SECRETS TO SUCCESSFULLY STARTING YOUR OWN BUSINESS (Part 1)

The American Dream is, and always will be, to come up with an idea, start a business and become rich from your own efforts. Based on this motivation, thousands of businesses fail each year, due primarily to not being familiar with the basics involved in running a business.

This 2-part series will enlighten you and give you a number of suggestions you can use to better guarantee your chances for success. This article is written with the warning that any and every business venture contains certain inherent risks and any number of alternatives. We do not espouse that any one way is the right way or that our suggestions are the only way. On the contrary, we advise that before investing any money in a business venture, you seek counseling and help from a qualified accountant and/or attorney.

Just about the first thing you should consider before deciding to start or purchase a business is which legal form you'll be operating under. There are basically four choices: sole proprietorship, partnership, limited partnership, and/or corporation. Each has a number of advantages and disadvantages. We will try to explain some of them to you.

As much as anything else, for many people starting a business is a form of self-gratification, and they form a corporation for some sort of prestige gain - just to say, "I own a corporation."

With just a little bit of observation, you'll find that one of the major causes of business failures is due to the founder wasting start-up capital on frills, such as an impressive store-front office, expensive furnishings, and corporate legal costs.

One of the basic traits you must develop it you're going to be successful in business, is a tight hold on your expenditures.

One of the basic traits you must develop it you're going to be successful in business, is a tight hold on your expenditures. In fact, a good rule of thumb is that anything that does not make money for you or protect your investment, should not be purchased at this time. Undoubtedly, this applies to the expense of setting up your own corporation.

Unless you have a partnership and start your business as such, the only real advantage to forming a corporation would appear to be that a corporate structure will semi-protect the property you personally own.

As an example, you own a home and car. You form a corporation to protect these possessions from business losses. Yet, if you can be found guilty of misusing corporate funds, your business creditors can pierce the corporate shield and come after your possessions.

Basically, if you invest everything you have in your business, as most newcomers do, you don't usually need a corporation because you have nothing to protect. Your household possessions, personal belongings, generally your car, and even a portion of the equity in your home is protected by the homestead provision of the Federal Bankruptcy Act, and cannot be taken away from you.

As a sole proprietor or partner of a business, you'll be paying taxes on your overall earnings, much the same as if you were holding down a salaried or hourly paid job. Whether you do or don't take money as a salary will have no bearing on the earnings of your business and tax return.

The often advertised advantage of incorporating, that you can manipulate your salary in order to save on tax dollars, is real because of corporation laws. However, the IRS frowns on this practice. When your business is successful and making a lot of money, definitely check with your accountant on the advantages of incorporating.

As a corporation, you'll be subject to a number of other drawbacks as well: generally higher state taxes, stricter laws concerning the operation of your business, more elaborate accounting procedures, and legal papers that are required just about every time you make a major move or sign almost any contract. Thus, your legal and accounting fees will be much higher as a corporation than will those required for a sole-proprietorship type of business.

As a sole proprietor or partnership, you'll find many areas that require the registration of your business name. The cost, however, is minimal, ranging from $5 to $100. The likely best way to find out what laws apply in your area is to call your bank and ask if they need a fictitious name registration card or certificate in order for you to open a business account.

Selecting a name for your business is quite important to you and particularly relative to advertising. Your business name should describe the product or services you offer. Fancy names such as, Linda's Clipping Service will lose potential "walk-in and passing" customers to the beauty shop across the street that calls itself, Patti's Beauty Salon or Jane's Hair Styling Shop.

The advantage of using your full name in the title of your business, such as Johnny Jones' Meat Lockers, has the advantage of making credit somewhat easier to come by - provided you pay your bills on time - but it also includes the disadvantage of confining your services to a local or at most, a regional area.

Should you buy, lease, or rent a space for your business? Think twice before you make any decision along these lines. Most businesses tend to grow quickly, or they never get off the ground. There are a few exceptions, but only a very few, that tend to grow at a modified rate.
So, buying a piece of property and setting up your business on or within that property, obligates you to ownership regardless of what happens to your business.

Leases are almost always strong contracts written by attorneys to the advantage of the property owner. When you sign an agreement to pay someone for the use of their space over any length of time, you are "nailed in" to paying for that space regardless of what happens to your business.

In the beginning, it's wise to either get the shortest-term lease possible or arrange to rent with an option to lease at a later date. This does not apply to a retail business unless your business happens to be an untried one.

You should open a business bank account. In selecting a bank for your business, scout around and look for one that can, and will help you. Determine what your banking needs will be, and then via telephone, interview the managers of the banks in your area. The important convenient bank to your business location.

A point to remember: the closer you can make the relationship between you and the bank manager, the better your chances are going to be for approval on loans and/or special favors you may need at a later date.

Try to become acquainted with as many of the bank employees as possible. The better you know them, the more courtesies they will be extending especially to you in the course of your association.

Just as a doctor is a specialist in his field, and you go to him for medical problems, your banker is a specialist in his field, and you should go to him for your money problems. In business, you will have to learn that everyone is an expert in his own line of work, and in your associations with other business people, refrain from acting like a "sharpie" and/or pretending that you know exactly how everything works in someone else's specialty.

You will find that very often, different banks specialize in different types of businesses. As an example, you are sure to find banks that specialize in real estate transactions, export-import businesses, and even manufacturing operations only.

What I am saying here is that if you are planning to sell an expensive item, your customers will probably need and/or want to finance. It will behoove you to select a bank familiar with your type of product that will afford your customers, through you, contract financing.
Some of the questions you should ask of your banker include the following:

• Is it necessary to maintain a certain balance in your account before the bank will approve a loan for you?

• What qualifications must you have to obtain a line of credit with the bank?

• Does the bank limit the number of loans or types of loans it will approve for small businesses?

• What is the bank's policy regarding the size of a check you might deposit that requires holding for collection?

• And what about checks less than that amount - will they be immediately credited to your account?

In almost all types of businesses, it will be to your benefit to set up with your bank, a method of handling VISA, Master Charge, and regional credit cards. The important thing here is to ultimately set up your account in the bank that will service all these credit transactions for you, a one-stop for all your banking needs. In most instances, you will find that having the capability to fill orders/make sales via credit card transactions, will increase your volume of sales appreciatively.

Be sure to check out Part 2 of the series!