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10 Steps to Starting a Business
Step 1: Make sure that you are ready
Ask yourself these questions...
- Are you a self-starter? Are you independent and self-confident?
- Do you like to sell?
- Do you have a skill or product that is marketable? Do you need additional training before you begin your business? If yes, what?
- How many hours can you spend on your business?
- What is the worst that can happen if the business fails?
- What is the worst that can happen if the business succeeds? (Think about time constraints, family obligations, benefits.)
- Approximately how much money can you personally invest in your business? How good is your credit? Can you live without a paycheck for several months?
Step 2: Research Your Market
Ask yourself these questions...
1. Why do I think my product or service will sell? Be able to describe your business in 50 words or less talking about the benefits (not the features) of your product or service. This exercise is good for two reasons:
* You focus on what it is you are selling.
* You develop a 30 second commercial to give whenever anyone asks you "what do you do?"
2. Who is my competition? What do they do well and what do they not do so well? What is their pricing structure? How do they publicize and sell? If there is no competition, why?
3. What are the trends in my industry?
4. Who is my targeted customer?
Step 3: Determine Your Business Structure
Will you structure your business as a sole proprietorship, partnership, corporation, or limited liability company?
Sole Proprietorship
* The simplest form of business - easy to form with minimum amount of legal restrictions
* One individual owns the business (not a separate legal entity)
* Business assets and liabilities are the personal responsibility of the owner
* Business net income/loss reported on owner's personal income tax returns (Schedule C, Form 1040)
* Owner must pay a self-employment tax (for social security and Medicare) at 15.3% for 2001
Partnership
* Business is owned by 2 or more people
* Partnership agreement determines percentage of ownership and how the business will be run
* Not a taxable entity (each partner reports income on personal tax return)
* Each partner is liable for the debts of the business
* Owner's must pay a self-employment tax (for social security and Medicare) at 15.3% for 2001
Corporation
* Considered a separate legal entity
* Usually requires more paperwork to form and is more expensive to form
* Owners transfer money, property, or both to purchase stock
* Company profits are taxed separately from owners (form 1120 or 1120-A)
* Distributions to owner (dividends) are taxable to stockholder
* In NC, one person may form a corporation
* Corporation must submit an annual report to the state
* Corporation may choose to qualify as "S" Corp, which is generally exempt from federal income taxes (shareholders report profits on individual tax returns). Limitations on number and types of stockholders.
Limited Liability Company
* Combines tax advantages of a partnership with liability protection of a corporation
* No limit to the number or type of owners (members)
* Limited life determined by owners (members)
Step 4: Determine the Licenses and Fees You Have to Pay
* Name search and registration
Contact your local county Register of Deeds office to complete a Certificate of Assumed Name form for sole proprietor or partnership or call the Secretary of State's office, corporations division at (919) 733-4201 or go the the website: www.secretary.state.nc.us/Corporations for information about how to start a corporation in NC.
* Employer identification number application
Contact the IRS at (800) 829-3676 to order an SS-4 form (to apply for your tax number) and publication 334 (a wealth of information on what the IRS requires for all types of businesses)or go to the IRS website to get the info and to download the forms:
Click here to download forms
* City/state privilege license
Determine what city/county/state privilege licenses are required for your type of business. Call the Department of Commerce's office at 800-228-8443 or go to the website:
http://www.nccommerce.com/servicenter/blio/ for business license information. Also contact your local city/county business license office
* Zoning
Contact your local zoning office (city/county) if your business will be located outside your home to make sure the location you are targeting is zoned for your type of business. If you plan to have a home-based business, contact your city business license office to determine if you need a Home Occupation Use permit. If you are a member of a homeowners association, be sure to check if they have any restrictions on home-based businesses.
* Unemployment taxes
If you will have employees, contact the NC Employment Security Commission at (919) 733-3098 to set up your quarterly unemployment taxes (normally 1.2% of gross payroll for a new business).
* NC sales & use tax number/NC withholding number
If you will be selling a product, you are required to collect sales tax. If you will have employees, you are required to withhold state income taxes. To obtain the needed numbers and information, contact the NC Department of Revenue at (919) 733-3661 or go this website: to www.dor.state.nc.us/business/
* Bank account
You should always keep your personal money and your business money in separate bank accounts. Seach for a bank in your area that offers competitive rates and understands your type of business. At some point, you may go back to them to request a loan or line of credit or set up a credit card merchant's account.
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Step 5: Develop Your Marketing Strategy
First determine what your marketing goals are and how much money (your marketing budget) you have to spend. Then put together the combination of tools that you will use to get you and your business in front of your targeted market. Determine when you will do each item, how long it will last, and how much it will cost. Monitor your results.
Step 6: Develop Your Pricing Schedules
Pricing is an art not a science. There is no one formula that you can use to determine the perfect price. You do need to know some basic elements of pricing:
1. Your direct and indirect (overhead) costs
2. The profit margin generally used by your industry
3. What your targeted market is willing to pay
4. What prices your competitors are charging
Words of warning: Be careful not to price too much below your competitors (you may be perceived as not as good because you are too "cheap"). Remember, it is easier to go down on a price than to raise the price up a substantial amount.
Step 7: Develop Your Bookkeeping System
* Determine if you will use a manual or automated system. Ask what your CPA recommends or go to our QuickBooks section to find out more about one of the best accounting packages available for small business.
* Determine the records that you need to maintain (cash receipts, cash disbursements, customer records, employee and payroll records, business mileage, etc.)
* Take some basic business accounting classes (the small business center at your local community college is a great place to start) to make sure you understand what to do or turn it over to your CPA!
Step 8: Develop Your Projected Financial Statements
There are three basic financial statements that you will need to understand: the cash flow statement, the income statement (also called the profit and loss statement), and the balance sheet.
The cash flow statement is probably the most important of these three. You must know how much cash you will need to run your business - especially for the first year. When you run out of cash, you go out of business! Attend some classes at your local community college small business center or call your CPA for help!
Step 9: Write Your Busines Plan
Your business plan is your road map to starting and growing your business. It's also required by most lending institutions if you want to get a loan. Here is a general overview of what your business plan should include:
* Executive summary
Overview of the company and the product or service to be sold. Discuss the target market, the competition, and the niche that you have identified. Include an overview of the management team and general operations. Summarize the key financial projections and your financial needs.
* Business description
Give a history of the company, including key information about the industry and potential risk factors. State your goals for the next three years and your strategies for achieving your goals.
* Product or service
Define your product or service in layman terms. Identify what makes your offering unique from your competitors. Indicate the uses of your product or service and what stage of development you are in. Detail your pricing policy.
* Marketing research & analysis
Define your target market and profile your targeted customers. Indicate who your competition is and what share of the market they hold. Indicate how your industry is performing in general. Tell why you selected a particular location (if applicable).
* Marketing plan
Detail your plan to market your business through networking, advertising, direct marketing, and public relations. Describe your sales force and provide sales forecasts.
* Operational plan
Define your general manufacturing operations, including the processes used and the sources of raw materials. Indicate special equipment needs. Define your policies for extending and receiving credit. Detail your labor requirements. Identify your vendors and suppliers.
* Management plan
Define your management team. Include external "team members" (ABC's). Indicate experience levels as it pertains to your business. Define your employee policies and strategies for selection, training, and compensation. Indicate the legal structure you have chosen.
* Financial plan
Provide three years of pro forma statements, including income statement, balance sheet, and cash flow. For loan requests, provide personal financial statements. Indicate funds needed, use of proceeds, payback terms, and collateral. Include key business ratios.
* Attachments
Include photos of your product, building,and/or equipment needed; resumes; market research data; and any additional supporting materials.
Step 10: Implement Your Plan
Use the library and the Internet to obtain market research information. Use your local community college Small Business Center and the closest Small Business and Technology Development Center (part of the university system). Use your ABC's: your attorney, your banker, and your CPA and other consultants to help you. But most important, take care of yourself. You are getting ready to start what may be the most difficult (at least for a while) and the most exciting time of your life.
Good luck!
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