Are Your Assets at Risk?

Business Rule #10

Decide on an Entity

Limited Liability Company

A Limited Liability Company (LLC) is a business structure allowed by state statute.  (IRS 2009)

If you believe that sole proprietorship comes with too many risks then maybe consider being a limited liability company (LLC). Just like the name states, a limited liability company limits your personal liability unlike a sole proprietor whose liabilities are unlimited. 

 Many small businesses decide to become a limited liability company to protect their personal assets against the debt of their business. As a sole proprietor all your personal assets can be seized to cover your business debts but as a LLC your personal responsibility is now limited. Do a little research and look up cases of sole proprietors and what assets were taken to cover their business debts and do the same with limited liability companies. This will give you an idea of your risk under each entity.

Heads Up: LLC is a new type of entity that varies state to state, so it may not be easy to locate cases regarding limited liability companies.

Not all business can become a limited liability company. Among the list of companies that does not qualify to be a LLC are banks, trust and insurance companies but the complete list varies by state. Check with your state government to see if your business qualifies to be a LLC.

When deciding if LLC is for you, use the below list of advantages and disadvantages as a resource to make your decision.

 Advantages:

*    Limited Liability 

The biggest benefit of LLC is the liability protection that it gives you. You & your personal assets are now safe from your business debts and actions. If your LLC is sued, you are protected from being held personally responsible. 

*   Pass-through tax treatment:
Pass-through tax treatment allow for business owners to report their gains/losses on their personal income tax which eliminates the possibility of double taxation. 

*   Your business can be classified as a separate entity from you.

 Disadvantages:

*    Not all businesses qualify to be a LLC
Check with your state government to see if your business can operate as a LLC. Banks and insurance companies are example of businesses that can’t be a LLC.

*  New Entity
LLC is a fairly new entity and a lot of the legal and tax operating issues has yet to be resolved. Example: Many states does not recognize single member LLC's.

*   Different Law Interpretation
LLC laws are on the state level and its rules and judgment has yet to be agreed upon universal.

*    There is filing cost
Cost can run between $50-600+ visit your state website for the cost for your state.

*    Tax Deduction Lost
LLC's loss deductions can be limited because of your limited liability for LLC debts.

Check out website: http://www.laughlinusa.com/LLC_casestudies.asp for great examples on LLC’s.

 How to become a LLC?

*    Business name check
You have to make sure that the business name that you have isn't already being used by another LLC company operating in the same state as you. Also, there are some names that you cannot use such as, corporation, incorporated, City, etc. Most secretary of state websites offer a business name search tool.

FYI- Once your business becomes a LLC; you will be required to add LLC to end of your business name. That will now become your business legal name.

 Example: Kelly’s Daycare, LLC

*    Paperwork
You will need to complete the necessary paperwork and pay the requested filing fee. To get the necessary paperwork go to your states secretary state website.

*    Public Announcement
Some states actually require you to make a public notice about your intentions to become a LLC. Check with your state to see if they require a public notice.

Knowing which entity to use can be a daunting task. Sitting down with a lawyer to discuss your personal and business needs will help you make the best decision. The $100.00 hr visit to talk with an attorney may be worth it if in return it prevents you from making an uninformed decision that can cost you valuable time and money. A lawyer can give you an in depth analysis on you and your business tax and legal implications.

Thoroughly researching the entities sole proprietorship and LLC helps you compare your needs with the advantages and disadvantages of both entities. Look over yesterday and todays discussion on Sole proprietorship and limited liability companies (LLC) to make an informed decision on your business classification.

Make sure to visit your secretary of state website for state specific requirements for starting a small business in your state.

www.sos.(enter your state abbr.).gov

What is your business classification?

Being the Big Bad Boss!

 How to Pick the Right Business Entity

After getting all the foundation laid for your small business it's time to decide on your business entity. There is a lot to know about the different types of entities and figuring out which entity is best for your business is extremely important. There is so much information to be told about each entity that SBS will do a series the next seven days, in order to help you pin point which entity is best for you and your business. Today’s discussion will cover sole proprietorship one of the most common entities for small business.

When deciding on which entity is best for you keep the following in mind:

•    Your Business goals
•    Business structure
•    How do you want your business structured?
•    Business legal vulnerabilities
•    Are you entering a high-risk business that may make your business vulnerable to lawsuits?
•    Tax effects
•    What are the tax implications and which entity offers the best tax benefits?
•    Profit/Loss projection and investment
•    Start Up cost  
•    Ease of ending business 

Business Rule# 10- Decide on an Entity
 Sole Proprietorship

A sole proprietor is someone who owns an unincorporated business by himself or herself. (IRS 2009)

The top reason that most business chose the entity of sole proprietorship is so that they can receive full profit from the business. As a sole proprietor you are the sole owner of the business and you don't have to worry about dealing with a partner. Unlike a partnership, you are solely responsible for all decisions of the business. You do not have to worry about the petty arguments that plague some partnerships. This also means that you are also solely responsible for any debt or legal actions against your business.

 In the eye of the law when you decide to be a sole proprietor you are seen as one entity with your business. There are unlimited liabilities being a sole proprietor because the law does not distinguish between you and your business. If you were sued for your business unpaid debt, not only can your business assets be liquidated to pay your debtors but your own personal assets may be liquidated. It is important that you understand your legal liabilities as a sole proprietor.

 Although you are completely liable for your business debt but you also receive 100% of your business profit. As a sole proprietor you receive all the benefits from your business success and have creative control over all aspects of the business. Sole proprietorship requires minimum paperwork to complete and if necessary the business can easily be disassembled.  

When thinking about what entity best fit you and your business make sure you keep your business goals in mind. Your business goals will help you figure out what entity is best for you and your business.

Exercise:
Using the below list of disadvantages and advantages for sole proprietorship, create your own advantage/disadvantage list for you and your business.

 Advantages
·    Receives 100% of profit (minus Uncle Sam's portion)
·    Complete control over business
·    Minimum set up paperwork
·    Simpler taxes files
·    Easier to end business
·    Don't have to worry about a partner

 Disadvantages
·    Unlimited liabilities.
·    As the sole owner you are responsible for all the start-up cost.
·    Medical Premiums for Employee benefits are not taxable.


How to become a sole proprietor 
You are a sole proprietor by default because as soon as you went into business for yourself you became a sole proprietor in legal terms.

If you plan to operate your business under a different name other than your own then you will have to register your business with state as a DBA (doing business as).

For example:
Sole Proprietor- Nicole Jones
Business Name- Fancy and Quick Nails
Nicole will be required to register her business name.

 Registering your business name varies by secretary of state so you will have to check out your local state website to see if you have to register your trade name either on the local level, state level or through a different agency.

www.sos.(enter your state abbr.).gov

Do you know what business entity is best for you?

Are you a sole proprietor and why?

Small Business Vendor or Supplier

 Have You Done Your Small Business Homework?

#3 of a 3 Part Series

Business Rule# 9- Find a Vendor
Before you can begin to think about suppliers you have to figure out what industry you are in. If your business idea is to start a Hair Store then your industry would be:

448150 Clothing Accessories Stores- The industry comprises establishments primarily engaged in retailing single or combination lines of new clothing accessories, such as hats and caps, costume jewelry, gloves, handbags, ties, wigs, toupees, and belts. (Census 2007)

To find out what your industry is you can log on to http://www.census.gov/eos/www/naics/ and enter your business on the left hand side of the page and it will give you your business NACIS code. (Write this down because you may need this later.) Click on your business NACIS code and it will give you a description of what type of business fall under that category as well as other information.

Now that you know what industry you are in, it is now time to think about what your business needs are.

Begin your search on the following:
*·    What kind of equipment and materials and service will you need?
*·    Who are the leading and or recommended vendors providing those items?
*·    What are the costs involved?

Once your business needs are identified it's time to find suppliers. If you are selling a service and not a product think about if there will be some sort of literature or product that you will be required to offer or give as part of your marketing plan. If that is the case then think about who will supply that item. Figuring out where to find suppliers can be a tedious task if you don't know where to look.

Below are a few resources of where to begin your search. 

 *    Ask Around
Like the old saying goes, 'you never know who knows who'. Talk to your friends, family and coworkers about your business plans and see if they have any suggestions on possible suppliers.

*    Networking
Try asking someone already in the business for a recommendation or possibly if you could purchase their over stock.

*    Trade associations
Search online for trade associations for your industry. This can be a valuable tool in not only locating suppliers but gaining knowledge about your competitors.

*    Online auction sites
Online auction sites such as eBay have an Industrial site where you can buy industrial supplies and products. EBay is more than just a bid and auction site for consumers but also caters to business industry as well.
http://business.ebay.com

·    Thomas Register/Thomas Regional/ThomasNet
Thomas Register is a free resource for locating manufactures.
www.thomasregister.com
www.thomasregional.com

*    MacRAE'S Blue Book
MacRAE's is an industrial directory that allows you to search through one million different businesses.
http://www.macraesbluebook.com/

*    Online Directories
Online directories have separate categories and sections for topics such as business. Yahoo! B2B directory can be a great resource to find a supplier.
http://dir.yahoo.com/business_and_economy/business_to_business

                                                                                                                     

 SBS Business Start-Up Rules 
 #7- Define Your Target Market
#8- Identify & Analyze Your Competitors
#9- Find a Vendor

Utilizing business rules 7-9 will help you:
 ·    Define your target market and identify their purchase needs.
·    Identify and analyze your business biggest competition.
·    Discover your business industry classification
·    Locate potential suppliers

Doing your research on your target market, competitors and suppliers will help you limit your risk of failure and increase your chances of solid start.

Have you done your small business homework?
Do you have a recommendation or tip on how to find suppliers? How tough was it for you to find a supplier for your business?

"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place." 

For Further Study:

Work Cited:
http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=448150&search=2007%20NAICS%20Search

Identify & Analyze Your Competitors

Have You Done Your Small Business Homework?

#2 of a 3 Part Series

Business Rule# 8- Identify & Analyze Your Competitors
Knowing your target market is extremely important to the success of your business but knowing who your competitor is, is just as important. Researching your competitors gives you an advantage because you are given a chance to study and learn from your competitor’s success and failures. Learning about your biggest competitor allows you insight on how to set up your business. You never want to completely copy a business but knowing what not to do and what's proven to work is worth noting.

Create another list of research questions that will give you insight on your competitors. Below is a starter list that you should begin with.

• ·    What companies are already providing the same service or product?
• ·    Who are the leading companies of market share?
• ·    What are your competitor prices?
• ·    What are your competitor’s strengths and weakness?
• ·    How do your competitors attract customers?
• ·    What similar businesses have closed lately and why?
• ·    Are there any companies that could become a strategic partner?
• ·    Who works for your competitor? (Staff)
• ·    How do your competitors identify themselves to the market?

What other resource questions can you add?

The below are resources to help you find out who your biggest competitors are.

• ·    Better Business Bureau http://www.bbb.org/us/
• ·    County Business Patterns http://www.census.gov/econ/cbp/index.html (This website allows you to  get detailed information about the business in a particular area. You can even search by zip code.)
• ·    Manta http://www.manta.com/
• ·    Dun & Bradstreet www.dnb.com
• ·    American Fact Finder www.factfinder.census.gov

Also, don’t forget to check and see if your competitors have been in the news by looking them through search engines such as Google. If they have a website, make sure to check that out as well.

Who is your biggest competitor? 

Do you think it's important to know who your competitor is?

"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place." 

Have You Done Your Small Business Homework?

"Research is what I'm doing when I don't know what I'm doing."
- Wernher Magnus Maximilian von Braun

Although Business Rules 1-6 required a lot of research, Business Rules# 7-10 also focuses heavily on research. In order to prepare yourself for the ups and downs of small business it is imperative that you are well prepared and learn your industry inside and out. The following three part discussion focuses on how to get the necessary information needed to move your business idea pass the thought process and into action.

Thanks to the internet you can just about find anything you may need to know about your business. But where do you start and what information should you give priority. Business Rules# 1-6 required a lot of work researching the functionality of the business. Now let’s examine past the functional side of the business and focus on researching your market.

Business Rule#7 - Define Your Target Market
In order to be successful you must have a clear understanding of who your customer is, what their needs are and their purchase behavior.  Your target market is consumers that purchase your products or services. Understanding your target market will allow you to design your business with the customer in mind. It will also encourage customer retention and allow you to market your products in a profitable way.

When you begin your journey to research your market, you will find a wealth of information. The only problem is a lot of that information you don't really need and most likely will only confuse you. In order to minimize getting drowned with useless information it is best to come up with a list of research questions.

Below is a list of questions that you can use to start your research list.

• Who is your target market? (List all their demographics'. e.g. age, gender, income, education level, occupation, family/household size and region/geography)
• What are the trends affecting your target market? (Examine trends back as far as 3 years.)
• What are the target market buying habits and/or preferences?

 Think about other things you could add to your research list. If your business is an online business then consider research questions that will give you insight on online shopping.
For example:  What is the most sold item online? What percentage of consumers purchases their beauty supply needs online verses in stores?

Below is a list of resources to help you define your target market.

• Census Bureau www.census.gov
• Federal Statistics Online www.fedstats.gov
• American Fact Finder www.factfinder.census.gov
• Government Printing Office www.gpoaccess.gov
• Quick Facts www.quickfacts.census.gov/gfd/
• State Data Centers www.census.gov/sdc/www
• Bureau of Labor Statistics http://stats.bls.gov/
• AAPOR (American Association For Public Opinion Research) www.aapor.org

 At the end of your research create a Target Market Statement that defines who your target market is and all pertinent information regarding your target Market. The statement should only list information that pertains to defining your target market and leave out any ideas or opinions regarding the information found. This statement is a reference fact sheet that can be helpful when developing a market plan.

A sample Target Market Statement:

Business: Kelly's Daycare Center Target Market

Single Mother, 2-5 members household, 21-38 years of age, $15,000-$30,000 yr income, high school graduate, located in the downtown area.

If asked, could you define your target market?
Do you think there is a need to be specific when defining your target market?

"Copyright © 2010, Dawn Austin, Recipe for Small Business, writer, SmallBiz Stew. All rights reserved. Permission granted to reprint this article on your website without alteration if you include this copyright statement and leave the hyperlinks live and in place." 

For Further exploring:

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