Ediam blog


  • may

    Choosing a Legal Structure

    Posted by John28 comments

    One of the important decisions for small business owners is determining what type of legal entity to create for the business. This will determine how the company is taxed, how liability will be established, and the kind of organization the company will need to follow to be in compliance with business laws and regulations.

    There are four basic types of entities for businesses to use: Sole Proprietorship, Partnership, Corporation, and Limited Liability Company or LLC.

    Most small businesses are established as a Sole Proprietorship by default. A Sole Proprietor has the highest range of independence, flexibility, and control of the business. This form also has the minimal amount of legal requirements. This entity works well for many self employed individuals who work from home or have small boutique style businesses.

    On the down side, a Sole Proprietor also has unlimited liability. The personal assets of the owner are considered business assets and are fully subject to any losses and lawsuits. It is also difficult to raise financing for a Sole Proprietor. They typically must fund themselves.

    A Partnership is formed when there is more than one business owner. The nature of the Partnership depends on the agreement that partners make as they enter the business. Partnerships have the same liability and tax demands as sole proprietors. The advantage comes in the shared responsibilities and joint funding capacity of two or more people working together. Yet this can also cause problems when conflicts arise or one partner leaves.

    A Corporation is the most formal business structure. It is set up to be completely separate from the people who manage it. A corporation is considered its own person in the eyes of the law. This "person" can sue others and be sued. Owners are now shareholders and are protected from the debts and liabilities of the corporation. Management of the corporation is vested in a board of directors. These directors elect officers to run the day to day operations.

    The downsides of operating a corporation include the increased bureaucracy and regulations. Also, depending on the form of the corporation, income may be taxed twice. Once to the corporation, and again as income to the shareholders.

    How a corporation is taxed is determined by the subchapter of the IRS code the corporation elects to follow. The company can choose an "S" corp or a "C" corp. A tax professional should be consulted to determine the right fit. Corporations can be complex and expensive to organize. It is best to use legal assistance to do it correctly.

    A Limited Liability Company combines the liability protection of a corporation and the tax benefits of a partnership. Some might say the best of both worlds. LLCs are formed like corporations, but owners are called members instead of shareholders. Directors are also called managers. There is generally less paperwork to file year to year, yet the LLC maintains a firewall against the personal assets of the members.

    Your business structure is something to think about carefully and to discuss with a professional accountant or lawyer. If you plan to grow your company and develop a profitable exit strategy, you will need more formal structure. If you plan to work from home and not hire anyone else, you may be better served keeping your business simple and flexible.

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  • mar

    Doing Business Homework

    Posted by John9 comments

    One of the keys to success in any business venture is being able to do business research. Knowledge of a market, an industry, a product, your competition, and manufacturers is going to be critical to your success.

    In the age of the internet much of this knowledge is literally at our fingertips. No one can legitimately claim ignorance on any of these subjects if they have an internet connection. And seriously, who does not have the internet? Anyone going into business must be online.

    Some business research can be as simple as typing your product or industry segment into the search engine of your choice. Want to start a coffee shop? Don't have a business plan? Google "coffee shop business plan." You will have millions of sample plans to review in 0.21 seconds.

    Market research is another one of the important research topics. Understanding how many potential customers you may have for your products or services is a must. 

    Finding such data may take a little more search finesse, but the numbers are out there. Begin with census numbers at www.census.gov. You will be surprised at how much information you can get from the census report. Age, income, geographic proximity. All are useful facts in making qualified sales projections.

    Many economic development websites and real estate websites are also useful sources of regional demographics. Demographics are simply segmented population statistics. This data is important to help you find your target customers so you can reach out to them in focused and strategic methods.

    If you want to sell original artwork to households that make $150,000 or more you better find out where those households are and if there are enough to sustain an art market. Demographic information can help answer these questions. Of course, there are many more questions to ask before launching an art gallery, but this is a start.

    Another source for business information can often be found through industry association sites. When I was helping a client write a business plan for a family entertainment center we went to an industry association for help. For a small fee we instantly had sample plans, projection equations, marketing data, and accurate financials. This was an enormous jump start and made the start up process much easier.

    Another topic you must research is your competition. Find out all you can about similar businesses in your local area and in other regions as well. You can learn much by scouring other's websites and making personal visits to their shops. What are their prices, their strengths, weaknesses? What can you do the same? What will you do differently? 

    How many other local businesses are out there in your industry? Are there too many competitors? If so, how do you plan to earn new customers and compete for their business? If not, how can you introduce your new product or service to those who currently know nothing about it?

    Answers to all these questions and many more are obtained by doing business research. If you currently own a business or wish to, you better become familiar with the process of doing good, old fashioned homework. 

    You can also seek help. Our business team at Ediam can help. We can do more in depth research for you.

    However you do research, just do it. You cannot afford not to. Your competition is surely doing research. They are using that information and knowledge as an advantage to stay ahead. Business research is an area where it truly pays to keep up with the Joneses.

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  • Jan

    Calories

    Posted by John34 comments

    This year I downloaded an app for my iphone that allows me to track the calories I eat and those I burn when I exercise. It did not take long of faithfully using the app to realize how much I was over-consuming. Even a couple hundred calories a day extra takes a toll over time. And my weight scale in January proved it.

    As I counted calories, I became very aware of the caloric value in the foods I ate. After a while longer I noted the other nutritional content as well. I also quickly saw how difficult it was to burn those extra calories. I realized that my occasional workouts were not enough.

    I also realized in an epiphany that all I had done with the calorie app is exactly what I ask many small businesses to do. That is to faithfully count the financial calories you take in and those you spend. The simple act of doing a careful accounting day after day quickly highlights any financial disorders.

    What I learned from counting food calories also applies to personal spending habits. Doing a daily accounting of every single dollar spent quickly reveals spending splurges. From the rising cost of entertainment, to that occasional lunch stop at Wendy's and Pizza Hut, it all adds up.

    For small business owners the principles are the same. Many small business operators spend money every day on any number of superfluous items that they may not track. Like feeding a sweet tooth, these spending habits can create a cumulative drain on the bottom line and prevent spending money on really important things like marketing and growth.

    One sweet tooth I have in business and I have seen it in many others is a lust for new tech gadgets. I bought an iPad for work and after a year I am still trying to figure out how it can help me do business better. Mostly, my kids use it when I get home to play games.

    Smart phones are another calorie sink. I understand the need for email on the go. But Angry Birds, Zombies, and high definition video? Nothing but high tech junk food. Such extra features slowly add up to thousands of dollars each year. I recently calculated that since I picked up an iphone in 2008 I have spent almost $10,000 using it. Has the phone made up for that in increased productivity? Or is it just the cost of business in the modern world? Or is it wasteful?

    And just like when eating food, every single dollar spent in your business eventually has to be recouped from sales. This is especially true if you are financing your expenses with borrowed funds. WIth bank loans or other investors, each dollar now must be recouped with interest. That makes the cost of finding sales even higher.

    But, in the end, you cannot solve the problems you do not admit that you have. Until I saw my actual calorie count, I thought I was doing fine. This is also true for managing money in a small business or in life. Until you actually account for each and every dollar, it will be very hard to see where you can cuts costs and improve your financial performance.

    Finding a good coach can also help. My iphone app became my nutritional coach. If you would like to have free help in reviewing your business finances call our team at Ediam.

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