How To Start Up Any Business
Determine whether you are going to be doing business as an
individual proprietorship, partnership or corporation.
The individual proprietorship is the form of entity used
by most small businesses at start up. If you need
additional capital or expertise a partnership may be the
best entity. You can always incorporate later if
practical. The expense to incorporate a small business is
nominal but since the latest income tax changes unless
incorporating will make you more money or better protect
your investment there is not much benefit in forming a
corporation. Even though there is limited liability as to
your personal assets with a corporate entity when
obtaining outside financing, or in the event funds are
misused, you can still be personally liable.
The strict laws, higher State Income taxes in some states,
the legal work involved and the heavier accounting and tax
reporting requirements are some of the disadvantages of
running your business as a corporation. Also, if you
decide later to close out your corporation, the paper work
involved, especially to conform to the provisions of the
Internal Revenue Code, is difficult and often runs into
more problems than the initial incorporation.
Of course when interest rates are high incorporating may
be the only practical method to get sufficient capital to
start-up and run your operation. However when you go
public with your stock you are looking at a whole new ball
game. Federal regulations, State requirements, etc., will
make it imperative to hire a good corporate attorney and
in most instances you will need an investment company to
sell the stock. The costs involved to go public are
enormous and sometimes cost up to one-third of the
proceeds from the sell of stock leaving the working
capital and fixed assets in peril.
To make the public better aware of just what your firm
offers it is generally good practice to choose a business
name that describes your product or service. Apply for a
fictitious business name with your state or county offices
when you plan on going into business under a name other
than your own. Also, the bank will require a certificate
or resolution pertaining to your fictitious name at the
time you apply for a bank account. Your county clerk can
tell you where to apply for the name.
The location of your business will of course vary
depending on the kind of business or service. Retail
businesses should be located in an area with adequate
parking space and heavy foot traffic. If you locate in a
shopping center be certain you understand the terms of the
lease. Is it a Net-Net lease requiring the tenants to pay
all center expenses including utilities, signs, lighting,
taxes, insurance, garbage, maintenance, etc., in addition
to all the usual store expenses? If you're going into an
"office" business, or an unproven venture get a month to
month rental agreement. In the event your venture is
unsuccessful you will not be stuck with future rent as you
would if you were under a long term lease. The landlord
is in control. You must get his approval in the event you
want to sub-lease to another and even if he agrees you are
still secondarily liable for the term of the lease.
Think positive about your new venture but don't expect to
make a great deal of money with little or no investment.
Lack of capital has been the downfall of many otherwise
good business start-ups. You may have limited take home
pay for the first few months as you plow your profits back
into the business to make it grow. You will need a
substantial cash reserve or other source of income, during
the "build-up" phase, to take care of your personal
Lack of training and experience is another great destroyer
of dreams. Be sure you have the know how and are capable
of running the business your propose. Get into something
you already know or can learn without getting hurt in the
If you are going into a retail operation know who your
suppliers will be before you even start looking for a
location. Buy the right kind of merchandise, at the right
prices, to fit the kind of customer you will be serving.
Keep your inventory in balance with sells and cash flow.
Plan ahead. Learn how to promote and advertise for best
results. Keep up with the trends of the time and know at
all times what your competition is doing.
A few of the other things leading to quick failure are:
lack of over-all business planning, inept managers or
employees, incomplete accounting records, improper
financial reports, lack of control over assets, bad credit
policy and inability of the owner to reach or act on
Get to know the manager of your bank. He will be one of
your best references. Ask his advice and get his help on
financial matters. The more he advises you the better he
will come to know you. Develop a line of credit so it
will be there when you need it. The banks can't exist
without making loans so don't hesitate to apply. When you
handle high cost items your bank may be able to work up
installment contracts for your customers. Get set up with
Mastercard, Visa, etc. It will cost you from 3% to 5% but
you must have this service available for your customers if
you want to stay in business.
To establish your bank account you will need a Federal ID
number or social security number along with your
certificate of assumed (fictitious) business name. If you
are incorporated the bank will want a copy of the minutes
and a corporate resolution authorizing the account.
One of the first things to do when starting your new
business is to get Federal and State application forms for
ID numbers. Request "Business Start Up" application forms
from the Internal Revenue Service and from the State Tax
Commission. After your applications are sent in you will
be notified of your number and get a packet of
information. Depository forms, quarterly report forms,
W-4-A's, W-2's, estimated tax forms, etc., will then be
mailed periodically as needed.
Payroll taxes and expenses will amount to from 13% to 17%
of your gross payroll depending on workmen's compensation
rates for the various job classifications. Payroll
FICA taxes (Social Security)
FUE taxes (Federal Unemployment)
SUE taxes (State Unemployment)
WC or SDI (Workmen's Compensation)
Also, you will be required to withhold from your employees
wages and pay over to the Federal and State:
FICA taxes (Social Security-Employers share)
Federal Income Taxes
State Income Taxes (Most States)
State Disability Insurance (Some States)
If you are a sole proprietorship business or are a partner
you will have to file and pay Federal estimated tax
reports each quarter based on estimated annual income.
(Some states also require periodic estimates through the
year.) Partnerships file an annual information return and
each partners share of profits is included in their
individual personal income tax return. Corporation must
also file for estimated taxes.
Throughout the year it takes hundreds of hours of your
time to prepare and file the various payroll reports and
other governmental forms required. This is no reason for
you to sacrifice 24 hours a day trying to keep up with
your business all by yourself without adequate help. When
you have expanded to the pint you can afford good
employees and/or managers, don't hesitate, hire them.
Properly trained and advised they will make more money for
you than you can ever make going it alone in most
ventures. Advertise in the classified section, take
applications, set up interviews and hire the best.
When you first start thinking about establishing your own
business find out when the next issue of the telephone
book will be printed and the deadline for getting listed.
Place a reasonable display ad in the yellow pages under
the classification which best describes your product or
service. It could be a catastrophe if you missed the
deadline for the next issue by a few days and have to wait
9 months to a year for a listing in the permanent
directory. Advance deposits are usually required when you
sign up for Power, Gas, Water and Sewer.
Licenses and Permits:
Apply at City or County offices for local licenses
required. If you are going into a retail business and
your state is subject to sales taxes, apply for a permit
and number with the State Franchise Tax Board or other
proper department. You will have to add the taxes to your
customer's purchases and pay pay the proceeds over to the
state periodically. Some states require a nominal deposit
with your application. Your various suppliers will need
your permit number for their files before they will sell
to you. You do not have to collect sales taxes across
state lines unless you have businesses in other states.
For example: Persons in the mail order business sending
their Advertising and products nationwide need only
collect taxes for sales made to persons within the state.
Persons entering into certain kinds of business will have
to obtain an occupational license through the State or
local licensing agencies. These include Real Estate
Personnel, those in the medical profession, barbers,
beauty operators, electricians, plumbers, contractors,
insurance agents, engineers and many others. Passing a
written examination is generally required before a license
Federal regulations control many kinds of interstate
activities with license and permit requirements. These
include such businesses as common carriers, certain food
processors, TV stations, radio, drug manufacturers and
many others. Any organization which shops, sells, or
advertises in more than one state is subject to Federal
Trade Commission (FTC) regulations. This includes mail
order operations although no license is required in most
cases. Any firm distributing food products, including
restaurants, is subject to permits and periodic
Other permits required for certain businesses include
inspection and permit for occupying a new building that
caters to the public, fire permits, pollution control
permits, and those which regulate the size, shape, style
and placement of signs, etc.
If you are in doubt about which permits and licenses
pertain to your chosen business it may pay to first set
down with the proprietor of a similar business in a
different area or town and get full information from them.
Don't forget about insurance. The premiums are expensive,
especially business liability, but you cannot operate with
peace of mind without full coverage. Check with a good
agent regarding Fire, Liability, Workmen's Compensation,
Business Interruption, Burglary, Glass, Extended Coverage,
Vehicles, etc. Have two or three agents submit estimates.
Bookkeeping and Accounting:
There is probably no reason you cannot do your own record
keeping, at least in getting started. Just use a separate
check book and bank account for your business. Use a
columnar check register with several "headed up" columns
and distribute the amount of each check written to the
proper columns. List your deposits on the check register
and carry across a continuous bank balance.
If you don't have a cash register to start with you can
write up sales on duplicate sales slips, but a cash
register is highly recommended. You will be able to ring
up sales to different departments and by different clerks.
It will pay for itself many times over in just a short
time. Record receipts from the "totaled out" cash
register tape at the end of each day to daily or weekly
With just the above two records of original entry plus a
"General Journal" to record any extraneous transactions,
and a "General Ledger" to which accounts from the three
records are posted at the end of each month, you have all
that is necessary for a simple "cash" accounting system.
This "cash" system can be easily converted to the accrual
method of accounting by simply journalizing accounts
receivable, payable, accruals, prepaid insurance, etc.
After posting these entries the Balance Sheet and Income
statement can be readily completed.
After preparing the financial statements, reverse the
accruals and you will be ready for entries the following
You can enter your gross payroll, payroll deductions and
the net amount in your check register. Give your
employees a payroll slip showing all the facts and
maintain subsidiary payroll sheets with all the
information as to each employee.
With these individual payroll records and the control
accounts in the General Ledger you have all the
information necessary to complete the various payroll tax
reports and returns as they come due.
At the end of each annual accounting period all the
information for filing your Income Tax returns will be
right at your fingertips.
If you know nothing about bookkeeping have an accountant
set up your books on the basis of the above simple method.
Let him "keep the books" the first few months while you
learn how then, if you prefer, take them over yourself.
Use your accountant as your advisor. After a short time
you probably will be able to do all the accounting without
Every business is different and will not be using the same
kind of fixtures and equipment. Sometimes it is much
better to preserve cash for inventories or working capital
and purchase good used fixtures and equipment at a much
lesser price. With the recent changes in the income tax
laws you will have to do extra analysis to determine
whether a lease program or direct purchase is the best way
to proceed. Whether to buy or lease depends on many facts
which can only be determined by observation and
computation. It could be better to lease electronic
equipment, computers, copiers and certain other products
due to the rapid advances continuously taking place in
Suppliers are reluctant to ship their goods to new
businesses. That is one reason you should get to know
your banker as he can offer credit references acceptable
to most any firm. You will have to convince your proposed
suppliers that you are honest and hard working and that
your business has a good chance for success. You may have
to pay C.O.D. while getting started so take this fact into
account when preparing your financial planning and
After you have become established with your suppliers send
your financial data to Dun And Bradstreet so your company
will be listed in their files. Most every firm in the
country recognizes Dun and Bradstreet as a most reliable
organization for obtaining correct credit information.
Work with your suppliers to take advantage of special
offers, cooperative advertising programs, trade and cash
discounts, dated invoices, etc.
Advertising and Promotion:
When you are getting started give a press release to the
local newspaper. Depending on the type of business, it
may be very profitable to have a few thousand circulars
printed and distributed throughout the area. Or you can
have grand opening circulars inserted in the newspaper to
be distributed to subscribers.
Watch the ads of your competitors. As you find time clip
various ads of businesses similar to your own, from large
city papers. File them for ideas when preparing your own
There are all kinds of promotional ideas and gimmicks to
keep your business out in front of your competitor.
Search the library, book stores and mail order media for
such publications. Choose the ones which fit your
promotional programs or those that can be "twisted" to fit
and get them working for you.
Owning your own business is one of the better ways to gain
wealth provided you know what is required. Starting a
business is risky but your chances for making good are
better if you understand the problems you will meet and
work out as many of them as you can before you start.
The Business Format that follows will be a valuable aid in
getting you started in a business of your own. Use the
format as a check list and guide. If the response to the
questions and comments is favorable you are in a preferred
position to go into business for yourself.
How about you ... Are you the kind of person who can get a
business started and make it go?
The first thing you need to know is if you require someone
else to get you started or if you do things on your own
with nobody telling you to get going.
Do you like other people and can you get along with just
Are you able to lead others? Can you get most people to
go along when you start something or do you have to follow
the lead of others before you act?
Do you like to take charge of things and be responsible
for seeing them through?
How good are you at organizing things; do you have a plan
before you start and are you the one who gets things lined
up for the group?___________
Can you make yourself keep going as long as you need in
order to accomplish something?
Are you able to make the right decisions most of the time,
even when you have to make up your mind in a hurry?
Can people trust what you say and have confidence that you
don't say things you don't mean?
Do you stick with it and finish what you start?
Are you in good health?
Think very seriously about why you want to own your own
business and whether you want it badly enough to keep you
working long hours without knowing how much money you will
end up with.
Have you worked in a business like the one you intend to
Have you worked for someone else in a management capacity?
Have you had any business training in school?
Have you saved any money for your venture?
How about money? Do you know how much money you will need
to get started?
To answer these questions first determine what furniture,
fixtures and equipment you will need. List the cost, the
down payment or cash price, and if purchased on an
installment plan, the amount of each monthly or periodic
Amount of each payment
The furniture, fixtures and equipment required may include
such things as counters, storage shelves, cabinets,
display stands, tables, cash register, safe, window
display fixtures, special lighting, outside signs and
Now list the starting cost you have to pay only once, such
as the following:
Furn., Fix, & Equip. (per previous page)
Decorating and remodeling
Installation of fixtures and equipment
Deposits with public utilities
Legal and other professional fees
Licenses and permits
Advertising and opening promotion
Advance on lease
Other and Misc. cash requirements
TOTAL ESTIMATED CASH NEED TO START
Now list the estimated monthly expenses:
Salary of owner-manager
All other salaries and wages
Payroll taxes and expense
Rent or lease
Repairs and maintenance
Legal and accounting
TOTAL ESTIMATED MONTHLY EXPENSES
Multiply by 4 (4 months)
Add: Total Cash needed to start above
TOTAL ESTIMATED CASH NEEDED
When you have found the approximate amount of cash needed
to start, determine how much money of your own you can put
into the business.
Where are you going to get the rest of the money you need
to start the business?
Do you know the credit terms of your suppliers?
Have your prepared a projected Income Statement to know
what profits you may expect?
Is projected profit, including the salary you pay
yourself, sufficient for you to live on and still generate
working capital to help your business grow?
How about a partner?
If you need a partner with money or know-how do you know
someone you can get along with as a partner?
Do you know the good and bad points of being an individual
proprietorship, a partnership, or a corporation?
How about customers?
Do most of the businesses in your community seem to be
doing well? ____
Have you determined whether stores like the one you want
to open are doing well locally and nationally?
Do you know what kind of people will want to purchase what
you plan to sell?
Is there a good demand for your kind of business?
Getting started in your business:
How about your building:
Have you found a good building in a good location for your
Will the building fit your business purpose without to
much outlay for remodeling or leasehold improvements?
Is there adequate off-street parking?
Have you determined if the zoning is right?
Have you had your attorney check the small print in your
How about merchandise:
Have you determined how much inventory you will need to
Have you found suppliers you can depend on for good
merchandise, when you need it, at a favorable price?
Have you compared prices and credit terms of different
Have you checked out your competition in every possible
manner to determine pricing, good will, volume of
business, etc.? _______________
How about keeping records:
Do you know how to keep track of your income and expenses;
your accounts payable and accounts receivable?
Do you know how to control your inventory so you have
enough on hand for your customers buy not more than you
can sell? ____________________
Can you compute payrolls, prepare tax reports, etc., or do
you know a bookkeeper or accountant who will help with
your accounting requirements for a reasonable fee?
Do you know what financial statements you will need in
order to guide your operations?
Have you found out what licenses and permits you will need
and have you had an opportunity to read up briefly on
general business law? _________
Protecting your property:
Have you make plans for protection against theft of all
kinds....shoplifting, robbery, burglar, employee control?
Have you talked to your insurance agent?
Buying a business someone else has started:
Have you considered purchasing a going business rather
than setting up a new operation?
Have you determined the "real" reason the owner wants to
Have you compared the cost of buying the business with the
cost of starting a new business?
Is the building, equipment and stock in good order and can
the lease be readily transferred?
How about the suppliers of the company?
MAKING IT GO:
Have you decided how you will advertise?
Have you watched the ads of your competitors?
How much can you afford for advertising?
Do you know how to figure out what you should charge for
each item you sell?
Do you know what other stores like yours charge?
Do you have a plan for finding out just what your
customers want? ______
Will your plan for keeping track of inventory tell you
when it is time to order more and how much to order?
Do you plan to buy most of your stock from a few suppliers
rather than a little from many so those you buy from will
be more likely to help you succeed?
Have you decided whether you will have sales clerks or run
a self service operation?
Do you know how to get customers to buy?
Have you thought about why you like to purchase from some
sales clerks but not others?
How are you going to train your help?
Do you know where and how to find good employees?
Do you know what kind of person you need?
Have you decided whether to extend credit?
Have you checked with the bank about getting set up with
Visa and Mastercard?
Can you recognize the difference between a good credit
customer and a "dead-beat"?
Could you make more money working for someone else and is
for, how does the opportunity compare with future
projected profits from a business of your own?
Does your family go along with your plans to start a
business of your
Do you know where to find out about new ideas and new
Do you have a "work plan" for your employees, and for
Have you checked to see if there are any governmental
agencies available to help you set up your new business?
IF YOU HAVE ANSWERED ALL THE ABOVE QUESTIONS, YOU HAVE
DONE SOME SERIOUS THINKING. As you proceed in a business
of your own don't hesitate to ask others for help.
Running a business takes will power. Decide what you need
then go after if full blast!
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