Table of Contents
Section 1: Starting a Small Business
Small Business Ownership in the United States
For many Americans, it is their dream to one day be their own boss and become the owner of their own small business. Entrepreneurs across the country start approximately 409,000 new businesses each month, according to the U.S. Small Business Administration (SBA).
However, it’s misleading to think that there are 409,000 storefront restaurants or retail businesses opening up each month. The SBA Office of Advocacy defines a small business as:
– An independent business employing 500 people or less
- In 2011, there were 28.2 million small businesses in the United States
- That same year there were only 17,700 businesses with 500 or more employees
- That’s 99.7% of all U.S. businesses
Small businesses are essential to the overall economy.
- Small businesses employ nearly half of all private-sector employees
- Small businesses accounted for 63% of all new jobs created between 1993-2013
- Small business account for about 54% of all sales in the U.S.
About 75% of all U.S. businesses are non-employer businesses, meaning one-person operations with no paid employees.
– This includes all self-employed (freelance or contract) individuals who earn more than $1,000 in a year
– Examples of non-employer businesses include:
- Auto mechanics
- Website designers
- Private tutors
As you can see below, the number of non-employer businesses has steadily increased over the past decade.
No Easy Task
Whether a side job (“moonlighting” gig) with no employees or a full-time enterprise with 499, successfully running a small business is no easy task.
- While 409,000 new businesses opened each month in 2011, some 470,000 closed
- Small businesses have a 50% chance of surviving 5 years in business
- And only a 1 in 3 chance of making it 10 years or more
To have the best chance at success and surviving (and thriving) where so many other small businesses have not, it is crucial for you, the business owner, to understand the key points of running a small business, which we cover in this guide. Read on to learn about:
- Creating a business plan
- Funding start-up costs
- Getting any necessary licenses
- Obtaining insurance
- Handling the operation of the business
- Hiring and managing employees
- Keeping the books (accounting and bookkeeping)
- Filing taxes
- Setting up business online
- Selling a small business
Starting a Small Business
Entrepreneurship: Is It Right for Me?
Starting your own small business can be an incredibly rewarding endeavor, allowing you to be your own boss, pursue a passion, and save for retirement. However, small business ownership is a risky proposition, and the best business ideas in the world can flounder without proper execution from company leadership – you. Before starting a business, take an honest look at yourself and decide whether or not you’re cut out for entrepreneurship.
Traits of an Entrepreneur
- Comfortable taking risks and making tough decisions
- Willing and able to put in long hours
- Make decisions independently
- Persuasive – can convince others to believe in their goals, products, and decisions
- A good negotiator
- Flexible – able to change course and adapt to unexpected changes
- Knowledgeable about the field, industry, or endeavor he or she is entering
- Has cultivated a support network of business mentors and peers
Questions to Answer Honestly
- What is my tolerance for risk?
- What am I risking by starting a business?
- Do the potential benefits outweigh the risks?
- Am I passionate about my product or service?
- Am I knowledgeable about my product or service?
- Could I consider myself an expert?
- Ideally, how long would I want to be in this industry or taking on this endeavor?
- The next 5 years? The rest of my life?
- Am I willing to take on the responsibility of owning a business?
- Do I have help to start my business?
- Financial and emotional support; family help?
- What will I need to sacrifice to start a business?
- Money and other assets/resources? Time with family?
- If things don’t go so well, how different will life be before starting the business?
- Do I have another career to fall back on to support my family and myself?
How you answer these questions should affect how seriously you consider entrepreneurship. “No” answers or lukewarm responses shouldn’t necessarily discourage entrepreneurship, but if they cause second thoughts, you may want to reconsider
- Starting a small business
- Starting this particular business, or following through on this particular
- Entrepreneurship and self-employment in genera
Try these aptitude tests and quizzes to see if you’re cut out for entrepreneurship and ready to start a small business. These are subjective tests, meaning answers are not definitive, and so you may want to take several.
- Take the Entrepreneurial Aptitude Test to find out if you have the makings of a successful entrepreneur in your DNA.
- The Kauffman FastTrac test measures whether you have the traits to start your own business.
- The FunEducation Business Management Aptitude Test can help you learn if you have the “right stuff” for a career in business management.
- Certain personality types are better suited to entrepreneurship. Learn your personality type by taking the Myers Briggs Type Indicator, the most well-known and respected personality test, or a free alternative.
- Find your aptitude for self-employment by taking this test from the Knowledge Institute.
- Determine your entrepreneurial aptitude through a thorough, 70-question aptitude test from OneMoreCustomer, a small business advocacy and education group.
- Do you have the character traits of an entrepreneur? Answer how you would react to these common situations to find out.
Writing a Business Plan
Before opening for business, before setting up shop or having your website go live, you will need to create a business plan. A business plan describes the goals of your business and outlines how your business will reach them. Smart business owners create business plans because business plans:
- Guide decisions and strategies in the short- and long-term
- Help businesses stay organized
- Are necessary to receive financing and funding from banks, investors, and other lenders
The Key Components of a Business Plan
Business plans should cover the following 8 topics:
- Executive Summary: A one-page summary of the business’ goals, and how those goals will be achieved. Answer:
- Why is this business unique? And in that context,
- Why will it succeed?
- Business Description: A description of the products and services will your business offer at its outset. Be sure to answer:
- Why is this unique within your industry? What void does it fill?
- What products or services do you plan to develop for the future?
- Competitive Analysis: List who your competitors are and in what ways your companies will be in competitions.
- Detail the strengths and weaknesses of your competition.
- What will your business offer that the competition does not? How does this give your business a leg up?
- Outline your strategies for besting the competition.
- Customer Analysis: Answer this very important question – who will be buying your product or paying for your services?
- Create an ideal customer profile.
- Marketing Plan: “If you build it, they will come” is most often not a successful marketing plan. Create a strategy for how you will reach your target customer.
- How will you get the word out about your business, and the products or services it offers?
- Operations Plan: Once you’ve started your business, you will need to run it, and have a plan for doing so.
- The operations plan will detail the logistics of managing the company on a day-to-day, quarterly, and/or yearly basis.
- It will also include operational milestones you hope to achieve – how much product do you want to move in 5 years? How will you get there?
- Management Plan: Unless you are running a non-employer business, you will need a management team to help run your company.
- Detail who is on your current team.
- Discuss any hiring that will need to be made. Who do you want to hire? Where will you find them?
- Financial Plan: At the end of the day, the purpose of a business is to make money. Get into the details of your company’s projected finances.
- Forecast revenues and profits for the short- and long-term.
- To reach your targets, will you need additional funding from loans or investors? How much will you need? Where do you anticipate it coming from?
- What else will you need to reach these targets? Will you need to expand the business by hiring more people? Offer more services or products? Buy new assets?
Resources for Writing Your Business Plan
- The U.S. Small Business Administration has numerous resources to help write your business plan. Read their articles, take an online course, or use their step-by-step Business Plan Tool.
- Entrepreneur Magazine’s in-depth Business Plan Guide will help walk you through the steps of writing a successful business plan, and suggests business plan software and how-to books.
- Answering these 20 questions can help shape your business and guide the writing of your business plan.
- When writing your business plan, be sure to avoid these 4 Common Mistakes.
- Check out over 500 example business plans for everything including bars, bakeries, beauty salons, and bed and breakfasts.
- Use an array of business planning templates to do everything from project sales, create a marketing budget, and start a balance sheet.
- Find over 600 resources for creating your business plan, including sample templates and suggested strategies, at the Center for Business Planning.
Determining the Legal Structure of Your Business
When starting a business, there is no one-size-fits-all option for determining your business’ legal structure. The legal structure is important because it defines how your business operates in three crucial ways:
- Who shares in profits and losses
- What taxes are paid
- Who or what is legally liable for the company and its actions
There are several different kinds of business structures. We will cover what they are and what kinds of businesses take that particular legal structure.
- A sole proprietorship is the most basic legal structure
- One person owns the company and is responsible for its assets
- Many sole proprietors do business under their own names rather than create a separate business name
- A sole proprietorship is not a separate legal entity from the owner
- Profits go directly to the owner
- The owner is responsible for all legal liability, debts, and losses
- A business owner does not have to take any action to form a sole proprietorship
- A good option for self-employed individuals such as:
- Freelance workers
- Contract workers
- “Moonlighting” workers
- A partnership is a single business owned by two or more owners.
- Each partner shares in the profits, losses, debts, and liabilities of the business
- There are several kinds of partnerships:
- General partnership: Business and its liabilities are divided equally amongst partners
- Limited partnership: A partner’s liabilities – as well as say in business matters – are dependent on the percentage of the business they own
- Joint venture – Like a general partnership, but usually for a specific period of time or a single project
- Partnerships must be formed and registered with the state they are formed in
- A good option for a new business or for short-term investments/projects because partnerships are easy to form
- A corporation (also known as a C corporation) is a complex business structure
- Corporations are independent legal entities
- As a result, the corporation itself – and not the people who own it – is legally liable for any debts incurred or legal action taken against it
- Owners hold shares in the company
- Shares may be privately or publicly sold to help raise money for the corporation (learn more about buying and selling stocks in our Guide to Investing
- Corporations can retain some of their profits without the owner paying taxes on them
- Corporations have complicated tax and legal requirements and have costly administrative fees
- They are highly regulated by the government
- Corporations endure after the passing or bankruptcy of a shareholder
- Corporations are ideal for business owners who:
- Need liability protection
- Want or will want to raise capital (money) to fund their business
– An S corporation holds many of the same core characteristics of a C corporation:
- Is an independent entity
- Liability protection for shareholders
- Ability to sell shares
- Is a complex business structure with complicated tax and legal requirements
– The major factors that differentiate S corporations are:
- Taxes – the business is not taxed itself. Profits and losses pass through to the shareholders
- Shareholders must be paid “reasonable compensation” if they work for the company as well, whereas with C corporations there is no such stipulation
- S corporations can only issue common stock, whereas C corporations are not limited in the kind of stock they can issue
– S corporations may be more attractive to small business owners than C corporations because of their tax structure and the liability protection they offer
- A limited liability company (LLC) is the middle option between a sole proprietorship or partnership and a corporation
- An LLC is made up of members (owners) and can have an unlimited amount of members
- Members decide how to distribute profits and losses
- Members are not personally responsible for company’s debts or legal liabilities
- The LLC dissolves upon the death or bankruptcy of a member
- Members must go through the process of forming the LLC
- Some government agencies require contract workers to form their own LLCs as a condition of employment
- LLCS can be companies with hundreds of employees and dozens of members or single-owner, non-employer businesses
– A cooperative is a different kind of business structure from those listed previously in that it is owned and operated by its customers
– Profits and earnings are distributed to owner-users (its members)
– Common cooperatives include
- Healthcare providers
- Agricultural endeavors
– Not all cooperatives are incorporated
– To learn more about the rules and requirements of starting and operating a cooperative, see this government guide on How to Start a Cooperative.
– A non-profit organization does not pay dividends to its investors. Instead, profits go toward improving its services
– Non-profits can receive government assistance including
- Tax breaks and exemptions
- The ability to purchase government surplus goods
– Most non-profits are incorporated
– Becoming a non-profit is complicated and requires extensive paperwork. To learn more, read How to Start a Non-Profit Organization
– For in-depth resources on choosing your business structure, refer to this guide from Entrepreneur Magazine.
– Every state is different. Learn your state’s unique filing requirements.
Choosing a Business Location
Determine Your Needs
If you are searching for a business location, such as an office, storefront, or warehouse, determine what you will need the space to do for your business when deciding on where to set up shop.
- What location (what kind of neighborhood, what kind of building) will be attractive to customers and clients?
- How much space do you need?
- Are you planning on growing? Will this space accommodate growth, or will you have to begin the search all over again?
- How much can you afford to most likely rent, or possibly buy?
- What unique needs does your business or industry have? How do these need to be reflected in your business location?
- Who are your ideal neighbors?
- What is your budget for costs to outfit, renovate, and then maintain the location?
Evaluating a Location
You should view several different available locations before deciding on one. When evaluating the different locations and weighing the advantages and disadvantages of each, keep in mind:
- Is the rent within my budget?
- Will your customers and clients want to go there?
- Is the location in a safe area for you, your employees, and your customers?
- Proximity – how close is the location to
- Your potential customers and clients
- Your suppliers
- Labor – will there be people in the area to hire?
- Your employees – when you hire them, will it be easy for them to get to work?
- Do you have competition in the area? Can the market sustain both your businesses, or just one?
- Will this space accommodate growth?
- Ideally, how long would you want your business to occupy this space?
- Zoning – are there restrictions on what kinds of businesses can operate here, or restrictions on how you can conduct your business there?
- How much work will need to be done to get the location ready for business?
- Will technology need to upgraded, or put in entirely?
- Does the space need to renovated, outfitted, or equipped in any way?
- How much will this cost?
- Taxes – city, county, and state business and property taxes vary. Determine what the tax difference would be between one location and another
Ask Your Peers
When beginning the search or weighing locations, the best resource for helping you in your decision may be your peers. Many of the 28 million small businesses in the United States have created local and national small business associations. These peer groups share tips and discuss issues affecting small businesses, such as finding a business location.
– Most cities and towns have local small business association chapters. Ask other business owners, or search online to find one in your area.
– There are several national small business associations. These associations offer members access to resources covering every area of small business ownership. Some may have local chapters in your area.
- National Business Association
- National Federation of Independent Business
- National Small Business Association
- Small Business Community Association
- United States Association for Small Business and Entrepreneurship
Registering a Business Name
In many cases, you will want (or be required to) register your “Doing Business As” (DBA) name. Your DBA name is a fictitious name that is different than your personal name (though your personal name can be included in it).
When you form a business, your legal name is used as the business name until you register a DBA name. Usually, your business name is registered when you register your business, as it is required on all forms and applications.
Does My Business Need a Business Name?
- For sole proprietorships and partnerships, a business name is not required. Using your legal name is fine. However, if you want to use a DBA, you will need to register it.
- Corporations and LLCs are required in many states to have a business name (which may be as simple as Your Name, LLC) and must register them.
Most states require that businesses register their DBA names, although some do not.
To register, you will need to either register with your
- County clerk’s office
- State government
Check local commerce websites or ask your local small business association to find out where you need to register.
Getting a Tax Identification Number
When starting a business, one of the most important (and time-consuming, and complicated) requirements you will need to manage is your taxes. The first step to staying on top of your taxes is to get your tax identification number, formally known as your Employer Identification Number (EIN) . Your EIN is a nine-digit number assigned by the IRS that is used to identify what kinds of taxes your business owes.
Getting Your EIN: Apply online for your EIN. Once your application is complete, you can get your EIN immediately.
- Read the IRS’s guide to Understanding Your EIN.
- For more information on tax identification numbers, including what to do if you misplace your EIN or need to close your account, see the SBA’s information on obtaining your federal business tax ID.
Registering for State and Local Taxes
Your EIN helps pay taxes at the federal level; however, small businesses may also be subject to state and local taxes. These taxes vary by state, county, and even city, so it is important to do your research and know what taxes will apply. This is also an important consideration when deciding on your business location.
- State Taxes: The Small Business Administration has collected the links you’ll need to register your business and pay taxes in whichever state you choose to operate in.
- Local Taxes: Almost all cities and towns tax businesses for the privilege of doing business within their communities. Visit the business section of your city or town’s website to learn what local taxes your small business may be subject to.
Obtaining Business Licenses and Permits
Depending on your business, you may need to obtain licenses and permits to sell your goods or provide your services. There are three levels of licenses and permits:
– Federal: only certain businesses need to get federal licenses and permits, such as businesses that
- Sell alcohol or firearms
- Transport agriculture or livestock across state lines
- Operate in commercial fisheries
- Broadcasts via radio or television
State and local licenses and permits vary greatly by type of business and municipality.
Find What Your Business Needs
To learn what businesses and permits your business will need, use the SBA’s Permit Me tool to begin the process. Simply enter your zip code and type of business to begin searching.
There are many resources and programs available to help businesses get off the ground.
- Use BusinessUSA’s Access Financing wizard to find government resources, such as loans and grants, that are available for financing your small business
- SCORE is a non-profit association that helps mentors small business owners and offers free or inexpensive workshops
- Resources may be available for companies that qualify as microbusinesses. Look for a local organization similar to the Microbusiness Advancement Center of Southern Arizona in your area.
- “Going green” is becoming more and more common as small businesses seek to have environmentally friendly and/or sustainable business practices. Learn more about how your business can become certified green, and the many loans and grants available to green businesses.
- Visit these pages to learn more about programs and opportunities available specifically for businesses owned by:
Financing a Small Business
The old saying “you have to spend money to make money” holds especially true when starting your own business.
Money (and sometimes a lot of money) must be spent before being ready for customers and clients. Some typical startup essentials include:
- Renting a business location
- Renovations and outfitting your place of business
- Purchasing tools, equipment, and other assets
- Buying insurance
- Purchasing inventory
- Marketing costs
- Business licenses and filing/registration fees
- Hiring your team
Estimating Your Costs
To know much seed money (or startup money) you will need to start your business, you will need to estimate your costs.
- List all one-time startup costs – these are expenses you will only have to make at the outset, such as
- Business license fees
- Business registration costs
- Renovating your business location
- Buying essential tools and equipment
- List all ongoing costs – these are expenses you will have to make at the outset, and also throughout running your business, such as
- Rent and utilities
- Maintaining inventory
- Insurance premiums
- Employee pay
- Regular maintenance costs
- Out of your lists of startup and ongoing costs, decide
- Which costs are essential – what expenses are necessary to doing business
- Which costs are optional – can you save money on these expenses by going without them or looking at cheaper alternatives?
- Now, determine which costs are
- Fixed – expenses that remain the same or mostly the same over time
- Variable – expenses whose prices may fluctuate based on the market, time of year, or other factors
- Lastly, create a startup budget using the lists created above
- Use worksheets to help plan out your startup budget
- Many of the tips we give in our guide to creating a personal budget apply to creating a business budget as well
- Be aware that some startup costs can be taken as tax deductions
Preparing Financial Statements
Financial statements are a necessity of running a business, and not just for tax purposes. Smart and successful business owners scour their financial statements to understand
- Where their money is coming from
- What may be draining their funds, or using a disproportionate amount of assets
- What direction the business should be going in
We’ll give a brief overview of financial statements and their components. For a more in-depth look at financial statements, read the SBA’s guide to Preparing Financial Statements.
There are two main financial statements used by businesses around the world: the balance sheet and the income statement.
The balance sheet includes:
- Net Worth
- The value of the company, accounting for assets owned, expenses, and debts
The bottom line of the balance sheet gives the best look at a company’s finances: Assets + Liabilities = Net Worth.
The income statement shows earnings and expenses over a period of time; it shows how much money is coming in, and how much is going out.
- Also known as a profit and loss statement
- Not as detailed as a balance sheet
Cash Flow Analysis
Something financial statements may not make as clear, but that is crucial to running a business, is cash flow. Cash flow is money coming in to your business and going out from it.
- Going In:
- The sale of goods and services
- Loans and credit
- Selling assets
- Going Out:
- Business expenses
- Debt payments
- Legal, licensing, and tax payments
Managing and Predicting Cash Flow
To make payments on time to employees, lenders, and suppliers, your company will need money in its bank account, and that is why analyzing cash flow is so important to staying in business.
- Examine income statements to forecast future cash flow trends
- Use worksheets to analyze current cash flow and predict future
- Read more about Understanding Cash Flow Analysis
The goal of every business endeavor is to make a profit, or to earn more money than you spend. Many small businesses will lose money before making a profit – after all, those startup costs come before any money can be made.
Earning as much money as you have spent is called breaking even. To find your business’s break even point – how much money you will have to make to cover costs, including startup and ongoing expenses – you will need to determine three factors:
- Fixed costs
- Variable costs
- Pricing – how much you will charge for your goods or services
- Covering all costs, including startup costs, should be a factor in determining your prices
Once you’ve identified all three, you can find your breakeven point using this formula:
For instance, say you run a business selling homemade barbeque sauce.
- Your fixed costs are $500 a month for equipment, marketing, and reserving a table at the weekly farmers market
- Your variable costs are $5 per bottle for ingredients, other materials, and labor
- You charge $10 for a bottle of your barbeque sauce
With these costs and prices, you would need to sell 100 units a month to break even.
- Increasing the price to $15 a bottle, you’d only need to sell 50 to break even, but might attract fewer customers
- Decreasing the price to $8 a bottle might attract more customers, but you would need to sell 167 bottles a month to break even
- Use this Breakeven Analysis Tool from Harvard Business School to find your breakeven point.
Common Options for Funding Your Business
Startup costs can be expensive, and business owners may not have the money on hand to pay for all costs up front. Additionally, businesses may need more money to expand and purchase new assets, or may need some money to pay employees during a project while waiting on the big payday at the end.
To help with these costs, small businesses can apply for financing.
Equity Financing vs. Debt Financing
There are two main types of financing:
- Debt financing: receiving a loan or credit from a lender, such as a bank
- Businesses must pay back the principal of the loan plus interest over a designated period of time
- The lender does not receive an ownership share of the company, and has no say in how your business is run
- The relationship between lender and borrower ends when the loan is paid back
- Equity financing : a business gives investors shares (a stake in the company) in exchange for capital (money)
- Investments are a risk for the investor – businesses do not have to pay back investors if they fail
- The investor has an ownership share in the company and a say in decisions, based on how much they invested
- The relationship between business and investor ends when the investor sells his or her shares in the company
– Read this article to learn more about the pros and cons of debt and equity financing.
Within the main groups of equity and debt financing, there are several different avenues small businesses can take to receive financing.
- Loans are a common form of debt financing
- Small businesses borrow money from lenders. Businesses repay these loans over a designated period of time, with interest
- Lenders, such as banks, credit unions, and other financial institutions, do not receive a stake in the company in exchange for the loan
- The U.S. Small Business Administration offers a variety of loan programs for small businesses, including microloans (small, short-term loans) and disaster loans for businesses affected natural disasters.
- Federal, state, and local governments also offer small business loans for qualified companies; visit the Access Financing wizard to see if you qualify for any
- Check with your local bank or credit union to see their small business loan options and if your business qualifies.
- Grants are gifts of money from the government or other institutions that do not have to be repaid at later date
- As a result, obtaining grants can be difficult
- Often high competition
- Lengthy application process
- Stringent requirements
- Grants are most often reserved for business that
- Search for government grants from federal and state agencies through the Access Financing wizard
- Also try the Grants.gov database
- Some large corporations have grant programs for entrepreneurs. Keep an eye out for advertisements about their programs, or search the websites of large corporations. Some examples of corporate grants for small businesses are:
- Venture capital (VC) is a common form of equity financing
- Venture capitalists, usually wealthy individuals with savings to invest, give young or growing businesses money in exchange for a proportionate ownership share
- The venture capitalist’s goal is to earn a significant return on their investment by helping the company grow in value
- VC is a popular option for companies that may have difficulty obtaining traditional financing, or need more capital than traditional lenders will give them
- To learn more about venture capital and the VC process, see this article
Exploring Funding Options
Shopping for a Bank
- An early decision small business owners will have to make is choosing a bank, both to deposit money and to take out loans.
- When shopping for a bank, be sure to take the following into consideration:
- Are there any fees associated with making bank transactions?
- Is there a minimum to how much you have to have deposited in your account?
- What is the bank’s ability to make loans? How much can they loan your business?
- Does the bank make federally subsidized loans through the Small Business Administration loan system?
- Can the bank offer a corporate credit card?
- Do you prefer to work with a national bank, which may have higher loan limits?
- Or do you prefer to work with a smaller, local bank, which may be able to offer more customer assistance and flexibility?
- Read more about choosing a bank in this Wall Street Journal guide, How to Shop for a Bank.
- Check out the FDIC’s Banking Tips for Small Companies.
Borrowing from Friends and Family
For small loans or when obtaining traditional lending is difficult or not an option, some business owners may borrow funds from their friends and family. These arrangements can be greatly beneficial for both parties, but if not done properly, can be a significant strain on personal relationships.
– When borrowing from friends and family, be sure expectations are clearly set on:
- Repayment schedule
- How funds will be used
- How repayment will be made
- Whether the loan should be considered debt or equity financing
- Is this simply a loan, or can the lender have a stake in the company?
- Along those lines, how much say will the lender have in company decisions? Some or none at all?
- Keep in mind these 6 Tips for Borrowing Startup Funds from Friends or Family.
- Get advice from the Wall Street Journal on How to Borrow from Family and Friends.
- It can be tricky keeping loans from family and friends strictly business. Learn how to navigate this situation successfully.
Tapping an IRA or 401(k)
Some business owners may choose to use their retirement savings to finance a new business venture. Tapping a retirement fund such as an IRA or 401(k) can provide the funding needed to get a successful business off the ground. However, there are some things to keep in mind:
- Tapping a retirement fund can be legally complex
- Tax considerations are an issue
- There may be penalties for withdrawing early from a retirement fund
- Withdrawing from a retirement fund now may make achieving retirement more difficult in the future
- Read Inc. Magazine’s thorough guide on How to Finance a Business With Your 401(k).
- Be sure to consider The Risks of Tapping Your Retirement Fund for an Alternative Use, such as funding a small business.
- Read these stories from business owners who used retirement savings to fund their businesses. Learn more about the risks and potential rewards.
Choosing a Credit Card
Many credit card companies offer credit cards specifically for small businesses, with special rates, credit limits, and features.
A small business credit card can useful in
- Building a credit history for your business
- Making small purchases on credit
- Offering special benefits including
- Rewards points
- Travel miles for frequent fliers
- Cash back
Popular small business credit card features include
- Higher spending limits than a personal credit card
- Expense tracking and expense reports
- Multiple employee credit cards on one account
- Fraud protection
- Read our guides to Credit Cards and Credit Management to learn what credit cards are, how they work, and how to develop healthy credit habits.
- Credit card companies, banks, and credit unions all offer credit cards for small businesses. Contact them directly to get quotes on interest rates, fees, credit limits, and other features
Government Grants for Training
Government funds are allocated for programs that help small businesses train their employees. These funds can be available as grants or tax deductions, helping businesses save money on developing their workforce.
It can be difficult to find where these grants are available. Try checking:
- The U.S. Department of Labor
- The U.S. Economic Development Administration
- Local and state economic development agencies
- The National Association of Workforce Boards
- Local workforce boards
- Local community colleges
- Public universities
- CareerOneStop job centers
Business Operations Guide
Filing and Paying Taxes
1. Obtain your federal tax ID.
2.Determine your federal and state tax obligations.
3. Research tax deductions applicable to your business. Tax deductions reduce the amount of income subject to tax; basically, you pay someone else for goods purchased or services rendered rather than paying that money to the government as tax. Businesses can commonly take deductions for:
- Business expenses
- Travel costs
- Auto expenses
- Charitable donations
- Business startup costs
- Use of a home office
- Employee Pay
Spend some time on the IRS website to learn more about deducting business expenses, and which deductions your business may be able to take.
4. Determine when your tax year starts. A tax year is your business’s annual accounting period for income and expenses. Sometimes, your tax year follows the calendar year and begins on January 1; in other cases, you may start your tax year on a different date. Learn more about determining when your tax year starts.
5. File your taxes. Small business owners can file their own taxes online using an online filing service. Many of these services will walk you through your taxes step-by-step and help find deductions for your business. Some popular services include:
- IRS e-file – Small business owners who have prepared their taxes can file them directly to the IRS with electronic filing and payment options.
- TurboTax – TurboTax helps business owners prepare and file their taxes, and offers separate services for sole proprietors or contractors and corporations, partnerships, and LLCs.
- H&R Block – In addition to online preparation and e-filing, H&R Block users can consult with tax experts at H&R Block locations across the country.
- TaxACT – TaxACT is another online preparation and e-file option for small business owners, and offers a free trial of their software.
- Jackson Hewitt Online – Jackson Hewitt Tax Service offers an online preparation and filing options for business owners and the self-employed that comes with unlimited online chat and email support.
Insurance and Benefits
Required Employee Benefits
Employers are required by law to offer certain benefits to employees. The required benefits are:
- Social Security Taxes: Employers must match the tax their employees pay to Social Security, which is 6.2% of income. If self-employed, you are taxed at double the rate, 12.4%, because you have to pay the employee tax and the employer’s match.
- Unemployment Insurance: Some businesses with employees may be required to pay taxes for unemployment insurance, which offers benefits to employees who find themselves out of work through no fault of their own (such as when their employer goes out of business). Visit your state’s website to see if you are required to pay unemployment insurance tax.
- Workers’ Compensation: Most states require businesses with employees to have workers’ compensation insurance, which protects workers if they get injured on the job. Contact your state’s labor office to find out if your business is required to carry workers’ compensation insurance.
- Disability Insurance: Select states and territories require businesses with employees to provide insurance in case the employee cannot work because of a non-work related injury or illness. These states and territories are
- Leave Benefits: It is optional for employers to offer most kinds of leave benefits, such as paid, partially paid, or unpaid
- Vacation time
- Sick leave
- Bereavement leave
- Time off for jury duty
However, the Family and Medical Leave Act (FMLA) does require employers to provide leave for certain situations including:
- Maternity leave for the birth of an employee’s child
- Time off to care for a spouse, child, or parent with a serious health condition
- Medical leave for an employee’s own serious health condition
Optional Employee Benefits
The following are employee benefits that some employers choose to offer. Providing employees with these optional benefits can be a competitive advantage in hiring employees, creating a better work environment, and enticing good employees to stay in their jobs.
– Health Plans: A common optional employee benefit is employee health care plans. There are three main health care options for employers:
- Group Health Plan – Use the Department of Labor’s Health Benefits Advisor for Employers to see if your business meets the requirements to offer a group health plan
- Affordable Care Act (ACA) – The recent ACA offers tax credits for employers who offer health care to their employees. Learn more about how the ACA affects small businesses
- Consolidated Omnibus Budget Reconciliation Act (COBRA) – COBRA provides some former employees and their families who have lost their benefits with temporary health care. Learn more about your business’s obligations under COBRA
– Learn what small businesses with 50 employees or less need to know about offering coverage through the Small Business Health Options Program
– Check out health care plan options for small business on the SHOP Marketplace
– Research health plans for small businesses offered by major providers nationwide
– Retirement Plans and Pensions: Many employers offer benefits to help their employees save for retirement. Employers can get tax breaks for doing so. There are four common kinds of employee retirement plans:
- SIMPLE IRA – easy to set up, low cost, and employer matches to employee contributions are tax deductible
- SEP Retirement Plan – easy to setup and manage like the SIMPLE IRA, but may be a more affordable option for non-employer businesses
- 401(k) – a common retirement plan is the 401(k), which allows employees to contribute a share of their earnings to individual retirement accounts. 401(k)s are also available for non-employer business or the self-employed
- Payroll Deduction IRA – employers set up the retirement program, and then employees choose how much of their earnings are deducted and deposited in their individual IRAs
– Get help Choosing a Retirement Solution for Your Small Business, and learn more about the kinds of retirement plans available
– Consider the pros and cons of each kind of retirement plan
– Use the Small Business Retirement Savings Advisor to choose a retirement plan for your employees
– Employee Incentive Programs: Businesses may choose to implement employee incentive programs. These are special perks or rewards for employees, and may be based on reaching certain milestones. Employee incentive programs can be an inexpensive way to provide benefits to employees while building revenue. Common examples of employee incentive programs include:
- Company functions involving employee families, such as picnics or other group outings
- Employee recognition events, which can be part of lunches or happy hours
- Tuition reimbursement
- Creating employee lounges or rest areas
- Wellness programs to encourage healthy lifestyles
- Discounted or free memberships to gyms, museums, and other organizations
Many well-known organizations have their own employee incentive programs. Here are some examples of their successful and creative incentive programs.
– Learn How to Build a Competitive Employee Benefits Package to attract new employees and keep the ones you already have
Resources for Running a Small Business
Accounting and Bookkeeping
- Read a full overview of Accounting Basics for small businesses
- Use the Department of Labor’s FirstStep Advisor to understand your business’s requirements as an employer for recordkeeping, report, and notices
- Or read the recordkeeping laws in full
- Follow these three steps to keeping your books
- Be aware of the Top 10 Bookkeeping Mistakes Made by Small Businesses
Hiring and Retaining Employees
- Hire your first employee with care – pick the right person to be employee #1
- And learn the 10 regulatory steps your business needs to take to be tax compliant
- Learn the difference between hiring a contractor and hiring a full-time equivalent (FTE) employee
- Consider the advantages and disadvantages of hiring a contractor or an FTE
- Attract applicants for open positions at your business by writing effective job descriptions
- Learn about the different pre-employment background checks when you may want to conduct when hiring
- Keep in mind your applicants’ rights when conducting background checks
- Hire the right employees by conducting effective job interviews
- Learn best practices for employer interviewing
- Follow these 12 steps to conduct the perfect job interview
- Be a better interview by following these 9 tips
- Try asking these 4 interview questions that get to the heart of a candidate’s potential
- When you’ve found the right candidate, make the perfect job offer
Selling Your Business
- If it’s time to move on or you’ve been made an offer you can’t refuse, be sure to sell your business the right way