By:
Chuck Woods (352) 392-1773 x 281Source(s):
Hank Cothran hmc@ifas.ufl.edu, (352) 392-1845 ext. 409
David Mulkey mulkey@fred.ufl.edu, (352) 392-1826 ext. 406
Allen Wysocki wysocki@ufl.edu, (352) 392-1826 ext. 403
GAINESVILLE, Fla. — “Take This Job and Shove It” is the title of a 1977 hit song about the frustrations of people who lack control over their work life. Now, for those who dream about being their own boss, three University of Florida economists have come up with a list of frequently asked questions to help aspiring entrepreneurs.
“No matter what kind of business you want to start, there are at least 10 important questions that need to be answered right up front,” said Hank Cothran, an associate in UF’s Institute of Food and Agricultural Sciences. “These basic questions measure your readiness to own and operate a business.”
Cothran, the lead author of “Ten Frequently Asked Questions for Small Business Start- Ups,” developed the publication in cooperation with David Mulkey, a professor in UF’s food and resource economics department, and Allen Wysocki, an assistant professor in the department. The complete document is available at http://edis.ifas.ufl.edu/FE571.
“The 10 basic questions are really just the beginning of a long series of questions that must be addressed by any new business owner,” Cothran said. “In addition, they will also need answers about insurance, intellectual property issues, employee issues and independent contractors.”
Question No. 1: Do I have what it takes to operate a business?
To answer this, make an honest assessment of your own motivation, talents, skills and experience, Cothran said. For example, can you work alone? Are you willing to take risks? Can you make good management decisions? Do you have the physical and emotional stamina to run a business? Do you get along well with others?
“Because few people have all the desirable qualities, look for ways to compensate for your weak areas, such as taking classes, finding a mentor, hiring capable people or adding a partner with the necessary skills,” Cothran said.
Question No. 2: What kind of business should I start?
Consult with local experts and other business owners of the product or service you want to offer, and check with potential customers to see if they are willing to pay for it. Find out what kind of business is best for you.
Question No. 3: What do I do first?
Once you have decided that starting a business is the right step for you and you have a doable business idea, think about a name and location for the business. Register your business with the proper authorities, obtain the necessary licenses and permits, and develop production schedules and marketing and pricing plans.
Question No. 4: How should I organize my business?
Most small businessnes are formed as sole proprietorships, in which business income is treated the same as personal income for tax purposes. A significant disadvantage is that you, the owner, assume personal liability for the actions of the business. Other types of business organizations in Florida include general and limited partnerships, corporations, and limited- liability companies. For information on ways to organize a business, visit the Florida Department of State’s Web site at http://www.dos.state.fl.us/startbus/index.html. Other important information is available at the main DOR Web site at http://myflorida.com/dor/businesses.
Question No. 5: What permits or licenses do I need?
Licensing and permitting regulations vary with the type of business and the city, county and state where the business is located. Some businesses face minimal licensing requirements while others are tightly controlled. In some cases, you as an individual and the business itself must have separate licenses. Sources of information include UF county extension offices, the city or county clerk’s office, small business development centers and the local chamber of commerce. Also, check with the Service Corps of Retired Executives, the Small Business Administration and Enterprise Florida. Obtain the proper zoning permit before opening your business. If businesses are prohibited in the area where you’d like to locate your business, learn if there is a waiver provision or if the ordinance can be changed. Without the necessary permit or waiver, local authorities can close your business immediately. As the owner, you may face civil and/or criminal penalties. “Even with proper permits, maintaining good relations with neighbors is good business,” Cothran said. “City and county authorities are cautious about allowing a business to operate in residential areas. They want to avoid problems with traffic, noise, fumes, signs, or parking.” Most Florida businesses need sales and use tax permits, which are available from the Florida Department of Revenue’s Web site at http://www.myflorida.com/dor/taxes. In addition to the sales and use tax permit, there is an Employer Identification Number (EIN) issued by the Internal Revenue Service. Sole proprietors who have no employees can use their personal Social Security number. All other businesses must obtain an EIN.
Question No. 6: How do I get people to buy my product or service?
Sales happen because of marketing, which identifies customers and what they want to buy. Marketing involves six issues, ranging from the product and how it is produced to pricing, promotion, distribution and customer perception of the product or service.
Question No. 7: Why do I need a business plan?
Develop a plan for yourself as well as your partners, investors and bankers. The plan should identify the product or service, the market, the management team, where the business will operate and your business experience. The plan should include a market study, promotional strategies, current and projected balance sheets, income statements and cash flow analyses. It outlines how, when and where financial support will be obtained and how loans made to the business will be repaid. The plan provides general operating information, along with information about where the business is now, where it has been and where it is going.
Question No. 8: What are the alternatives to help me finance my business?
Commitment of personal funds is often the first financing step. It is an indicator of how serious you are about the business and conveys your confidence to investors. Personal investment sources of capital include savings, current cash flow, second job income, home equity or equity from other property or assets, retirement accounts, personal lines of credit and personal credit cards. All of these options have risks. “In addition to personal funds, family members and friends may be a source of financial help,” Cothran said. “Remember that successful loans from friends or relatives begin with a contract that clearly defines the amount of the loan, interest rates, and payment dates and amounts. You may want to seek professional help in drawing up a contract.” Other, more complex financing options are also available. Partnerships and incorporations must be established in writing and appropriate forms must be filed with the clerk of the court. Business loans can be obtained from several sources, such as commercial banks and credit unions, commercial finance companies, local development companies, venture capital firms, and insurance companies. However, venture capital firms and insurance companies typically are not useful for owners of small businesses.
Question No. 9: What records do I need to keep?
The records needed to manage your business and the records needed by the IRS may differ. While the business owner is interested in where and how income is generated and where expenses are incurred, the IRS requires records that will allow for the preparation and documentation of a completed tax return. However, all businesses must keep basic financial records: journals and ledgers, such as a checkbook register, accounts receivable, records of sales, inventory, cash receipts and cash disbursements. Records must also document mileage, mean expenses and entertainment. If your business hires employees, additional records are required. Remember that all financial records are historical documents. This includes tax returns and the documentation for those returns. Business documents such as filing of the business name, incorporation/partnership papers, sales tax permits, Federal Employee Identification numbers and insurance records must be retained indefinitely. For yearly tax returns, keep the records for three years after the filing of that year’s taxes. Records involving property must be kept for the entire time the property is owned, plus an additional three years minimum.
Question No. 10: Where can I go for help?
There are a wide variety of local, state and national resources to help answer these and other questions. The local UF county extension service office is a good place to start. Ask if the office has a state or national resource directory for small, micro and home-based businesses.
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