You have always dreamed of owning and operating your own business and now the right business opportunity has become available. You are sure that you can operate the business more successfully than your competition.
Now that you have the business, what do you do? While owning and operating a business can be enjoyable and rewarding, it is, first and foremost, serious business. Successful businesses do not just happen; they are consciously made.
Here are ten of the top suggestions for consideration, whether you currently own and operate your own business or are considering buying or starting your own.
1. Form of Organization: The form of organization of your business entity will determine whether you remain personally responsible for its debts and obligations and how you will be taxed on the earnings. Corporations, limited liability companies and limited liability partnerships all protect the owners from obligations they have not personally guaranteed. The form of entity will also determine how the entity's earnings will be taxed. Regular or C corporations are taxed at the entity level, and its owners are taxed on dividends. S corporations, limited liability companies and limited liability partnerships' income is generally taxed to their owners, much the same as a partnership.
2. Product or Service and the Market: You must understand your product or service and its market. Who will buy your product and when? Is demand seasonal? This information is vital in setting revenue and expense budgets, purchasing raw materials and staffing.
3. Capital and Bank Relationships: Few businesses start successfully and thrive without adequate capitalization. Capitalization includes both debt and equity. Equity is that portion of the company's capital that does not require repayment. Most business failures result from inadequate capital.
Make sure that you have established a sound banking relationship from the very beginning. This holds true whether you are going to borrow from that bank or not. Get to know your banker and make sure that he understands your business so that when financial problems arise (and they do), your banker will be better able to help.
4. Accounting and Record Keeping: A proper accounting system must be established from the very beginning. Given the ease and low cost of both computers and accounting software, there is no excuse for this function not being automated in every business. Inadequate record keeping is like traveling through unknown territory without a map. You don't know where you've been and you certainly don't know where you're going!
Records are necessary for income and payroll tax purposes, assessing demand and seasonality. This may be the one area that beginning business owners try to skimp on the most. But adequate record keeping will help alert you to small problems before they become big ones.
5. Management: Just as successful businesses do not just happen, successful managers are not born: they develop through study and experience. Management courses are available from local community colleges and private organizations offering seminars and home study tapes and other materials. Successful managers continue sharpening their skills through their entire careers.
6. Partners: Ask yourself, "Do you need someone else to assist in the purchase and/or the operation of the business?" Partners are brought into most businesses either to provide the necessary equity capital or to provide some expertise in the businesses operation. Regardless of the form of organization, if you have a partner, or partners, there should be a written agreement that control how owners are admitted and exit the business, either through death or retirement.
7. Insurance: Your team of professional advisors will include not only your attorney and accountant, but also your insurance agent. Some insurance is mandated by law, such as workers' compensation. Other insurance is optional. Without adequate casualty insurance coverage, the business, its owners and employees, are placed at risk.
At minimum, there should be replacement coverage for all of the business' assets, including fixtures, plant and equipment, inventory and raw material, business interruption, and liability coverage for injury done to persons. Careful consideration should be given to the need for coverage for products liability or negligence in the performance of the service offered by your business. Serious consideration must be given to "key-man" life and/or disability insurance, as well as life and/or disability insurance to cover the buy-out of owners. Life insurance might be used as a vehicle for retirement for owners and other employees. Health and disability insurance for all employees might be a necessity in order to properly recruit and retain your employees.
8. Tax Issues: Tax issues permeate every business. There are income employment and often sales tax issues that need to be considered almost every day. In most every state, the owners and those in control of the finances of the business are personally liable for all unpaid taxes, whether income, sales, or employment. Proper tax planning on a regular basis is necessary in order to assure proper deposits for employment and income taxes at both the federal and state levels.
Regular deposits of sales and use taxes, as well as real estate taxes may be necessary. Before any business is commenced, tax identification numbers must be obtained from both the federal and state authorities, and a sales and use tax permit and number must be obtained from the state and possibly local government. Your business may include the requirement for payment of certain excise taxes. Be sure you obtain tax guidance publications fromboth the Internal Revenue Service and your state tax departments.
9. Marketing: How will your product or service be sold and to whom and by whom? Without sales, there is no revenue. Without revenue, there is no money for payment of expenses, repayment of debt and profit for the owners.
10. Recognize the Need for Change: The most successful businesses recognize change in the market for their product or service and adapt. This may include changing the company's product or service mix. In extreme cases, this may include knowing when to terminate and liquidate the business. Following these ten tips will not assure success in acquiring and maintaining a business, but failure to abide by them can be lethal to your ability to conceive and nurture a viable, rewarding business.
(Earl H. Cohen is the Chief Executive Officer of Mansfield, Tanick & Cohen, P.A. and head of the law firm's Business Practice Group.)
MANSFIELD, TANICK & COHEN, P.A.
Attorneys at Law
1560 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3383
Tel.(612)339-4295 Fax.(612)339-3161
mtinfo@mansfieldtanick.com