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Financially Sound: Want to Start a Business?
Here's your gameplan.
by Julie Chesebro, CPA
January 1, 2007
According to the U.S. Small Business Administration, in 2002 women in the United States owned almost 6.5 million businesses, up from about 5.4 million in 1997. This 19.8 percent increase over five years shows a growing trend of women leaving the workplace to start their own businesses.
With good planning and research, a business can be a wonderful way for self-starters with strong motivations to be their own boss and greatly increase their earning potential. Many new businesses fail, however, because they do not perform adequate research before beginning the venture.
Let's explore these steps in more detail. First, research the market and decide if your business can succeed in it. Determine whether a market for your product or service exists: identify your competitors, analyze the demographics of your customers and develop a sense of the overall demand for it. You can open a restaurant because you enjoy cooking, but you may find that there is little or no room for another restaurant in your area, or that your target market is not interested in your style of cuisine.
A business plan will help you work through the planning considerations of your business. In this plan, consider whether you will have the necessary labor force and raw materials. Think about your office/store location and working space, pricing, production process and leasing versus buying equipment. Ask yourself: Will you have employees and, if so, will you offer them benefits? What is your marketing plan? What types of insurance do you need? Who are your suppliers? Will you need financial and legal assistance?
Next, determine your commitment level. Many people who feel overworked in their jobs leave to start their own businesses, only to realize that self-employment is even more stressful. A new restaurant owner may end up working from dawn until dusk. Are you willing to dedicate enough of your time and energy to ensure the success of your company?
Another step is to consider the source and amount of financing to determine the feasibility of your new business. You may want to make a sizable investment in the company, but consider how this may affect your lifestyle, particularly if the business takes a while to reach profitability. In addition, take into account the benefits, such as health insurance, that you were receiving as an employee: as a self-employed person, you will now need to provide these benefits for yourself.
Based on the above, what are your financing needs? How much of an initial investment must you make for equipment, software, security deposits, employee training and legal and accounting costs? What is the working capital you need to finance your operations? Forecast your income, expenses and cash flows. Determine when you expect your business to break even. Will all of your start-up funds come from your pocket, or will you need additional funding? You can find investors or take on debt. Investors may want to have input in the operations of the business, but are you willing to give up some of the control? Lenders will require collateral and proof of the viability of your business. Will you qualify for a loan? Lenders usually expect to see projected financial information, which your CPA can help you prepare.
Once you have decided to start your business and arranged for financing, you must choose its legal structure. Factors to consider include: liability protection for your personal assets; self employment tax considerations, federal, state and local tax implications, employee benefit and retirement plan opportunities. Each type of entity has its benefits and drawbacks. You should work with an attorney and a CPA to make the best choices for your situation.
Finally, you need to comply with governmental and regulatory requirements. This includes registering your company's name with the secretary of state and obtaining a federal employer identification number with the IRS, the necessary permits and a business license. If you are going to have employees, you will need to apply for state withholding and unemployment identification numbers. You may also need a sales tax number. Check with your CPA to determine the requirements of your local, state, and federal governments.
Keep detailed records and develop good bookkeeping habits. Separate your personal expenses from your business expenses. Set a budget so you can compare the activity of the business against your expectations, and quickly identify and rectify issues. Work closely with your CPA and attorney on this.
Starting your own business can be a rewarding and profitable experience. Set yourself up for success by doing the right research and planning.
Julie Chesebro is a manager in the Advisory and Business Services Group of Habif, Arogeti & Wynne, LLP. She works extensively with small businesses, medical practices and individuals in the areas of accounting and taxation.
She can be reached at www.hawcpa.com
