A Roadmap to Starting a A Roadmap to Starting a Successful BusinessSuccessful Business

Presented through the National Institutes of Health Presented through the National Institutes of Health Office of Strategic Management Planning Office of Strategic Management Planning

and Small Business Officeand Small Business Office

Facilitated by Thomas Sides, M.A.Facilitated by Thomas Sides, M.A.

SymbolsSymbols “Buzzwords” are key terms relating to the chapter

topic. You should become familiar with these definitions, as they’ll assist you in making critical business decisions. The icon that indicates a Buzzword is shown to the right :

A “Caution” warns the reader about challenges or precautions that relate to the chapter topic. Failure to pay attention to these Cautions could lead to delays, legal problems, fines, or even the end of your business. The icon that indicates a Caution is shown to the right:

Additional Resources and information that may be helpful to the reader are indicated by the following icon:

At the end of each chapter, the most “Important Points” for the reader to take away are indicated by the following icon:

Getting StartedGetting Started Is business ownership right for you? An “entrepreneur” is a person who

starts his or her own business Self-assessment questions:

Are you a self-starter? How well do you plan and organize? Can you work long hours? How will the business affect your family?

What Type of Business What Type of Business Do You Want?Do You Want?

A startup: Follow your own dream

Buying an existing business: You will have current customers and a

known track record of performance Franchising:

Brand recognition reduces marketing costs

Questions to Ask When Questions to Ask When Starting Up A New BusinessStarting Up A New Business

Does the idea suit your personality and interests?

Will you use your own name to brand the business?

Will it be financially viable? Do you have startup money to invest? What will your monthly expenses be? Is there a current need in the

marketplace? Who are you competing with?

How the Small Business How the Small Business Administration Can HelpAdministration Can Help

The SBA assists, counsels, and protects the interests of small businesses: Training network with many free courses,

workshops, and publications Local Small Business Development Center

Programs Three SBA loan programs Volunteer counselors through the Service

Corps of Retired Executives (SCORE)

Choosing a Business StructureChoosing a Business Structure

Different legal structures protect you in different ways and offer varying tax advantages: Sole Proprietorships General Partnerships and Joint Ventures Corporations Limited Liability Company (LLCs)

Sole ProprietorshipSole Proprietorship A “sole proprietorship” is the

establishment of a business by an individual; there is no legal entity that owns ands operates the business

The owner is personally responsible for all debts ands contracts

Profits are disclosed on the owner’s personal income tax return and he or she can deduct business losses

General PartnershipsGeneral Partnerships A “general partnership” is an agreement

by two or more persons or entities to establish and operate a business

A written agreement should be prepared between the partners

Each partner discloses business profits in his or her personal tax return and deducts proportionate losses

A “joint venture” is a general partnership set up to make a profit on a one-time basis

CorporationsCorporations A “corporation” is created by filing

articles of incorporation with the appropriate agency in the State

The corporation is separate and distinct from the owners of the corporation

Owners of an interest in the corporation are called shareholders or stockholders

They are protected from liability from the corporation’s debts and obligations

Limited Liability Limited Liability CompaniesCompanies

A “limited liability company” (LLC) combines liability protection with the tax status of a general partnership

Owners of an interest in the LLC are called members

Members have no personal liability for the debts and obligations of the LLC

Members disclose profits and deduct losses on their individual tax returns

The Business PlanThe Business Plan A “business plan” is a roadmap that

describes where you’re going and how you’re going to get there

A guide to achieving your goals A tool to spark investor interest A document that helps employees

understand the company mission

Key Elements Key Elements of the Business Planof the Business Plan

Description of your products and services Market and industry analysis that

demonstrates the need for your business List of competitors, including their

strengths and weaknesses Marketing strategy (sales approach) Management team and operations plan Financial analysis: the investment needed

Federal, State, and Local Federal, State, and Local TaxesTaxes

Federal taxes are paid at intervals with IRS coupons, usually through the Electronic Federal Tax Payment System (EFTPS)

States tax structures vary; most require some form of tax on small businesses

Local authorities may tax business property or all businesses operating in the area

Research the laws that apply to you; accountants or tax lawyers may be needed

Employment TaxesEmployment Taxes Federal income tax withholding

Businesses must withhold Federal income tax from employees’ wages based on W-4 information

Federal unemployment tax Pays unemployment compensation to

workers who lose their jobs Social Security and Medicare

Required under the Federal Insurance Contributions Act (FICA), also called self-employment tax

Self-Employment TaxSelf-Employment Tax “Self-employment tax” is the

combination of Social Security and Medicare taxes for individuals who work for themselves

Social security coverage provides various types of retirement and disability benefits

You must pay self-employment tax if your annual net earning from self-employment is $400 or more

Types of InsuranceTypes of Insurance Business property insurance Liability and excess liability coverage Worker’s Compensation Health insurance Life insurance An insurance agent should be included

in the business startup process

The Five “C’s” of CreditThe Five “C’s” of Credit How banks determine whether to loan

you money: Character: Credit history is very important! Capacity: What is your track record of debt

repayment? Capital: How long will personal resources

support both you and the business? Conditions: Current economic conditions Collateral: Assets the company pledges as

a source of repayment for the loan

Secured and Unsecured Secured and Unsecured Lines of CreditLines of Credit

If you have trouble getting financing, a “secured line of credit” can be used to purchase equipment Property or equipment is used as

collateral, which guarantees repayment An “unsecured line of credit” does not

require collateral This is given as a personal loan to the

company’s officers, based on the individuals’ credit histories

Effective MarketingEffective Marketing A “marketing plan” serves as a

blueprint for you to follow to get your products and services known and recognized. It has: Competitor and issue analysis: challenges

and opportunities facing the business Objectives: What do you want to achieve? Action program: A “to-do” list Budget: Detail expenses Strategy: The Four “P’s”

The Four P’s of MarketingThe Four P’s of Marketing Product: Describes features and

benefits Price: Lists prices and pricing strategy Promotion: Tools or tactics to achieve

marketing objectives Placement: Sales philosophies and

methods

LicensingLicensing Licenses or permits are required to operate

certain types of businesses One or more licenses may be required from

the city, State, county, and/or Federal Government You may need multiple licenses if you work in more

than one jurisdiction Failure to obtain the proper licenses can

result in fines or the loss of your business The application process varies according to

jurisdiction; research the requirements in your area

BondingBonding “Bonding” guarantees that a business will

perform its assigned tasks. A bond is issued by a bonding company after the business is thoroughly investigated

Surety bonds: The surety company agrees to compensate the customer if the business fails to pay a debt or meet an obligation

Fidelity bonds: Protect against the actions of employees (such as embezzlement)

You must have an agent or broker to guide you through the application process; the SBA also provides assistance

ZoningZoning “Zoning” specifies where residential,

industrial, recreational or commercial activities can take place

Business owners must check on local zoning ordinances (e.g., a business may not be allowed in your home)

A variance is a request to make an exception to current zoning requirements

Copyrights, Trademarks, Copyrights, Trademarks, and Patentsand Patents

Copyrights, trademarks, and patents all deal with intellectual property and how to protect it

“Intellectual property” is a product based on an idea and it has some type of commercial value

Intellectual property includes a wide range of products, such as books, musical compositions, and works of art.

CopyrightsCopyrights Copyrights protect individual creative

expression. The Federal Copyright Act of 1976 specifies how to register a copyright; there are no State copyright laws

If a work is in the “public domain,” anyone can use it without permission from the author or the author’s heirs

The U.S. Copyright Office explains how to register literary works, visual art works, performance works, sound recording, serials and periodicals, and mask works

TrademarksTrademarks A “trademark” is a brand name--a

distinctive sign, logo, slogan, symbol, or other emblem used by businesses to distinguish their products from others

Trademarks do not expire and can apply indefinitely

Although trademarks can be registered, it is not required; just using a mark establishes a common law right to it

PatentsPatents A “patent” gives an inventor exclusive

use of his or her invention Patents are issued by the United

States Patent and Trade Office (USPTO)

Most inventors use a patent lawyer to help with the application process

AccountingAccounting Sound accounting and bookkeeping

practices are essential to any business Many businesses rely on an accountant

to handle financial recordkeeping Computer programs such as Quicken,

Peachtree, or Quickbooks can simplify some bookkeeping tasks

Cash and Accrual MethodsCash and Accrual Methods of Accounting of Accounting

The “cash basis” method of accounting requires only that you record financial transactions when money is paid or received Not adequate for businesses that give credit

to their customers or maintain a large inventory

The “accrual basis” method reports income when earned and expenses when incurred, not when money actually changes hands

Human ResourcesHuman Resources The Human Resources function deals

with hiring and managing employees Be specific when interviewing

candidates Avoid inappropriate and illegal questions

during the interview Provide competitive compensation and

benefits Maintain detailed employee records Consider an Employee Stock Ownership

Plan (ESOP)

Getting on the WebGetting on the Web A Website can attract customers and

boost earnings Sales through the Internet can take

place internationally, 24 hours a day A professional Website designer can

develop your site at a relatively low cost

Promote your site through major search engines or a link exchange program

Resources for Additional Resources for Additional InformationInformation

SBA, SBDC, & SCORE NIH SBO Web site http://sbo.od.nih.gov/ Library of Congress SBA, Small Business Classroom International Trade Administration U.S. Government Printing Office Government Information Locator Service Chamber of Commerce State, County, & City Government Offices Trade Associations Banks & Financial News Publications Internet

Final ThoughtsFinal Thoughts

Build on every success

Learn from your mistakes

Take time to relax and reduce stress!