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CHAPTER 5

Finding the Right Advice: People and Businesses Who Can Help You

The advice of the right professionals can help you build your business correctly and keep it running smoothly, and in accordance with all the laws that might affect you. You will need to talk to an attorney, an accountant, a banker and an insurance agent initially, and possibly other professionals or government agencies, before you start or buy a business. The advice of these professionals is critical to the success of your business in the short and long term. When you find the right professionals to work with, you are building a team of advisors who can help you create the business you want. Following their advice ultimately will save you time, money and legal problems. Their recommendations could even bring you customers. You need these professional advisors to help you succeed in business.

When meeting with professionals to build your business, ask lots of questions. Bring your business plan with you. The more precise you are when explaining your business, the better the advice you will receive. Be sure you understand everything the professionals are explaining to you. If you don’t, ask them to explain it again until you are sure you understand. Take notes and keep them in a convenient place so that you can refer to them when you need them.

When choosing attorneys, accountants and any other professional advisors, talk to several. Compare their rates. Choose to work with individuals with whom you are most comfortable, because you will spend a lot of time with them each year.

You cannot expect anyone else to do this work for you. The last thing you want to do is invest your time and money in a business that fails because you weren’t willing to meet with the people who can provide information to make your business successful. Choose professionals who will best serve your needs as you start your business. Good professional advice early on could prevent costly problems later.

Contact an Attorney

Find an attorney who is experienced in working with small businesses. Start by asking your family, friends, co-workers and people you know who are in business if they can recommend an attorney. Or, if you have an attorney who handles your personal matters, ask him or her to recommend an attorney who has the experience to help you with your new business. When you find an attorney with small business experience, ask about that attorney’s hourly rate and ask how long an initial meeting to discuss your business might last.

An attorney’s advice is essential to help determine the type of business structure that is best for you. He or she can advise you on whether your business should be a sole proprietorship, a partnership, or a corporation. The set-up costs associated with each of these types of businesses will vary.

As a sole proprietor, you own and control the business - the owner assumes full liability. You are responsible for all business decisions, and the resulting rewards and consequences.

A partnership involves two or more people, and it is formed to carry on a business for profit. A partnership requires a legal agreement to be drawn up by an attorney to help solve any future disputes. A partnership is almost like a marriage. When one partner makes a decision, or wants to make a change to the business, it affects the other partner and the health of the business. There are other options you may want to consider in setting up your company. An LLC is a Limited Liability company, an S Corporation and a C Corporation. These types of set-ups are more complex and more costly to organize than the other two types of businesses. If you are considering forming an LLC or corporation, you should get legal advice, and you will also need a certified accountant to help you set
up the financial structure.

A LLC or limited liability company is a blend of a partnership and a corporation. This type of business is not a corporation. It provides some limited liability for the owner or partners but does not provide complete protection for personal liabilities. It does not protect you from financial liability to your lender.

A C Corporation is a basic type of corporation. An S Corporation is a normal corporation (C Corporation) that has elected to have special tax status. Once your attorney has helped you understand the type of business structure that is best for you, you can learn how that structure affects your taxes, how the laws and regulations affect your type of business, and what types of licenses you may need in order to operate legally.

In addition to your business structure, if you are entering into any kind of contract or lease, you will want an attorney to review it. Some could cause liability issues for you or your business. You want to make sure you know what you are signing and what you are liable for.

Ask your attorney whether you will need trademarks, copyrights, patents and licenses. If you’ve designed something and you want to safeguard your original work, your attorney needs to proceed with measures to protect it for you. Copyrights, patents, and/or trademarks must be processed through federal agencies. Obtaining these documents takes time and money.

Your attorney can also file an application with the Internal Revenue Service for an Employer Identification Number, or EIN. The EIN is required for all partnerships and corporations. Sole proprietorships must have an EIN if wages are paid to one or more employees. If a sole proprietorship doesn’t have any employees, the proprietor’s Social Security number is his or her Employer Identification Number.

An EIN is required prior to opening your business checking account. If it is required, you may need to wait to set up your checking account until you have received this number. It usually takes three to four weeks to receive your EIN in the mail; you can apply for an EIN online at www.irs.gov and receive an EIN within 24 hours.

You need to see your attorney at least once a year for a minimum of an hour. Take notes throughout the year about issues you would like to discuss. If you prepare a list of items to discuss before you meet with your attorney, you will be more likely to get all your questions answered and get your money’s worth.

Contact a Certified Public Accountant

 

A certified public accountant, or CPA, will help you set up the financial records for your business. Having accurate, up-to-date financial records is essential for running a successful business and for avoiding problems with the IRS. You need current, accurate financial information to manage your business.

A CPA acts as a small-business advisor on a wide range of financial matters. A CPA must be licensed in your state. He or she must complete continuing professional education annually, and in most states, he or she must meet certain experience or postgraduate study requirements.

A CPA can help set up your bookkeeping and prepare your year-end taxes. A CPA analyzes your financial situation and can provide tax information as well as other suggestions that will be beneficial to your company. CPAs work with a number of small businesses and will know about the laws and regulations that may affect your business. Have your CPA review your business finances at least three times a year. Your CPA can see details in your finances you might overlook and may make suggestions to improve your business.

If your CPA provides advice or answers to your questions that you don’t understand, don’t ignore the information. Keep asking questions until you understand what your CPA is telling you. If a CPA gives you answers that are too vague, keep pushing for more detailed information. Choose the CPA whose answers will best serve you and your business.

  1. Do you have experience working with my type of business?
  2. What will it cost to set up my business and have you review my books each month?
  3. How long will it take you?
  4. Can you teach me to do my own books? Does your firm offer classes, or can you recommend other classes to help me learn the software?
  5. What bookkeeping software do you recommend?
  6. What is required for record keeping, and how long should I keep records?

Contact a Financial Institution

In starting your business, you need to develop a relationship with a financial institution. You will want a business checking account. At the appropriate time, you may also want a loan from a financial institution to help your business expand.

A good place to establish a business checking account and inquire about a business loan would be at the same place you have your personal accounts. Your lender is already familiar with you and your credit history. If your financial institution doesn’t handle business accounts, ask your lender or other business associates for referrals to other banks or credit unions.

When choosing a financial institution to help with your business, these questions can help you find the right one.

  1. What services does your bank offer for small businesses? (Some financial institutions will provide added benefits or services to businesses so don’t assume that all banks and credit unions are the same.) What will these services cost?
  2. Will I have to maintain a set amount of money in my business accounts? Will fees apply if I don’t?
  3. What kind of customer support does your bank offer small business owners?
  4. What information must I provide before I can apply for a business loan?

Whether you are opening an account or applying for a loan, always make an appointment. Although dropping in at a financial institution may be acceptable when you want to find out about consumer loans, that is not the case with business loans. Most business lenders work by appointment, and drop-ins are not likely to be welcomed. Always dress professionally. You don’t have to wear a suit, but you don’t want to wear dirty jeans, either. Handle your business checking account wisely, because it will have an effect on any loan application you make. Overdrawing your business account would not be something you want to do if you want a loan from the financial institution.

When the time comes for you to seek a business loan from your bank or credit union, always be prepared. Call ahead and find out what information they need from you and bring that information with you to your appointment. A business loan typically requires more paperwork and takes longer to process than a personal loan.

Contact an Insurance Agent

Look for an insurance agent who has expertise in the type of business you wish to start. Ask which types of coverage he or she would recommend for your business, and why. How will the agent help you adjust your coverage as your business grows?

Have your insurance agent suggest coverage to protect your business against various hazards. A small-business liability policy is important as you start your business. You want protection against potential problems in the future. Liability insurance protects your company in case it is sued or held legally liable for injury or loss caused by a mistake made by your company.

In addition to liability coverage, if you have employees, you will need workers compensation. Workers compensation insurance covers employees injured on the job, whether they're hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses.

If you have employees, you will need employee dishonesty insurance. This insurance will protect you from financial loss caused by fraudulent activities of an employee or group of employees. The loss can be the result of the employee’s theft of money, securities or other property of the employer. According to the Association of Certified Fraud Examiners, employee theft causes business losses of $400 billion per year, or about 6% of total annual revenue. Small businesses can be especially affected by theft and embezzlement because they can’t afford extensive safeguards and aren’t large enough to absorb financial losses.

If you or your employees provide a service, such as cleaning, that requires after-hours access, you will need bonding insurance. Often referred to simply as bonding, this is a way of insuring against loss caused by a lack of competence or by fraud or dishonesty. People who carry this type of insurance are referred to as being “bonded.”

Property insurance protects business property and inventory against physical loss or damage by theft, accident or other means — even if that property is removed from your place of business when it is lost or damaged. Find out what the cost will be of insuring your property, and find out what the replacement and depreciation values of your property will be. Before you sign a lease for space or purchase a building for your business, find out what it will cost to insure. Be sure you have leased a building that can be insured so you are not stuck in a lease for an unusable building. Property coverage for your small business can cover your costs to repair or replace what you’ve lost.

You may also need vehicle coverage. If your vehicles are used primarily for business and your employees drive them, business vehicle coverage is necessary. Business vehicle insurance will protect you, and your employees, in the event of an accident while using a company vehicle for any business purposes.

Also, if you are establishing an office in your home, you need to update your homeowners insurance policy to include coverage for the office equipment and office furniture in your work area. This is not automatically included in a standard homeowners policy. If you have a well-equipped home office, look closely at your home insurance coverage. In many homeowners insurance policies, business property coverage is “capped” near $2,500. This maximum is often insufficient to protect your home-office equipment. Sometimes, business computers and other business equipment are excluded from coverage under your homeowners insurance policy.

Make sure you understand the costs for each type of coverage. Discuss your insurance agent’s suggestions with your attorney and accountant before purchasing the insurance coverage. Your attorney might be aware of issues that would require additional coverage that your agent is not.

Get a competitive bid each year from another insurance agent. Rates vary greatly, so be sure to get bids every year. This doesn’t mean that you have to change insurance agents. But you should keep an eye on the coverage and pricing being offered from your current insurance carrier so you know you are spending your money wisely. Every year, you should also ask for a bid from your insurance agent to be sure you are still getting the best coverage and pricing. However, you should never switch policies when you are in the middle of filing or settling an insurance claim.

Register the Name of Your Business

 

Protecting the name of your business is important. Registering the name of your business protects you from someone else starting a business under the same name. If two businesses have the same name, how do your customers know which business to call? You don’t want to build up a clientele only to find out they are going to another business with your business name.

You need to register the name of your business with your state. Contact the Secretary of State at your state capitol and register the name of your business. Have a backup business name in mind just in case the name you have chosen is being used by someone else. After you have registered the name of your business with the state, register it with the county and city offices. In some instances, you may need to register your business name with the Library of Congress, too, to be sure your business name is protected.

If you provide services outside your state, you may want to register your business name in those states, as well. You may want to use the services of an attorney to help with this.

Contact City, County and State Agencies

When setting up your business, you need to ensure that you follow all city, county and state laws. Make sure you can legally operate a business in the location you want. Find out what type of licensing you need to run your business. If you violate a law, you can incur fines and penalties or face other consequences.

Go to your local court house. Find out who you need to talk to about zoning and permit requirements. If you are planning new construction, renovation, or remodeling, you must apply for specific permits before beginning work and prior to issuance of a business license.

If you are operating your business out of your home, there may be special permits or approvals needed from your city or county. Most of the time, your city office will be the only place you need to go to be in compliance — ask them if it necessary to go on to county or state offices regarding this matter.

Contact the Department of Revenue

When you open a business, you probably need a sales tax license, which you can get from your state Department of Revenue. There are few exceptions to this rule. When you earn income, you will most likely owe tax on the income. When you owe sales tax on revenue, you are incurring a sales tax liability.

The Department of Revenue in your state can help you determine which taxes you will need to collect and/or pay. It may be necessary to contact more than one revenue office depending on the requirements of your city, county, and state. You will also need a sales tax license to purchase parts from suppliers. Always pay your taxes on time; the Department of Revenue can shut down your business quickly if you do not pay your taxes.

If you have trouble filling out all the forms they provide, go to their local branch office and ask for help filling out the forms. This will save you time and frustration and give you an opportunity to ask questions.

Contact the Department of Health

Depending on the type of business you want to open, it may be regulated by the Department of Health in your state. For example, if you open a restaurant, you will need to contact the Department of Health to operate. Other businesses that will need to contact the Department of Health include lodging facilities such as hotels, motels, specialty resorts, dude ranches, all types of campgrounds, cabins, and bed and breakfast establishments. All kinds of food and beverage service facilities also need to contact the Department of Health, including bakery and catering businesses, roadside stands, bars and lounges, and mobile service providers or similar places at which food or drink is prepared for sale or for service to the public on the premises or elsewhere with or without charge.

Depending on your state, you may have to take special training classes through your state or a certified provider. All states require different licenses and/or permits regarding health issues in the workplace. Some even require monthly, quarterly, and/or annual inspections to qualify you for your annual license renewals. You will typically pay a fee to obtain a permit or license. If you don’t comply with state health regulations, you could pay a hefty fine.

Health inspectors can go through your facility at any time during business hours, after they present their identification. Inspectors will check the layout of your facility, sewer systems, floors, walls, ceiling, exhaust systems, equipment, lighting, adequate dish-washing and utensil-washing facilities, prep and vegetable sinks, utility and janitor sinks, plumbing, restrooms, electrical, entrance and exit doors, waste/garbage disposal, fire protection, and the general cleanliness of the premises.

Contact the Department of Labor

If you will have employees right away, you will need to contact the Department of Labor in your state to see what the requirements for you and your business will be. You will have to learn about a variety of regulations, including state labor laws, unemployment insurance, disability insurance, workers compensation, child support enforcement, new hire reporting requirements and verification of employment eligibility (Form I9). You will also need to know about health and safety standards, posting requirements, minimum wage guidelines, medical insurance and benefit packages, and discrimination guidelines. It is especially important to understand the difference between a contract laborer and an employee. The tax liability for a small business varies based on whether the person is a contractor or an
employee. The IRS has a brochure, Publication 1779, that defines an independent contractor versus an employee. (Publication 1779 can be found at www.irs.gov/pub/irs-pdf/p1779.pdf)

Find a Location for Your Business

A good location should be easy for customers to find, and it should fit your budget. Contact a real estate broker and explain your needs or requirements. The facility should be accessible for both your customers and your staff and provide a sense of security.

Decide whether you want to rent or purchase a facility. Determine your space and storefront needs. Do you need high traffic exposure, or is a location off the beaten path going to work for you? Especially in retail businesses, a good location is essential so you can attract more customers.

If you plan to rent a facility, the landlord will most likely require you to sign a lease for a guaranteed period of time. Don’t be afraid to negotiate the monthly rent being requested by the landlord. Make sure that you are protected and fully aware of what you will be paying for before you commit yourself to a lease. Make sure you understand who pays for the building repairs and maintenance, taxes, insurance, utilities, garbage pickup, common area upkeep, security, yard repairs and maintenance, snow removal (if any), and parking lot lighting, maintenance and repairs. Before you sign your first lease, have your attorney review it. Your attorney will be able to point out any potential issues so you can make an informed decision about whether you should sign the lease.

After you have chosen a location, decide whether you want your company mail to come to your street address or to a post office box. The post office receives mail seven days a week and delivers Monday through Saturday. If you choose mail delivery and your business is closed on Saturdays, you will need a locking mail box. If you don’t have one, you will need to pick your mail up from the box at your business on the days you are closed so it doesn’t remain there. Another option is to get a post office box and pick up your mail on your way to work every day.

You will also need to know from your landlord and city about signage requirements for your business. Some building owners set restrictions about how and where you plan to attach signs to their buildings. The city also has guidelines on sizes, placement and the number of signs that can be posted on a building. Some cities even require permits for signage; contact your city to learn more. Don’t rely on the sign manufacturer to tell you about sign codes and restrictions. You could find that you have paid for a sign that your city requires you to take down.

If you are planning a home-based business, find out what licenses, permits and zoning regulations your city or county requires. There may be limits or restrictions on the signs you can or cannot put up on your property.

Advice from Friends, Family and Others

Family and friends are often willing to tell you what they think about your business. You should carefully sift through their opinions. Keep in mind that an opinion is based on what someone believes, not on facts.

For advice to be helpful to your business, the person advising you needs to understand your situation and your business. They need lots of information and should ask you many questions. You wouldn’t follow the advice of a doctor if he didn’t examine you first.

You should also consider the motives of the person’s opinion. For example, if you get an opinion from an employee or former employee of a competitor, you need to be careful about blindly believing that information. Does that person hold a grudge against that company? Business owners sometimes think they have inside information about a competitor when, in reality, the information isn’t true or complete. Decisions based on this information can hurt your business. If your instincts are telling you not to follow someone’s advice, don’t ignore your feelings.

In the next chapter, you will learn more about controlling your business finances.

“Your biggest break can come from never quitting. Being at the right place at the right time can only happen
when you keep moving to the next opportunity.” - Arthur Pine, publisher and author

Action Steps

To Contact
  • Contact a certified public accountant (CPA).
  • Contact a financial institution.
  • Contact an insurance agent.
  • Contact the city, county and state agencies.
  • Contact the Department of Revenue.
  • Contact the Department of Health.
  • Contact the Department of Labor.
  • Register your business name.
  • Contact a real estate broker to help you find a location for your business.
  • Select a business location; have your attorney review any lease before you sign it.
  • Take careful notes at every appointment and start a file or files on all the information you gather from each. You will need this information, and will add to it, as your business opens and grows.

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