A Systematic Approach to Starting a New Business
By Nowshade Kabir ©Rusbiz.com
Starting a business is one of the most enthralling and rewarding undertakings you can work on in your life. Whether you created your business surrounding a new product or you came up with an innovative marketing method to sell a product, being an entrepreneur is an exciting experience. Apart from bringing financial freedom, it also brings a sense of achievement. Unfortunately, there is no guarantee of success in any business. 70 percent of start-ups fail in the first year of their existence.
Success in the business depends on your entrepreneurial spirit, knowledge of your field and niche market, ability to manage financial and human resources, proper planning and your persistence. Meticulous planning and systematic approach are critical in reducing risk factor of your entrepreneurial venture.
Selecting legal form of your business
One of the most important decisions you need to take before starting a business is the type of legal form of your business. A business can work as a sole proprietorship, general partnership, limited liability Company, or a corporation.
The easiest and most common legal form is the sole proprietorship. To start a business as sole proprietorship you will just need a license from designated local authority. The problem with sole proprietorship is that all your personal assets are subject to legal liabilities in case of any lawsuit against your business.
If two or several people start a business it is considered as a partnership. Normally, a partnership agreement, signed by all partners, clarifies relationship among the partners and specifies responsibilities and functions of every individual. This agreement also covers probable business impasses and ways to resolve them. In the case of partnership each partner is legally liable for all debts the partnership might incur.
Limited Liability Company is very similar to a partnership except that the partners are protected from personal liabilities for the companyís debt. The other advantage over partnership is even if you are a passive partner you still can claim personal tax deductions on losses incurred from your company. This form is actually a good alternative to a corporation.
A corporation exists as a separate entity. It has virtually all the legal rights and social obligations of an individual. You incorporate your business by filing with a state appointed agency. A corporation structure consists of three components: shareholders, directors and officers. Corporation issues shares to the company shareholders in exchange of money or other assets. Shareholders are the owners of the company. Directors are responsible for company management. Once a year, shareholders elect the board of directors. Directors meet routinely to discuss and take decisions on company affairs. Officers are selected by the board of directors to manage and run day-to-day company business. The disadvantage of the corporation for small companies is that the company has to pay tax on its earnings and shareholders have to pay taxes on the dividends that they received from the corporation.
One way of avoiding this is not to incorporate a company in your own state and go for an out of state place where there is no income tax on nonresident companies.
Choosing a name for your company
Once you have decided on the legal form of you business, you next step is to select a name for your company. Whatever name you choose, make sure that it is easy to remember and pleasant-sounding. If your form of business is sole proprietorship you can use your own name. You can also decide to use your family name as the name of the company and its brand name. Honda, Bose, Daewoo Ė all these are family names of their respective founders. If you are planning to incorporate your business, you also have to make sure that no other company has the same name as in one state there canít be two corporations of same name.
Setting up your home office
Initially, to keep costs lower, you may prefer to have your office in your home. Today, when almost everything you can do through the Internet, it is a viable option, unless your business requires hiring people from the very start. Set aside a separate work area. If possible make your home office in a room dedicated for work purpose. Make sure that this room is as far as possible from family common area, kitchen and kidsí rooms. You donít want to be distracted while working! The room has to be uncluttered, well-lit and with good air circulation. If space is an issue, you can use any free space to set up your office, important thing is to have a permanent place dedicated to business related work. Having an office in your home allows you to deduct for taxes part of your household expenses.
Branding you new company Ė designing a logo
Branding means to build public awareness of your business name and logo. A brand can worth more than the money spent on developing it. It starts with the systematic approach in developing company brand Ė first you need to decide how you want others to distinguish your business and work out a plan to achieve this goal.
Your company logo is one of the primary components of your corporate identity. A good logo creates lasting and recognizable impression on peopleís mind. Thatís why itís a good idea to use professional help in designing a logo.
Opening a bank account
After registering your company you have to open a company bank account. Itís wise to keep your personal and company accounts separate even at the initial stage of your business. If you are planning to do business through the Internet, you should also consider opening a Paypal account.
Setting up a bookkeeping system
Bookkeeping means keeping track of your financial transactions. This is a vital but often neglected area of business. Small business owners prefer to spend time on actual sales rather than doing the tedious job of making journal entries. While starting a new business you should take this boring task very seriously. Up-to-date ledger helps you understand present situation of your business and plan future informatively.
Your new business should be based on something you really love to do. If you are not passionate enough about your business, it would be difficult for you to maintain the rigorous life style needed to be successful in business world.