ANSWERS TO YOUR SMALL BUSINESS QUESTIONS

Posted 05/30/08

Q: Don't most small businesses fail?

A: Although it's true that many new small businesses go under within their first year or two, there are usually reasons that can explain their failure. If you're aware of the pitfalls associated with the start-up of a new enterprise, you can take steps now to maximize the chances that your business will succeed.

Don't start a business you know nothing about. If you're a pastry chef, don't open an auto-body shop. Your experience, skill, and knowledge of the business you wish to run are key to its success.

You'll want to conduct extensive market research to determine if the product or service you will offer is currently in demand. Define who you're marketing to and target your message to them. Also, consider the most favorable time to market your product or service (e.g., toys at Christmas). Of course, another key to your success is location, location, location. Finally, plan your advertising campaign and consider how you will distribute your product or service.

Pay attention to your competition. Be sure your product or service offers your customers something your competitors do not.

Set up a written business plan detailing the design of your business growth. Organize a start-up team of people who have abilities you lack. Determine how you will obtain the capital to finance your project, and be sure you have adequate capital. More importantly, make sure you have enough to live on. Many new businesses do not generate income immediately. Finally, include in your business plan an exit strategy for closing the business should things not work out as you had hoped.

Source: http://www.360financialliteracy.org/

Posted 05/16/08

Q: Can I borrow money from my wholly owned business?

A: Yes, you can borrow money from your wholly owned business. Generally speaking, the terms of the loan must be reasonable and must be properly documented. Otherwise, you run the risk that the IRS could reclassify the proceeds of the loan as compensation or dividends, leaving you with an unanticipated tax bill.

Troubles may arise if you fail to structure a loan that is reasonable, based on current market conditions. The IRS can impute interest on the loan if the interest rate is too low, which would result in the business paying taxes on interest that was not received.

The loan should be documented with a promissory note signed by you and an authorized representative of the business. The note should include details regarding the amount loaned, the repayment schedule, and the interest rate. You should make the payments as required under the agreement to avoid the reclassification of the loan. Consult your tax professional to make sure that your loan will pass muster in case of an audit.

Source: http://www.360financialliteracy.org/

Posted 05/09/08

Q: What are a few unique and inexpensive ways to advertise my business?

A: Every business must first identify exactly who their ideal client is before they do any advertising. Next, they must identify where this client is searching for the product or service you have and how they make their decision to buy. Only when these items are understood should you decide on marketing or advertising your business. One of the best and least-expensive ways to advertise today is to start you own blog and insert stories about your product or service through various articles you write specifically for your ideal client. This way, you are sharing and selling at the same time. Make sure when using this tactic that you give great content to the end user.

A second way to advertise inexpensively is to barter with other people who have Web sites that cater to your ideal client. This way you can save any costs for a banner ad on their site and trade your product or service or a spot for them on your site. Many people are in the same boat trying to save money; why not help each other?

Source: John Asseroff

Posted 04/22/08

Q: What's the difference between a Limited Partnership (LP) and a Limited Liability Partnership (LLP)?

A: LPs are entities in which there is at least one general partner (with full personal liability exposure) and one or more limited partners, with personal liability protection. The general partner manages the business; limited partners are “silent investors,” putting up capital and, hopefully, reaping financial rewards. A limited partner cannot participate in the management or control of the business. A limited partner’s financial exposure is the amount he or she invests (the capital account), or has committed to invest, in the LP…nothing more. A limited partner is not liable for the debts and obligations of the partnership or of other partners.**

LLPs can only be used for certain types of professional practices (state law delineates the professions). Generally, LLPs are used for the practices of accountants, attorneys, physicians, dentists, architects, veterinarians, licensed masseurs/masseuses, and another other disciplines treated as professions under state law. The business must be limited to rendering professional services of the licensed owner-partners.  LLPs can limit the liability of partners for all things other than personal acts. For example, an LLP comprised of attorneys can limit the liability of the partners on a lease of the LLP or a lawsuit arising from a third party being injured on the premises. It cannot limit the liability of attorneys for their personal malpractice in the practice of law. Important: Depending on the circumstances and state law, an LLP can shield innocent partners from the consequences of malpractice by an offending partner. A partner’s personal assets are generally at stake in a malpractice action against another partner if the partner was supervising or directing the actions that gave rise to the action.**

Source: BizFilings

Posted 04/14/08

Q: I have a gift store online, do I need to get liability insurance and where do I get it from?

A: Even though your store in online only, liability insurance is a good idea. If a defective product harms someone, they might be inclined to sue the retailer as well as manufacturer. Liability insurance can be reasonably priced for most businesses and you should simply ask the broker who provides your other insurance policies.

Source: Nelson Davis, Executive Producer

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