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1. Do I have what it takes to start a business?
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Owning a business and making it successful is one of the most satisfying and enjoyable experiences you can have. But it isn't easy. Your business will require a great deal from you - physically, emotionally and financially. Evaluate your risks carefully and make sure that you’re going into business for the right reasons. It's a big step - make certain you are ready.
You will be your own most important employee, so an objective appraisal of your strengths and weaknesses is essential. Some questions to ask yourself are:
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Am I a self-starter?
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How well do I get along with a variety of personalities?
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How good am I at making decisions?
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Do I have the physical and emotional stamina to run a business?
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How well do I plan and organize?
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Are my attitudes and drive strong enough to maintain motivation?
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How will the business affect my family?
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a. What are the pros and cons of starting my own business?
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Your own business - is it for you? Take a look at these pros and cons from toolkit.com:
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PROS |
CONS |
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You have the capacity to make a lot more money than you can make working for someone else.
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You may have to take a large financial risk. |
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You'll be your own boss and make the decisions that are crucial to your business' success or failure. |
You will probably have to work long hours and may have fewer opportunities to take vacations. |
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You may manage other people. |
You may manage other people. |
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You'll have job security; no one can fire you. |
You may end up spending a lot of time attending to the details of running a business and less time on those things you really enjoy. |
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You'll have the opportunity to put your ideas into practice. |
You may find that your income is not steady and that there are times where you don't have much income at all. |
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You may participate in every aspect of a business and gain experience in a variety of disciplines. |
You may have to learn many new disciplines, such as filing and bookkeeping, inventory control, production planning, advertising and promotion, market research and general management. |
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You'll benefit the local economy, such as by hiring other people to work for you. |
You may have to undertake tasks you find unpleasant, such as firing someone or refusing to hire a friend or relative. |
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You'll work directly with your customers. |
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You'll have the personal satisfaction of creating and running a successful business. |
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You'll work in a field or area that you really enjoy. |
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You'll have the ability to build real retirement value (for example, by selling the business when you retire). |
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You'll have the chance to put down roots in a community and to provide a sense of belonging and stability for your family. |
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b. What considerations should I keep in mind?
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The following questions will help you evaluate yourself as a prospective business owner. They also may identify ways you can prepare yourself for business ownership. Each question’s relative importance depends on the type of business you want to start. Review them to identify your strengths and weaknesses.
Personal Considerations
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I like to make my own decisions and try my own ideas.
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I enjoy being challenged and thrive on competition.
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Common sense is one of my strong points.
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I realize I may have to lower my living standards for several years.
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I get things done on time and plan ahead.
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I know my own business will require me to work 60-80 hours a week.
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I have the energy to do all the work involved that the day-to-day operation will need: lifting, hauling, standing, walking, talking, smiling and driving.
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At times I’ll have to be all things to all people. I can stand the strain this creates.
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I know I don’t know everything and I’m ready to take advice from others.
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I’m adaptable. I’m not so routine-bound that I can’t change if the business requires change.
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I appreciate others’ points of view.
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I believe in my ability to make sound decisions.
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I do not give in to people to avoid a conflict.
Financial Considerations
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I have a head for figures and maintain proper records.
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I am careful with my finances and have ways to save money.
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I have a good credit history.
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I know how to forecast sales and have the experience to use this information.
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I know how to keep inventory records, report sales, and withhold employee taxes for federal, state, Social Security, unemployment and workers’ compensation.
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I know how to analyze financial statements for effective business management.
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I know the suppliers and the assistance they can provide me.
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I know how to control my inventory or staff to meet the demands of my customers and my business.
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I know how to collect past-due accounts without losing customers.
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I know how to determine the cost of goods sold and how to price my product or service.
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I have a realistic idea of what my startup costs will be.
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I am willing to get training in financial areas I am weak in.
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I am willing to reassess my financial software, the professionals who assist me and my own financial knowledge annually.
You can also try the following quiz from the U.S. Small Business Administration:Quiz for Small Business Success or look at the SBDC Checklist for Going into Business.
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2. What basic skills do I need to run a business?
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Starting a business can be challenging and previous business experience can be an important success factor. First hand knowledge of business and its four functional areas – management, operations, marketing, finance – and an understanding of the role of technology, contribute to a solid foundation and provide a basis for making informed business decisions.
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3. What type of business should I choose?
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Business experience is a plus, and the right kind of experience gives you an edge. Having worked in the industry you choose for your new business gives you insight and know-how that can be invaluable. Combine your background in the industry with strong management skills and you are on your way to success.
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a. Developing your own business
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There are advantages to developing your own business. Generally, it costs less up front to start a business than to buy one and you can make use of your creative talents in developing something unique. You can address unexplored markets, choose your own location and develop your own management style and policies. You will not be buying someone else's problems and flaws.
Most people who start their own businesses are good at what they do; but a successful entrepreneur has to provide a good product or service and understand how a business works.
There are certain inherent risks in developing your own business. You have to start from scratch. You are responsible for choosing a legal structure, a location and recordkeeping system. You must get licenses and permits, develop a customer base and create a marketing plan. At times, this can seem overwhelming. Getting help from entrepreneurial assistance programs offered by the Small Business Development Center will help you see that a business starts and develops in a logical order.
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b. Buying an existing business
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There are some advantages to buying an existing business: getting a good location; saving time, work and money that go into the start-up phase of business development; an organized and operating system with an established customer base.
There are several ways to find businesses for sale: trade associations and neighborhood business groups; business brokers; banks; chambers of commerce. Professional people within the community often know people who are selling or are about to sell a business. When you find a business in which you are interested, determine why it is for sale. Study the business and research its market carefully; study the trends of the specific business; learn about the competition, the surrounding neighborhood, the local business community and the current customer base.
An experienced accountant can help you analyze the seller’s financial statements and tax records in order to determine profitability and purchase price. If you have difficulty getting the financial information you need, it might be wise to move on to another opportunity.
You want to know what you will be purchasing and its current value before you set a price and close a sale. You want to know if any of the company’s assets have been pledged as collateral for outstanding debt, and it is wise to hire an appraiser to determine the value of the assets being purchased. Researching takes time and focuses on discovering the truth about the enterprise being considered.
There are so many questions to ask when considering the purchase of an existing business. Here are a few examples that relate to finance, marketing, ownership and operations:
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Most importantly, why is the seller selling? The answer will either raise red flags or be consistent with, and met with, no resistance when asking the information in the questions below.
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Have you asked to review the certified financial statements of income, cash flow and balance sheets for the last three years? If you borrow from a bank to purchase the venture, the bank will want to see them.
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Have you asked to see the company’s (not the owner’s personal) IRS returns for the last three years? The bank will.
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Have you asked for a copy of all documents of all outstanding indebtedness like notes payable, accounts payable, real estate and equipment leases? The bank will.
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Has the seller offered to stay around for awhile after the sale to help with transition, and have you discussed some compensation for his services during that transition period?
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Have you been allowed to talk with the employees, or is this sale of a confidential nature at this time? If so, why are the employees not being told of the impending sale?
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Has there been any significant turnover of employees? If so, why is that?
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Have you learned anything about the quality of customer relations at the company? Is there a close relationship between company and customers?
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Have you learned anything about the relationship between the company and its vendors? Do vendors display preferred, regular or irregular relations with the company?
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Is there a management team for this company? If so, are they aware of the impending sale, and how do they feel about it?
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What are the actual conditions of the working environment? Are there any hazardous situations or is this a well-kept workplace?
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What are the actual conditions of existing fixed assets like office equipment, machinery, vehicles and the like? Do employees, managers and supervisors demonstrate good maintenance and cleanliness of company property?
There is so much more to ask, but this is a brief list designed to give you a starting point from which to begin the investigation of the venture in which you are about to invest. You will want to examine these responses. It is a detailed matter requiring a significant explanation. Get help assessing them from your SBDC consultant.
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c. Buying a Franchise
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Many small business owners have minimized their risks by investing in a franchise. Franchising is a plan of distribution under which an individually-owned business is operated as a part of a large chain. The products and services offered are standardized and the company (franchiser) gives the individual dealer (franchisee) the right to market the franchiser’s products or services and to use the franchiser’s trade name, trademarks, reputation and way of doing business.
You may wish to explore some of the advantages of franchise ownership:
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Starting your own business under a name and trademark already accepted by the public.
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Possibly receiving training and management assistance from the people who are experienced in your type of business.
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Possibly receiving financial assistance from the franchiser.
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Possibly purchasing equipment, products and supplies as well as advertising materials.
You should also look at some of the disadvantages:
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You cannot make all of the rules; you lose the freedom to be your own boss and to make most of the decisions.
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The franchiser usually charges a royalty on a percentage of your gross sales.
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The franchiser does not share your losses.
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You may be restricted in setting pricing, introducing new items and dropping unprofitable ones.
Here are some steps to take before entering into a franchise agreement:
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Examine your interests and abilities: what do you like to do?
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Consult a directory of franchise opportunities.
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Talk to franchisees for firsthand experience.
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Contact the Federal Trade Commission to check up on your choice.
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Consult a lawyer, accountant and a business coach such as an SBDC representative to make sure you understand all the details and ramifications of the contract. These contracts usually last 10 to 20 years.
Here are some areas you should investigate if you are considering purchasing into a franchise:
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What is the reputation of the franchise?
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Is the company involved in litigation?
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What training and start-up assistance is offered by the franchiser?
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What continuing assistance is offered?
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What is the management structure?
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What are the operating practices of the franchise?
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What are the operating control policies?
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What are the franchise fees? Initial license fee? Continuing royalty fee? Other fees?
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Do you have the right to sell the franchise?
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What are the terms of renewal or termination?
You can prepare yourself to be successful by identifying all of the activities necessary for the development of your business, whether you buy an existing business, buy into a franchise or develop your own from start to finish.
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4. What do I need to start my business?
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Careful planning is fundamental to success. The Small Business Planner includes information and resources that will help you at any stage of the business lifecycle. http://www.sba.gov/smallbusinessplanner/index.html
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5. Do I need a business plan?
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Yes. No matter how big or small your business, a business plan is a critical element of your business. Our business advisors have guides, templates and sample business plans that will help you think through and create your own business plan.
Why write a business plan?
After you’ve given some careful consideration to the business, you're ready to begin putting your ideas on paper. That means writing a business plan — a formal document explaining in some detail your plans to develop a financially successful business.
If you think the business plan is just a lot of paperwork, think again. It's important for three reasons.
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Preparing a business plan forces you to think through carefully every aspect of your business.
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If you need outside capital, the business plan will be one of the first things that the lender or investor wants to see.
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It is important to have a plan for internal use so you can make decisions in a systematic manner.
According to Work.com, a well-crafted business plan is far more than just a written document - it forms the cornerstone of your business. It can help you grow more effectively, with greater focus and reduced risk. It is also a useful marketing tool for raising capital or recruiting partners, advisors, or key hires. Most importantly, it is the "process" of developing your plan that provides great value. By applying a structured approach, you will know the market, your customers, and the competition, and you will have real insight into the levers that drive profitability in your business.
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a. The winning business plan
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A good business plan provides a tool to fully evaluate your business idea to see if it makes sense. The business plan says a lot about you as a potential business owner, including how much you know about the business you want to open.
There are four major elements of a business plan. The written plan should be concise and to the point.
1. Description of the Business
Give a description of your business that explains the nature of the business and its activities. Convey your vision of the business, your mission statement and describe how it will grow and profit. Describe your product or service, location, hours of operation, size, square footage, and inventory requirements such as storage space. Also give industry trends and growth potential.
2.. Marketing Plan
Identify your target market (your potential customers). Who are you selling to or who will buy your product or service? What is the size of the group? If there are segments or divisions of the target market, describe them by geography, demographics and psychological factors.
How will you reach your market? Describe how you will get the customer to purchase your product or service. State your sales strategy, pricing policy, promotional ideas, and advertising campaign. How are you reaching your target market? Radio, print, flyers, TV, etc.? If you plan to offer customer service, explain. This could include guarantees, warranties, repairs, special services, delivery and installation. Sample promotional material could be included in this section.
Competitive analysis is necessary to evaluate the business playing field and identify a niche for your product or service. List your four major competitors by name. Describe their strengths and weaknesses. How will you compete against established businesses? State your competitive advantage. Can you deliver a higher or better quality service than your competitors?
3. Organization Plan
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Discuss the ownership of the business and the legal structure. Include legal agreements such as articles of incorporation or partnership agreements.
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List the skills and experience you bring to the business, especially management experience.
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Include a resume.
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Explain how the business will be managed on a day-to-day basis.
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Discuss insurance, the lease or any rental agreements.
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How will your business records be maintained?
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How will you compensate yourself?
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List business consultants such as a lawyer, CPA and insurance professional.
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Explain the personnel needed to run the business.
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List job titles, duties and wages.
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Discuss how you will hire your employees and explain personnel procedures.
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List benefits such as group health insurance and the costs.
4. Financial Plan
Too many entrepreneurs try to start and operate a business without enough money. Request enough financing to cover all anticipated start-up costs, plus enough working capital to meet all monthly operating expenses, including the loan payment, for the first six months.
Review the list of start-up costs you made in Financing Your Business. For this section of your business plan, you should clearly state your loan request and what you are contributing in money or some other form. List other funding sources if appropriate and include what you already have or have paid for.
Project income (sales) and expenses by month for one year. Include information explaining assumptions used and justifications for the figures in the projections.
In order to complete the presentation of the business plan, add a one-page summary and a cover sheet. The cover page should include the name of the owners, address and phone number, as well as the company name.
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b. Taking the plunge, starting the planning process
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Get Organized, Get Focused, Get Started
The first step is to get yourself committed to building a plan. It is often useful to have a dedicated time set aside each week to work on the plan, with goals and deadlines to hit. Building a solid plan takes time and effort; know this upfront. Most importantly, you must commit to putting things down on paper (or for the technology-minded, using an on-line business plan outline); in this manner, the plan will begin to take shape. It should be treated as a living document, but also used to narrow the scope and keep you focused on things that matter.
Revise, Refine, Repeat
The best plans are not done overnight, and they do not sit on a shelf. Rather, the best plans — the ones that ultimately help guide your business to success — are constantly massaged, enhanced, revised, and reworked. To borrow a cliché, “the journey is the destination.” Once you have a solid draft, let it ferment for a week, then review it with fresh (and critical) eyes. In addition, you should aim to hone your plan as new information becomes available, and as you test your original assumptions in the market.
Get Help, Gain Perspective
Many startups — and sole owners in particular — suffer from “forest for the trees” syndrome, meaning they focus too much on the minutiae of their business, and have a hard time seeing how their business fits into the broader competitive and market landscape. The remedy is to get external advice on your business plan and strategy from trusted third parties. Advisors may include business attorneys, industry analysts, and mentors, owners of companies who have “been there, done that.” Naturally, consultants who have experience in solving startup business problems can be very valuable. Contact the Wisconsin Business AnswerLine toll free at (800) 940-7232(SBDC) for the coach nearest you.
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c. Tips & Tactics
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Helpful advice for making the most of your business plan:
• Commit to building a business plan. The return you will gain — in focus, investor preparation, and business insight — will be many times the effort invested.
• Treat your plan as a living document. It will help keep you on track, and serve as a means to continually hone your business model.
• Get help, advice, and feedback. Input from professional advisors translates into a better business plan — and ultimately, a more successful business.
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d. I don't have time – can someone else do it?
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You should be involved in the writing and development of your business plan. Although a business advisor can help you understand the many aspects of a business plan, going on the journey yourself helps you understand areas of the business that you may not have previously considered. Our business advisors provide you guides, templates, tips and feedback on the business plan that you write. The writing of the business plan, as is the success of the business, is up to you. Trust us - your business will thank you later.
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e. How many pages should the plan be in order to be effective?
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There are no definitive numbers of pages that result in the perfect business plan. In fact, you will never have a perfect plan, as it should be a living document and always evolving. Focus on just the facts and details of what's important for success. To begin developing an easy and effective business plan, look at Write Now Business Plans or check out an Entrepreneurial Training Program class at your local SBDC.
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6. Where should I have my business? Does location matter?
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Your business location can make or break you, whether you own a restaurant, a retail shop or even a service business. Your company’s image, your dependence on commuter or foot traffic and your budget all play a role in finding the best spot for your business. Finding the right location can:
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Drive customer traffic.
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Attract employees.
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Increase credibility.
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Make you more competitive.
Your choice of location should be made early. Base your decision on the types of products or services you provide and your target market rather than your personal convenience. Target market satisfaction is your most important consideration; your customers must be able to reach your business easily, safely and pleasantly. Other considerations are competition, sources of supply, availability of labor and square footage costs.
Business legend has it that if you build it, they will come. Building it, however, requires time and capital — and there’s no guarantee that anyone will ever come. That’s why smart business owners seeking a new or startup location study up on a subject they probably haven’t touched since seventh grade: geography.
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7. What legal structure is right for my business?
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The first formal decision to be made in starting a business is to select the legal structure for the company. This decision will depend on the number of people who will control the company, how decisions are to be made, and other considerations such as liability and tax issues. . The Nolo website provides a primer on choosing the best ownership structure for your business which will help you understand the advantages and disadvantages to the options you can choose. The information in these FAQs may also help you make the decision, but it is important to consult with someone with experience who can answer your questions. That may be an attorney or accountant, or a specialist with the Wisconsin Small Business Development Center Network.
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a. A Look at Legal Organizations
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In some cases, the business you do may be regulated and some business types may not be acceptable. For example, the Alcoholic Beverage Control Commission will not issue a license to sell alcoholic beverages to a sole proprietorship or a member-managed limited liability company. To save time, money and frustration, take the time to find out everything you can about the requirements for your new business before you file the organization papers.
It is important to consider each form of business organization carefully to evaluate the most appropriate structure for your business. While it is possible for a business to start out under one organizational form and change to another later, proper planning can prevent difficulties caused by an unsuitable legal structure. Seek counsel from an accountant or attorney to determine the form of business organization that best suits your business.
The success of your new business depends on planning. The following is a list of company types with a short description of the characteristics of that company type. Remember, this is general information. It is important to consult with someone with experience who can answer your questions. For more information, visit the State of Wisconsin Build your Business web site, or consult a business attorney.
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i. Corporation
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A Corporation is a legally created entity distinct from its owners with rights, duties, powers, and responsibilities in and of itself. This usually means that when individuals act on behalf of a corporation, these actions are attributable to the corporation but not the individual, thus limiting the liability of the owners.
When forming a corporation, the owners transfer money, property, or services to the corporation in exchange for shares of stock. Each owner, then, is referred to as a stockholder. The managers of the corporation may or may not be stockholders.
Advantages of a Corporation
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Stockholder liability is limited to the amount of investment.
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Business continues to exist after the death of an owner.
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Transfer of ownership is easily done by the sale of stock.
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Capital may be obtained by selling stock to investors.
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Employee benefits (insurance programs, pension plans, and other fringe benefits) can be created more easily and possess tax advantages when borne by the corporation.
Disadvantages of a Corporation
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Corporation’s income is subject to double taxation only if dividends are paid.
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Costs to organize a corporation are higher than any other form of business.
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Corporations are heavily regulated.
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Corporations doing business in other states generally must apply for corporate authority prior to commencing any commercial activity outside their home state.
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Stockholders holding the majority of stock will control the corporation.
There are two types of corporations: Regular and Subchapter S corporations.
The profits of a regular corporation are taxed twice, at the corporate as well as the individual level, only if dividends are paid. A regular tax return must be filed each year to pay tax on the corporation's income. Any profits left after taxes may be given to stockholders, who must then pay tax on the amounts they receive.
The S corporation is treated as a partnership for tax purposes and like a corporation it enjoys limited liability. But like a partnership, it is not subject to corporate federal income tax. Although a tax return is filed, the income and expenses of the S corporation are divided among its stockholders who report the profits on their individual returns. Thus, it is taxed only once.
Because the S corporation avoids double taxation while providing stockholders the protection of a regular corporation, this form of organization is popular among small businesses. However, Subchapter S status may create certain disadvantages that should be considered.
Specifically, an S corporation may have no more than 100 shareholders and may issue only one class of stock, thus limiting its ability both to raise capital and to attract certain investors. Meanwhile, stock in an S corporation cannot be sold to another corporation or partnership. Only individuals, estates and some trusts may own shares. Further, all shareholders must be United States residents and must consent to the S corporation election.
Finally, shareholders that own more than two percent of the corporation’s stock are not eligible for taxsheltered fringe benefits allowed to regular corporations. This includes accident and health plans, group term life insurance, and employer-provided meals and lodging.
Summary:
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May be for-profit or nonprofit.
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Must have at least two officers, elected at annual meeting.
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Corporation operated under charter and by-laws; law governs voting requirements for amendments and changes & record-keeping.
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May create and issue stock.
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Law provides personal liability protection for directors and officers acting in good faith.
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Annual report, attorney-in-fact fee and corporation license tax required.
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File Articles of Incorporation for Corporations, S- and C-type.
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ii. Limited Liability Company (LLC)
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A Limited Liability Company (LLC) is a form of business organization that incorporates components of both a partnership and a corporation. Specifically, this organizational structure is treated like a corporation for state law purposes and thus offers limited liability to its owners. Yet, the limited liability company is treated by the Internal Revenue Service and by the West Virginia Department of Tax and Revenue as a sole proprietor if you have one member or a partnership or corporation for multiple members for income tax purposes.
Advantages of a Limited Liability Company
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More flexible than a limited partnership or S-Corporation with similar tax advantages.
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Limited liability to the members.
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Income is taxable only once at the member's tax rate.
Disadvantages of a Limited Liability Company
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Restrictions to transferability.
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Life of the LLC varies from state to state.
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Does not have stock therefore not transferable.
Summary:
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For-profit only.
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May be fixed term or perpetual.
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May be single-member or multiple-member company; members may have authority defined in operating agreement.
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May be member-managed or manager-managed.
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Members have equal ownership unless otherwise defined by agreement.
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Company operated under articles of organization. Additional provisions may be provided by operating agreement, or if none is written, then by the provisions of law.
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Law provides personal liability protection for members and managers acting in good faith.
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May be taxed as partnership under federal law, depending on structure.
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Annual report and attorney-in-fact fee required.
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File Articles of Organization for Limited Liability Companies.
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iii. General Partnership
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A Partnership is two or more individuals or businesses as co-owners under a partnership agreement. Although Wisconsin law does not require a written partnership agreement, many organizations and government agencies such as the Small Business Administration will require the partners to have a written agreement before guaranteeing a loan. If there is no partnership agreement, the partnership is subject to the terms of the Uniform Partnership Act. Each co-owner, or partner, contributes money, labor, property or skills to the partnership, and shares in the profits and losses of the business. The partnership agreement should be in writing. It determines the powers, liabilities, and authorities of each of the partners. A partnership may have general or limited partners (these are two distinct types of partnerships). In most cases, a limited partnership cannot be set up for the specific purpose of operating a business.
General partners actively participate in the management of the business and have unlimited liability. The income of the general partnership is directly taxable to each individual partner based on his or her proportionate interest in the company.
Advantages of a Partnership
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Easy to organize.
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Combined financial resources.
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Combines the managerial skills and judgments of two or more persons.
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Income is taxable only once at the partner’s tax rate.
Disadvantages of a Partnership
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General partners have unlimited liability: all partners are liable for each other's actions.
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A change in partners could terminate the partnership.
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Authority for decision-making is divided.
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Difficult to sell or transfer.
Summary
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For-profit only.
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Must have two or more partners; partners have equal authority unless otherwise defined in partnership agreement.
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Partners have equal ownership unless otherwise defined by agreement.
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Company operated under partnership agreement.
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No personal liability protection provided by law.
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Taxed as partnership, with profits assigned according to partnership interest.
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A general partnership is not required to file with the Secretary of State. However, the law provides the option of filing.
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iv. Limited Partnership
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Limited partners, or investors, cannot actively participate in the management of the business and have limited liability. Limited partnerships must have at least one general partner who is responsible for all debts, liabilities, and obligations of the firm. Generally, the liability of the other partners is limited to the amount of the investment by each partner. Both general and limited partners share in the profits and losses of the business.
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For-profit only.
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Must have at least one general partner and one limited partner; partners have equal authority unless otherwise defined in partnership agreement.
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Partners have equal ownership unless otherwise defined by agreement.
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Company operated under partnership agreement.
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No personal liability protection provided by law.
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Taxed as partnership, with profits assigned according to partnership interest.
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Annual report and attorney-in-fact fee required.
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File Statement of Registration for Limited Partnerships and Limited Liability Partnerships.
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v. Joint Venture
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Joint Venture is a partnership of one or more sole proprietorships, partnerships, or corporations for the purpose of pursuing a specific business activity or transaction. The main advantage of a joint venture is that existing businesses can join together without having to form a new entity and without having any continuing obligations to each other beyond the joint venture agreement. The primary disadvantage is that parties of the joint venture are liable for the actions of each partner.
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vi. Sole Proprietorship
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A Sole Proprietorship is a business owned by a single individual. It is the easiest legal structure to adopt and is the most common form of business organization. However, the owner assumes all the risks of the business.
Advantages of a Sole Proprietorship
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Easily created and terminated.
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Controlled solely by owner.
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Owner receives all the profits.
vFlexible: because owner makes all decisions regarding the business, owner can quickly make any changes that are needed.
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Minimum legal restrictions.
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Profits are taxed only once.
Disadvantages of a Sole Proprietorship
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Owner is liable for all business debts.
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Ownership limitations: the business cannot assume additional ownership without becoming a partnership or corporation.
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Capital limitations: equity capital is generally limited to the assets of the owner.
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Business is completely dependent on one individual: If the owner dies or becomes seriously ill, the business is immediately affected.
Summary:
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For-profit only.
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May only have one owner.
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Company operated under business franchise registration requirements.
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No personal liability protection provided by law.
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Profits taxed as individual income.
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A sole proprietorship is not required to file with the Secretary of State.
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8. What kind of business license should I buy?
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The four things to consider when purchasing a business license are:
1. Exposure to liabilities
2. Cost of creation and ongoing maintenance
3. Ability to raise money
4. Tax implications
Confused yet? That's okay - our business advisors are available to help you think through these four considerations more carefully, though ultimately you'll want to see your lawyer and your accountant before making a final decision.
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9. Starting a home-based business (Taken from Entrepreneur.com)
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Follow these 10 steps to grow your homebased business into the personal and professional success it was meant to be.
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Focus on a single product or service, and then market it, sell it, promote it-do everything you can to increase sales of that one product or service. While it's tempting to swing for the fences and try to be all things to all people, it's often less risky and more profitable to pick a product or two that you can execute really well and just try to get on base.
Richard Roy, a Sparta, New Jersey landscaper, started a homebased dog-waste removal business called Dr. Pooper Scooper when he got tired of picking up the dog poop from his customers' lawns. Instead of splurging on a retail storefront or an expensive Yellow Pages ad, Roy decided to use his truck as his primary advertising vehicle. Says Roy,"I decorated the truck as a Dalmatian, used full signage and put magnetic business cards on it. By using the truck as my moving billboard, by joining community groups and through word of mouth, I've turned what was once my nightmare into a thriving business serving 100 customers and making 1,100 pickups a week."
Thanks to Dr. Pooper Scooper's success, Roy is now planning to phase out his landscaping business and focus on his new venture full time."When I scoop the poop, I do it 12 months a year and never have to fix or replace equipment," Roy says. "It's also three time easier than landscaping, and I can do it until I can't walk anymore."
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Expand your product line to offer complementary products or services. Once you've hit on a product or service that customers really like, don't miss the opportunity to bring out related items to diversify your product line. Not only does that give your customers a wider selection, but it also makes your products more appealing to retailers who typically like to stock a line of products as opposed to a single item
Meredith LiePelt, who runs a company called Contemporary Baby out of her home in Dublin, Ohio, started off making colorful burp cloths for newborns. Now she's expanded her line to include such products as receiving blankets, bibs and gift baskets. Says LiePelt,"Our retail customers have enjoyed having more gift-giving options, and our wholesale clients are able to offer their customers a wider selection to choose from."
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Find ways to increase sales to your existing customers. It's a lot cheaper than finding new ones. Even if you can't expand your product line, you can boost revenues by selling more of your existing product or service to the clients you already have. One easy way to do this is through volume discounts. Especially if your products cost little to produce, offering your customers the chance to buy, say, two T-shirts for the price of one lets you ring up additional sales without sacrificing much profit. Another common practice is to reward loyal customers by giving them a punch card that entitles them to a free product or service for every 10 items they buy. This technique is common at hair salons, car washes and arts-and-crafts stores, but homebased businesses can use it, too.
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Hire someone to help you out-an employee, a freelancer, an intern, an independent contractor, even your kids. Not only does this free up cash flow by adjusting your expenses to the level of work you bring in, but it also enables you to cultivate a large network of talented people you probably couldn't afford to hire full time.
Marc Kirschner, a neighborhood directory publisher in New York City, employs 50 to 75 writers-all of whom are freelancers-to develop his directory's content. This way, Marc saves on payroll taxes, medical benefits, employer liability insurance and all the other costs of hiring full-time staffers. There are other benefits, too."Bringing in outside help gives you someone else to bounce ideas and strategies off of", Kirschner says. "It prevents you from feeling you're going it alone."
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Create a Web site to advertise your company or sell products online. Thanks to the Internet, it's no longer necessary to open a store to reach retail customers. For marketers of specialty products like rare books, collectibles and gourmet foods, a Web-based boutique lets you reach millions of shoppers around the world without paying for rent, utilities or garbage collection.
And while creating Web sites once required a big investment and the skills of an experienced Web designer or programmer, do-it-yourself Web sites are now available for less than $30 a month with no technical knowledge required. Typically, the companies that help you register your domain name (Web address) will provide online templates you can use to build your site, host your Web pages on their server and provide you with multiple e-mail addresses as well. E-commerce capabilities can often be had for an additional charge. You can also set up low-cost Web sites through Web hosting companies and search engines.
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Join forces with another business to promote your company. Partnering with a company in a related industry is one of the cheapest and easiest forms of marketing that you can employ. If you make spa products, for example, you may be able to convince a local health club to carry them in its store by offering a discount to its members. Likewise, you can send a free, one-day health club pass to anybody who buys your lotions and scrubs.
Nancy Tamosaitis, a homebased publicist, says her New York firm, Vorticom, has partnered with a graphic design firm to provide creative services such as Web design and brochures to her corporate PR clients. From time to time, she also joins forces with specialty PR firms to assist clients in fashion, finance and other industries. "Now that I'm working from home, my clients receive infinitely better service and results-at much lower cost-than when I managed a $3 million profit center at a top PR agency," Tamosaitis says.
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Target other markets. If you sell to teens, start marketing to college students. If you sell to working moms, maybe your product will work for stay-at-home moms with a few modifications. Another strategy is to take a retail-oriented product or service and sell it wholesale. For example, a homebased catering business that specializes in cakes, pies and other tasty desserts can contact local bakeries to sell its goods on a wholesale basis. While the price you get from the bakeries will be lower (because the bakeries need to mark it up to their customers to make a profit), you'll sell more products and generate consistent cash flow that you can bank on.
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Find new and different ways to market your business through e-mail newsletters or by doing guest-speaking gigs or by teaching a class. Marketing your homebased business doesn't need to involve spending big money on newspaper ads, Yellow Pages listings, or TV or radio spots. Grassroots marketing techniques cost far less and are often much more effective. Most chambers of commerce and community groups are more than happy to provide a forum to a local business owner who's willing to share his expertise at no charge. Sending out a weekly newsletter is also a great way to get your name out in front of new and potential clients. Thanks to the Internet, you can send out your newsletter via e-mail using online templates and automated delivery systems.
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Expand to another location. That could mean renting "virtual" office space in a business center or by sharing office space with another growing business. Brad Taylor, a CPA in Springfield, New Jersey, spends most of his time at home preparing tax returns, developing tax-planning strategies and revising his clients' QuickBooks files. But when he needs to come to New York City for a meeting, he sometimes rents space at a Manhattan business center operated by HQ Global, a national provider of temporary office space.
For a monthly fee or a la cart, business centers like these offer everything from conference rooms and receptionist services to remote-access voicemail, high-speed Internet connectivity and tech support, offering homebased business owners as much or as little outside office services as they need. Taylor pays just $10 an hour to use the space and is able to bill the cost to his client. "While I still want to run my business from home, this has allowed me to pursue new opportunities and network with other professionals," Taylor says.
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Think about turning your business into a franchise or business opportunity. While most homebased businesses remain small, yours may have the potential to hit the big time through franchising, licensing or wholesale distribution. The key question to ask yourself is if your business can be converted into a business format that somebody else could operate (a franchise) or if you have a standardized product or service that someone could resell multiple times (a business opportunity). While you may think that expanding your business requires raising capital, hiring employees, buying equipment and leasing office or warehouse space, it's often more profitable-and less risky-to license your product to a big corporation with manufacturing capabilities and an existing sales force to do the work for you.
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10. How can I get my business certified as minority or women owned?
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Federal, state and local government agencies as well as large private sector corporations have different eligibility requirements and application processes for certifying your business. The common denominator is that the business MUST be at least 51% owned and controlled by one or more individuals who are eligible for certification. Consult your target customer to determine which certification(s) they accept. Then, learn the requirements and rules to determine if you are eligible to apply.
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11. Do I need insurance?
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To understand your risks, consult with an insurance agent. The agent can also give you quotes to help you develop accurate startup cost projections. Typically the types of insurance a small business owner will need to consider are: liability, property, worker's compensation and, in some cases, bonding.
At some point during the formation of a business, the question of insurance needs will arise. In fact, if you are writing a business plan, costs for this coverage will have to be addressed in your plan.
The most innocent business owner can find himself or herself involved in legal actions against the business. In addition to liability, there are many other insurance considerations such as fire, flood, theft, auto, workers’ compensation, health, etc. that need to be considered. In addition to these concerns during the lifetime of the owner, considerations should be made for the untimely or unexpected death of the owner(s). There may be a need for life insurance and a buy-sell agreement to safeguard your heirs.
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a. Shopping for an insurance company
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Shopping for an insurance company is like shopping for a bank. Careful research will help determine what company can best serve your needs.
Call your current personal insurance carrier to see what kinds of business insurance are offered. Check with independent agents who can shop various carriers for the coverage you need. If your needs are unique because of your type of business, look through trade journals. Many carriers of special types of insurance advertise in these journals to reach their target market. Some businesses require a special policy or carrier, such as farm businesses. A business based out of your home will not be covered by your homeowner’s policy. Check with your carrier before beginning operations.
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b. What are the basic kinds of insurance?
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b. What are the Basic Kinds of Insurance?
There are many types of insurance, more than any business could possibly afford or truly need. Most small businesses buy what is generally known as a Business Owner’s Policy (BOP). The policy generally includes property, liability and criminal coverage and various specialty needs of the business. The advantage to a BOP is that it usually costs less than if each type of coverage was purchased separately.
The following is a brief listing of categories or types of insurance that a company should consider for its individual needs.
Property and Liability Insurance
• General liability
• Surety bonds
• Property damage liability
• Boiler and machinery coverage
• Fire
• Product liability
• Earthquake/Flood
• Business interruption
• Theft
• Vehicle
• Fidelity bonds (protects against employee dishonesty).
Umbrella
Life Insurance
Health Insurance
Short and Long-term Disability
Employee Benefits
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12. Do I need to obtain a Federal Identification Number?
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Sole proprietorships without employees can use the proprietor's social security number as a business identification number, providing the proprietor uses his or her own name for the business. Using a different name and/or hiring employees requires obtaining a federal identification number from the Internal Revenue Service (Form SS-4, Application for Employer Identification Number)
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13. Should I trademark?
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Depending on whether you are selling products or services, you may consider protecting your business name by registering for a Trademark or Servicemark. A trademark, issued by the US Patent and Trademark Office, lasts for 10 years and can be renewed. For more information, contact the Office of the Secretary of the State.
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14. What about marketing?
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No matter how good you think your product or service is, what the customer thinks is what really counts. Even if your product or service is well liked, you need to be sure that your customers will buy from you often enough, and in large enough quantities, to consistently generate the revenues needed to support and maintain your business. That is why a marketing plan is vital to your success. Planning, for the most part, isn’t fun. But if you don’t plan your marketing, you’ll spend lots more than you have to. And likely not have the results you want for your efforts. Planning is the first step to marketing smart!
There are only three ways to increase sales:
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Get more customers.
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Get current customers to buy more often.
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Get current customers to spend more on each visit.
Customers - this is the key. It's cheaper to keep a customer than add a new one; so what can you do to maintain your customer base?
a.Identify Your Customer
Most businesses sell to consumers via the Internet, or person to person. That’s the consumer market: business to consumer. But there are two other types of markets: The industrial market (business to business) and the reseller market. These additional markets maybe something to think about to expand your sales, but they take different marketing strategies.
b.4-Step Marketing
Why would a customer want to buy your product or service? Do you fill a need? Are you convenient? Do you help solve a problem? Let’s go through this four-step plan to help you narrow your marketing.
i. Identify why your customer wants to buy your product or service.
Can you identify the opportunity or problem your product or service will solve for a customer? If not, you need to try and figure it out.
This is Problem Number 1 when starting to develop a marketing strategy for your business. Most people will point to a feature, and expect customers to “get it.” However, what really sells, either a service or a product, is the benefit of the product, not its features.
According to Allen Weiss, founder and publisher of MarketingProfs.com, the first thing to note is that product features reside in the product, while benefits reside in the customer. For example:
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A car can have 4-wheel drive (a concrete attribute) and provide a benefit to a customer of being able to go various places.
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A computer can have a microprocessor with a fast clock speed (a concrete attribute) and provide the benefit of being able to get your job done faster.
Benefits are always abstract, and they are often the result of a cluster of product attributes, some of which may be abstract attributes. For example, think of safety (say in a car). There is a cluster of concrete product attributes (e.g., air bags, brakes, and body construction) that give rise to the more abstract concept of the benefit of safety. But note that "safety" can also be applied to the car (so it’s an abstract product attribute). Many times, abstract product attributes are closely related to benefits. When they are, you do not get much benefit out of making a distinction between attributes and benefits.
Given this discussion, you can see that it is often easier to think about what a customer buys by thinking along the continuum of concrete versus abstract ideas, regardless of whether we label it an attribute or a benefit.
ii. Segment your overall market.
Research your market and break it out into market segmentation: Geographic [location]; Demographic [age, education, et al]; Psychographic [gender and lifestyle]; and Behavioristic. To help with your market research you might use SBDCNet at http://sbdcnet.utsa.edu
Geographic: People buy from stores within five miles of where they live; how wide an area do you serve?
Demographics: Age, education, income, minority status.
Psychographic: According to Nilofer Merchant, the CEO of Rubicon Consulting in Silicon Valley, after doing good research and finding some natural “clumps” of interests, usages, priorities, or purchase drivers, we typically end up with three to five segments for any particular product, service, or solution area. For example, most technology firms catering to consumers have four or so groups that look like this:
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echnology enthusiasts. Typically male, - 45 years old.
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Families with children. Price-sensitive, focused on protection and safety.
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Older with money. They may tend to be price insensitive but need guidance on what to purchase and how to use/service it.
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Teens and entertainment addicts. Low threshold for boredom, on the go, want the latest.
Generally you can identify difference in purchasing:
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Male/female.
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Healthy lifestyle
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Conservative with money
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Behavioristic: brand loyalty; shopping for bargains and using coupons.
Did you know that:
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Women make 83 percent of all buying decisions.
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American women write 80 percent of all checks and pay 61 percent of all bills.
What is the impact of this on your advertising? But we’re not all alike. Our broader world is changing so that users can be a market of one: not a part of some bigger market segment, but a singular person, unique and appealing, to market to in and of himself or herself. Rather than knowing of an individual’s interest in photography, you might also know that they care about many things at once.
For example:
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Cleaning products that are non-chemical.
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Furless dogs to avoid allergic reactions.
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Fonts that are sans serif.
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High-quality paper and ink.
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Fountain pens that don’t dry out while you’re waiting for inspiration.
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Shoes in patent, peep toe styles.
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E-mail access 24/7 from anywhere.
This list may seem unrelated to a marketer of any one product, but what is incredibly important and relevant is this is how people really are. It’s vitally important to marketing effectiveness. And this is why it is critical that you know your customers!
iii. Research your market.
What effect did 9/11 have on businesses? The weather, the economy, holiday sales; some of these things you can not foresee. But if some weather event happens, do you need to do some quick advertising to say you are open? Consider external factors, like weather, road construction, and other things you have no control over. How can you use advertising to help reach customers despite external factors?
When researching, again use SBDCNet, Census.gov, maybe surveys, interviews, certainly observe your customers. And ask them! Only 9 percent of the population refuses to give personal information when asked.
Join any state or national/international trade associations and use any data they can give you on trends. If you use distributors or wholesalers, ask them about trends for your area. Certainly the Internet is a source of news. Don't forget local, state or national business publications.
iv. Identify your competition.
Competition is not bad; it just means there is a need for your product or service. Look at Wendy's: they will traditionally build a new location only if there’s a McDonald's close. Why? Kids want McDonald's! But parents can pick up a Happy Meal, and then take themselves over to Wendy’s. So not only is competition a sign that there is demand for your product or service, it also means that you may have the ability to benefit from your competitors’ weaknesses.
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How are you different from your competitor? e.g. hours, services, etc.
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What do you do that is unique?
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What value do you offer? Being the cheapest will lose you more customers than you gain. Think of value in terms of additional value.
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What is the image of your company?
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What is the public perception of the quality and honesty of your business?
Wal-Mart is a competitor, but there is one thing to learn from them: P.O.C.K.E.T.S.
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Price: Quality and needs of customers
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Operations: Continually improve.
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Culture: Your philosophy.
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Key product: Diversify, ask customers.
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Expenses: Profit sharing for employees.
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Talent: Hire the best.
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Service: is #1.
These ideas are from an Edward Jones-sponsored Webinar, "Service is #1 at Wal-Mart." You might disagree, but these are their corporate ideals that are not necessarily translating down into store operations. But that doesn't mean they're bad ideals.
c. What is your "USP"? (Unique Selling Proposition)
Most businesses know their uniqueness. They'll even tell you their point of difference in a conversation. Yet, you won't find it on the front page of their Web site. It’s swept under the carpet in their brochures and newsletters. When they stand up to speak, they forget to make it an important part of the spiel.
Get your uniqueness where it can be seen on a consistent basis. Not hidden under a bushel. In one concise statement, communicate your business’ most compelling offer and benefit so the customer can answer "What's in it for me?"
Invent your USP. The owners of the following businesses all invented their own uniqueness.
Subway - Seven subs with "6 grams of fat or less." When did a restaurant start telling you how much fat was in their food? Federal Express — When it absolutely, positively has to be there overnight. Overnight delivery was a new concept when Fed Ex started. Domino’s Pizza — 30 minutes, or it’s free! Pizza in 30 minutes? Before Domino’s, it didn’t happen. Consumers see or hear over 2,200 messages each day. Make yours stand out in the crowd. Use the marketing worksheet at the end of this chapter to begin looking at what tools are available, what you have done, what you are doing and what you can do. How many of these tools are inexpensive and effective?
Use the marketing information you gather in your plan to develop an advertising budget, which is discussed in the following chapter. Contact your local SBDC for help in putting your marketing plan together. Email or call the Wisconsin Business AnswerLine toll free at 800-940-7232. The marketing information contained here is based on comprehensive research and best practices identified from national and international marketing experts and sources.
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15. What is social media/networking?
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Social media are media for social interaction, using highly accessible and scalable publishing techniques. Social media uses web-based technologies to turn communication into interactive dialogues. (Taken from Wikepedia)
Participating in social networking can increase a company's online sales conversion rate by as much as 500 percent and Website traffic by 20 percent by gaining access to millions of potential customers and prospects for products or services through Facebook, Twitter, and LinkedIn. Social networking gives businesspeople the ability to create conversations within these social networks, build strong relationships with customers and prospects through Facebook, Twitter, and LinkedIn, as well as ultimately generating online sales because of these relationships.
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16. How can I use it for my business?
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The following is an excerpt from Stephen Woessner's second book entitled, "Increase Online Sales through Viral Social Networking". The book was published by Atlantic Publishing and is available at Amazon.com, Barnes & Noble, and other retailers.
Frequently Asked Questions about Viral Social Networking
Business owners and marketing managers frequently ask me questions about how to generate results from their social networking participation. Their questions tend to revolve around three main categories: 1) how to get started, 2) will their results be tangible, and 3) will social networking actually be worth their time investment? As I prepared to conclude this book, I made the assumption that there a lot of people out there, and maybe even you, who share the same questions or concerns. This is why I added this special section - to address frequently asked questions (FAQs).
Q: I have heard social networking described as part of the new “trust economy.” What does that mean?
A: Trust is so critically important and is the basis of all our interpersonal relationships. Without trust, relationships are not relationships at all. They are more like casual acquaintances. I believe that the line between business and personal relationships has blurred and people are more interested in doing business with people than ever before. Social networking helps facilitate these types of interpersonal relationships, and trust can absolutely be built. With trust, tie strength develops and an online brand community is formed. It all begins with trust because people typically do not buy something from someone they do not trust.
Q: What advice do you have for business owners who are looking to sell products or services to the members of their online brand community?
A: Great question. I think that this one also connects back to trust. We have to be genuine with the content and communication we share with our online brand community. Being fake or disingenuous for the purpose of profit is very easy to spot, and when it is spotted, people will quickly tune out or abandon the community all together because it no longer provides value. I think Seth Godin had it right when he said, “Social networking is always important when it is real and is always a useless distraction when it is fake.” My advice is to always be genuine…never be fake
Q: Why is having a plan with specific goals so important?
A: Well, it is like that age-old adage of “If you do not have goals or a destination in mind, what difference does it make what direction you go?” The same is true for social networking. Business owners need to think strategically about whether they will be building the brand of their business with their viral social networking activities or if they will work to build a personal profile (brand). Trust has been easier to build when a business owner has developed his or her own personal brand versus creating “Like” pages on Facebook.
People develop and build deep levels of trust with other people and not companies or corporate brands. We have all probably been back to a store or restaurant specifically because there was a person working there who took exceptional care of our needs and so we felt compelled to do business there again. I think it makes sense for a business owner to set the goal of building a personal profile (brand) through his or her viral social networking activities in order to create trusting relationships with customers and prospects. However, the overall key is to have a plan with tangible goals. Some goals to consider could be an increase in unique website visitors from X to X, an increase in online sales from X to X, an increase in the length of session visits, or an increase in the number of e-newsletter subscribers.
Q: What advice would you share with the business owner who considers social networking to be overwhelming and does not know where to start?
A: Take small steps and do not worry about making mistakes. It is highly unlikely that once a person creates their Facebook account that they will turn into an overnight sensation. Begin to find interesting people that you already know on Facebook, Twitter, and LinkedIn and invite them to join your community. Then, develop some experience in creating quality content and sharing the content with members of their community. And finally, communicate frequently while keeping the overall goals in mind. Initiating communication with members of your community by making status updates or sharing content twice per day is ideal.
Q: What is the best way for someone to measure success with viral social networking?
A: The true measurement for any business owner is at the cash register. If sales are up, then the viral social networking efforts are likely producing results. Being able to measure results is one of the reasons why social networking is a terrific promotional tool, and Google Analytics makes the measurement process easy and straightforward.
Q: How many Facebook photo albums should I have within my profile?
A: I do not think there is a magic number. The Facebook photo albums will not directly drive traffic to your business website per se. The Facebook albums will let your community members into aspects of your life to further develop relationships. The albums should be used to highlight aspects of your life that you want to share, i.e. vacations, birthdays, and other special events. There is no need to feel pressure to upload a new Facebook album every week.
I think a good rule of thumb to follow may be to add one album per month in order to keep your community members actively engaged. You are likely adding too many photos to Facebook if you begin creating things to do for the primary purpose of shooting photos that can be added to your albums. Take a break if you find yourself in this situation and go back to one album a month.
Q: Why do some of the tactics within Step 5 of your social networking process seem to be passive versus proactive?
A: Good question. Whilesome of the tactics are passive, they are also foundational. For example, suppose you decided to send the e-mail campaign recommended within tactic No. 4 to your customers and prospects before you added the social networking logos or orientation content pages to your website. You would have to rely on the generic welcome pages of the social networking sites as the destination from the e-mail campaign.
What if one of your customers or prospects has a question as a result of receiving the e-mail campaign and they send you an e-mail? This is an ideal next step because it establishes a communication channel and gives you an opportunity to solve a prospective customer’s problem and hopefully instill the confidence necessary to close a sale. It would be a missed opportunity if your signature at the end of your e-mail does not include links to your social networking orientation content pages on your website.
These are just a few examples that illustrate the need for the foundational content to be developed first before proactive promotional tactics are incorporated into the mix.
Q: How did you discover the 6:1 ratio that you recommended in Chapter 7?
A: I wish my answer could be something more impressive than just trial and error, but unfortunately, that is how the ratio started. I experimented with several different ratios. Some were pro-commerce, meaning that I was making social networking posts regarding products and services much more often than every 3rd day. I also experimented with less frequent messages, which placed a greater emphasis on life/professional-related posts. However, when I went back and reviewed the data, the ratio that produced the most website traffic and online sales was the 6:1 ratio. Again, nothing fancy…just plain old data analysis.
Q: How long will it take a person to set up their Facebook, Twitter, and LinkedIn communities and grow them to the point that commerce can happen?
A: It is realistic for a businessperson to expect about a 90-day setup time. This includes the time necessary to become familiar with Facebook, Twitter, and LinkedIn. The 90 days also includes the time involved with implementing the checklists found in Chapters 5 and 6. This will ensure that a solid foundation of conversation has begun and the business’s website has the supporting content. Then, it is time to begin distributing content as part of Step 10 in the process and measure the results.
Q: Should I invest in building my online brand community around a personal profile or a business profile?
A: This is an excellent question, and there are several trade-offs to consider with each. If you develop your brand around your personal profile, I believe you are more likely to establish credibility and build relationships that are built around trust. I believe this because your community members will be communicating directly with you, versus an impersonal business profile. However, I have seen some small business owners pull off communicating personally through their business Facebook page very well. Mark Harrell, owner of Bad Axe Tool Works who was featured in Chapter 5, is an excellent example. The downside to the personal profile is that Facebook limits you to 5,000 friends.
The advantages to having a Facebook page for your business is that the content you post can be indexed bysearch engines because typically the privacy settings are open. You are not limited to 5,000 friends — there is no limit to the number of people who can “like” you. However, with a Facebook page, you cannot send out 'like' invitations as you can send out Friend Requests within your personal profile. Ultimately, a business owner must decide which direction is the best fit for their strategy. I have met some business owners who maintain a personal and business profile on Facebook. This is a good strategy if a person has the necessary time.
Q: How did you encourage your social networking members to make purchases?
A: I never said, "Buy this product or that product." I did not have to. The content spoke for itself. I think one thing that cannot be overstated is the need to be genuine — do not try to sell all the time. Avoid the temptation to turn your online community into a selling free-for-all. Conversation and community must be established before commerce can take place. Once all of these building place are established, sharing your content, as outlined in Step 10 of the process, will deliver excellent results.
Q: What kind of personal posts are appropriate for a business?
A: The list of topics is nearly endless. A person could write posts that highlight new employees, birthday parties in the office, company picnics, and recent trade shows where the company exhibited. You could also post photos of company representatives giving speeches in the community or during ndustry events. Any combination of these types of posts will help customers and prospects feel they are getting a behind-the-scenes look into your company and the lives of its employees. All of this develops trusts and strengthens relationship because people enjoy doing business with people they like, and what is a company other than a collection of people.
Q: How long can sales from social networking activity be sustainable? Do business owners have to continually look for new friends, followers, and connections?
A: The results from a social networking post are nearly instantaneous. A business owner will likely notice an increase in website traffic and online sales within minutes of informing community members that a particular content page was available. However, the results are relatively short-lived. It has been my experience that spikes in traffic and online sales typically wane approximately 72-hours following the social networking post.
In addition, yes, the process of expanding your sphere of influence, as outlined in Chapter 5, should be ongoing. Your community needs to continually expand. The more members and conversations, the more trust is built, and as your community grows larger, your credibility within your industry increases. All of which can have a positive effect on sales.
Q: Do you get tired or burnt out from all of the social networking activity?
A: I have at times, yes. Social networking is just like anything else in life. Sometimes, we need to take a break and come back to it after we have had a chance to re-energize. When I take vacations, I tend to not use Facebook, Twitter, or LinkedIn. This gives me a couple of weeks to mentally tune out and collect my thoughts. When my vacation time is over, I come back and begin sharing my experiences and photos from the trip. For me, this has been a good balance, but everyone has different needs for what they feel is the right balance.
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17. What is a web-based business?
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Businesses that generate their revenue directly from their website fall into the web based business category. Such businesses are typically online retailers offering various products for sale from an online catalogue.
The needs of web based businesses go far beyond merely providing product information and collecting customer feedback. An entire system for places orders and handling financial transactions must be in place. Fortunately, there are numerous e-commerce solutions available. Most web hosts typically offer e-commerce plans for businesses wishing to venture into the world of online retailing.
The focus of the website should be on making sure the customer is able to find the products they are looking for and place orders with little hassle. While it is still important to provide information on the company and handle customer feedback, it must not be at the expense of ease of use.
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18. What should my website look like?
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Before designing the look and feel of a business website, there are a few key points to keep in mind.
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Consider your target audience - A website aimed at children or teenagers will have a decidedly different feel than a website aimed at business executives. It is important to match the feel of the site with your audience.
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Avoid clutter - A clean, easy-to-use website is much more preferable than one cluttered with bells 'n whistles. While it can be tempting to add gimmicky features and cute graphics, such things detract from the overall website and do not convey a professional image. Keep things clean.
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Less is more - Avoid the urge to put too much content on the website. Include the most important information and trim out anything superfluous. Web users tend to want their information in a timely manner, so the less time they spend wading through extraneous content the better.
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Be professional - Your website is an extention of your business. How people perceive your site will in turn reflect on how they preceive your business. Therefore, it is vital to convey a professional image which inspires confidence in your business and the products and services it offers.
Small Business Websites
All small businesses can stand to benefit from a web presence. The needs of many small businesses do not extend far beyond a simple informational website. Essentially the website is an online brochure.
Such a website provides a valuable marketing tool both for existing and new customers. It provides an opportunity for a potential customer to learn more about the business on their own time, while allowing the business to explore a new national or even international customer base.
The requirements of the site are straightforward. It needs to provide details of the company, details regarding their products and services, as well as a method of contacting the company.
Customer service should be given strong consideration, with timely responses to all customer inquiries.
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19. How do I finance the start-up of a small business?
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To determine financing needs, you should first prepare a business plan with a complete set of financial projections including a balance sheet, income statement, and cash flow statement. With a properly completed business plan, you will have identified your funding needs. Banks will lend to some business start-ups if they are satisfied with your business plan, your level of equity investment, the collateral you have to pledge to the loan, and your credit history and experience.
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20. Will I need to borrow money?
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Much emphasis is placed on the importance of researching the feasibility of your proposed business and then planning for its operation. Of equal importance is whether outside financing is needed to get the business started or if financing can be acquired.
Too many entrepreneurs try to start and operate a business without enough money. Tragically, many small businesses fail each year because of insufficient funds. To avoid this dilemma analyze three questions:
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How much money do you have?
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How much money will you need to start your business?
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How much money will you need to stay in business?
A variety of funding sources exists to assist small businesses in the start-up phase and throughout their development and expansion. The following section examines the types of funding sources that are available to small business owners. For assistance in identifying the funding sources for which your business may be eligible or for additional information on any of the financing programs listed here, contact the Small Business Development Center
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a. How do I get a loan?
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Lending institutions typically look for the 5 C's when evaluating loan applications: credit, character, collateral, cash and capacity. Lenders will expect business owners to contribute their own money to the development of the business before they will consider loaning money to a business owner. They also make decisions based on credit score, good character and ability of the business to pay back the loan. For further assistance preparing a loan proposal, contact the Wisconsin Business AnswerLine.
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b. What documents do I need to apply for a loan?
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Typically, you will need a personal financial statement, tax returns for the last three years (if currently in business, both business and personal tax returns), as well as copies of contractual agreements (for example, a copy of a lease). Depending on the situation, lenders will likely want to see a business plan, or at a minimum, financial statements demonstrating how the loan will benefit the business and be paid back.
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c. Can the SBA loan money to me?
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No, the SBA does not directly lend money. Its loan activity is in the form of participating loans and loan guarantees. You must deal with a bank to reach the SBA. You can think of the SBA as a level above your bank that is providing incentives to your bank to make it easier for you to get debt financing. The bank plays a major role in evaluating your loan application and in administering the loan. The bank's agreement is necessary before the SBA will get involved.
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21. How much money will I need to establish and maintain my business?
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Preparing a projected monthly cash-flow worksheet in the initial planning stages of the business is a good way to determine the amount of capital needed to establish and maintain your business. The cash-flow statement allows you to incorporate anticipated start-up expenses (as well as the requested loan amount) into the first year's financial forecast to show a clearer picture of the company's projected financial position.
The cash-flow statement is also useful in determining whether outside financing will be needed to start the business, and how much will be required. In most cases, revenues generated by a business in its initial months of operation are not enough to meet its debt obligations. Thus, additional "working capital" is needed to keep the business operating until revenues reach the break-even point, or a level at which sales can sustain business.
It is a good idea to request enough financing to cover all anticipated start-up costs, plus enough working capital to meet all monthly operating expenses, including the loan payment, for the first three to six months. The number of months of working capital needed will depend on the type of business you are starting. Keep in mind that the higher the loan amount, the higher the monthly payment.
To get some idea on how much money you will need, you should prepare a list of the things you'll need for your business. Use this chart to begin getting some figures together for how much it will cost to start your business and how you will use the money. You might also look at the business toolkit for additional information.
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22. Are there grants available to cover the initial expenses associated with my business?
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There are no grants available for for-profit businesses.
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23. Does the SBDC network provide financing?
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The SBDC does not provide financing. Our assistance is technical and educational in nature. We work with banks and other lending agencies and organizations to assist in putting together financial projections, but the actual financing comes from outside sources. We have strong relationships with lending institutions that may benefit your chances of receiving funding. Having inside knowledge of these lending institutions, we can match your business, credit, and plan up with an appropriate lender, increasing your odds of getting financed.
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24. What professionals should I have on my team, and how do I find them?
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Having a working relationship with the following professionals will save you time and money down the line, and put your business on solid ground:
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CPA (Certified Public Accountant)
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Lawyer
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Insurance agent
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Banker
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Bookkeeper
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Coach (us)
If you're finding these hard to come by, call us. We'll help you think about the characteristics to consider in developing a trustworthy team.
Consider asking other business owners you respect for their recommendations. Many of the Wisconsin SBDC centers have referral lists with names of attorneys, accountants, and insurance agents who have been recommended. No matter your choice, make sure that you check references from at least three current clients. You should also check the Better Business Bureau and any industry specific certification boards.
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25. Do I need to advertise?
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Advertising is the means for getting information about your product or service to the buying public. While developing your marketing plan as described in the previous chapter, you identified your potential customers in your area of service. Now you must determine the best methods for reaching them. While this is an inclusive chapter, we suggest coaching with an advertising agency.
a.Media Advertising
Media advertising and publicity can be obtained through interviews, articles and paid ads in newspapers, magazines and on radio and television.
Newspaper advertising reaches large audiences, has a short life span, is relatively inexpensive and is quickly and easily changed.
Magazine advertising is often thought to be too expensive for a small business, but you don’t have to run your ads in the entire edition. You can reach specific geographic and demographic markets by placing your ad in a regional edition.
Radio advertising is usually local, reaches a pre-selected audience, can be changed frequently, is limited to brief copy, is relatively expensive and can be repeated frequently. It is priced according to the length of the message, time of broadcast and frequency.
Television advertising reaches large marketing areas, is relatively expensive and is limited to brief copy. This form of advertising is usually highly professional and is priced according to length of message, time of broadcast, frequency, time of year and whether the station is a network or independent.
An Internet marketing strategy is something that absolutely every modern-day small business start-up needs. While a good starting point is a Web site, Internet marketing requires more than a couple of static Web pages. Instead, successful Internet marketing mandates a dynamic and well-rounded Web presence that builds relationships in addition to sales. A comprehensive Internet marketing strategy replaces newspaper ads with banner ads, yellow pages with search engines, snail mail with e-mail, town squares with social networks and sales letters with custom content. A Web site allows you and your business to have an ongoing “conversation” with customers.
b.Publicity
In addition to paid advertising, don’t overlook publicity. It creates news about your business. Research your local media and call them to see if they would do a feature on your business or whether they could use you as a resource in your field of expertise.
It is not enough to just tell them about your business. You must be prepared to present a unique angle. The information you submit and the ideas with which you approach the media must be timely, important and interesting to a large segment of their audience.
You may wish to submit a news release to let people know who you are and what you have to offer. News releases should be short and contain important facts. News releases follow the inverted pyramid style, most important information in the first paragraphs diminishing down to least important in the final paragraphs.
There are three keys to a successful press release:
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A quality news angle (never send a press release if you don’t have real news).
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A well-written release (following proper formatting, writing styles, etc.).
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A tailored press release distribution plan (there isn’t a one-size-fits-all solution to distribution).
c. Press Release Components
Release time - The top of a press release should either have “FOR IMMEDIATE RELEASE” or an embargo date listed (EMBARGOED UNTIL DATE) if the news isn't to be published immediately.
Headline - The headline is like the title of your press release. It should grab the reader’s attention, make them want to click or read more, and still manage to introduce the news angle itself.
Summary - Press release summaries are popular in online press release distribution. This should be a two to four sentence summary of the news, expanding on the headline but not as detailed as the press release body. When using offline press release distribution methods, this can be substituted with a oneline sub-heading.
Dateline - The dateline of a press release comes directly before (but on the same line as) the opening body paragraph. It will include the hometown of the company issuing the news release as well as the release date.
Press Release Body - The first body paragraph of a press release should briefly answer the questions of who, what, when, where, and why. Following paragraphs will include supporting details and often a quote from a representative of the company.
Boilerplate - A press release boilerplate is a short backgrounder on the issuing company, person, or organization, generally no longer than one paragraph.
Call to Action - The call to action invites the reader to get in touch with you for any additional details they may need in writing a story.
Contact Information - At a bare minimum include a media contact name, phone number, and e-mail address. It never hurts to include a mailing address, cell, or fax number as well.
Closing - All news releases should contain a closing mark (often ### or -30-), which signifies to the reader that there's nothing more to come. If a release goes to a second page, the first page should be marked with something like -more- to make it clear that another page will follow. You can list any addenda (such as photos) just before the closing.
To get a free press release format, visit Free Press Release Writing Guide for some templates you can download.
d. Alternative Methods
There are other means of getting the message about your business to your customers. Here are some alternative ideas:
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Community involvement or sponsorship: Membership in local clubs and organizations can give your business exposure.
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Direct mail: Goes into your target market’s home or business and into their hands.
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Telemarketing: Using the telephone to contact new customers or to maintain contact with current customers can be an effective way to reach your market.
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Networking: Exchanging information about your business whenever possible at meetings, receptions and other social gatherings.
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Promotional gimmicks.
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Trade shows: Displaying information about your business at shows that tap into your market is well worth the investment in time and money.
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Discounts.
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Yellow Pages listing.
Pay attention to advertising and promotions for your business. How you spend your advertising budget is more important than how much you spend. Spend it wisely.
e. Calculating Your Advertising Budget
According to Work.com, taking the time and effort to calculate your ad budget will help you:
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Ensure that you’re not wasting money by either overspending or under-spending.
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Better manage your total budget.
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Determine whether you need additional capital to build your brand (and how much you’ll need).
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Learn how to measure return on your advertising investments.
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View advertising not as an expense, but as an investment that ensures your company’s success.
There are several different ways to calculate your ad budget.
Many small businesses simply use a percentage of revenue as their guide for how much to spend on advertising. If you’re going to use this method, you need to figure out two things: what percentage, and what revenue? Rather than generalizing (5 percent revenue) it’s better to use your industry’s average percentage as a guide. For the most accurate number, base the percentage on an average of the last few years’ revenues, or on the average of last year’s revenues and your projection of next year’s revenues.
To find your industry’s average percentage of revenue spent on advertising, search the Dun & Bradstreet Web site.
The unit-of-sales method relies on your experience, plus averages for your industry, of how much it costs to sell a certain specific product. Determine the number of such products you want to sell, multiply that number (1000 widgets X five cents per widget) and you’ll get your total budget ($50). The unit of sales method works well for companies with only a few different products to sell, and for product lines with limited or circumscribed availability (an artist can make X number of carvings per year with one apprentice, for example).
Your need in the unit-of-sales method is to get good key numbers — try your industry trade association. Search for it on the U.S. government’s Consumer Action Web site.
Tie advertising investments to rent expenses. Entrepreneur magazine suggests an unusual way to calculate ad budgets, which should work well for retailers and others whose facilities play a role (any role, limited or significant) in their brand identity. The calculation, which is slightly too complex to repeat here, will provide you with a very specific budget range. Use the tutorial, “A New Way to Calculate Your Ad Budget,” at Entrepreneur.com Web site.
Another way is to calculate your budget by task and objective. Although this method is the hardest one to use, most experts agree that it’s the most accurate way to come up with the right ad budget. It’s hard because you must first create a marketing plan. What are your objectives? Rank them in order of importance, because you may find that you can’t afford to achieve all of them. Determine: 1) who you want to reach, 2) how frequently you want to reach them, 3) where (through which combination of media) you’ll get the best exposure, and 4) how much it will cost. Add it all up. Too much money? Reduce your objectives.
To use the task and objective method, you need a good marketing plan. If you need a marketing plan outline and want professional help, contact your local SBDC coach.
Online tools make it easier. There are a variety of calculators online, geared to different industries. Just plug in your numbers and go!
Want to figure out how much your advertising impressions will cost? Visit Marketing Today for an Advertising CPM (cost-per-thousand) calculator and for information on internet marketing.
We should also mention pay-per-click. Nothing has made the analysts who work in the advertising industry happier than the rise of pay-per-click ads and other search engine marketing techniques, because it’s easy to measure their return on investment.
For a great tutorial on measuring your pay-per-click ROI, or "return on ad spend" (ROAS) see Google Adwords Learning Center.
f. Tips & Tactics
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Test your ads; measure the ROI; tweak them, and measure again. It's the only way you'll really know what works.
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Trying to build market share? You’ll have to spend more than the industry average percentage of sales on advertising.
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Keep an eye on what your competitors are doing. Maintain a reserve ad fund for those times when you must respond to unusual or highly competitive conditions.
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26. What about recordkeeping?
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a. Why keep records?
Everyone in business must keep records. According to the U.S. Internal Revenue Service, good records will help you do the following:
Monitor the progress of your business. You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.
Prepare your financial statements. You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
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An income statement shows the income and expenses of the business for a given period of time.
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A balance sheet shows the assets, liabilities and your equity in the business on a given date.
Identify source of receipts. You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate business from non-business receipts and taxable from nontaxable income.
Keep track of deductible expenses. You may forget expenses when you prepare your tax return unless you record them when they occur.
Prepare your tax returns. You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statements.
Support items reported on tax returns. You must keep your business records available at all times for inspection. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.
b. Kinds of Records to Keep
The business you are in affects the type of records you need to keep for federal tax purposes. You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year.
Your recordkeeping system should include a summary of your business transactions. This summary is ordinarily made in your books (for example, accounting journals and ledgers). Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook is the main source for entries in the business books. In addition, you must keep supporting documents.
c. Supporting Documents
Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips and canceled checks. These documents contain information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return.
Gross receipts. Documents that show gross receipts include:
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Cash register tapes.
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Bank deposit slips.
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Receipt books.
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Invoices.
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Credit card charge slips.
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Forms 1099-MISC.
Purchases. Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents include the following:
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Canceled checks.
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Cash register tape receipts.
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Credit card sales slips.
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Invoices.
These records will help you determine the value of your inventory at the end of the year.
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Expenses. Expenses are the costs you incur (other than purchases) to carry on your business. Documents for expenses include the following:
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Canceled checks.
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Cash register tapes.
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Account statements.
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Credit card sales slips.
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Invoices.
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Petty cash slips for small cash payments.
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Travel, transportation, entertainment, and gift expenses.
Employment taxes. There are specific employment tax records you must keep. For a complete list of records, refer to the U.S. Internal Revenue Web site, the Wisconsin Department of Revenue Web site, http://www.revenue.wi.gov/html/business.html and consult with a CPA. Employment taxes include Federal Income, Social Security, and Medicare Taxes.
Federal Income, Social Security, and Medicare Taxes. You generally must withhold federal income tax from your employee's wages. To figure how much federal income tax to withhold from each wage payment, use the employee’s Form W-4 (discussed later in Chapter 12 under Hiring Employees). Social Security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Social Security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Medicare tax pays for benefits under the hospital insurance part of FICA. You withhold part of these taxes from your employee’s wages and you pay a matching amount yourself.
Federal Unemployment (FUTA) Tax. The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You report and pay FUTA tax separately from Social Security and Medicare taxes and withheld income tax. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Report federal unemployment tax on Form 940, Employer’s Annual Federal Unemployment (FUTA).
Assets. Assets are the property, such as machinery and furniture you own and use in your business.
d. Accounting Methods
An accounting method is a set of rules used to determine when and how income and expenses are reported. You choose an accounting method for your business when you file your first income tax return.
There are two basic accounting methods.
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Cash method. Under the cash method, you report income in the tax year you receive it. You usually deduct or capitalize expenses in the tax year you pay them.
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Accrual method. Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Inventories include goods held for sale in the normal course of business. They also include raw materials and supplies that will physically become a part of merchandise intended for sale. You must use the same accounting method to figure your taxable income and to keep your books. Also, you must use an accounting method that clearly shows your income. In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. An accounting method clearly shows income only if it treats all items of gross income and expenses the same from year to year.
e. Business Expenses
You can deduct business expenses on your income tax return. These are the current operating costs of running your business. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business, trade, or profession. A necessary expense is one that is helpful and appropriate for your business, trade, or profession. An expense does not have to be indispensable to be considered necessary.
The following are some expenses that are of interest to people starting a business:
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Business start-up costs.
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Depreciation.
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Business use of your home.
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Car and truck expenses.
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Actual expenses.
f. Recording Business Transactions
A good recordkeeping system includes a summary of your business transactions. Business transactions are ordinarily summarized in books called journals and ledgers. You can buy them at your local stationery or office supply store.
Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. For example, a recordkeeping system for a small business might include the following items.
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Business checkbook.
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Daily summary of cash receipts.
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Monthly summary of cash receipts.
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Check disbursements journal.
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Depreciation worksheet.
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Employee compensation record.
g. Bookkeeping System
There are computer software packages you can use for recordkeeping. They can be purchased in many retail stores or downloaded from the manufacturers’ Web site. These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting.
If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system.
If you are uncomfortable using a computerized system, a manual system of recording financial transactions for your business must be kept. Talk to an accountant about setting up a system that meets your business needs.
h. Self-employment tax
Sole proprietorships and partnerships that report a profit are required to pay self-employment tax in lieu of Social Security and Medicare contributions. Self-employed persons may be required to make quarterly deposits of estimated deposits based on profits. For specific information, consult with an accounting professional.
i. Deductions
To be deductible, an expense must be "ordinary and necessary" in conducting your business. The IRS provides more information on small business and taxes.
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27. How do I go about hiring employees?
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How do you attract key employees? Staffing your firm is of critical importance to businesses of all shapes and sizes. All firms take the same risk in hiring an employee. The smaller the firm, however, the less it is able to afford the time and costs involved in hiring and firing the wrong employees.
Larger companies have developed effective hiring techniques and procedures to lessen this risk. If owners and managers of small firms wish to manage their operations more effectively, some of these staffing techniques could be applied:
a. Determining Needed Skills and Abilities
The trick to getting the right person for the job is in determining what skills are needed to perform the job. Match the applicant’s skills and experience to the job requirements.
Once a job description is set, decide what skills the prospective employee must have and the lowest acceptable skill level.
When you start to look for someone to fill the job, make sure that you know what skills you need and what skills are the minimum acceptable, as determined by what kind of training you can provide.
b. Setting Personnel Policies
When your business is small, making sure workers know all the policies, processes and rules is easy. But as your company grows, you need to put your operational procedures in writing. Work.com says an employee manual effectively accomplishes this by informing your workers what is expected, and also ensures that your business complies with state and federal employment laws. You can include information about the company and its history to give your workers a sense of company pride.
Here are some things you need to consider in developing an effective manual for your workers:
1. Decide on the contents.
2. Find an expert to actually create the manual or if you have the resources, create it in-house.
3. Review it for accuracy and legality.
Here are some of the best contacts and resources to help you get it done.
First, decide what the manual should cover. At the very least, you need to spell out your policies regarding hiring, firing, workplace decorum, company benefits, employee privacy and performance appraisal system. No manual can ever be totally comprehensive; individual worker needs will undoubtedly produce circumstances that aren’t in your guide. You can, however, create a handbook that covers the situations that will affect most of your employees. Templatezone.com offers a list of the types of points a manual should cover and supplies small business software for employee handbook creation.
Personnel Policy Service, Inc., helps businesses create employee manuals with sound policies. You can get a legal opinion. If you’re not an expert in labor law, human resources or employee relations, you might want to hire a specialist. Many companies provide a combination of payroll, benefits, regulatory compliance and employee training services. For help finding a specialist in HR law, visit the Wisconsin State Bar Association Web site, http://www.legalexplorer.com/lawyer/lawyer.asp, and search for an attorney close to you.
You can “do it yourself” with computer software. If hiring an outside firm is beyond your budget, check into the various computer template programs that will guide you in creating an employee handbook. Template Zone, Write Express and JIAN all offer such programs for a fee.
Whichever option you choose to create your employee manual, make sure the final product is reviewed and approved by attorneys. You want to ensure that your handbook’s language is appropriate.
Tips & Tactics
Helpful advice for making the most of this guide:
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A manual is not set in stone. Policy adjustments can and should be made as your company’s situation changes.
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Whenever you make any changes, be sure to again run them by your attorney.
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Save printing costs by putting your employee manual on your company’s intranet or making it available at your Web site, with secure company/employee-only access protections.
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Periodically remind your workers to refer to the manual.
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Make sure you get a signed employee acknowledgement of receipt of the handbook. The worker does not have to attest to reading it, but that he/she received it.
c. Finding Applicants
When you know the kind of skills you need in your new employee, you are ready to contact sources that can help you recruit job applicants. The Wisconsin WorkForce Development website has links for both employers and employees. The Wisconsin Job Center site contains job seeker tools and employer tools.
Other sources of recruiting applicants are Help Wanted signs or newspaper advertisements. Both methods attract a large group of job seekers to screen at your convenience.
Job applicants are readily available from local schools or colleges. The local high school or college may have a distributive education department allowing the students to work in your business part-time while learning about selling and merchandising in their school or college courses. Many part-time students stay with the business after they graduate.
You also may find job applicants by contacting friends, neighbors, customers, suppliers, present employees and local associations such as the Chamber of Commerce or other service clubs. Your choice of recruitment method depends on your type of business, your location and you. Many sources are available to you and a combination may serve your needs best. The important thing is to find the right applicant with the correct skills for the job you want to fill.
Remember that the Civil Rights Act of 1964 prohibits discrimination in employment practices due to race, religion, sex, national origin, color, handicap or sexual preference. Public Law 90-202 prohibits discrimination on the basis of age, with respect to individuals who are at least 40 but less than 70. Federal laws also prohibit discrimination against the physically handicapped.
d. Interviewing Job Applicants
Find out as much as you can about the applicant’s work history, especially work habits and skills; get the applicant to talk about himself/herself and about his/her work habits. Ask each applicant specific questions: What did you do on your last job? How did you do it? Why was it done?
e. Evaluating Applicants' Replies
Do they know what they are talking about? Are they evasive or unskilled in the job tasks? Can they account for discrepancies?
Next, verify the information. A previous employer is usually the best source and sometimes will provide information over the telephone; but it is usually best to request your information in writing. To help ensure a prompt reply, ask previous employers a few specific questions about the applicant that can be answered with a yes or no check mark, or with a very short answer. For example: How long did the employee work for you? Was his or her work poor, average or excellent? Why did the employee leave?
After you have verified the information for all your applicants, you are ready to make your selection. The right employee can help you make money; the wrong employee will cost you much wasted time and materials, and may even drive away your customers.
f. Hiring Employees
Have the employees you hire fill out Form I-9 and Form W-4. If your employees qualify for and want to receive advanced earned income credit payments, they must give you a completed Form W-5.
Form I-9. You must verify that each new employee is legally eligible to work in the United States. Both you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You can get the form from USCIS offices or from the USCIS Web site at www.uscis.gov. Call the USCIS at 1-800-375-5283 for more information about your responsibilities.
Form W-4. Each employee must fill out Form W-4, Employee’s Withholding Allowance Certificate. You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee’s wages.
Effective Jan. 1, 2009, the State Tax Department has implemented new policies on the filing and remitting of income tax withheld. The due dates for returns and payments will closely follow the IRS schedule.
Form W-5. An eligible employee who has a qualifying child is entitled to receive advance earned income credit (EIC) payments with his or her pay during the year. To get these payments, the employee must give you a properly completed Form W-5, Earned Income Credit Advance Payment Certificate. You are required to make advance EIC payments to employees who give you a completed and signed Form W-5. Form W-2 Wage Reporting. After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. You must also send copies to the Social Security Administration.
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28. What about training my employees?
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Once you have found your employees, getting them up to speed in your organization can require training. Here are some programs designed to help with that.
WISCONSIN Department of Workforce Development - http://www.dwd.state.wi.us/
Bureau of Job Service - http://dwd.wisconsin.gov/jobservice/
or contact the Wisconsin Business AnswerLine at 1-800-940-7232 for additional resources.
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29. What is the difference between the SBA and the SBDC?
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The U.S. Small Business Administration, SBA, is a federal agency that provides aid, counsel, and disaster assistance to small businesses. They are able to fulfill their mission, in part, through the creation of the Small Business Development Centers (SBDC).
The SBDCs are nationwide and offer one on one, free confidential counseling, low cost workshops and reference libraries. The SBDCs are part of the nation-wide Association of Small Business Development Centers (ASBDC), which works on behalf of the SBDCs nationwide to support small businesses.
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30. Does the Wisconsin SBDC Network offer classes for small businesses?
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Each of our thirteen locations offers a wide range of business workshops each month. Click here for more information on classes in your area.
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