Every year thousands of new businesses are started by optimistic individuals with the entrepreneurial spirit. Unfortunately, the failure rate for new ventures is extremely high.
If you’re planning to be among those starting a new business, take the steps that will increase your chances of being among those who succeed. Here’s a checklist to help you get off to a good start.
☐ Create a written business plan. The process of writing the plan will be as useful as the finished plan itself. Write a description of your business operations that can be understood by those outside your industry, trade, or service specialty. It is very likely that a banker will need to know what your business is all about. Include an honest assessment of your market and competition. Will you be selling by retail outlet, mail order, trade shows, online, etc.? Include biographies on the business owners and key employees.
☐ Prepare projected sales and expense statements for the first year or two of business operations. When will cash be needed for various expenses and where will it come from? Plan your cash needs carefully and realistically and provide a generous cushion for setbacks and unexpected expenses.
☐ Most new businesses need capital. Decide whether the financing should come
from lenders or additional owners of the business.
☐ Don’t use short-term debt to finance the long-term. You would not buy a home on credit cards for obvious reasons. Likewise, you should not use short-term bank loans to finance your inventory, equipment, and other business expenses. It will be important to your banker that you recognize the need for the right financing before you are in a crisis situation.
☐ Location is a very important factor in a business’s success. Decide whether it’s best to rent or own your building and then evaluate different sites.
☐ Choose the best form under which your business should operate, options include sole proprietor, partnership, regular corporation, S corporation, or limited liability company.
☐ Obtain the necessary permits and licenses for your business. Review any regulations that may apply to your business. Go over any insurance needs with your insurance agent.
☐ Decide whether to lease or buy equipment. The main advantage of leasing the equipment your business will need is that your initial cash outlay is generally less than if you purchase. However, the main disadvantage of leasing is that you could pay out more over the term of the lease than if you purchased the asset. Also when the lease term expires, you must return the asset or buy it.
☐ Your business will have new tax responsibilities such as:
- Payroll taxes for employees
- Worker’s compensation
- Unemployment insurance
- Sales taxes
- Property taxes
- Excise taxes
- Business income tax
Apply for the necessary federal and state identification numbers, and get information about the taxes that will apply to you.
☐ Hire the right employees. You need a strategy to attract the best people. What special skills are you looking for? How much can you afford to pay? What benefits (health insurance, sick or vacation pay, etc.) will you offer? Would you be better off contracting for services rather than hiring employees?
☐ Scout out the best suppliers for all your inventory and equipment needs. Position yourself as a preferred customer. When you need inventory in a rush or help in solving a customer’s problem, you want your vendor’s attention. Pay all invoices on time and keep your suppliers informed about your needs and your customers’ concerns.
☐ Consider pricing issues. Pricing is more than just determining how much to charge for a product or service. Customers now look at delivery time, return policies, and technical assistance as part of what they are buying. While it can be difficult to compete on price with large companies that can buy in bulk, you might offer more customized services to support a higher price.
☐ Establish credit policies. Many business owners are so concerned about marketing and selling their product or service that they neglect billing and collection efforts. Every new business should establish credit, billing, and collection procedures.
☐ Set up a good recordkeeping system that will give you information you can understand and use in the management of your business.
☐ Learn to run a lean business without shorting yourself on equipment and staff. It will serve you well not only for the startup period but also in future economic downturns.
☐ Pay attention to customer service. Learn to think like your customers. If your customers are less than 100% satisfied you will lose their business. Make sure that your entire staff is empowered to provide excellent customer service.
☐ Select competent advisors to assist you before you start your new business – a lawyer, banker, accountant, insurance agent, marketing expert, and other professionals that your business may require. Engage advisors who can spot problems before they become serious, act as a sounding board for your ideas, and give personal attention to your business in the early years when you need it most.
☐ Partners, Shareholders and Investors can be a great resource. But a disagreement with these people can also lead to a business down fall or failure. Protect your self and your business by having written agreements with these people that spell out who is in charge and how disagreements will be handled.
Update – “Tax Cuts and Jobs Act”
On December 22, 2017, the President signed into law the “Tax Cuts and Jobs Act” (P.L. 115-97). The law reduced the corporate income tax rate to 21%. The law also provides a tax deduction of up to 20% of qualified pass through business income. This credit phases out for certain Personal Service Businesses when income exceeds $315,000 for married taxpayers filing a joint return and $157,500 for all other tax payers. This deduction is complex and subject to a number of other requirements so consult your tax professional.
The law further provides for increased expensing of assets under section 179 of up to $1 million dollars and allows for 100% first year expensing for assets placed in service after Sept. 27th 2017 and before Jan. 1, 2024.
These are just a few of the new changes that effect businesses, so be sure to review your plans with a qualified tax advisor.
For assistance with any of need the issues related to buying, starting, or running a
business contact our office. We’re here to help.