competitors located close to the facility? If so, can you compete with them successfully?
18. Is the facility easily accessible to your potential customers?
19. Is parking space available and adequate?
20. Is the area served by public transportation?
21. Can suppliers make deliveries conveniently at this location?
22. If your business expands in the future, will the facility be able to accommodate this growth?