Start Right: Build Your Own Business
Start Right: Build Your Own Business
“As a prospective business owner,
you are getting ready to begin
the most demanding and rewarding
journey of your life.”
– Jeannine Lecy, co-author,
“Start Right: Build Your Own Business”
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Start Right: Build Your Own Business
Chapter 1…
Laying the Groundwork for a Strong, Successful Business
“The only time dreams are free
is in the beginning.
The dream is free; the journey isn’t.”
– John Maxwell, leadership expert,
speaker and best-selling author
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• You have an idea for a new business.
You desire to be your own boss;
in fact, you are passionate about it.
• Starting a business is hard work – harder
than you can imagine – but this book
will explain the practical steps you
need to take.
• Above all, you need to believe in yourself
and your dream.
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• Confidence
in yourself and
determination
to achieve
your dream
will motivate you
to persevere and
see your ideas
become a real,
viable business.
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Write a mission statement
• Describe what you hope to achieve
with your small business. How will you
know when your business is a success?
• Your mission statement only needs to be a
sentence or two, such as: “I will own
the most successful restaurant in the
state” or “I will provide quality legal
services to people who need
representation.”
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Write a mission statement
• Keep your mission statement in a place
where you can see and read it often.
Let it remind you of your dreams, goals
and vision for your business.
• As you face challenges, your mission
statement can be a tool to help you
keep your momentum and stay
committed to starting your business.
Let your mission statement remind you
that you are passionate about what you
are doing.
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Research is essential to your success
• You can learn more about
the type of business by
conducting online
searches, reading books
at the library, and subscribing to relevant
trade magazines.
• Become familiar with businesses in your area
that are similar to the one you want to
open. Visit them in person.
• Is there a need for your potential business?
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Find out as much as you can about businesses
in your area who could be your competitors,
such as:
- How many similar businesses already exist?
- What products or services do they provide?
- What do they charge?
- Are they busy, or slow?
- What do you like about visiting their business?
- What would you do differently?
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• If you plan to start an online business and
sell products on a web site, compare
other web sites and find out as much
as you can about other web-based
businesses that might be your
competitors.
• If you want to leave your job to start
a similar business, find out if you have
signed a non-compete clause, and what
it covers.
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• Even if you have not signed a non-compete
clause, as a current or former
employee, you cannot take client lists
or trade secrets from that business,
either while you are working there or
after you have left.
• You may not send your employer’s clients
information about your new business
while you are still working for your
employer.
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Take notes
• As you conduct research and observe other
businesses, you gather a lot of
information. You will have questions.
Keeping track of your questions and
ideas is worth your time. Make careful
notes you will understand when you
review them later.
• Use a journal, or keep digital notes by sending
yourself text messages or e-mails.
Organize and store all your notes so you
can find them easily when you need them.
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Initiative, passion, willingness to learn
• The future success of your business will
depend on your initiative and your
willingness to be dedicated, devoted
and work hard now.
• Your passion for your future business will
keep you going when you encounter
difficulties and setbacks.
• Have a willingness to learn what you don’t
know. You will stretch yourself beyond
what you thought you were capable of
– but that’s how you grow and become
successful.
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Initiative, passion, willingness to learn
• Your skills and reputation aren’t enough
to start and run a business.
• Your proficiency will help you build a
reputation and can give you an edge
over your competition.
• Ask as many questions as you can and talk
to as many people as possible who can
help you learn how to run your
business.
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Involve your family
• If you have a family,
your time with them
will be interrupted by
the demands of a
new business.
• Have a family meeting
so everyone understands that you will be
working 50 to 70 hours a week – maybe more.
Acknowledge that your family will make
sacrifices, too.
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• Set some rules or boundaries about how
your business will affect your family so
everyone knows what to expect.
- Which days of the week will you work?
- How many hours a week will you work?
- Will you work on weekends and holidays?
- Can work or clients interrupt family time?
- How much of your own or your family’s money
will you put into the business?
- How soon do you expect to earn an income?
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Building a business takes time
• The idea of starting a new business is exciting,
but don’t let this excitement convince you
that you can quit your current job. You will
probably need to work at a full- or
part-time job while you start your business.
• When you set up a business, you will incur
expenses before you ever receive a
payment for your product or service.
How will you pay your bills? Don’t quit your
job unless you have enough savings to
support yourself and pay routine business
expenses for 12 to 18 months or longer.
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Review
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• You must believe in yourself and your dream.
Confidence in yourself can help you persevere and
reach your goal of opening a business.
• Research the type of business you want to open.
Visit similar businesses in your area.
• Take notes; organize them so you can refer to them later.
• Initiative, passion and a willingness to learn are key.
• Involve your family; set boundaries so your family knows
you’ll devote time to them as well as your business.
• Remember that building a business takes time.
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Chapter 2 … Writing Your Business Story
“Whenever you see a successful business,
someone once made a courageous decision.”
– Peter F. Drucker,
author and management consultant
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What is a business plan?
• Crafting the story of your business
can be an exciting process.
• You are moving forward, taking your notes
and turning them into a thoughtful plan
that will help you turn your dream into
a reality.
• Your business plan doesn’t have to be long,
but it should help you clearly explain
your business to others.
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• A business plan helps you and others answer
basic questions about how your business
will operate.
• Pulling your business plan together will motivate
you to research the questions you don’t have
answers to. It will encourage you to think
through your ideas.
• Your business plan needs to be in writing and will
evolve as your business grows. Ultimately,
your business plan will become the key
instrument for communicating your plans to
associates, bankers and others who may play
a role in your business.
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Describe your business
• What is your mission or purpose?
• What will you call your business?
• What product will you sell or what service will
you provide?
• Why is your product or service needed?
• How qualified are you to provide this product
or service?
• Why will be it be successful? What are the
pitfalls?
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Describe your business
• What does it take to make the product or
provide the service?
• What skills or training do you have that others
may not?
• When will your business open?
• Will you rent space or have an office at home?
• Who is your backup if you are ill or
have an emergency?
• Will you need space to manufacture a
product? Will you need a warehouse?
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Describe the market
• Are people willing to
pay for your product
or service? How much?
• How did you arrive at the cost of your
product or service? Will you make
a profit?
• Who are your competitors?
What makes you different from them?
What makes you better than them?
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Describe the market
• Who are your customers? What are their
demographics? (Age, income level,
education level, etc.)
• How will people or businesses who need
your product or service hear about you?
• Will you have a client base right away?
Are those clients committed to using
your product or service?
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Describe your financial plan
• How will you pay for your business start-up?
- A second job
- Borrow the money
- Use savings
• Will others invest in your business?
• How long will it take for you to
repay them?
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Describe your financial plan
• What do you expect to earn?
• How much will it cost to run your business?
• What financial alternatives do you have
if your business doesn’t generate
enough revenue?
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Describe your business management plan
• Will you be the
only employee
at your business?
• Does your business
background or other
experience help you in this new business?
• Are you physically suited to this business?
• Will you need training or licensing?
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Describe your business management plan
• What hours will your business be open?
• If you have staff, what are your personnel
policies and procedures?
• What is your policy regarding
refunds and returns?
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If you want to buy an existing business
• Are you hoping to buy a business that is
already doing well and gain its income,
or are you hoping to buy a business’
client list?
• Buying a business can be more expensive
than starting from scratch because you
are paying for some of the fundamental
resources that are already in place.
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If you want to buy an existing business
• You will need a business plan. A well-crafted
business plan will help you have realistic
expectations about that business.
• You will need to research the business so
you can determine how much it is worth.
• The Small Business Administration offers
guidelines for anyone who is considering
buying a business. Go to
www.sba.smallbusinessplanner/start/
buyabusiness/index.html
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If you want to buy an existing business
• You will need to gather as much information
as you can about the overall health of
the business. Asking the right questions and
thoroughly researching the business can
empower you to get the best purchase
price so you can buy, and run, a
successful business. If the business
you want to buy turns out
not to be a good deal, walk away.
• Because you will be asking for a great deal of
information, tell the seller you will sign
a confidentiality agreement.
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If you want to buy an existing business
• Do you know why the seller is selling the
business? Does his or her answer seem
reasonable and honest?
• Can you verify what the seller is telling about
why the business is for sale? Check with
the Better Business Bureau to see if the
business has complaints against it.
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If you want to buy an existing business
• Ask for the business’ profit and loss
statement for the past three years.
Insist on obtaining the business owner’s
tax returns for those same three years.
Have your accountant compare the
profit and loss statements and tax
returns. Both are essential, because
figures may have been manipulated on
unaudited financial statements.
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If you want to buy an existing business
• Ask for a detailed list of all equipment,
inventory and supplies being sold with
the business. Go into the business and
physically inspect everything on the list.
• How is the seller determining the price he or
she is asking for the equipment,
inventory and supplies?
• If large equipment and vehicles are included in
the cost of the business, always ask for the
year, make, model and serial numbers of
each. Your accountant will need to put
these items on a depreciation schedule
for tax purposes.
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If you want to buy an existing business
• Are the building and land for sale, or are
those leased? Can the building be
remodeled? Who pays for repairs? Who is
responsible for increases in taxes and
insurance?
• Is the client list for sale? Purchasing a client list
is often referred to as purchasing “blue
sky.” If you buy the client list, keep in mind
there is no guarantee that the business’
current customers will purchase from you
if you own the business.
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If you want to buy an existing business
• Insist on a business appraisal. A business
appraisal can help you determine the value
of the business and may help you avoid
paying more than the business is worth
when you buy it.
• Will you be assuming Accounts Receivable?
This is the money that customers currently
owe the business. Ask for an aged
accounts receivables report. This will show
if the accounts are 30, 60, 90 or more days
old. Receivables that are more than
60 days old are difficult to collect.
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If you want to buy an existing business
• Will you be assuming Accounts Payable?
This is the money the business currently
owes its vendors. If you are responsible
for the payables, what income will you
have to pay them with?
• Are there any other liabilities that are
attached to any equipment, or are there
liens against any equipment?
• Are there any outstanding taxes that need to
be paid? Do you have enough income if
you are faced with a tax bill right away?
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If you want to buy an existing business
• Ask to see the projected cash flow. What is
the business’ projected income for the
next year? Your potential income and
success will depend on the financial
health of the business now, as well as
new ideas you bring to the business
when you run it.
• Will the seller help train you? Do you want
the seller’s help? Do you have
experience with this type of business?
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If you want to buy an existing business
• Review all the business documents with
your accountant.
• Have your attorney draw up a contract when
you are ready to buy. Have your
accountant review it, as well.
• If the business includes a building and land
for sale, those should be in a separate
contract.
• If your accountant or attorney advises you not
to sign the contract, take his advice and
have him explain why. You must take those
recommendations seriously, no matter how
much you may want to buy a business.
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What about work-from-home ads?
• Research is essential. Check with the Better
Business Bureau to see if the company
offering work-from-home jobs has complaints
against it.
• Go to Google.com, type in the company name and
‘scam’ and see what results turn up.
• Beware of businesses that want you to reship
goods. Often, the goods are stolen.
• Don’t send money until you are certain the
company is legitimate.
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Review
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• A business plan helps you answer basic questions about
how you will run your business. It gives you a
chance to think through your ideas and explain
your business to others.
• In your plan, describe your business, the market, your
financial plan and your business management plan.
• If you want to buy an existing business, you need a
business plan and lots of research. If, after doing all
the research into a business, it does not turn out
to be a good deal, walk away.
• Research can help you avoid work-at-home ad scams.
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Chapter 3 …
Getting Your Personal Finances in Order to Help Your Business
“Real success comes in small portions day by day.
You need to take pleasure in life’s
daily little treasures. It is the most important thing
in measuring success.”
– Denis Waitley,
author, motivational speaker
and productivity consultant
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Are you financially ready?
• How do you know if you can afford to go
into business for yourself?
• The best way to find out is to look at
your personal finances – they will act
like a key that can open or close the door
to your new business.
• Lenders and prospective investors will view the
way you handle your personal finances as
the best indicator of how you will handle
your business finances.
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Find the money
• Finding the money to open a business can
seem difficult when you are constantly
paying for life’s unexpected expenses.
• A written plan, or a budget, will be your
lifeline when things get tough.
• A budget will show you exactly where your
money is going. A budget is the best tool
you have for saving the money you need
to start your business.
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A good budget is based on goals
• Treat your budget like something that
can help you get what you want.
• A good budget is always based on what you want
to accomplish with your money. Let your
goal of starting a business inspire you to
create a personal budget.
• Keeping your goals in mind can help you stick to
a budget. Write a few goals on an index
card and put it in your wallet. When you are
tempted to spend money, ask yourself:
“Will this purchase help me reach my goal?”
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Know your personal income
• Calculate the amount of money you’ll need
to support yourself and your family
while you start a business.
• You need to determine your income from
any and all sources.
• Figure out your gross income and net income.
• Create your budget based on your net
income. After deductions, you can
expect to take home 70% to 80% of
your gross pay.
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Know your personal income
• Create your budget based on income
you know you will receive each month.
If you only receive overtime
sporadically, you should not include it
in your monthly income. This also
holds true for bonuses or commissions
that you cannot rely on each month.
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A closer look at budget categories
• Fixed expenses do not vary from month to
month (such as rent or mortgage
payments).
• Flexible expenses vary in amount from
month to month (such as clothing and
entertainment).
• Periodic expenses occur every three or
four months, or even less (such as
insurance premiums, license tag
renewals, car repairs or medical bills).
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A closer look at
budget categories
• Savings belong at the
top of your budget.
If you don’t put anything
in savings, you won’t be
able to pay for life’s
unexpected expenses.
If you don’t save, how
will you have money
to start your business?
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Your ideal budget
• A budget should be personalized to fit you
and your family.
• In order for your budget to balance, the
total of all categories (housing, utilities,
food, etc.) must be equal to or
less than your net income.
• A budget should cover all of your expenses
and bills each month, and you should
not need to use credit to make up the
difference.
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Plug spending leaks
• Spending leaks are things you spend money
on almost automatically, without thinking.
These might include books, newspapers,
music, coffee, hobbies and more.
• What are your biggest spending leaks, and
why? Spending leaks can ruin your budget
and sabotage your efforts to reach
your goals.
• Decide what action you will take to stop
spending leaks. Even small leaks can
add up quickly.
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Track your expenses
• If you find yourself running out of money,
track your expenses. Keep a small
notebook with you and write down
everything you spend. This will help you
identify spending leaks.
• When it comes to your money, you have
choices. You can track or expenses, or
not. You can make a budget, or not. You
can save money to reach your goals,
or not. You will reap the rewards –
or consequences – of your choices.
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Money gains value over time
• Money saved, not spent, can earn interest and
grow over time. Even small amounts of
money can grow to large amounts when
your money earns a return.
• Setting goals, making a budget and living
within your income can enable you
to save money. When your savings earn
interest, it is growing, giving you more
money to put toward your goal of
opening a business.
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Credit
• From a financial standpoint,
you are your business. Even
though, for tax purposes,
you must keep your business
and personal finances separate,
the way you manage your
personal finances will affect
your business.
• That is why, starting now,
it is important to either
establish or maintain
good credit.
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Credit
• What is good credit? Good credit means
you make your payments as agreed on
or before your due date in full monthly
payments.
• Good credit is reflected in your credit score.
Most credit scores estimate the risk
a company incurs by lending a person
money or providing them with a
service.
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Credit
• Generally, the higher the score, the less risk
a person represents.
• The most commonly used credit score is
called the FICO score, based on a
calculation created by Fair Isaac and
Company. FICO scores range from
300 to 850.
• A new credit score, the Vantage Score, was
created in 2006. However, the FICO score
is the most commonly used credit score.
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Improving your credit
• Obtain a copy of your credit report at
www.annualcreditreport.com. You can
get a free copy of your credit report
every year. You should review your credit
report at least once a year and check it
for errors.
• You can improve your credit score by:
- Paying your bills on time every month
- Paying down your debt
- Preventing your debts from going to collection
- Not applying for too much debt
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Review
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• Are you financially ready to go into business? Find out
by getting your personal finances in order.
• The way you handle your personal finances indicates to
lenders how you’ll handle your business finances.
• A budget is a tool you can use to achieve your goals.
Savings should be at the top of your budget.
• Learn to track your expenses and plug spending leaks so
you have more money to put toward your goals.
• Establish or maintain good credit. Pay your bills on time,
in full, every month. Check your credit report every
year to be sure it is accurate.
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Chapter 4 …
Finding the Money to Run a Business
“If you work just for the money, you’ll never
make it. But if you love what you are doing,
and always put the customer first,
success will be yours.”
– Ray Kroc,
founder of the McDonald’s Corporation
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How much money will you need?
• Make a list of business expenses you
expect to have. Estimate how much each
will cost. For example:
- Lease for office space
- Utilities and phone
- Supplies
- Professional services (attorney, etc.)
- Advertising
- Inventory
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How much money will you need?
• Add your total monthly personal expenses
and estimated total monthly business
expenses. This is how much money you
will need to earn each month.
• How much money do you expect that your
business will earn each month?
How did you arrive at that number?
How many products or hours of service
will you need to provide to earn that
much money?
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How much money will you need?
• It takes time and effort to build a business,
attract customers and make a profit.
Realistically calculate the amount of
money you will need before you go into
business.
• When you open your business, your income
will not be as steady as a regular
paycheck. For those who have always had
weekly or biweekly paychecks, adjusting
to a fluctuating income can be difficult.
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How much money will you need?
• Avoid relying on credit cards to cover your
expenses while you are building your
business. This is hazardous.
•A recent study by Monmouth University in
New York showed that the more
a business increases its credit card
debt, the more likely the business
is to close.
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Using your own money
• One of the simplest ways to finance your
business is to keep your full-time job. You
will have consistent income and benefits,
and the opportunity to earn extra income
as you build your business.
• You can also use your savings to finance
your business. If you go into business
without a full-time job, be sure you know
how much savings you will need to cover
all your expenses. Hope for the best, but
plan for the worst.
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Using other people’s money
• You may have a friend or relative who is willing
to loan you money. Have your attorney draft
a loan agreement so you both know the terms
of the loan and when it needs to be repaid.
• You may want to take on a
partner. Have your attorney
help you set up the
partnership, and put it in
writing. The written
agreement needs to state in
detail what each partner’s
responsibilities will be, and how each partner
will be paid.
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Using other people’s money
• You may want to get a loan from a financial
institution. A lender will want to see your
financial statements for you personally
and for your business.
• A lender will want to see your business plan
and projections of your business income.
You will need a start-up budget to
estimate costs involved in starting your
business.
• Before signing any loan document, have
your attorney review it.
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SBA and CDFI loans
• The Small Business Administration, or SBA, is
an independent agency of the federal
government that helps Americans start, build
or expand businesses. One of their services is
to guarantee loans. The guarantee is to the
bank or credit union making the loan to you.
• Loans may be available to you through Community
Development Financial Institutions, or CDFIs.
CDFIs are certified to provide financial help to
individuals. Many of these services are
geared to people who have lower incomes.
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Investors
• You may know someone who wants to be
an investor in your company. He or she may be
willing to invest for a return on his or her money.
• If having investors is an option
you want to consider, consult
with your attorney. Your
attorney will write the
contract for the investor –
how and when the investor
will be repaid, how much input the
investor has in your business, and other details.
• Selling stock in your company is another option
you might want to consider.
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Which option is right for you?
• Now, you have a better idea of what kind of
financing might be available to help you start
your business.
•By determining what your personal and business
expenses will be, you have a better idea of
how much money you need your business to
earn, and how much you might need to
borrow.
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Review
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• How much money will you need to go into business?
You will need enough to cover your personal
expenses and your estimated business expenses.
• You may want to consider a loan from a friend or
relative, or a loan from a financial institution.
You may want to take on a business partner,
or an investor.
• Whatever option you choose, have your attorney write
contracts so that all parties involved know their
responsibilities, including when they will be paid
or repaid for their investment in your business.
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Chapter 5 …
Finding the Right Advice:
People and Businesses Who Can Help You
“Your biggest break can come from
never quitting. Being at the right place
at the right time can only happen when
you keep moving to the next opportunity.”
– Arthur Pine, publisher and author
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Advisors who can help you
• The advice of the right professionals can help you
build your business correctly and keep it
running smoothly, and in accordance with all
the laws that might affect you.
• You will need to talk to an attorney,
an accountant, a lender, and an insurance
agent to start.
• The advice of these professionals is critical
to the success of your business. Good
professional advice early on could prevent
costly problems later.
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Advisors who can help you
• When choosing an accountant, an attorney and
other professional advisors, talk to several
before selecting one. Take your business plan
with you. Ask lots of questions. Take notes
and keep them in a place you can refer
to them later. Choose to work with
professionals who answer your questions
and with whom you feel comfortable. You
will spend a lot of time with them.
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Contact an attorney
• Find an attorney who is experienced in working
with small businesses. Start by asking your
family, friends, co-workers and people you
know who are in business if they can
recommend an attorney.
• An attorney’s advice is essential to help
determine the best type of business
structure for you.
• Once your attorney has helped you understand
the type of business structure that is best for
you, you can learn how that structure will
affect taxes, laws and regulations that affect
your business, and the types of licenses you
might need.
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Types of business structures
• Sole proprietorship – you own and control the
business. You, the owner, assume full liability.
You are responsible for all business decisions.
• Partnership – involves two or more people and is
formed to carry on a business for profit.
A partnership requires a legal agreement to
be drawn up by your attorney.
• A LLC or Limited Liability Corporation is a blend of
a partnership and a corporation.
• A C Corporation is a basic type of corporation.
• An S Corporation is a corporation that has elected
to have a special tax status.
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Contact an attorney
• Ask your attorney whether you will need
trademarks, copyrights, patents and
licenses.
• Your attorney can also file an application
with the IRS for your Employer
Identification Number, or EIN. An EIN is
required for all partnerships and
corporations. An EIN is required prior
to opening a business checking account.
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Contact a certified public accountant
• A CPA will help you set up the financial records for
your business. Having accurate, up-to-date
financial records is essential to running a
successful business and avoiding problems
with the IRS.
• A CPA acts as a small-business advisor in a
wide range of financial matters. Have your
CPA review your business finances at least
three times a year. He or she can see details in
your finances you might overlook and may
make suggestions to improve your business.
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Contact a financial institution
• You need to develop a relationship
with a financial institution.
You will want a business
checking account. You might
also want a loan from a
financial institution.
• These questions can help you find the right one:
- What services are offered for
small businesses?
- Will I have to maintain a set amount of
money in my business accounts?
- What kind of customer support is offered?
- What information must I provide before I
apply for a business loan?
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Contact an insurance agent
• Look for an insurance agent who has expertise
in the type of business you want to start.
• Ask what types of coverage he or she would
recommend, and why. Have your insurance
agent suggest coverage to protect your business
against various hazards.
• A small-business liability policy is important as you
start your business. You want protection against
potential problems in the future. You might also
need workers compensation, employee
dishonesty insurance, bonding insurance,
property insurance, vehicle coverage and
homeowners insurance.
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Register the name of your business
• Protecting the name of your business is important.
Registering the name of your business
prevents someone else from starting a
business under the same name.
• You need to register the name of your business
with your state. Have a backup name in mind,
in case someone else already has the name
you have chosen.
• If you provide services in other states, you may
want to register your business name in
those states.
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Contact city, county and state agencies
• When setting up your business, you need to
follow all city, county and state laws.
Make sure you can legally run in a
business in the location you want.
Find out what types of licenses you
need.
• If you are operating a business out of your
home, there may be special permits
needed from your city or county.
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Contact the Department of Revenue
• When you open a business, you probably
need a sales tax license, which you can
get from your State Department of
Revenue. There are few exceptions to
this rule.
• The Department of Revenue in your state can
help you determine which taxes you will
need to collect and/or pay.
• Always pay your taxes on time; the Department
of Revenue can shut down your business
quickly if you don’t.
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Contact the Department of Health
• Depending on the type of business you want to
open, the Department of Health might
regulate your business.
• You might need to take special training classes
through your state or a certified provider.
• Health inspectors can go through your facility
at any time during business hours, after
they present their identification. Some
states require monthly, quarterly and/or
annual inspections to qualify you for your
annual license renewals.
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Contact the Department of Labor
• If you will have employees right away, you will
need to contact the Department of Labor
to see what the requirements for you and
your business will be.
• You will have to learn about regulations
including state labor laws. You will need to
know about health and safety standards.
• It is especially important to understand the
difference between a contractor and an
employee. See IRS Publication 1779 for
more information.
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Find a location for your business
• A good location should be
easy for your customers
to find, and it should fit
your budget. It should
also be easy for your
staff and customers to
access, and provide a
sense of security.
• Contact a real estate broker
and explain your needs and requirements.
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Find a location for your business
• Decide whether you want to rent or buy a
facility. Do you need a high-traffic location,
or will an out-of-the-way office work?
• If you plan to rent, don’t be afraid to negotiate
with the landlord. Have your attorney
review the lease and any other legal
documents before you sign them.
• How and where will you get business mail?
• Ask your city about signage laws.
• If you will run a home-based business, find out
what city or county laws will affect you.
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Advice from family and friends
• Family and friends are often willing to tell
you what they think about your
business. Keep in mind that an opinion
is not based on facts.
• For advice to be helpful to your business,
the person advising you needs to
understand your situation and your
business.
• If your instincts are telling you not to follow
someone’s advice, don’t ignore
your feelings.
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• You need professional advisors to help you
run a successful business.
• When selecting professionals to work with,
ask lots of questions and work with
professionals who will best serve your
needs.
• Contact the appropriate government
departments in your state to be sure
you are properly licensed and following
all the laws that apply to you and your
business.
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Chapter 6 …
Understanding Your Business Finances
“You can either modify your dreams
or magnify your skills.”
– Jim Rohn, entrepreneur,
business philosopher, author and
personal development expert
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Your business finances
• To run your business effectively, you need
to know how to manage your business
finances, which takes time, skill and
diligence.
•You also need to understand the basics of
your business bookkeeping so that you
always know how your business is
doing and can spot problems if they
arise.
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Keep business finances separate
• If you mix your personal and business
finances in one account, you have no
concrete way of knowing if your
business is making or losing money.
• Keeping business and personal finances
separate is important for tax purposes.
You could face tax consequences if you
combine them.
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Managing a business checking account
• Opening a business checking account is an
essential part of keeping your business and
personal finances separate.
• You will deposit all the money you make from
your business into this account. All
purchases you make for your business
should be paid from this account.
• You will use the information from your business
checking account and business credit card
statements so you know what your
business income and expenses are.
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Keep track of your business books
• Although you need an accountant, and
you may hire a bookkeeper, you need
to know bookkeeping basics. A good
software program can help.
• Understanding some basics can help you
make better decisions now and in the
future. When you know where your
business stands financially, you can
make better decisions about large
purchases, or even expanding your
business.
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Your chart of accounts
• Every business has something known as a
chart of accounts, a document listing all
your business accounts. Your CPA will
help you develop the chart of accounts
that is specific to your type of business.
• Your accounts will fall into these categories:
assets, liabilities, equity, income, and
expenses. An example of a chart of
accounts appears on page 72.
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Your chart of accounts
• An asset is something of value you own.
• A liability is money your business owes.
• The difference between what you own and
what you owe is called equity. Assets
minus liabilities equals equity.
• Income, or revenue accounts, are your sales
from products and services.
• Expense accounts categorize the bills that you
pay for your business. Talk to your
accountant to find out which items you can
deduct as business expenses.
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Your profit and loss statement
• A profit and loss statement reflects whether
you made or lost money in a specific
period of time. This may be per month,
quarter or year. See an example on page 74.
• Your profit and loss statement lists your
sales, minus your cost of goods sold
(if you have any), minus your expenses.
If your sales are greater than your
expenses, you will have net income. If
your sales are less than your expenses,
you will have a net loss.
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Your balance sheet
• A balance sheet will list all your business
assets, minus all your business
liabilities, and your equity on a
given date.
• For business owners, a balance sheet is
a snapshot in time about the state of
their business. It can change
dramatically from one day to the next.
See an example on page 75.
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Preparing a business budget
• Your business budget will show you
whether you are ahead of or behind
your planned sales. This information will
allow you take the appropriate action.
• You will develop your budget for a year and
then break it down by month. Review
your actual income and expenses and
compare it with your budgeted income
and expenses every month. See an
example on page 77. If you are off track,
make changes before you get into
trouble.
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Your cash flow statement
• A cash flow statement shows the source
of your business’ cash and how it was
spent over a specified period of time.
A small-business owner needs to be
aware of his or her cash flow at all
times.
• A cash flow statement strictly covers cash
and tells you if your cash is increasing
or decreasing. See an example on page 78.
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Tips to improve cash flow
• There are ways to improve your cash flow
if necessary.
• You could require payment by cash or
credit card instead of allowing
customers to pay later. You could
also consider:
- charging late fees and interest
- buying less inventory and fewer
supplies
- sending out invoices immediately
after service
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Internal controls
• When you understand your business
finances, you are better able to identify
possible problems. Knowing how to
read and make sense of your business
financial statements empowers you to
deal with problems when they arise.
Accounting and bookkeeping should
never be taken lightly.
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Internal controls
• Setting up internal controls is a key part of
setting up your business. Internal
controls should cover the areas that
pose the most risk for businesses: cash
deposits and checks written, payroll,
customer invoicing, collection and
credits, and purchasing and storing
equipment, supplies and inventory.
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Internal controls
• Internal controls call for a separation of duties.
You should not give just one person –
other than yourself – access to all your
business assets and all related accounting
records. Fraud and other illegal activities
are more difficult to conceal if two or
more people are responsible for
accounting and bookkeeping duties.
Internal controls can also help prevent or
catch mistakes. They protect you and your
employees.
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Internal controls: What can you do?
• You are working hard to start your
business, and as a self-employed
person, you must protect it.
Keep your business finances in order
and stay in full control of them.
- Sign all checks
- Make your own business bank
deposits
- Maintain a list of office equipment
- Keep records of inventory
- Have your business audited
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Internal controls
Accurate, up-to-date financial records
will also help you if problems
should arise. Being disorganized
makes you a target for crime. Watch
for signs that your employees may
be putting you in jeopardy.
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Review
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• To run your business effectively, you need to
know how to manage your business finances
and understand your business books, so you
can make informed decisions.
• Your business needs a budget. This budget will
show you whether you are ahead of or
behind planned sales. You’ll also need to
understand your balance sheet, chart of
accounts and cash flow statement.
• Internal controls can help you protect your
business from mistakes and fraud.
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Chapter 7 …
Office Organization:
The Key to Having Everything You Need When You Need It
“The ability to concentrate and
use time well is everything.”
– Lee Iococca, former Chrysler Corporation
President and Chief Executive Officer
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If you are going to successfully run
a business, having good records is a
must. You need to have accurate
records to prove that you can legally
operate your business, you have paid
your taxes, you have paid your
suppliers, you can collect on invoices
from who owe you money, and more.
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Separate business, personal files
• Because your business and
personal finances, bank
accounts and credit cards
are separate, you should
organize your business and
personal files separately.
• Set up one box for your business
files and another box for
personal files. You may need
to keep some business records
permanently. IRS Publication 583 can
tell you how long to keep your various
business records.
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• Set up a business box with 80 file folders
and a personal box of 50 file folders.
See pages 84 and 85 for a detailed list
explaining how to organize your
business box. See pages 85 and 86 for a
detailed list explaining how to organize
your personal box.
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• Organizing your files is easy and doesn’t
take much time if you regularly
maintain your files. There should be a
place for anything and everything
regarding your business.
• Depending on your type of business,
you may want to consider using
simple accounting software.
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Phone and Internet service
• Many phone companies provide bundled
services, offering phone and Internet
service for one rate. Compare
companies’ offers and find the most
efficient, affordable deal for your
business.
• If you want a cell phone for your business,
compare plans to find the best one and
be sure you know how long of
a contract you will be asked to sign.
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Setting up your office
• Your office needs to be set up, with
everything in place, before you open
your doors for business.
• You will need equipment and office
supplies. Don’t buy expensive
equipment or furniture right away. A list
of recommended equipment and supplies
is on pages 87 and 88.
• When shopping for supplies, buy in small
quantities. Large quantities of office
supplies are cash on the shelf.
Put your cash in the bank, instead.
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Managing your time
• To accomplish the things you want and
need to get done, you need to stay in
control of your time.
• Prioritizing time and tasks is essential.
• Keep your schedule with you at all times.
• As a business owner, you will have tasks
that must be done daily, weekly and
monthly. There will also be tasks that
occur once a quarter.
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Making lists
• Start with a list of all the things you need
to accomplish. This is your monthly list.
• Then, decide which tasks must be done this
week. Decide which of those items
must be done today.
• There will always be many tasks that need
your attention. You have to decide
whether they will help you achieve
your goals or whether they could be
delegated to someone else.
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Your daily schedule
• Your schedule each day is based on your
daily list of things to accomplish. Leave
time for your routine activities and
lunch.
• Overscheduling can create a tremendous
amount of stress. Decide which tasks
and requests are priorities.
• Never be late for an appointment, fail to
meet a deadline or follow up on
something you said you would do.
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Your daily schedule
• You need to control your schedule.
Remember that time is money. Which
tasks will help you make money?
Which will cost you money if you
delay them?
• Time management is a discipline. If you
watch successful business people, you
will see that they each have a schedule
and a list of things they intend to
accomplish during the day.
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Review
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• If you are going to run a successful business, having
good records, being organized and managing
your time are essential.
• Keep your business and personal files separate.
Set up a separate box for each.
• You need to set up your office completely before
you open your doors for business.
• You don’t need expensive equipment, furniture
and a lot of supplies right away.
• Manage your schedule. Make lists of tasks that
must be done daily, weekly, monthly and
quarterly. Time management is a discipline.
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Chapter 8 …
Branding and Marketing:
Creating the Right Image to Attract Customers
“Pretend that every single person you meet
has a sign around his or her neck that says
Make Me Feel Important. Not only will you
succeed in sales, you will succeed in life.”
– Mary Kay Ash, founder of
Mary Kay Cosmetics
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• You’re open for business, but how will
potential customers find out about
you? In order for someone to purchase
your products or services, they have to
know about your business.
• Branding your business helps you define
how you want customers to view your
business.
• Marketing is how your future customers
will find you.
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Branding
When you create a brand for your business,
you convey a consistent look and
message you want to send your
customers.
- Appearance: A logo and color scheme
can help customers easily recognize
your business and marketing materials.
- Values: Emphasize what you want
your business to stand for – quality,
professionalism, etc.
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Branding
- Consistency: Can your
customers depend on a
certain level of courtesy
and professionalism
when they do business
with you?
- Details: Reinforce your brand, right
down to your e-mail address.
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Designing a logo and business cards
• An effective logo is a first impression of
your business, and it is an important
part of branding your business.
• A good logo should be simple, memorable
and easily recognizable.
• It should fit the theme of your business.
What feeling do you want to convey?
Friendly? Businesslike? Child-oriented?
• You may want to include a tagline,
a one-line sentence that sums up the
purpose of your business.
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Designing a logo and business cards
• After you have a logo, you can create
business cards and other marketing
materials. There are many businesses
and online sites that print business cards
inexpensively. You can have professionallooking business cards, flyers and other
materials without spending a lot of money.
After you have business cards, be
prepared to hand them out to everyone
you talk to.
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Marketing: Reach out to
potential customers
• Marketing is about building relationships –
with your customers, with other
business owners who may become your
customers or refer people to you, and
with people who can help you promote
your business.
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Marketing
• A marketing plan was probably included in
your business plan. You can use two basic
types of marketing – active and passive.
• Active marketing involves contacting people
you know and telling them about
your business. Include friends, family,
business associates, people from your church
and people you know from civic organizations
and activities in which you are involved.
If you aren’t in any activities or organizations,
now is the time to become involved.
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Marketing
• Passive marketing involves buying outside
sources (billboards, TV and radio ads,
Yellow pages ads, etc.) that market to
the general public. Passive marketing is
typically expensive because you are
marketing to a wider audience.
• Use a mix of active and passive marketing to
reach as many people as possible.
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Marketing
• When marketing your business, you need to
confidently describe the benefits of
your product or service and how your
customers can expect to benefit from it.
• As you attract customers, ask them how they
found you. What advertising did they see,
hear or read? Knowing your customers and
knowing how most of them found you will
help you focus on where you want to
spend your time and marketing budget.
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Networking
• Networking with other business people in
your community should be part of your
active marketing plan. When you are in
business for yourself, you need to take
advantage of every opportunity to meet
people who might want your product or
service.
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Networking
• There are organizations specifically designed
to help you get to know other business
owners and tell them about your
business.
• Chamber of commerce
• Business networking groups
• Trade associations and organizations
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Web sites
• A web site can help you introduce yourself
more quickly and easily to customers.
• Your customers will expect you to have one,
and it may be one of the main ways
they communicate with you.
• Your web site doesn’t have to be
sophisticated or complicated, but it
should help you brand your business by
emphasizing what is unique about it.
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Web sites
• If you want or need to
hire a web site designer,
this can be more
expensive. Compare
several designers’ work and their prices.
Hire a designer you feel comfortable
with. Be sure to sign a contract with the
designer that includes the details of
how your site will be designed and
managed.
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Social media: Reach customers online
• Social marketing – making use of social
media tools such as Facebook, Twitter
and blogs – gives you a budget-friendly
way to stay in touch with your
customers every day.
• Content you put online should reinforce
your business brand and be easily
recognizable to customers.
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Social media
• Social media is an effective way to build
relationships with customers, as long as
you use this tool carefully.
• At least 90 percent of communication on
social media should be focused on
helping your customers, giving them
useful information and getting
to know them.
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Social media
• Make a habit of using an online search
engine (such as Google or Yahoo!) to
search for your name and your business
name at least once a month. Find out
what people are saying about you and
what information is readily available
about you and your business. You will
want to correct inaccurate information
and minimize negative information as
much as possible.
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Social media
• What tools are available to you? See
pages 97-99 for explanations of some of
the most popular social marketing tools:
- Facebook
- LinkedIn
- Twitter
- YouTube
- Blogs
- E-mail lists
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Working with the media
•Forming relationships with local media can help
you get news about your business out to
the public.
• Some newspapers have pages, sections of
the paper or sections of their web sites
devoted to local business. Contact your
local paper to find out who to send
these kinds of news items to. Your local
paper might also write stories about new
businesses.
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Working with the media
• You might also want to contact your local
television stations or newspaper if your
business is involved in an event that
might make a good business story.
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Review
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• Branding your business helps you define how you want
your customers to view your business.
• Marketing is how potential customers will find out
about you. There are two basic types of marketing –
active and passive.
• Networking with other business people in your community
should be part of your active marketing plan.
• A web site can help you introduce yourself quickly and
easily to customers; they will expect you to have one.
• Social marketing makes use of social media tools to build
relationships with customers.
• Build relationships with local media; they might be able to
help you promote your business.
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Chapter 9 …
Resources:
Where to Go When You Have Questions
“Stand up to your obstacles and do something
about them. You will find that they haven’t
half the strength you think they have.”
– Dr. Norman Vincent Peale,
minister, author and founder
of Guideposts magazine
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• Starting a business can be a fun, exciting
journey – and one that will leave you
with lots of questions. Your team of
professional advisors will be invaluable to you,
but an abundance of other kinds of resources
also is available.
• Small Business Development Centers,
operated nationwide by the Small Business
Administration, or SBA, offer diverse help
and guidance to small-business owners –
and most services are provided free of charge.
For information, go to
www.sba.gov/aboutsba/sbaprograms/sbdc/
index.html
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• In addition to the SBA, many web sites such as these
offer useful information, support and advice:
Business Advice and Resources
www.irs.gov/businesses/small
www.score.org
www.bbb.org
www.allbusiness.com
www.entrepreneur.com
www.toolkit.com
http://smallbusiness.aol.com
http://ask.officelive.com/smallbusiness
www.smallbizmanager.com
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Government Sites
www.ftc.gov
Credit /Finance
www.annualcreditreport.com
www.cdfi.org
Home-Based Businesses
www.business.gov/industries/home-based
www.bizoffice.com
www.home-based-business-solutions.com/
business-resource-center.html
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Social Media Resources
See chapter 8 for a detailed explanation of
how some popular social media sites can help
your business. Other sites online can help you
maximize your use of e-mail and social media.
www.Hootsuite.com
www.mailchimp.com
www.merchantcircle.com
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Online magazines
www.inc.com
money.cnn.com/smallbusiness
www.homebusinessmag.com
Employee issues
www.dol.gov/
Trade show information
www.tscentral.com
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When you run a business,
ask for help when you need it
• When you own a small business, don’t be
afraid of making mistakes – the key is to
learn from them.
• When you run into difficulties, knowing where
to go for help is essential. The resources in
this chapter may help, or you may need to
consult your professional advisors. This
may be especially true if you feel like your
business is growing too slowly.
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When you run a business,
ask for help when you need it
• If your business is not growing at the pace
you expected, give yourself some time
limits. Decide what changes you’ll need
to make to be successful.
• Always carefully monitor the health of
your business.
• This is your business, and you make the
decisions about how much risk you are
willing to take.
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Chapter 10 …
A Checklist for Starting Your Business
“I believe going into business for yourself
is probably one of the most
rewarding journeys in life.”
– Jeannine Lecy, co-author,
“Start Right: Build Your Own Business”
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• As your business grows, you will encounter
new opportunities and challenges.
You will be pushed to grow beyond
what you think is possible, but
persistence and determination are
keys to your success.
• Remember what you’ve
read in this book, and
use it as a guide to
ensure you’ve done
the work necessary to
build a viable business.
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The checklist on pages 108-110 will serve as
reminder of many essential tasks that you,
need to do to build a solid foundation for
your business.
If you can do everything in this book, on this
checklist, you can run a business.
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“(Owning a business is) a risk.
Every day, you have to keep taking them.
Will people buy this?
Should I order more? Try something different?
Is this too expensive? Is this too cheap?
You have to spend money to make money,
and that’s scary. … I get excited when something sells,
or I get a new client, or finish a product I’m proud of,
but then you have to go right back to making it all happen.
It’s a jump, a leap of faith. Every day. But it’s worth it.”
– Jamie Meares,
entrepreneur and designer
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