Rule of Thumb: A Guide to Small Business Basics

Introduction

What’s in it (this book) for me?

A business owner needs to be aware of legal requirements, financial resources, record-keeping requirements, ways to market a business, communication skills, human resource laws, as well as issues that may arise on a day-to-day basis. Being aware of and following regulations and laws help you be sure that your business is meeting all legal requirements. Having the knowledge and skills needed to run your business on a day to-day basis increases the odds of your success.

This book answers many questions you may have about starting and running a business. The major topics discussed in this book include the following:

• What steps do I need to take to start a business?

• Do I know the differences among a sole proprietorship, an s-corp, a partnership, etc? How will I know which one is the best for me?

• What do I need to know about finances and bookkeeping?

• What other records do I need to keep?

• Will I need to use technology in my business? How will I know what technology my business needs?

• What administration and management skills will I need?

• How important are communication skills to my business? How can I improve my communication skills?

• How will I advertise and promote my business?

• What information must I have to manage human resources?

Using the information in this book will help you set up a business and be on your way to running it successfully.

Chapter 1

Starting a Business:

What steps do I need to take?

Starting a business takes careful planning. Awareness of legal requirements and the basic steps needed to establish a business will help you plan the start-up process and stay organized. Information about various business structures and legal issues are extremely helpful. When in doubt, consult your Secretary of State’s office or a lawyer for accurate information.

What are the basic steps I must take to set up a business?

The following steps will help you plan what you need to do to get started:

• Learn about other businesses that do what you plan to do in your business.

• Plan your business (size, number of employees, etc.).

• Get needed business assistance and training.

• Choose a location for your business.

• Secure financing for your business.

• Decide on which legal structure is best for your business (detailed in following section).

• Register the business name with your state (Secretary of State Office in most cases).

• Obtain a Federal Tax ID number, also called an Employee Identification Number (EIN), by going to the Internal Revenue Service website ( irs.gov) for information on applying online, by phone or by fax.

• Register with state and local departments of revenue.

• Get required business licenses and permits.

• Learn about employer legal responsibilities.

Rule of Thumb:

When in doubt, ask a professional.

What business structure should I choose?

The business structure you choose needs to fit the type and size of business you will be running. Ask for help if you are not sure which structure is best for you. A tax expert or lawyer is often a good source of advice on this issue.

The following list gives information about each business structure:

Sole Proprietorship: This business structure has one owner who is legally responsible (liable) for all the business’s debts and obligations. The easiest and most common way to structure your business is the sole proprietorship. In most cases, the owner is responsible for the day-to-day operation of business. A sole proprietor owns all business assets (building, furnishing, electronic equipment, inventory, vehicles, etc.) and profits. He or she also has total responsibility for business liabilities and debts. Sole proprietorships are found in all business areas. This type of business may be a full-time or part-time business,