Step by Step

S to Z

S = Structuring your business. Will your business be an S corp, a C corp or a limited liability company (LLC)? It's important to incorporate to protect your personal assets. LLCs--which pass a company's profits and losses through to the owners and don't require quarterly reports--are popular, but many investors prefer C corp status, which requires a company and its shareholders to pay taxes on profits and income, respectively, and requires quarterly reports and meetings.

"You don't want to skip this step," says Paul L. Bittner, an associate in labor and employment law with the Cleveland office of Schottenstein, Zox and Dunn Co. LPA, who works with Fortune 500 companies and startups. He's counseled entrepreneurs who have generated a seven-digit annual cash flow within a few years but still operate under a general partnership agreement or as a sole proprietor, leaving personal assets unprotected.

Legal or accounting advice is highly recommended. Expect to spend $500 to $1,000 for help incorporating your business. Check with your local chamber of commerce, SBA office or entrepreneurial groups for free seminars about incorporating. Also, legal Web sites explain these structures and let you file incorporation papers online.

T = Taxes. There are two aspects to tax planning, explains Guy Gadomski, a senior manager at CBIZ Accounting, Tax & Advisory of Cleveland Inc.The first is complying with tax filing deadlines and dates. The second is deciding on your business structure. Finding an accountant early on is a wise step. You'll also need to get familiar with the Schedule C, which is what small-business owners use to categorize expenses and deductions for the IRS.

At tax time, don't hand time-strapped accountants what they sarcastically refer to as a "business in a box"--a mess of receipts and other papers stuffed into a cardboard box. It's your job to keep track of everything from receipts to expenses for the year and to verify for the IRS that the information in your Schedule C is accurate. Write every business-related expense or transaction in a notebook, or use software like Quicken.

You'll have to make quarterly tax payments to the IRS, so start socking away income for taxes from the start. Also, figure quarterly tax payments into your cash flow to avoid problems.

U = Understanding leases. Landlords will write leases to their advantage. This is another area where legal advice can help. If you go it alone, aim for a two-year lease rather than a 10-year lease. Be aware of extra charges landlords might throw in for security, repairs or heating/air conditioning.

Your location depends on your business type. Consider executive suites and incubator space--where all you need is a computer. You may avoid leases altogether for a few years as a homebased business. If a lease is involved, compare prices, and have an attorney scan the contract before you sign it.

V = Vendors. A soft economy is a good time to land quality vendors. Research prices of potential vendors, and see if your management team recommends certain vendors and suppliers. Think about which vendors best suit your product or service as well as who your competitors rely on.

W = Web commerce. Despite the dotcom bust, e-commerce continues to grow. With Web hosting providers, you can create a "Web store" and accept credit cards over your site. The cost per month for the typical Web store is about $20, plus a monthly fee based on the number of transactions. Services such as PayPal let customers make payments online. Think about shipping, too. FedEx and UPS have small-business experts who will help you create a supply chain tailored to your needs.

X = Exit strategy. When starting a business, think about how it might end. "[Particularly] if there is more than one owner, it's critical to deal with tough issues upfront," says Bittner.

Your exit strategy should be a part of your business plan and should answer--in contract form--all the "what ifs," such as: 1) what to do if a co-founder dies or wants to cash out his or her holdings in the business; 2) how to handle bankruptcy or dissolution; 3) how to divide the company's assets; 4) the details of a succession plan; 5) whether your strategy is to go public, sell to a competitor and so on.

Learn More: Even if you plan on being in business for years, prepare for your exit ahead of time with these 10 steps.

Y = Your business name. PR and advertising firms will help you find a name, but you can also use search engines to research whether your desired name is already being used. Also, get creative with names that incorporate both letters and words, Desai suggests.

Z = Zeroing in on your first customers. Choose a management team with great connections, Spann says. Once they help you get a few good prospects, then it's about pitching the prospects and negotiating terms. If you don't have a management team with long contact lists, find visible leaders who are successful in your community. Offer them a sample of your product or service. "The one thing we don't do as entrepreneurs is ask," Spann says. "Go ask."

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Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog,

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This article was originally published in the October 2003 print edition of Entrepreneur's StartUps with the headline: Step by Step.

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