Start a Business

 Many of us have dreamed about going into business for ourselves. Utilizing our talents, the skills we have honed over the years and the knowledge that we have accumulated. Unfortunately, very few of us will do something about it, only 5%. We are going to explore self-employment to determine if it is right for you.

The reasons people go into their own business vary. Most of us have the desire to be our own boss. We want to get compensated for our efforts instead of getting a stipend while making money for someone else. We are interested controlling our own destiny. We want to grow and develop a business so that we can create wealth and build equity, live the life we want to live and perhaps even leave the business to our children. Whatever the reason, we all seem to have that urge to be our own boss.

So why do only 5% go into business for themselves? Fear is the main factor. They create many reasons (fear) why they shouldn't go into business but in fact these are reasons they should go into business for themselves.

How often have you heard; there is so much competition in the business I want to start. Well, the good news is that it means there is a lot of interest in that industry and that no one has carved out the market as theirs. When the competition advertises that creates interest in the industry for everyone and will help create awareness for your business. Another reason that there are a lot of competitors is that no one has solved the customer's needs to the customer's satisfaction. This allows you to create an opportunity to better fit the customer's needs, whether it be personalized service or your ability to move quickly to meet their needs without going through a series of steps.

Or you have heard that going into a business is risky. There is always risk in everything you do but you need to remember that if you have a good plan, solid financial resources, have professional and personal support, you are open to ideas, have the willingness to learn, are flexible in your efforts, if you have focus and the desire, drive and discipline to work the business you can be successful.

I am not certain that I am qualified to own a business? None of us are experts in every aspect of the business; that is why there is so much business support available in today's market. There are business organizations, clubs, coaches, consultants, books, seminars, schools and if you have employees, they have accumulated knowledge to help you with your business.

I am sure you have been told or you knew someone who had failed or it is simply a bad idea. There will always be those who will tell you that it won't work, but they are one's who will not try. Thomas Edison had many failures, but he kept going. His innovations have impacted every part of our life. Akio Morita and Masaru Ibuka started a company to make rice cookers, they never sold one-the idea didn't work. Decided to make tape recorders, then transistor radios, televisions, stereos; the company is Sony. Dick Schultz had an electronics store that was struggling, ready to go out of business, was on credit hold. A tornado destroyed one of the locations which made him change the way he did business. In his home market was the largest consumer electronics firm in the US, Schaak Electronics with over 100 locations nationally, they are out of business. Two other large consumer electronics stores, Highland and Circuit City, came into the market, they are out of business. The name of his company, Best Buy.

There will always be reasons why you can't, you can live in fear or ignore them and create atmosphere of success.

There are 4 ways to get into your own business.

1) If you are lucky enough you can inherit a business from your relatives or friends.
2) You can purchase an existing business from someone who is getting out of the business.
3) You can start your own business from scratch.
4) Or you can invest in a Franchise.

So how do I start? There are a lot of questions you will need to answer to determine if self-employment is right for you. We will address these as we go along to help you determine your which is best way for you. You may even determine that self-employment is not right for you.

What kind of business should I get into? Should I look at a business type where I am currently employed or should I consider a business where I have an interest or hobby? To answer this question you will need to determine what are your goals, needs and expectations. What is the lifestyle that you wish to live, how much income will I need to support my lifestyle, do I want to build equity and create wealth for my family?

The money question, how much is it going to cost and where do I find the money to get started? The amount of investment will be determined by the type of business. If you are looking at retail you have to consider inventory, POS, CRM, advertising and promotion drivers, employees, compensation, building expenses to name a few. If you look at home based opportunities your investment will be less. In between you have office/industrial park opportunities where you do have building expenses which are less than retail, because they are "service" based concepts with high gross margins.

There are many ways to "find" money. There are venture capitalists (normally for innovative, high tech opportunities with risk), angel investors (family and friends), banks and lending institutions who may offer SBA and Heloc's. You may also have savings, whole life insurance, stocks, bonds, or a 401-K (that you may be able to rollover to start your own company).

Today there is resource material everywhere. There are magazines specifically written on entrepreneurship, newspaper articles on small business, TV shows enticing you to go into business for yourself, radio talk shows, how to books on getting started and the internet that will provide access to and about business opportunities. You can go to the library, local business clubs, contact the government to find help. At any given time you will be able to find a number of resources; but will they provide you the correct information to assist and guide you to make the right decision for you and your family?

So you will start to look for a business that will meet your interests. You will look for those opportunities that will utilize your skills, knowledge and talent, help you capitalize on your own resources. You want to find that opportunity that will help you reach your goals, both personal and professional, help you meet your needs and fulfill your expectations. But not many will do a combination of all of those. Now what are you going to do? More research.

There are many people who will come to your aid to help you with research. There are brokers and consultants who can show you opportunities but can they assist and guide you to find the clarity in what business will be right for you? Brokers represent the business that is for sale; consultants will do the work for a fee and tell you which opportunity is best. A business coach works for you, the client; they are a NO Cost NO obligation resource. The Coach will assist and guide you through the experience with an inside out approach to find that opportunity that will provide you with the income to support your lifestyle, help you create wealth and build equity in your portfolio. Because the coach works for you, they have your best interest in mind, whether it the outcome is self-employment or staying in the job market.

You have developed and honed your skills, you have accumulated knowledge and expertise in business; you have used your talents to help someone else accumulate wealth. Why not use what you have developed and honed for your own opportunity, because you owe it to yourself.

So let's look at your options.

You probably have a good idea of how each of these opportunities will work for you to get into business.

Inherit-probably not.

If you purchase an existing business, this is normally through a broker, you will need to do due diligence, ability to understand P&L's, evaluate the client list, learn about their culture, see if there are loans and liens against the business, inventory value and integrity, accounts payable, receivables, there are many things to evaluate to determine the value of the opportunity.

If you start from scratch you will need to create your own business plans, develop marketing strategies and tactics, create processes, establish systems, develop support mechanisms, define your ideal client and create market analysis to determine the feasibility.

Achieve Massive Business Growth

 What is your ultimate business plan? Do you want to increase sales, improve profit, grow your business and create wealth? Let me outline how you might go about achieving massive growth in your business - no matter what business you are in.

Twenty five years as a business advisor across most industry groups has shown me that while most owners are fantastic at running their day to day business operations, they never spend enough time working on improving the performance of their business.

Sadly, most business owners I have worked with are just so busy working to keep the wheels turning that they never make the money they deserve. Many struggle to draw commercial wages for their efforts, many never reach their profit potential, and most never sell their business for what it could really be worth.

My question to you is - are you making enough money right now? Do you even know how much profit your business is capable of making? Perhaps even more importantly, do you have a plan of how to grow your business profit and business value into the future?

I think you will be amazed at how easy it is to achieve massive business growth if you simply focus on what is important. In fact, let me cut to the chase and show you how easy it can be - let me show you an example of a business that grew its profit by 75% after making 5% improvements in each of its 5 key profit drivers.

Before implementing a business improvement plan, this manufacturing business had 800 customers purchasing from them 6 times a year and spending on average $500 each time. This gave the business a sales turnover of $2,400,000. With a gross margin of 50%, their gross profit was $1,200,000. After paying $800,000 in overheads, their net profit was $400,000.

By understanding the 5 underlying profit drivers in this business, this business introduced various strategies aimed at improving the results of each profit driver by at least 5%:

They increased the number of customers buying from them from 800 to 840 - a 5% increase;

They increased the number of times the customers purchased goods from them from 6 times a year to an average of 6.3 times a year - a 5% increase;

They increased the average amount of money each customer spent during their sales visits from $500 to $525 - a 5% increase;

They increased the average gross profit margin on each sale from 50% to 52.5% - an increase of 5%, and,

They decreased overheads from $800,000 to $760,000 - a decrease of 5%.

As a result of these improvements turnover increased from $2.4M to $2.8M and the underlying business profit increased from $400,000 to nearly $700,000 - that is an increase of $300,000 or 75%!

Even more amazing was that the value of the business (based on a sale multiple of 3 times net profit) also increased by 75% - increasing from $1.2M to a massive $2.1M!

Can you imagine what your business would look like if you were able to increase your profits by 75% year on year? Can you imagine how much better your family life would be with that result?

Now I know what you are probably saying to yourself just now - great story, but I could never achieve that result in my business. Well I am here to say that the above 5 step growth strategy will definitely work in your business.

I know it will work for you because I have seen this 5 step growth model used successfully on all sorts of businesses, in all kinds of industries and through all economic cycles over the past 25 years as a business advisor in Australia.

If you apply the 5 step system I guarantee that you will achieve massive growth in your business. Of course not everyone will achieve a 75% improvement in their profit result - some will achieve less, and some will achieve much, much more!

The results you can achieve in your business will depend on your particular profit drivers, the opportunities to improve these drivers, and most importantly, your ability and commitment to implement the 5 step system in your business.

Business Structures

 A Sole Proprietorship is a one-person business. There is no paperwork to fill out to accomplish this. The profit or loss from the business is carried to the personal tax return of Sole Proprietor. The Sole Proprietor is liable for all debts and other liabilities of the company.

A Fictitious Name Registration (DBA = doing business as) is required in most states. You must file your fictitious name registration before starting the operation of your business. In some cases, it must be filed within 30-40 days of your first business transaction. In addition, several states require that you publish your DBA statement in a local newspaper, and then file proof of publication with the proper government office. The purpose of the publication requirement is to ensure the public is informed of new businesses in the area, their legal name and ownership.

A Partnership has two or more people involved. The profit or loss is divided between the partners and carries to their personal tax returns. Each partner is personally liable for the debts or other liabilities of the company.

A Corporation is a separate and distinct legal entity. That means that a Corporation can open a bank account, own property, and do business all under its own name. Corporations are managed by a Board of Directors which is responsible for making major business decisions and overseeing the general affairs of the Corporation. Directors are elected by the Shareholders of the Corporation. Officers who run the day to day operations of the Corporation are appointed by the Directors.

The main advantage of the Corporation is that its owners, known as Stockholders or Shareholders, are not personally liable for any of the debts or liabilities of the Corporation. For example, if a Corporation gets sued or it is forced into bankruptcy, in most cases, the owners will not be required to pay the debt with their own money if the assets of the corporation are not enough to cover the debts. The creditor cannot, in most circumstances, go after the Shareholders, Directors or Officers of the Corporation to recover any loss.

Investors in business often risked everything they had if the new business turned bad. When the company was out of money and didn't have the cash to pay creditors, the investors had to make up the difference with their own money. With the advent of the Corporation, investors could avoid this type of liability by forming a Corporation and as a result more people are more willing to invest their money in business ventures. The formation of Corporation as a business entity can help reduce your taxes but more importantly you can provide for peace of mind by protecting your personal assets.

There are two types of Corporation. The IRS allows for a Corporation to be taxed either as a C Corporation or as an S Corporation.

A C corporation's profits are taxed at two levels which is commonly referred to as double taxation. A C Corporation pays the corporate tax on its corporate income then the C Corporation distributes profits as dividends to shareholders who pay income tax on those dividends.

The way to avoid the double taxation of a C corporation is to make a special election with the IRS to be taxed as an S Corporation. This means that your income will be taxed like a partnership or sole proprietor. That way there's only one level of taxation. Corporate profits and losses are passed through to the owners who pay the taxes on the profits at the individual personal tax rates instead. You can use income shifting to take advantage of lower tax brackets

Let's look at an example:

For purposes of this example we will assume that ABC Company is a sole proprietorship and has an income of $100,000. As a sole proprietorship the tax rate is 25%. If it were ABC Corporation instead, let's assume business owner takes $50,000 in salary and leaves $50,000 for profit. The federal corporate tax rate would be (15% of $50,000) The personal tax rate is at (15% of $50,000) as well. This is a distinct advantage of forming a Corporation.

Other Advantages:

Corporations can provide employee benefit packages for your employees. You can lease assets to your Corporation. The business pays a lease fee and can claim rental income and expenses including interest, depreciation, repairs, maintenance, insurance and administrative costs.

In a Corporation there are no restrictions on the amount of capital or the operating losses that a Corporation may carry back or forward to subsequent tax years. A sole proprietor can't claim a capital loss greater than $3,000 unless he or she is offsetting capital gains.

The money the sole proprietor earns is subject to self-employment taxes. The taxes are currently 13.3% on the first $106,800 of income. In a Corporation only salaries are subject to such taxes, profits are not. This can save you thousands of dollars a year.

Let's look at another example:

If a sole proprietor earns $80,000; 13.3% tax would have to be paid on the entire $80,000. Let's assume that the Corporation also earns $80,000 but $35,000 of that amount is paid in salary. $45,000 is deemed his profit in this case his self-employment tax would not be paid on the $45,000 profit. This saves you over $5,000 per year. It's important to note that you should pay yourself a reasonable salary and take advantage of all the tax benefits that a Corporation offers you. Don't forget however there are responsibilities of owning a Corporation and the Corporate Book is probably the most important one of them. We will talk about that later on.

There are differences in each business structure and you should choose the one that best meets your business needs. The biggest difference between a Sole Proprietorship, Partnership or DBA and the Corporation is taxation. You want to weigh all of your strengths and weaknesses before you decide which business structure to use. Remember that a Sole Proprietor or Partner in a business is liable for all the costs of operating the business. This means that they are liable for all business debts too.

A S Corporation helps avoid double taxation. This occurs where the corporate profits are taxed and then the dividends are sent to the shareholders and are taxed to the shareholder's personal tax return as well. The most important thing to remember is that a C Corporation and a S Corporation can shield you from business liabilities. A Sole Proprietor or a Partner in a Partnership are personally responsible for the business debts. In a Corporation the owners are not responsible for most business debts or liabilities if the business fails.

An important issue to discuss is the Corporate Book. It is a 3 ring binder documenting all transactions or meetings carried out by the Corporation. This means everything from opening a bank account to selling property. The Corporate Book is the corporation's main responsibility. Usually the Secretary or Treasurer of the corporation maintains the Corporate Book. Without documenting the Corporate Book you could possibly lose your status as a Corporation and would be subject to the appropriate tax. This is referred to as piercing the corporate veil.

Under certain circumstances individual shareholders may be liable for corporate debts, for example, if a shareholder personally guarantees a corporate debt then she or he will be liable for that debt if the business fails. If corporate funds are intermingled with personal funds this puts you in a position where the corporate veil can be pierced. Not documenting the Corporate Book can also cause the piercing of the veil. This means the shareholders would be personally liable for all debts and other liabilities of the corporation. There are strict rules and regulations governing corporations and the most important is maintaining the Corporate Book.

For businesses that want to avoid the regulations of a Corporation, the Limited Liability Company was developed. The Limited Liability Company, or LLC, was developed to protect the business owners from personal liability if the business failed. It is a type of business entity that combines the personal liability protection of a Corporation with the tax benefits and simplicity of Partnership.

The LLC has the same tax benefits as a S Corporation with limited liability of the business debts. The owners are called Members. There is no limit on the number of members allowed. LLC's function similar to partnerships with flexibility and the pass-through of tax on profits to personal tax return of Members.

A Limited Liability Company (LLC) is a type of business ownership that combines several features of corporation and partnership structures. It is not a corporation or a partnership. Owners are called Members not Partners or Shareholders. The number of Members are unlimited and may be individuals, corporations, or other LLC's.

Members of a LLC have the liability protection of a Corporation. Members cannot be held personally liable for debts unless they have signed a personal guarantee. A LLC exists as a separate entity much like a corporation.

Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is x/x, the LLC has much more flexibility. The LLC business structure requires no Corporate Book reflecting Minutes or Resolutions and is easier to operate than a Corporation.

All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy. Members with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.