BUSINESS OWNERS

Small Business

What can I do to make sure that my small business will adjust to the generation to come?

The process of passing a family business onto the second generation is so difficult that not even a third persevere. Beyond that, roughly half make it to a third generation. In a normal day in the U.S., 40 percent of businesses are confronted with a change of owners. Those who have founded the companies are struggling to find remedies, but there aren't many options.

Here are a few possible remedies to this problem:

• Sell off the company.
• End the business.
• Remain as the owner, but contract others to manage.
• Keep ownership and management within the family.

The most common causes for failure of the transition of the small business are as follows:

• There is no strategy.
• The business is missing energy.
• The owner lacks the motivation to change the business.
• The coming generations are not interested in working with the business.

The main reason for closure is not having a strategy. If planned properly, the business has no reason to worry.

What needs to be done to make a successful strategy for passing on the family business?

The family must do the following to attempt to have a worthwhile transition:

• Formulate a strategy focused on the family.
• Formulate a strategy focused on the business.
• Make a Succession Plan, which includes setting dates for retirement and the training for who will follow.
• Make an Estate Plan.

These are the four key points to a successful business transfer. They basically guarantee a transition for years to come within your family when implemented correctly.

What is a strategy focused on the family?

The purpose of the family strategy is to keep a well functioning business. The policies for the role of the family in relation to the company are set within. This may have the policies for entering and exiting the workforce of the business. It should incorporate the basic guidelines as well as a mission statement that explain what is important to the family. The strategy needs to take into consideration who in the family would like to have significant roles in the business and those who would like less responsibility.

What is a strategy focused on the business?

A strategy focused on the business permits each new member of the family to establish their own future for the company. To make sure that everyone has the same idea as to where the business is headed, there is a need to formulate goals. The strategy should concentrate on the future of the company at a particular date.

What is involved in a Succession Plan?

The purpose of the succession plan is to aid those who found or are in control of the company with the uneasiness related to the transition. It should explain the details of how to know when the next generation is ready to take over and the process.

What is contained in an Estate Plan?

The plan for the estate is vital for the company and family. In the end, without a strategy, there will be higher estate taxes than needed, which in turns gives less to the successors. This plan should be in accordance with the succession plan to ensure the transition of the business is done in the most tax effective way.

Do I have what is necessary to own and manage my own business?

First, think about why you want to start you own business and make a list. The thrill of being self-employed, the need for independence both financially and productively and the desire to use the most of your intelligence and talents are a few of the most frequent motivations.

You also need to make sure you have the desire to put in the time to make a successful business. To decide what type of business fits you the best, you should think about what you find enjoyment in doing, what talents you have, ask others for their thoughts, and see if any of your everyday activities can be made profitable.

At this point, you will need to investigate what will be the exact niche for your company. A few of the answers you should find while investigating are if your business thought is a necessity, exactly what it is you want to put on the market, what the competition is like and how to get ahead of the competition. The most important question is if you can establish ample demand for the company?

What should the business strategy contain?

A business strategy when applied to your company should include an introduction, details about marketing, financial management, operations of the company and a closing statement.

In the introduction of the business strategy, what should I incorporate?

This segment of the business strategy should contain information of the company and its objectives, detail the experience within your company, detail the structure of management and legal status, and state what your business has to get ahead of the competition.

In the marketing portion of the business strategy, what should I incorporate?

This is where you should state the products or services being offered and their demand in the market. It should also detail the market and its particular location and size.

In the financial management segment of the business strategy, what should I incorporate?

You should outline where and the quantity of the initial equity capital. You also should create a monthly operating budget for the beginning years as well as expected return on investment, or ROI, and monthly cash flow for these years. After that, present the balance sheets and income statements for the first 2 years and state the break-even point. Discuss your own balance sheet and ways of compensation. Explain who will be in charge of accounting affairs and how they will be maintained. Lastly, think through the possible problems that may arise and develop solutions.

In the operations segment of the business strategy, what should I incorporate?

This is where the explanation of the management of the daily activities will be. It should include insurance coverage, lease or rent agreements and the processes related to the staff and employment. It should also detail what is necessary to produce the products/services and the processes of production and delivery.

In the closing statement of the business strategy, what should I incorporate?

You should restate the company's objectives and purposes and explain the dedication you have to make your company succeed. Be sure to include the methods you plan to use to reach your objectives.

How do I know if a business based at home is good for me?

You have to base your determination to start your own business on something larger than the want to be your own boss such as: knowing beforehand what it is going to take, a thorough evaluation of your personality, and willing to go the extra mile.

You must be able to make plans and continually make the necessary changes and developments as you go. You will want to set up an environment that is devoted to the professional aspects of your life and even consider a separate office within your home.

Are there certain legal standards that will have an affect on my business based at home?

A business based at home is affected by several of the law and regulations that affect other companies. You need to speak with a lawyer and the state department of labor to learn which of these laws and regulations will come into play. You will need to know your city's zoning regulations as well as knowing which products may not be produced from home.

Explosives, fireworks, toys, drugs, sanitary or medical products, and poisons are normally outlawed for production based at home. Other states will not allow the production of drink, food or clothing from home.

It may be required to obtain a business bank account, a separate business telephone, a work certificate or license from the state and a sales tax number for registration and accounting standards.

If you have employees, you will be held responsible for social security taxes and withholding their income as well as observing the employee health and safety laws and minimum wage.

What can I do to prevent having problems with cash flow in my small business?

One of the main reasons for small business to collapse is an improper cash flow strategy. The most common reason for this is that many small business owners to not have a grasp on basic accounting principles. You should learn the basics to maximize your cash flow.

You can either keep cash on hand or in a business bank account in order to take care of the expenses. This will be enough to allow the company to pay bills, to supply investment capital and to have sufficient funds in case of emergencies.

An operating cycle is the cycle that the cash undergoes, beginning with the buying of inventory up to receiving the payments. It keeps track of the transition of assets to cash. Normally, you purchase an excess of inventory as to not exhaust your stock as soon as sales are made. Accounts receivable and cash sales will make up your sales. The normal payment date for accounts receivable is 30 days from the purchase date, which is applicable to both your inventory and products sold. Cash and accounts payable are lessened with an inventory payment is made. The collection of receivables will raise your cash. At this point, the operating cycle and the cash has made a full circle and will start again.

An analysis of the cash flow will demonstrate if the everyday operations produce sufficient cash to reach the obligation and the relation between large expenditures to pay for obligations and large inflows of cash from sales. With this information, it will be apparent if the inflows and outflows of your business have a positive cash flow or a net loss. Over time, important changes will be seen.

A projection of the monthly cash flow should be made to show and abolish and deficiencies or surpluses in the cash and to so the relations between previous months and actual figures. A business financial strategy should be changed to allow for more cash when cash deficiencies are discovered. If a surplus of cash is found, it may be due to excessive borrowing or money that should be invested. The purpose is to construct a strategy to allow a well-balanced cash flow.

What can I do to develop a better business cash flow?

To get a positive cash flow, you should have a flawless strategy. There are several options for increasing cash reserves:

• Accounts receivables: Properly control your accounts receivables and retrieve overdue accounts as quickly as possible. If not aggressive with collection, profits are lost.
• Having stricter credit standards: With the tightening of credit and terms, more clients are paying for their purchases in cash, which leads to more cash on hand and lowering the bad-debt expense. Although this is beneficial in the short term, it may not be as appealing in the long term. Less strict credit policies permit more clients to purchase the products or services.
• Take advantage of the market: A common problem is many small business price their products lower than the market and do not make a profit. You should research the product's market, distribution costs and the competition before deciding on prices. Constantly keep an eye on the aspects that play a role on pricing and make adjustment when necessary.
• Make use of short-term loans: Taking a loan from a financial institution can solve short-term cash flow problems. The common forms of credit used in these circumstances are revolving credit lines and equity loans.
• Boost sales: One way to boost sales is to increase the cash flow. Take into account, when a large amount of your sales are credit sales, sales are boosted as well as accounts receivable, but not cash on hand. This causes your inventory to diminish and will have to be restocked. Due to receivables not being collected until 30 days after the sale, a significant raise in sales will diminish the company's cash reserves fast.

Is a cash reserve necessary in my small business?

It is important to have sufficient cash on hand to pay for expenses and in case of emergencies. Cash beyond this should be put in a manageable, low-risk account, interest bearing, like a savings account, Treasury bill or short-term certificate of deposit.

Choosing a Professional

Should I hire an attorney?

It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire own for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.

The following should be considered for determining if an attorney is necessary:

• Is this a difficult legal dispute or will I end up in court? What is involved such as money, property, or time? Positive answers demonstrate the need for an attorney.
• Does a book exist that will be able to help me so I don't have to hire an attorney? Some problems can be resolved with little help.
• Have you looked for non-Lawyer legal resources to help?

Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.

What process do I follow to handle the dispute by myself?

The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid with tools to resolve disputes.

Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.

Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.

Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.

Mediation or arbitration: You can find dispute resolution center in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.

Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.

These are the low cost options in comparison to going to court or hiring a lawyer for representation.

Small claims court: Each state defines the limits for the amount of damages, which can be filled in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.

What method should I use to find a good attorney?

First, you should make a list of names.

Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are complied by the bar association.

Idea: Pay close attention to the specialty area in the bar association lists as many attorney's work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.

More sources are the Who's Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups for example, with disabilities, elders or victims of domestic violence.

Idea: If using the referral service, ask for details as to how the lawyers were selected. Many referral services use lawyers who are member of a certain organization.

The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.

What should I ask my possible lawyers?

Before beginning a consultation, the following questions should be asked:

• Is the first consultation free?
• How long have you been an attorney?
• Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)
• Are there references, such as trust officers in banks or other attorneys that I can contact?
• Are there any clients or special-interest groups that you work for that may cause a conflict of interest?
• Can we make a fee agreement? May we discuss the fees?
• Is there anything in particular that I should bring to the first consultation?

Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation in complete.

It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you; and 2) to see if you are comfortable with attorney and the fee agreement.

Is a certain fee agreement better for me?

The basic rate for legal services depends on location. Based on your knowledge of the fees, a "fair" fee should be selected. Here are a few factors that play a role in the decision:

• What can you afford?
• Is this a routine case or do I need someone with special experience?
• What is the going rate for the attorneys in my area?
• What can I take care of without the attorney?

The following are basic fee agreements in use by attorneys:

Flat fee: There is a specific total that will charged for work on your case.

Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.

This is normally offered only if the case is simple or routine.

Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.

Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney's fee is $50 per hour and puts in five hours of work, then the cost will be $ 250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.

Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experience will need more hours to complete the work, even though the hourly rate is lower.

The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.

Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?

Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenery, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.

Idea: Find out if this fee will be calculated before or after expenses are taken into account. This can play a large role due to the percentage being significantly higher if the addition of the expenses is done after the expenses have been deducted.

What can I do to save money on legal fees?

Bear in mind that attorney fees are usually negotiable even though you will not be asked to bargain over the fees. The following are a few tips to make sure you save the most money possible.

Shop around for flat fees on routine cases.

Discuss the method of billing for hourly rates. To avoid problems, have a written agreement stating the fee agreement as well as what is involved.

Find an attorney with the qualifications necessary for your case. The majority of legal work is fairly routine. Knowing what form needs to be completed and then who to file that with plays a large role.

Propose to help with the workload.

Use the lawyer as the middleman. If you only need a letter written to the opposing party, some attorneys will negotiate a lower fee.

Work the lawyer as your coach. Hire a lawyer to guide you and review documents and letter that you prepared and signed if you would like to represent yourself in court (pro se).

Select an attorney that specializes in your particular case.

Always arrive prepared to lawyer meetings. The more information you have at hand means that less time that the lawyer needs to spend looking for that information.

Be forthcoming with your attorney. To save time and essentially money, make sure the attorney knows all the pertinent facts as soon as possible as to not cause the need for more investigation.

If factors change, inform your lawyer immediately. This can possibly save the lawyer's time or keep the lawyer from working on the case in the wrong direction.

Be prepared when having contact with your lawyer. Ask all questions in one call. When you receive a letter or information in writing, pass it on to other staff members instead of contacting the attorney, unless you have a specific need.

Pay close attention to invoices. Ask that you receive an invoice regularly. This applies to all types of fee agreements including a contingency fee. If you have a question regarding any of the items, you should immediately speak with your attorney.

Employee Benefits

Do I need to know anything specific about employee benefits as a small employer?

The employer needs to pay for certain legal benefits and insurance coverage such as Social Security, unemployment insurance and worker's compensation. The money for the Social Security program comes from payments made by employers, employees and self-employed persons to an insurance fund that will provide income after retirement.

At the age of 65, full retirements benefits usually become available. There are other aspects of Social Security that deal with survivor, survivor, dependent and disability benefits, Medicaid, Supplemental Security Income and Medicare. Benefits for unemployment insurance are to be paid under the laws of individual states from the F Federal-State Unemployment Compensation Program.

Contributions to the program include payments made by the employer, based on the total payroll. The purpose of worker's compensation is to provide benefits to workers who are disabled due to an illness or injury while at work. The coverage and benefits vary by state. In the majority of states, private insurance or an employer self-insurance will provide the coverage necessary. Short-term disability benefits are governed by state also.

Not Obligatory Benefits

Health insurance, disability insurance, life insurance, a retirement plan, flexible compensation, and leave are included in a comprehension benefit plan. It may also include such benefits as bonuses, reimbursement of employee educational expenses, service awards, and perquisites appropriate to employee responsibility.

You need to determine what you are willing to pay for this coverage before implementing a benefit plan. It might be a good idea to consult employees as to what benefits they are seeking. For example, is a retirement plan more important than a medical plan? Another decision is whether you will protect your employees from current economic hardships or in the future. The last step is deciding who will manage the plan, you or an insurance broker.

Are there different types of medical plans for employees?

There are two options: insured that is also known as a fee-for-service plan or pre-paid plan which is commonly referred to as health maintenance organization.

An indemnity plan or insured permits each employee to decide their own doctor. The employee will pay for the medical care and then file a claim with the insurance company for reimbursement. There are deductibles and coinsurance as well. Deductibles vary from $100 to $1000 a year.

Coinsurance where a percentage of the medical expenses are paid by the employee and the remaining are covered by the plan. 20 percent is the normal coinsurance amount to be paid by the employee and the remaining 80 percent is paid by the plan.

There are three regularly seen indemnity plans that give health care to groups of employees, which are as follows: 1) a basic health insurance plan and will cover hospitalization and surgery as well as physicians’ care in the hospital; 2) an insurance plan that will supplement the basic plan by reimbursing the charges not paid by that plan; and 3) a comprehensive plan that with one common deductible and coinsurance feature will cover both hospital and medical care.

I don't know what a preferred provider organization (PPO) is?

A network of doctor s and/or hospitals with contracts with a particular health insurer or employer that will give health care to employees at a rate previously set that is lower than the market rate is a preferred provider organization (PPO). This offers a broad range of health care providers.

PPOs are more expensive than HMOs due to the broader range of providers. There are no obligations to use the PPO providers, but there are strong financial incentives. Although PPOs have less comprehensive benefits when compared to HMOs, most benefits can normally be met. The PPO providers normally receive payment from the insurers directly.

I don't know what a health maintenance organization (HMO) is?

Health care that is provided through a network of hospital and doctors is a health maintenance organization (HMO). The benefits usually include the preventative care, such as physical examinations, weight control and stop-smoking programs, baby care and immunizations. The most common characteristic of HMOs is that the primary care provider is limited to only one doctor within a network, although there is usually a variety to choose from.

Outside of the network of hospitals and doctors of the HMO, there is no coverage. Due to the limited choices, the costs are lower. Doctors are encouraged to keep patients in their best conditions because they receive payment on a pre capita basis that does not take into consideration how much care the patient needs. The payment for the HMO premiums are fixed and per employee. A small co-pay is due for the medical services instead of having to be reimbursed for charges.

What are the typical disability benefits provided to employees?

If an employee cannot work due to illness or accident, the disability plan gives him/her income replacement. These defer from worker's compensation as they pay benefits for non-work related illness and injury and can be either short term or long term.

Short-term disability (STD) means the employee is unable to perform the normal duties of his/her occupation. The benefits are typically paid for a maximum of 26 weeks and being on either the first or the eighth day of disability. The benefit level in dependent upon the employee's salary and will range from 60 to 80 percent.

Long-term disability (LTD) commences after the conclusion of the short-term benefits. LTD benefits then continue for the entire length of the disability or until the date of normal retirement. This is also a percentage of the employee's salary, typically between 60 and 80 percent. Social Security disability normally offsets these benefits if an employee qualifies for the Social Security disability benefits, they will be subtracted from what the employer has paid.

Employees have what kinds of life insurance plans available to them?

The beneficiaries of an employee may collect death benefits from life insurance if the employee dies during their working years. The two main kind of life insurance are:

1. Survivor income plans that provide regular payments to survivors
2. Group life insurance plans that will provide lump-sum payments to beneficiaries

The most popular plan has group term life insurance, protection provided by one-year, renewable, with no cash surrender value or paid-up insurance benefits. It is common that health insurance programs provide this coverage.

What do I need to know about self-insurance?

Self-insurance means the business will predetermine and pay a section or all of the expenses of employees in a very similar way to traditional health care providers. The establishment of a trust or reserve account is where the funding comes from.

A portion of the cost may be paid through premiums, as is common in health care plans. A kind of coinsurance purchased by the company is called catastrophic coverage given through a "stop loss" policy. The company can manage this directly or it can be done through a contract.

Do I need a "cafeteria plan?"

The thought is that money, which would normally be used as taxable salary, are used, normally tax-free, for services that are necessary like health or child care. This saves the employee income and social security taxes as well as the salary used in the cafeteria plan aren't subject to social security tax on the employer. The employee has the choice from several levels of supplemental coverage or different benefit package. Each employee may select what he/she wants based on their own personal goals or to satisfy differing needs, such as health coverage, legal services (legal services amounts are taxable), retirement income (401(k) plans) or specialized services (dependent care, adoption assistance).

Record keeping

For my business, what types of records are important to keep?

A crucial aspect to your business success is thorough and accurate financial record keeping. The accurate records help to provide information to operate efficiently as well as allow you to identify all your business assets, liabilities, income and expenses. This data will help you locate both strong and weak cycles of your business.

It is necessary to keep good records to prepare current financial statements like the income statement and cash flow projections. They will also help you maintain a good relationship with your banker. The records will even ensure you don't overpay or underpay your taxes. During an Internal Revenue Service audit, it is crucial to have good record in order to properly answer the questions and satisfy the IRS.

To guarantee success, the financial records should demonstrate how much income you are currently making as well as what you expect to generate in the future. They will indicate the amount of case in accounts receivable. They will also inform you of what you owe in terms of utilities, rent, merchandise, and equipment, and even expenses such as advertising, payroll, payroll taxes, equipment and facilities maintenance, and benefit plans for yourself and employees. Good records will show how much cash is being used for inventory and how much is on hand. They should also indicate which of your products are making a profit as well as your gross and net profit.

The Basic Record keeping System

This should include a basic journal to record transactions, payroll records, accounts payable records, accounts receivable records, inventory records and petty cash records.

With the help of an accountant, you can develop an entire system that fits your business needs and they can teach you how to update these records regularly. The records will become the base for your financial statements and tax returns.

What should I know about automating a portion or all of my business?

First, you need to have a clear understanding of your company's short and long-term goals, what the disadvantages and advantages of all options to a computer as well as what you want to achieve with a computer. Look at the best non-computerized system that you can develop in comparison to the computer system you are considering. It is possible to achieve your goals by improving your existing manual system. Just remember, no one can automate a business without first creating and optimizing the manual systems.

Computer Performed Business Applications

Maintaining transaction records and preparing statements and reports to keeping customer and lead lists, creating brochures, and paying your staff are a few of the capabilities that can be done by a computer. A thorough computer system can organize and store many similarly structured pieces of information, print information quickly and accurately, perform complicated mathematical computations quickly and accurately, facilitate communications among individuals, departments and branches, and connect the office to many sources of data available through larger networks. It can also restructure such manual business operations as payroll, accounts receivable, inventory, and advertising, planning. As seen by these operations, the computer improves efficiency, decreases errors, and lowers costs.

Computer Business Applications

Computers also have the ability to do more complicated operations, such as spreadsheet and accounting programs that compile statistics, plot trends and markets and complete a market analysis, modeling, graphs and forms and financial modeling programs that organize and analyze financial statements. Several word processing programs produce typed documents and provide text-editing functions, while desktop publishing programs allow you to create good quality print materials on your computer. To divide large projects into smaller, more easily managed segments or steps you can use the critical path analysis programs.

How can I guarantee that the computer system I'm using is right for me?

Selecting the right programs, choosing the right equipment and implementing the diverse applications are what are necessary to computerize you business. There are three common types of software. Translating programs that are written in programming language that people can use to the computer language what the CPU understands is done with compilers and interpreters. The operating system software controls the individual components of the computer. The computer generally comes with system software and must be loaded onto the memory before the application can start.

Particular functions such as accounts receivable, payroll check writing, posting or inventory reporting are run due to the programs within the application software that are usually purchased apart from the computer hardware.

In order to determine your needs, make a list of all the functions of your company where speed and accuracy are important for the mass amount of data. These are referred to as applications.

Prepare a list of all the reports that you are currently producing for each of these applications. Make sure to include any preprinted forms such as vouchers, checks or billing statements. If these forms don't already exist, come up with a good idea of what you want. List the frequency with which each report is to be generated, who will make it and the amount of copies necessary. Also, prepare a list of data that you want to display on the computer video screen (CPT).

Prepare a hand-drawn version that also lists the circumstances in which you would like the data shown. Write a list of all the materials that are used as input into your manual system for each application. These may include, but are not limited to, work orders, receipts, time cards, etc. Detail who will create them, how they will get into the system and the time in which the items take to be created. For the appropriate time period, make a maximum and average expected number of these items produced.

What can I do to successfully implement the new computer system?

You will come across problems when implementing computer applications, but the correct planning can make the process smoother and alleviate the effects of others. Sit down with each employee and explain how the computer will have an affect on his or her position. Set dates to have the main phases of the implementation complete as well as the last day for format changes. Find a location for your computer that meets the system's requirements for temperature, electrical power and humidity. Make a list of the priorities for the applications that will be converted from manual to computer systems and convert each one individually instead of in a group. Ensure that everyone using the system will be trained.

Each application that has been converted should be entered and run alongside the preexisting manual system to ensure that the new system works.

System Security

If you plan on having confidential information in the system, you will need to set up the proper precautions to keep unauthorized users from modifying, stealing or destroying data. The options are locking the equipment or installing a user identification and password software program.

Data Safety

The most moderately priced and best insurance to prevent the loss of data is the back-up information on a diskette on a regular basis. These copies should be put in a safe location away from the business site. It is also helpful to own and test a disaster recover plan and to identify all programs, documents and data necessary for the essential tasks during disaster recovery.

Lastly, make sure that you have more than a single person capable of operating the system and be sure that someone monitors all systems continuously.

Travel and Entertainment

On days that I call on customers or clients out of the office, may I reduce the cost of meals?

That is not common. Normally, you can only reduce the cost of meal when away on a business-related trip or gone overnight.

Only 50% of the cost of the meal including the tips is allowed in the deduction.

Do I need to report employer reimbursements for travel, entertainment and meals?

If you give back any excess reimbursement, provide your employer with a detailed expense report and meet other requirements, there is no need to report the reimbursement or to deduct the expenses.

It means that deduction limits are obligatory for your boss and not you and the limit of 2% on miscellaneous item deductions will not have an affect on your entertainment, travel and meal costs.

Are there limits on deductible entertainment, travel and meal costs?

Although there is no specific dollar limit, expenses should be ordinary and necessary and not overgenerous. This does not restrict deluxe travels, meals or accommodations.

The deduction cannot exceed 50% of the cost with business entertainment and meals.

For skyboxes and luxury water travel, there are other specific limitations.

Is it possible to deduct living expenses when I am on temporary assignment away from where I live and work?

Because temporary work site living expenses are away from home travel expenses, they may be deducted.

An assignment that is not expected to last more than a year is considered temporary. If the assignment is for more than one year than the new area becomes your tax home and you can't deduct expenses as away from home travel.

What can I deduct as expenses when I am traveling away from home?

There is a broad range of expense that you can deduct while traveling. The most common are as follows:

• Accommodation and meals (where there is a 50% limit on meals)
• Transportation fees or actual costs at a per mile rate for using your own vehicle. The transportation costs also include of getting around in the work area, commute to and from hotels, restaurants, offices, terminals, etc.
• Phone, fax, laundry, baggage handling
• Any tips related to the above

Are there expenses that cannot be deducted as travel expenses?

The travel expenses below cannot be deducted:

• Travel as education
• Looking for a new job in a different field or for a new business site
• The cost of transportation between your home and the work site unless your home is your business headquarters.

As for business entertainment, what can I deduct?

The conditions and limitations for business and entertainment deductions are the following:

• A business discussion should be held before, during or after the entertainment.
• Usually, deduction is limited to 50% of the cost for entertainment and meals.
• In settings where spouse attendance is customary, spouses of business associates, and your own spouse, can be included in the entertainment.
• There are more limitations for club dues, entertainment facilities and skyboxes.

What do I do to show my entertainment and travel expenses?

If your employer is reimbursing you for your expenses, you only need to prove them to him/her. To do this, submit a written accounting to the employer and return any excess amounts.

"Accountable plans" or per diem arrange and mileage allowances are used instead of detailed accounting for the employer, if place, time and business purpose are verified.

Detailed substantiation is required to IRS when expenses aren't fully reimbursed by the employer or you fail to return excess reimbursements. If you are the employee, a 2% floor on miscellaneous item deductions are subjected to your deductions.

You should record the expenses as close to the time of expenditure as possible.

Marketing and Pricing

How can I be certain that my small business product or service will be marketable?

To determine where and how you can successfully sell your product or service and at what price, you will need to use one of the most critical elements of business planning, market research. It includes interviewing potential suppliers and investigating your competition and consumer base.

Market research has many different benefits. It can help you categorize marketing activities, generate primary and alternative sales approaches to a given market, make profit projections from a more precise base, establish the market's profit boundaries, and develop critical short/mid-term sales goals. You will need to identify your objectives and organize the collection/analysis process first.

What questions are appropriate to ask in market research?

You will want to learn of the consumers location, needs and resources and what they have the ability to afford. Significant questions such as can you compete effectively in price, delivery and quality and where can the demand be created should be addressed.

Can the product or service be priced to guarantee a profit? Also, discover how many competitors provide the identical product or service. You will want to have a basic understanding of the economy of the area in which you will sell your product or service and the areas where that market is growing or lessening.

In deciding the price of my products or services, what should I consider?

There is a different and individual cost for each component of your service or product. Be sure to analyze every component of the product or service's total cost as that is where many small firms fail causing a non-profitable price. Upon completion of the analysis, prices can be established to maximize profits and eliminate deficit services. Material, labor and overhead costs are included in the cost components.

Material costs are the total of the costs of all materials of the finished product.

Labor costs are calculated by the total work put into preparing the product. To determine the direct labor costs, you multiple the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which include workers' compensation, retirement benefits, social security, insurance, unemployment compensation, etc.

Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs. Don't forget to include shipping, handling and/or storage and any other cost components.

Business Forms of Organization

Will a type of business organization or entity limit my liability to business creditors?

Yes. Limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs) and corporations are the most common forms. General partnerships and sole proprietorships don't restrict owners' liability where limited partnerships limit restrict liability of some partners such as limited partners and not others like general partners.

How can I avoid the "corporate double tax" and what exactly is it?

When a business corporation or an entity that is treated as a business corporation for tax purposes pays on its income a federal tax and its owners then pay a tax as they collect corporate profits, it is known as a "corporate double tax." The "entity level tax" is the tax on the corporation and so an entity taxed as this is called a "C corporation" or C corp.

Here are ways to avoid the double tax:

• Becoming an S corp., which doesn't change the nature under state business law but rather eliminates federal tax at the corporate level.
• The second tax, which is on the owners, can be deferred by suspending profit distributions to corporate owners.

For tax purposes, what type of business entity is best?

Each business is different, although to save on overall taxes a "passthrough" entity is generally the best as it eliminate tax at the entity level. Owners of passthrough entities are taxed precisely on the profits of the entity that they own. Owners are able to make tax deductions for startup and operating losses, against the income from other businesses or investments, which is another advantage.

What entities are considered to be "passthrough"?

The leading "passthrough" forms are limited partnerships, LLCs, LLPs, S corps, sole proprietorships and general partnerships and you have a lot of power over if your entity is treated as a passthrough for federal tax purposes.

If you have a partnership of any type or a limited liability company, it is possible to choose if your business functions as a corporation or partnership for tax purposes. This is called the "check-the-box" system by tax and business advisors. You can qualify to have it treated as a passthrough by choosing S corp. status if your entity is incorporated or if you elect to be treated as a corporation.

It is a binding decision to choose under check-the-box. This means if you select one entity one year and a different one the next, you will have to pay the taxes as though last year's entity was sold and use those profits towards this years.

To avoid double tax and limit my liability, which entity should I choose?

Assuming you don't select to have them function as corporations, the following types will avoid double tax and limit liability: LLPs; LLCs; and limited partnerships, only for the limited partners. S corps. is usually another options. If you are a sole owner, the only option is S corps. or in certain states, LLCs.

Why are limited liability companies (LLCs) so great?

Limited liability and passthrough tax treatment are both combined in LLCs. This provides benefits that are unavailable from S corps, who is the closest rival for those businesses besides professional practices. The main benefits are:

• There is a possibility for greater loss deductions.
• Tax benefits can be disproportionately distributed among owners.
• When a new owner becomes a member of the business or when allocations are given to owners in business liquidation, taxes are avoided or reduced.

It varies by state as it if LLCs are permitted to have a single owner. If permitted, the owner has the opportunity to elect to be under the check-the-box rules to have the LLC not regarded for tax purposes, which is done without freeing itself of the LLC limited liability, and will disburse tax on the LLC income directly.

A good alternative where sole ownership LLCs aren't permitted is S corps. They will also defer tax, in comparison to LLCs, when a corporate giant is buying out the business.

If my business is a professional practice, what are the special conditions?

A major concern is the limitation of liability, especially malpractice liability. Against the liability of your own malpractice, there is no entity that will protect you. For protection against liability for malpractice of co-owner professionals in the firm and possibly for other debts, Professional Limited Liability Companies (PLLCs), LLCs, and LLPs, when accessible for professional practices, should be used. Depending on the state law, Professionals Corporations (PCs) might not offer protection against the liability for a co-owner's malpractice.

LLPs, PLLCs, and LLCs all have about the same tax rules that govern them while those for PCs are a little more liberal.

If I change my form of business organization, what are the federal tax consequences?

You should study carefully with professional guidance before making any changes or decisions. Below summarizes the consequences:

• From a proprietorship or partnership to LLC or vice versa there is no tax.
• On a change from LLC, partnership or sole proprietorship to a C or S corp. there will be no tax.
• From C or S corp. to an LLC, partnership or sole proprietorship there is no tax.
• On a change from C corp. to S corp. or vice versa there is no tax.

Is it necessary for state business entity rules to follow federal tax rules?

Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system doesn't make it that type of entity for state business law purposes. Which means if you choose corporate tax treatment for a partnership it will not necessary bring corporate limited liability.

A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but it is non-compulsory.

The law of a state may agree to passthrough status for an entity like an S corp. or an LLC, but still enforce some sort of tax on the entity.

Incorporating

What is the definition of a corporation?

A legal entity that exists individually from its owners is a corporation. When correctly filled out articles of incorporation are filed with the proper state authority and all fees are taken care off, the creation of a corporation is complete.

There is a difference between an "S" corporation and a "C" corporation, what is it?

Every corporation begins as a "C" corporation and must pay income tax on the taxable income made by the corporation. Once filing federal form 2553 with the IRS a "C" corporation becomes an "S" corporation. The net income or loss of an "S" corporation is included in their personal tax returns and are "passed-through" to the shareholders. There is no double taxation as with "C" corporations because income tax is not taxed at the corporate level. Also known as Subchapter "S" corporations, they are limited to not having any more than 100 shareholders.

Is an attorney necessary to incorporate?

Definitely not! Except for South Carolina, where an attorney's signature is required, obtaining a lawyer is not a necessity to incorporate. You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand.

A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure as to what the processes are or if there isn't time for research. Prepare a list of questions before the consultation.

Is there a process for naming my corporation?

We first suggest that you take time to think about a name for your corporation. The most common rule for naming your corporation is that is cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as "Incorporated", "Inc.", "Company", and "Corp." Although, each state has suffix standards of their own.

Are there benefits to incorporating?

Limiting your liability to the assets of the corporation is the primary advantage of incorporating. It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn't personally sign for the loan and your corporation defaults on it, your personal assets are safe. With a sole proprietorship or partnership, this is not the scenario. There are many tax advantages that are available to corporations and not sole proprietors.

A few of the advantages are:

• A corlioration allows for easier set uli of retirement funds and qualified retirement lilans (like 401k).
• The life of a corlioration is not limited and is not deliendent ulion its members. The corlioration will continue to liroslier and do business even if an owner dies or wants to sell their interest.
• A corlioration has a centralized management.
• It is easy to transfer ownershili of a corlioration.
• With the sale of stock, caliital can be raised more effortlessly.

What exactly is a Registered Agent?

A corporation is required to have a registered agent is in the majority of states. The physical location of the agent must be in the formation state. The requirements of the registered agent are they must be accessible during regular business hours to receive official state documents or service of process and are usually a resident of the state or correctly registered company.

Do I need a specific number of Director or Shareholders?

Most states permit one person to function as director, shareholder, and all officer roles.

Are there a number of shares of stock I should choose and at what par value?

A default of 200 shares is provided, but you may select any quantity that you wish on all orders. The par value is not asked for on all orders, and can simply be expressed as "No Par Value" or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.

What does EIN stand for and what is a Federal Tax Identification Number?

A Federal Tax Identification Number, which is also known as a Employer Identification Number (EIN) is required for each corporation so the IRS may track payroll and income taxes paid by the corporation. Just as a social security number, an EIN is used for almost every function of the business.

After I incorporate, what do I do next?

If your director(s) have yet to be designated in the articles, you will need to hold your first shareholder(s) meeting to select your director(s). After that, you will need to hold her first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company’s bylaws and issue your stock as well as other actions.

Limited Liability Companies

Who should establish an LLC?

If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC (limited liability company). For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. Due to an LLC giving you personal protection from these and other possible claims again your business, it might be better to run your business as one.

However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking, trust and insurance industries.

Is an LLC or an "S" corporation better?

Even though the special tax status of the "S" corporation does away with double taxation, it doesn't have the elasticity of an LLC in distributing income to the owners.

Various classes of membership interests are offered with an LLC where as you can only have one type of stock with an "S" corporation.

In an LLC, a variety of individuals or entities may have interests. Although the number of shareholders who can have ownership interest is restricted to no more than 100. C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of "S" corporations. It is also important to note that LLCs are permitted to have subsidiaries without limitations.

What does an LLC Operating Agreement signify?

It permits the structure of your financial and working relations with your co-owners to be in a way that best fits your company. Your co-owners and you determine each owner's percentage of ownership in the LLC, his/her rights and responsibilities, his/her share of gains or losses, and what will become of the business in case one owner leaves.

Is it necessary to have an Operating Agreement?

In most states, it is not required to have a written operating agreement, but you are advised to not begin a business without one. The following are a few reasons why an operating agreement is necessary:

• By showing that you have been meticulous about organizing your LLC, it aids in guaranteeing that courts will be respectful of your personal liability protection.
• Rules that regulate how profits will be separated, the process for making major business decisions, and the measures for handling the departure and addition of members are established.
• It aids in avoiding misunderstandings between the owners and management over finances.
• It prevents your LLC from being regulated by the default rules in the LLC laws of your state, which may not be to your advantage.

Is it necessary to have LLC meetings?

Failure by the corporation to have shareholder or director meetings can cause the corporation to alter ego liability, although this is not typical of LLCs in most states. For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings.

Are there exceptions to Limited Liability?

Even though, LLC owners can enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute. This is not a drawback that is distinctive to LLCs as they apply to all corporations. The owner of the LLC may be held personally responsible if he/she:

• purposefully does something illegal, fraudulent, or clearly wrong that causes injury to the company or someone else
• is unsuccessful in depositing taxes withheld from employees' wages personally certifies a business debt or a bank loan that the LLC defaults on
• personally and directly hurts someone, or
• acts as the LLC in the broadening of his or her personal affairs instead of an individual legal entity.

The most important is the final exception. There are times when a court may declare that an LLC isn't real and find that its owners are actually conducting business as individuals who are in fact responsible for their actions. To prevent this, be sure that your co-owners and you:

• Act legal and rational. Do not hide or represent falsely material facts or the position of your finance to creditors, vendors or other third parties.
• Sufficiently fund your LLC. In order to meet foreseeable expenses and liabilities, make sure to invest adequate funds into the business.
• Maintain the LLC and personal business separate. Maintain your personal finances away from your LLC accounting books, create a business only checking account and obtain a federal employer identification number.
• prepare an operating agreement. To create liability for your LLC's separate existence a formal operating agreement is writing is helpful.

When your limited liability protection doesn't shield your personal assets a good liability insurance policy will help. For example, if your profession is a massage therapist and you hurt a customer's back by accident, you will be covered by your liability insurance policy. This insurance also comes into play to protect your personal assets in the scenario that the court ignores your limited liability status.

The insurance can also protect your corporate assets from claims and lawsuits as well as protecting your personal assets in certain situations. However, it is important to realize that commercial insurance typically doesn’t protect corporate or personal assets from unpaid debts of the business, whether they're personally insured or not.