Tips For Setting Up A Small Business
This article was written by Michael Miller. Michael is a registered investment advisor for Miller Premier Investment Planning, LLC. He is a featured financial advisor in Boomerater's Mansfield Texas financial advisor directory.
You're ready to own your own business and be your own boss. How exciting! While the earnings and growth potential are far greater than working for someone else, a new venture is risky. According to the Small Business Administration (SBA), roughly 50% of small businesses fail within the first five years. This fact isn't meant to discourage you but rather to emphasize the importance of proper business planning. Running your own business is hard work; but if you are patient and take the necessary steps, the benefits far outweigh the costs. This article will provide you with some key tips and considerations for overcoming the main obstacles to your business success and get you off to a great start.
Tip #1: Before doing anything else; create a business plan! According to the Small Business Administration (SBA), poor planning or the lack of a written plan is the reason for most business failures. In fact, most lenders will not provide small business loans without a viable plan in place. Therefore, having a written plan is critical to starting and building a successful business. It will help you avoid making some very common and costly mistakes. Your plan will act as a road map to guide you in your decisions, encourage loans, and promote growth. You will want to revisit and update your plan at least annually to monitor your progress and make adjustments. The SBA provides some sample plans and outlines at www.sba.gov. If you need help, hire a professional specializing in business planning. The Garrett Planning Network is an excellent source of business planners who can work as your fiduciary on an as needed hourly basis. Most of them offer complimentary get acquainted sessions. You can learn more by visiting their website at: http://www.garrettplanningnetwork.com/content/view/146/177/
Tip #2: Build your team. A football team needs more than a running back to win games. They need an entire offense and defense. At a minimum, you will need a good attorney and accountant. Throw in your planner at quarterback and you have a formula for a winning team. Do not go it alone! These professionals will be able to collaborate and help you decide on such critical things as what form of business organization is best for you and what paperwork needs to be filed and when. They will save you major time, headaches, potential legal and tax issues, and will allow you to focus your valuable time on what you do best -- running your business! They are well worth the peace of mind, expertise, and experience that they bring.
Tip #3: Don't jump without a parachute. Before taking the leap from employee to business owner, you will need to know the pluses and minuses of making the switch. For instance, what will it cost for health insurance as a business owner versus what you are paying now? Can you get coverage thru your spouse's plan at a lower cost? Are there any associations in your business or professional field that offer a group plan at a lower cost? Have you considered self-employment taxes? As a self-employed individual you will be responsible for the full 15.3% (12.4% for Social Security and 2.9% for Medicare) versus the current 7.65% you pay as an employee (your employer pays the other half.) Visit the Internal Revenue Service's small business and self-employed tax center at http://www.irs.gov/businesses/small/index.html to learn more. What about items that may become deductible such as the business use of your home? These items may offset the added costs of insurance and self-employment taxes bringing you in for a softer landing.
Tip #4: Have an adequate reserve on hand. When I was in the 82nd Airborne Division we never jumped out of an airplane without a reserve parachute. The same is true when starting your own business. You want to make sure that you have an adequate amount of funds set aside in a very liquid and safe place to live off of while you are bringing your business to profitability. As a rule of thumb, most new business owners should have at least two years worth of living expenses set aside. Your business plan will help you determine how much of a reserve you will require.
Tip #5: Never use your home as collateral. Never use your home or personal assets as collateral for a business loan. You will lose the financial protections found under various types of business formations such as incorporation or limited liability companies. In the event of a business failure, not only will you lose your business but you could also lose your home. If you cannot get a business loan based off of your business plan then it may not be a viable plan and you should have it reviewed by a competent planner. On February 17th, 2009 the president signed into law the American Recovery and Reinvestment Act.
This act temporarily eliminates the loan fees associated with 7(a) and 504 SBA loan programs. It also increases the loan guarantee up to 90% of these loans which increases the incentive to lenders to loan new businesses money under these programs. On March 16th an additional $15 billion was committed by the US Treasury Department to further stimulate business loan funding mainly thru community banks, credit unions, and other small lenders. If you are in need of funding for your small business you should visit www.sba.gov to learn more valuable tips and information.
Owning your own business can be very challenging but also very rewarding. As a small business owner, I would not trade it for the world. The hard work and long hours you put in will directly benefit you rather than increasing profits for someone else. If you have a true passion and drive for building a business that brings a unique experience to those you serve; then the planning, sacrifice, and hard work are well worth it. Following these five tips will get you headed in the right direction. I wish you the best of success!
Are you looking for a financial advisor? Michael will provide you with a free initial consultation to discuss your financial needs. Please visit Michael Miller's financial advisor profile to contact him directly. He is a financial advisor in Mansfield Texas.