A Practical Guide To Starting A Business
By Sharon
Davis
Starting a business can be an exciting prospect....or
a frustrating, confusing task that seems impossible to conquer.
Which one will apply to your situation will depend
on how well you plan, how much you educate yourself, and how disciplined
you are in following through.
Many people start out with a great idea, but don’t
know how to translate that idea into a viable business.
Where Do I Start?
Your first step should be your business plan. Many
would-be entrepreneurs will skip this step, choosing the fly-by-the-seat-of-your-pants
method instead, but starting a business without a business plan
is like embarking on a long journey to an unfamiliar place without
a map.
A business plan serves to define your goals, map
out your plan of how to achieve them, and will provide you with
a sense of purpose and accomplishment along the way.
Your business plan should include the following
elements:
- the description of the
business
- the marketing plan
- the financial management
plan
- the management plan
The Small Business Administration offers an online
tutorial on how to write a business plan. http://www.sba.gov/starting/indexbusplans.html
One of the first decisions your will have to make
is what form your business should take. The most common forms
are:
- Sole Proprietorships
- Partnerships
- Corporations
Which form you choose will depend on many factors, including:
- Legal restrictions
- Liabilities assumed
- Type of business operation
- Earnings distribution
- Capital needs
- Number of employees
- Tax advantages or disadvantages
- Length of business operation
Some of the advantages and disadvantages of each
type is outlined below:
Sole Proprietorship
This is the easiest and least costly way of starting a business.
A sole proprietorship can be formed by finding a location and
opening the door for business. There are likely to be fees to
obtain business name registration, a fictitious name certificate
and other necessary licenses. Operating a Sole Proprietorship
is easiest as the owner has absolute authority over all business
decisions.
Partnership
There are several types of partnerships. The two
most common types are general and limited partnerships. A general
partnership can be formed simply by an oral agreement between
two or more persons, but a legal partnership agreement drawn up
by an attorney is highly recommended. Legal fees for drawing up
a partnership agreement are higher than those for a sole proprietorship,
but may be lower than incorporating. A partnership agreement could
be helpful in solving any disputes. However, partners are responsible
for the other partner's business actions, as well as their own.
Corporation
A business may incorporate without an attorney,
but legal advice is highly recommended. The corporate structure
is usually the most complex and more costly to organize than the
other two business formations. Control depends on stock ownership.
Persons with the largest stock ownership, not the total number
of shareholders, control the corporation. With control of stock
shares or 51 percent of stock, a person or group is able to make
policy decisions. Control is exercised through regular board of
directors' meetings and annual stockholders' meetings. Records
must be kept to document decisions made by the board of directors.
Small, closely held corporations can operate more informally,
but record-keeping cannot be eliminated entirely. Officers of
a corporation can be liable to stockholders for improper actions.
Liability is generally limited to stock ownership, except where
fraud is involved. You may want to incorporate as a "C"
or "S" corporation.
What About Taxes?
It is very important to understand the tax laws that apply to
the type of business you have chosen.
There are four basic taxes that you should be aware
of:
- Income Tax
- Self-Employment Tax
- Employment Taxes
- Excise Tax
Income Tax
You have to file an Income Tax return if your earnings
were more than $400 for the tax year. Even if your earnings were
less than $400 from your business, you may still have to file
a 1040 if you meet any of the criteria listing in the 1040 instruction
booklet.
If you expect to owe more than $1,000 in Income Tax, you may
have to pay Estimated Taxes. There are four ways to pay estimated
taxes:
- By crediting an overpayment
on your 1999 return to your 2000 estimated tax.
- By sending in your payment
with a payment-voucher from Form 1040-ES.
- By paying electronically
using the Electronic Federal Tax Payment System (EFTPS). For
EFTPS information, call 1-800-945-8400 or 1-800-555-4477.
- By credit card, using a pay-by-phone system.
- For more information on Estimated Taxes, see
the IRS
website
Self-Employment Tax
Self-Employment Tax must also be paid if your net business earnings
were more than $400. SE Tax is a Social Security and Medicare
tax that provides retirement benefits, disability benefits, survivor
benefits, and hospital insurance benefits to you under the Social
Security system.
You can deduct 1/2 of your SE tax from your
net earnings on your 1040.
For more information on SE taxes:
http://www.irs.ustreas.gov/forms_pubs/pubs/p3340103.htm
Employment Tax
If you employ others in your business, you
will need to report Employment Taxes.
For specifics and tips on Employment taxes:
http://www.irs.ustreas.gov/forms_pubs/pubs/p15toc.htm
Whether or not you need an EIN (Employment Identification Number)
depends on your business structure. You only need an EIN if you:
- Pay wages to one or more employees
- Have a KEOGH plan
- Operate as a corporation or partnership
- File any of these tax returns:
- Employment
- Excise
- Alcohol, Tobacco or Firearms
To obtain an EIN, you must fill out an SS-4
which is available through the IRS.
Excise Tax
Excise Taxes apply to certain types of businesses
and certain business activities. Some examples are:
- Tractor or heavy machinery sales
- Tobacco, alcohol or firearms manufacturing or sales
- Business activities or products that have environmental impact
For a list of businesses that apply, see
the IRS website:
http://www.irs.ustreas.gov/forms_pubs/pubs/p3340105.htm
A free Small Business Tax Kit is available
from the IRS. Their Small Business Corner offers advice, publications
and links to useful information. They also offer a Tax Calendar
which tells you when to file returns and make tax payments.
You should also be aware that the laws vary
by state and by industry, so it is highly recommended that you
consult a tax advisor in your area. You can get information on
local zoning regulations from your city hall, county court, or
state department of taxation and finance.
For More Information...
The Small Business Administration is an excellent
source of information and a great place to start. You can get
a free Startup Kit, download a Business Plan Tutorial and find
many free publications.
Other useful resources:
====>STAWRS
One Stop Guide
====>The
Legal Guide for Starting & Running a Small Business
====>422
Tax Deductions for Businesses & Self-Employed Individuals
====>The
Complete Idiot's Guide to Starting a Home-Based Business
====>Start
Your Own Business The Only Start-Up Book You'll Ever Need
© Copyright 2001 Sharon Davis. Sharon Davis is the Mother
of two girls, the owner of 2Work-At-Home.Com
and the Editor of the site's monthly ezine, America's Home. In
her spare time she reminisces about what it was like to have spare
time. To subscribe to her free ezine, Click Here
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This page last updated:
Wednesday, October 19, 2005 11:05 AM
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