From the March 2006 issue of Startups

Many people who have always wanted to start their own business never do, simply because they're overwhelmed by the process and unsure of what specifically is involved. With a to-do list that includes everything from writing a business plan to coming up with a name to hiring employees, startup can seem daunting. But don't worry--we've simplified the process by going straight to the experts to find out their top 75 tops for startup succss, so you can master the process step by step. Your first step: Start reading.

Got a (Business) Plan
A solid plan can help you start off strong and stay that way.

Writing a business plan is one of the first steps you should take toward startup, well before you launch your business. "A lot of businesses fail to write a business plan at all until they get in a jam," says Linda Pinson, author of Anatomy of a Business Plan: A Step-by-Step Guide to Building a Business and Securing Your Company's Future. "They need money or a strategic partner: They come across a requirement for [which they need] business planning, and all of a sudden they're panicked."

A business plan will serve as your guide to decision making during the life of your business, starting with the question of whether to start in the first place. The second use of a plan is to satisfy lenders and investors, virtually all of whom will require a written business plan before approving a loan or making an equity investment. Plans also serve as a means of communicating with potential partners, allies, vendors, employees and even customers.

1. Before putting pen to paper, research resources and tools that can help. In addition to books, software programs can automate the task. You can get live help from your local SBA office or Small Business Development Center, college and university classes, and private courses or conferences. You probably shouldn't plan to farm the entire job out to a consultant, however: "Good consultants run anywhere from $300 an hour down, and generally the quality of the services is commensurate with the fee," says Pinson, adding that having a consultant craft a good plan will run you $5,000 to $10,000.

2. Back up your concepts with numbers. Keep in mind, a business plan is both qualitative and quantitative. "A business plan is not just writing about what your vision of your business is," Pinson says. "It's interpreting it in financial terms that you can measure." That means you'll need some numbers--as precise and accurate as possible--in addition to verbal descriptions of your plans.

Start by writing the conceptual part, then move to the financial part. "Interpret those concepts in terms of dollars," says Pinson. For instance, starting with an idea of how frequently you'll advertise, how large the ad will be and where it will run, you can find out how much it costs. This will give you a number to plug in for advertising costs. Says Pinson, "The conceptual or text part of your plan has no validity without the financial part."

3. Be realistic when making projections. "One of the most frequent errors made when writing a business plan is over-estimating revenue and under-estimating expenses," Pinson says. Improve revenue estimates by narrowing your target market down to a realistic niche, then interpret revenue and expenses in terms of that market, Pinson advises. Start by identifying potential customers, then slice off those who aren't ready to buy, can't be marketed to effectively, can't afford your solution or don't consider it a need.

4. At minimum, include monthly cash-flow projections for the first year. "Cash flow is the critical issue," Pinson says. Also prepare an overall projection of profit and loss for three years, as well as a projected balance sheet. Calculate the break-even point at which sales will cover costs. Research financial ratios specific to your industry, and look at published industry-specific ratios to make sure your assumptions are realistic. Says Pinson, "If grocers make a one-half-percent profit and you're [projecting your] grocery store [will have] a 28 percent profit, you'd probably better rethink your projections."

5. Pay special attention to marketing. First, develop goals. Second, do a market analysis, including identifying target markets, researching competition and assessing market trends. Then prepare a marketing strategy, including your approaches to sales, promotions, advertising, PR, networking, community building, customer service and other marketing channels and tools. Develop a plan to implement that marketing strategy, and include benchmarks to see if what you planned actually happened.

Continue learning: Visit our Business Plan center for an in-depth guide on writing your business plan, calculators that'll help you determine your business numbers, and more than 50 sample business plans to download.

Right on Target
Choose your target customer, then take aim in the right direction.

Open the doors to your business, and it's easy to think of the whole world as your oyster. Why focus on a target market and exclude all those other market segments with which you could be conducting business, right?

"A big problem for many small businesses is that they are so desperate and so grateful for anyone who buys from them, they don't go the next step and ask who they should be doing business with," says Lisa Fortini-Campbell, adjunct professor of management at Northwestern University's Kellogg School of Management in Chicago and founder of market research and consulting firm The Fortini-Campbell Company.

Targeting the right prospects can mean the difference between success and failure. Before taking a scattershot approach to building a customer base, consider these tips:

6. Don't assume. Fortini-Campbell, who is also the author of Hitting the Sweet Spot: How Consumer Insights Can Inspire Better Marketing and Advertising, says that too often, small-business owners assume they know what their customers will want before doing their homework. "If you want to launch a catering company and think it's only about serving good food, but your customers really want all the trappings that come along with having someone serve them--such as the dishes and the table décor--you're going to lose business if you're not prepared to deliver that experience," says Fortini-Campbell.

She says that since your future customers are currently buying from other places, you should use your competitors as a research tool. Make note of not only what your competitors are selling, but how they are marketing and selling their products and services. "All your future customers are out there buying from someone else now," says Fortini-Campbell. "What are they buying? Who are they buying from? What can you learn about what others are doing?"

7. Find the perfect match. "The most important thing a small-business owner can do is figure out what kind of customers will help them get to the goal. Who are the most strategically valuable people to them?" says Fortini-Campbell. "Do you need a lot of people who buy a lot, or people who buy across an entire service line?" Is your ideal customer a business or an individual? Affluent or middle-income? Is he or she local, or does geography not matter? Identify as many traits as possible so you can organize your business to keep those customers coming back.

8. Identify different segments. After you've outlined whom your best customers will be, recognize that you may have more than one profile, says Fortini-Campbell. For instance, the catering business we mentioned may find lucrative market segments in cooking and presenting elaborate holiday meals for affluent families, as well as providing simple, daily heat-and-serve meals for busy working parents.

9. Use free market-research tools. "The internet is a wealth of information," says Fortini-Campbell. "Search on any topic and you will find websites, blogs and discussion rooms on everything imaginable." In addition to the great number of books available on market research and targeting customers (including her own), she recommends checking out the free market-research resources available in your state, county or municipal economic development offices to see which market segments are growing in your area.

10. Service, service, service. "More small businesses lose customers [due to] poor service than bad products," says Fortini-Campbell. Your business's most important marketing tool is the way you conduct sales and service customers. Every time you do work for a client, you are marketing yourself, she says. When you do that well, customers pay you back with loyalty and referrals.

Continue learning : Got your target market figured out? Then go the extra mile and complete your marketing plan. Our how-to will guide you.

Naming and Incorporating

The Name Game
Here's how to choose your handle with care.

Every business needs a name, and picking a cool, memorable moniker is the name of the game. But hiring a naming firm or advertising agency to help you can cost thousands of dollars.

It's possible to name the company on your own--if you know how to do it. Start with a pen, some paper and a very perceptive ear attuned to everything going on around you. "You want to have a checklist," says Marcia Yudkin, founder and "head stork" of Namedatlast.com, a Goshen, Massachusetts, company that will brainstorm 10 potential company names or tag lines for you for about $1,000. Here's your quick check-list for mastering the name game:

11. Think marketing. First, decide on the advertising that will drive 90 percent of your business. Will you rely primarily on print ads, signage at your location, word-of-mouth, the internet, Yellow Pages, radio or some combination thereof? "Depending on your answers to these questions, certain criteria become very important," Yudkin says. Overdone alliterations, foreign words and domain names with hyphens are the kiss of death for websites and radio ads, where spelling and easy pronunciation are critical. If your business will be driven by the Yellow Pages, an old trick is picking a company name that starts with A, B or C so your ad will be placed toward the front of its section. But not every business can be named Aardvark or Abba, so you'll have to get creative.

12. Scan the competition. Compiling the names of local competitors offers a starting point for differentiating yourself. Do your competitors' names really fit the target market? Are the names too traditional while the customer is hip and cool, or vice versa? The answers will tell you what doesn't work, which can help you narrow your list of possibilities.

13. Get brainstorming. "Do a brain dump of every possibility that comes to mind," says Yudkin, who asks her clients to think of company names in other industries and why they like them as a brainstorming exercise. Think of buzzwords that appeal to your potential customer and that the competition isn't using, and consider the result the customer wants from using your product or service. Yudkin chose Namedatlast.com, for example, because it focused on the result of using her naming service. "There aren't as many companies using those kinds of names," Yudkin says. "They do tend to stand out."

14. Check for negative connotations. Names clients have brought up to Yudkin, such as Cobweb Design, Goosechase and Wild Weasel, may sound clever, but they can leave potential customers with an unsettled feeling about your product or service before they even try it. Consider every word on your list for negative meanings, and ask friends and family how different words strike them. Scratch potential offenders off your list. If you're creating a website, ponder your company's name in a global marketplace so you don't offend an entire country.

15. Check for trademarks. More than one business owner has come up with a company name and put it out there, only to receive a cease and desist order that forces him or her back to the drawing board. "Before you commit yourself in any way to commissioning a logo, putting up a website, making signage and so on, make sure the name is legally available," Yudkin says. Save yourself a big headache by visiting the U.S. Patent and Trademark site at www.uspto.gov , where you can search for registered trademarks. Also visit www.yudkin.com for additional tips on naming your business.

Continue learning: You should be well on your way to an amazing name by now. But before you commit, make sure you haven't made one of these eight mistakes .

To Inc. or Not to Inc.?
Select the right legal structure for your company's operations.

Start the process of selecting a legal structure for your startup by asking yourself which legal jurisdiction you want to set up in. "Some people talk about Delaware, some people talk about Nevada, but the short answer for a small business is: Stay at home," says Leonard DuBoff, a Portland, Oregon, attorney and author of The Law (In Plain English) for Small Business. Incorporating in Delaware or Nevada may make sense for companies with lots of investors, but you'll have more control and convenience if you legally base your startup where you are actually located. With this decision made, use the following tips to help you settle on a legal structure:

16. Consider your appetite for liability. The various legal entities all offer entrepreneurs different protections against liability. A corporation or an LLC offers you the best protection against being held personally liable for actions by employees or others. But, DuBoff notes, no form of organization completely shields entrepreneurs from personal liability. "If you are driving and rear-end my car, whether you're driving for yourself or a corporation, you're liable," DuBoff says. The type of business entity you choose won't change that. The entity affects your liability for the acts of employees, partners and contractors. A sole proprietorship provides no liability shield. A partnership makes you liable not only for your wrongful acts, but for those of your partner as well. If you don't have employees, contractors or partners, a corporation or LLC won't provide much liability benefit.

17. Consider access to capital. As a sole proprietor, debt financing is the only way you can raise money for your business. Partnerships let you borrow as well as ask other partners for capital. "Corporations and LLCs have much greater flexibility in acquiring additional investments," DuBoff says. For instance, these entities can sell equity to others to generate capital. "If that's important to you, that will [help] determine the entity you select."

18. Think about your tolerance for paperwork. "A sole proprietorship is simple and elegant," DuBoff says. "There's almost no compliance." Business licenses and assumed--name certificates are all the red tape sole proprietors face in most jurisdictions. State, local and federal regulation, compliance and filing requirements rise sharply when you set up a partnership, an LLC or a corporation.

19. Know the tax implications. As a sole pro prietor or partner, you have full, personal tax liability for all the business's profits. The upside is that you can deduct the business's losses on your personal tax return. A C corporation is itself a taxable entity. If it distributes money to you or other owners as a dividend, you also pay taxes, so the money is taxed twice. With an S corporation, profits pass directly to you without being taxed at the corporate level. Also, S corporation dividends and distributions are treated as passive income, so they aren't subject to payroll taxes. LLCs can be set up similar to C corporations or like pass-through S corporations, but "an LLC that elects to be taxed as a pass-through doesn't get as favorable treatment as an S corporation," DuBoff says.

S corporations have a special risk for passive owners because they will be taxed on their distributable share of the corporation's earnings. If the S corporation's active owner-managers opt to put profits back into the company instead of distributing them to shareholders, a passive owner could have to pay taxes on money he or she didn't receive--"an awful situation," says DuBoff. So if you set up an S corporation, make sure you are actively in control of it, or incorporate safeguards to make sure you'll receive enough money to cover taxes on distributable profits.

If you're uncertain what option is best for you, consult an attorney familiar with small-business issues.

Continue learning: Visit our Starting How-To Guide section to find how-tos on the different legal structures, including partnerships, sole proprietorships, LLCs and more.

Advisors and Funding

Best Advice
Team up with advisors who are willing and able to help.

Certain aspects of your new business will require the help of an attorney and an accountant. But how do you find the right person or firm for you and your new business? We asked some professionals for their advice.

20. Think ahead. What do you hope your company will look like in 10 years? The attorney you choose is important, especially if you plan to go public or seek venture capital. "Venture capitalists I talk to say they judge the company by the lawyer the company picks," says Trey Cox, partner with law firm Lynn Tillotson & Pinker LLP in Dallas. "Get one who has experience in dealing with venture capital firms."

Most law firms post attorney bios on their websites that list the cases they've worked on. Legal search engine Martindale-Hubbell offers a searchable database that grades attorneys on their expertise, knowledge and ethics. Your local chapter of entrepreneurial organizations like the Entrepreneurs' Organization or the Young Presidents' Organization might be helpful, too. Says Cox, "Even if you're not a member, it's a good place to find people you can talk to."

21. Account for it. Meeting with a CPA to set up the financial backbone of your company is time and money well spent. "One of the keys to being successful is to really have nailed down from the get-go how you're going to track the financial story of your business," says Linda Hunt, founder of Sum Solutions, a Trumbull, Connecticut, financial management firm that works with small and midsize businesses. Financial software packages such as QuickBooks can be useful for a few years after you've set up basic financial controls. You can also hire a freelance bookkeeper. Look for someone with "full charge" bookkeeping skills, meaning they're able to converse knowledgeably with big-picture types like CPAs.

22. Bundle up. Professional service firms bundle their services as an advantage to their customers. Will the firm you have in mind do this for you? Will it let you pick and choose which services you want to use, and will something simple--like calling with a quick question--trigger a charge? Inquire whether they'll provide a short list of services for a flat fee instead of billing by the hour, particularly for common tasks such as drawing up incorporation papers and employment agreements. With lawyers, "you can definitely negotiate," Cox says. There are dozens of legal websites that handle the basics of business incorporation, but be careful: You could get what you pay for.

23. Narrow them down. When hiring a financial professional, ask which industry and what size company he or she prefers to work with, because it will indicate how much time and effort will be put into your account throughout the year. "Maybe the [professional] likes to work with manufacturing, and you're [a service business]. They're very different," Hunt says. Another tip: Ask for a written, one-page document about what the advisor will do for your company. Says Hunt, "As a business owner, you should be managing from this document and making sure you're getting what you're paying for."

24. Build a relationship. Don't fall off the radar after working with an attorney, an accountant or a banker. Meet with these outside professionals every so often to learn about their new offers and to tell them how your business is changing. "You should have a meeting with an attorney over lunch about every six months," Cox says. "If the attorney isn't willing or wants to bill you for the time, then that might not be the right attorney.

"Remember, your attorney has a fiduciary responsibility to you," Cox adds. "It is truly a partnership. You want someone who's on your team and is concerned about your company, not concerned about getting the next dollar." The same goes for your accountant.

Continue learning: Learn even more about hiring an attorney by reading our how-to . And for a deeper understanding of the different financial professionals you can hire for your business, read " Choosing the Right Financial Professionals ."

Money Hunt
Don't let lack of funding put the brakes on your startup.

It may take money to make money, but Andrew Zacharakis, professor of entrepreneurship at Babson College in Babson Park, Massachusetts, says that shouldn't be seen as an insurmountable barrier when you're just starting out. "Sometimes people are overly intimidated because they think they're going to have to raise a lot of money," he says. "It doesn't take a lot of capital to get a business off the ground." Many highly successful businesses have been started for less than $20,000, points out Zacharakis, co-author of How to Raise Capital: Techniques and Strategies for Financing and Valuing Your Small Business. Here are keys to getting the financing you need:

25. Consider self-financing. The first place to look for financing is in your own pocket. "One way to really get some momentum is self-financing," Zacharakis says. "I've seen entrepreneurs do this through obvious ways, such as personal savings and a mortgage on the house, and ways that are less obvious, such as rolling credit card offers over so you always have a low interest rate." Many entrepreneurs start with a $10,000 credit card featuring a low initial interest rate. Then, Zacharakis explains, "they use that until the low interest rate expires and start with another one."

26. Try stakeholder financing. Zacharakis suggests having a customer pay you in advance for something you are going to deliver in the future. Then, use those funds as seed capital. It's not as far-fetched as it may sound--many entrepreneurs pay their own suppliers in advance. "In construction, for example, if you remodel your house, your builder is going to ask for a third of the money upfront to get started, another third at some point [in the middle] and the final third on delivery," Zacharakis says. "That kind of financing can be used across industries."

27. Look to friends and family. No matter how well you work stakeholder financing, most new businesses still need more cash, and your best source of the green stuff is friends and family. Parents, siblings and other relatives are obviously more motivated to help you out than a disinterested banker. The interest rates and terms attached to money from family and friends are also much better than institutional sources will offer.

Zacharakis advises drawing up loan documents to make the arrangements official, and he also suggests the debt be convertible into equity if the business achieves certain sales levels or other milestones. "Often, it's based on getting a larger external financing round," he says. "Once you've got a product, you can go to angels." Other early financing sources may be co-founders and early employees. Says Zacharakis, "If they're as excited as you are, you should tap into their personal finances just as you have tapped your own."

28. Look to suppliers. "Your suppliers will often extend you really favorable terms, which is just another form of debt," Zacharakis says. Suppliers are more ready to extend credit than other lenders, especially when it comes to startups. Getting the option of paying in 30, 60, 90 or more days for supplies or inventory you receive now is fairly easy. Says Zacharakis, "Usually you have to pay a small interest rate."

29. Include your landlord in your financing plans. "I think all businesses should start out at home in a garage operation," Zacharakis says. "But at some point, especially if you [have] a retail operation, you'll need a storefront, and a landlord will often give entrepreneurs three months without having to pay." Landlords may also do leasehold improvements for free, building out the space with features you'll need without any cost to you. One Boston landlord offers Babson students six months of free rent if they launch their businesses in one of his properties, Zacharakis says. "The expectation is [that] they'll become long-term paying tenants down the road."

30. Wait until you have some operating history before you approach banks. Banks are generally interested in working with new businesses once they have sales, accounts receivable and short-term financing needs. Start with a revolving line of credit, pay it back, and earn the banker's trust until you qualify for larger, longer-term loans with better terms.

Continue learning: Want more options? We've got 18 ways to raise capital for your new business .

Location and Technology

Hit the Spot
The right location increases your odds of winning the business game.

Deciding on a location for your business is one of the most important and unchangeable decisions you'll make, but it's often an afterthought for many startups--which may end up on the fast track to a liquidation sale. "You can always change your promotion strategy and mess around with your prices," says Sean O'Halloran, founder of GeoMarketing Research , an Oreland, Pennsylvania, market research firm that focuses on business location analysis. "But once you sign a retail lease or get a mortgage on a place, those are usually pretty long-term contracts [that are] difficult to get out of." Here's what to do before you call a realtor or landlord:

31. Know your market. O'Halloran makes an analogy between retail concepts and the animal kingdom: McDonald's is a retail rat because it can exist and thrive anywhere, in affluent areas as well as poor areas. Other companies, however, might be considered retail pandas because they need to be in specific areas to survive. Think about the habitat your new business will require, and whether you're about convenience and commodities or specialty items. The answer will keep you one step ahead in retail's survival of the fittest.

If you're thinking of starting a service business such as an accounting practice, you may be considering your home as your business's habitat. If this is the case, don't just weigh the overhead expenses when making your decision--also consider whether operating from home suits your product or service. Could potential customers be put off by the thought of doing business at your house? Or will customers overlook where you're located because selling will be done largely via phone, fax and the web? Keep in mind that there might be local zoning laws regulating where homebased businesses can be located, so check with your city government before hanging your shingle. Also, it's a nice gesture to make sure your neighbors are OK with more foot traffic and fewer open parking spaces if you expect to receive customers at home.

32. Gather some data. Websites such as Economy. com provide quick and practical economic profiles of every urban area in the United States. A general profile of an economy can be helpful in deciding where to locate your business. "A reliable, basic profile of whether a local economy is heavily dependent on one industry or sector is useful," says Pamela Hannigan, professor of real estate economics at New York University in New York City. The data will help you see trends and determine where your target customer shops.

33. Think like the competition. It's not an accident that the same large retailers--Home Goods, Michaels and Target, for example--locate within a stone's throw of each other. It may seem counterintuitive to settle right alongside the competition, but clustering can increase business and lead to cost savings in hiring and shipping, among other things. Says Hannigan, "Becoming part of a cluster that attracts a much larger market can still make [you] better off than if [you] try to establish [your] own market in some virgin territory."

34. Take to the streets. Demographics on paper are one thing; actually spending time in your desired location is another. "Not every field is a field of dreams," Hannigan says. When visiting a potential location, is your gut reaction that this is an area in which you'd like to shop? Something seemingly small, like parking availability and expenses, can greatly impact the amount of foot traffic coming through your door. Also, consider your industry when choosing a location. If you're a quick, in-and-out type of business--like a latte shop or a dry cleaner--it pays to locate your business in a central part of town. These days, you may also want to consider whether you could convert the location to include a drive-thru window for added convenience.

35. Ask questions. Visit small stores in various locations to see how busy they are. If you're daring, you can ask if leasing at the location was worth it and how much turnover they see going on with stores in the area. You never know what you might hear. Being aware of whether you're running a day or night business is important as well. A pub, for instance, might not fare as well in a strip mall that attracts mostly daytime traffic. You'll find plenty of information to help you online: Start your research by visiting our Starting a Business section or www.geomarketingresearch.com .

Continue learning: " How to Find the Best Location " has 22 questions you should ask regarding any potential locations for your new business. And if you're considering a shopping mall location, be sure to read " How to Select a Shopping Center Location ."

Fully Equipped
Set up your startup with the right tech tools.

There's more to equipping your new business with the right technology than just walking into a big-box store and buying a desktop off the shelf. Much more. Think about the technology your startup will need beyond today--because a little planning and some smart buying decisions will help keep your business running smoothly during your startup days and beyond.

36. Start with a network. A lot of entrepreneurs aren't sure where to begin when it comes to buying and setting up the technology they need for their startups. Your network is your backbone, so start there. "You need to have a client/server-based network operating system," says Greg Alevizos, manager of professional services with Salem, Massachusetts-based IT consulting firm New England Network Group . "You want to have at least one server that has file and printer services and is configured to back all that up." Don't worry if this sounds like more than you want to tackle on your own--just see tip No. 42.

37. Get dedicated internet access. Dial-ups need not apply. But you do need enough broadband bandwidth to handle the employees you plan to hire--now or in the future. You can look into getting DSL, cable or higher-end internet solutions like a T1 line, which can handle up to 100 users. "If you go with a lower-end solution, you might not get the service-level agreement, which means that if your internet line goes down, they don't have to fix it in a hurry," says Alevizos. "You don't want to skimp on that."

38. Get anti-virus protection. This is a must in Alevizos' book. Instead of having a hodgepodge of applications on everyone's computers, consider getting an anti-virus package that resides on your server. It will be easier to manage in the long run.

39. Back it up. Do not skip this tip--data backup is a must. Alevizos recommends three different kinds of backup: 1) tape backup, an old standby that requires a bit of watching; 2) backing up off-site, or online through a third-party provider; or 3) installing a network-attached storage system at your place of business. "If you [use] two of [these methods]," says Alevizos, "then you have close to a 100 percent guarantee that you have viable backups that can be restored."

40. Don't buy your computers piecemeal. "It's ideal to get a homogenous environment so that all the machines are identical hardware-wise," says Alevizos. "The maintenance needs go down, and the total cost of ownership goes down in terms of scalability." He recommends staying with major vendors like Dell or Hewlett-Packard and getting a warranty and a service contract.

41. Buy printers that meet your needs. Alevizos points out that every startup should have a heavy-duty, network-capable printer--often a black-and-white laser will do. "If [you have] a need for color printing in [your] business model, it's a good idea to make the investment in a workhorse network-capable color laser printer," he says. Prices are more affordable than ever, and a color laser can save you from racking up big bills at the copy shop.

42. Know when to get outside help. "If you don't have in-house IT [staff], you definitely want to bring someone in during the initial stages to set up the baseline of the network," says Alevizos. It's important to get your network up and running efficiently from the get-go, and most entrepreneurs don't have the time or the expertise to do it themselves.

43. Plan for the future. Following the tips above will help you not only during your initial startup phase, but also as your company grows. You'll be prepared to add employees and still keep a handle on your technology. Just don't forget to budget in some ongoing expenses. Says Alevizos, "Don't put the blinders on when you're looking at your IT expenses annually. Never assume that the initial cost is the only cost you're going to have for any IT solution."

Continue learning: Visit our Technology section to learn about all the latest gear for your business.

Insurance and Employees

Cover your Assets
Minimize your risk with business insurance.

Understanding risk is essential for anyone starting a new business. The same is true for anyone insuring a new business, says Jeffrey Olmstead, assistant vice president of property underwriting in the small commercial area at The Hartford Financial Services Group Inc. in Hartford, Connecticut. Insurance is available for many risks, but not all of them--especially business risks. "That can include the risk that [your] market won't materialize, that [your] location isn't appropriate, or that [your] customer base isn't looking for the products [you] are selling," says Olmstead. "Insurance is designed to help businesses manage certain kinds of risks, but not all the risks associated with running a firm." The following tips will help you decide on the best level of coverage:

44. Ask an expert. "The world of commercial insurance can be somewhat complex," says Olmstead, "and we recommend a good advisor to [help] a businessperson understand risk and select insurance to protect against that risk." To get the broadest selection of coverages and policies, it's best to consult a licensed insurance agent who represents multiple carriers.

45. Think about the kinds of risks you'll be exposed to, such as property loss. "That's exposure to loss of the building or business property such as equipment, machinery, stock and computers," Olmstead says. Perils to property include fire, flood and the like.

46. Carefully consider your liability. For example, third parties such as customers or others might sue the business for injury or property damage caused by the business. Umbrella liability policies are one popular solution to this risk. An expert advisor can help you tailor liability coverage to fit your circumstances.

Injury to employees is another area of potential liability. Workers' compensation insurance is required for almost all businesses in almost all jurisdictions. "That's a key distinction [from] property and liability," Olmstead notes. "If a business owner chooses not to acquire property and liability coverage, that's a chance they can take. But with regard to workers' comp, it's required."

Other risks depend on the business you are getting into. A restaurant that serves alcohol faces potential liability if one of its customers is involved in an accident after leaving the restaurant. "That's a specialized exposure," Olmstead says, "and there is specialized coverage for liquor liability that covers against lawsuits that come back to the business owner because of improper service of alcohol." Understand your business thoroughly so you can decide whether or not to pursue specialized coverage.

47. Shop around. After getting a good advisor and understanding your exposures, evaluate several providers and policies. "Ultimately, business owners are responsible for the coverage they buy and the premiums they pay," Olmstead says. "Select carefully."

48. Don't become complacent, even if you have insurance. Some property or liability lawsuits might not be covered. There are no insurance products available to cover against some exposures. In other cases, the cost of coverage may be too high. When this happens, manage risk by taking appropriate safeguards, such as training employees to work safely. You'll often get lower premiums and fewer losses if you take wise precautions to reduce even those risks that are insured.

49. Stay alert for new threats or possibilities you may not have considered. You might need additional coverage or other risk management. "If something is not covered by insurance--or even if it is covered--it can be catastrophic for a small business to experience a loss," Olmstead says. "One of the big concerns right now is that so many of our businesses in New Orleans are not covered by insurance. They had hurricane insurance, but not flood insurance. So many of those losses from the hurricane will not be covered as a result."

Continue learning: Visit our Insurance Center to learn how to best protect your business against the unexpected.

Hire Power
Invest in your business's future by hiring well.

Up until now, you've been the jack-of-all-trades for your business, but it's getting beyond your control to do it all. Don't worry--feeling overstretched is actually a good thing, because it means the company is growing.

It also means it's time to hire your first employee. But before you jump into the wonderful world of hiring, firing, scheduling, and those oh-so-fun OSHA and labor regulations, take the time to devise a strategy that will get you through the next couple of years. Your goal is to steer clear of the four horsemen of the workplace apocalypse: turnover, lost productivity, lawsuits and low employee morale. Here are a few tips for making your hiring process work for you instead of against you:

50. Do the paperwork. You'll need an employer identification number, or EIN, to include on IRS documents once you start hiring employees. Fill out IRS Form SS-4, downloadable at www.irs.gov . (An attorney can also take care of this task.) Having employees means paying state unemployment compensation taxes and workers' compensation insurance, too. Your best immediate resource will be your accountant, who can help you navigate federal, state and local employment regulations.

51. Know what you're looking for. When people date, they have a list of qualities they're seeking in a mate. Likewise, you need to define the job you're looking to fill, the skills that will be needed to do it well, how much you can afford to pay and what the best candidate will be able to do. "That seems obvious, but a lot of people don't do it. They hire a friend of the family or someone their brother-in-law knows," says Ralph Warner, author of How to Run a Thriving Business: Strategies for Success and Satisfaction and founder of Nolo, a Berkeley, California, publisher of do-it-yourself legal books, forms and software for consumers and small businesses. "Your business is going to get off to a much better start if you're working with the best person within [your] category."

52. Deepen your talent pool. Attaining more than one degree of separation in your hiring process can be a good thing, so learn to branch out early on. Local schools and colleges offer job centers where you can post job openings--that's one good place to start building a deeper talent pool. Startups with limited resources "are usually going to get the top people in slightly unexpected places. They're going to have to be creative and mine pockets of employees other people haven't considered," Warner says. "One of these [pockets] is recent immigrants. People with a little bit of a language problem or [who are] unfamiliar with the United States may nevertheless be terrific workers." However, ask if they have a legal right to work in the United States. Offering internships is another way to attract potential hires.

53. Know how to interview people. It's easy for conversations to turn personal, especially if the applicant is a friend of a friend. But asking an applicant if they're married, if they have kids or even when they graduated from high school are all illegal questions. Also keep in mind that we live in a world full of nondisclosure and noncompete agreements, so make sure to ask potential employees if they're restricted in any way. Articles located at http://jobsearchtech.about.com/od/interview/l/aa022403.htm and www.resumagic.com/interviews_illegalquestions.html offer handy tips for asking the right questions.

54. Orient and motivate. The employees you hire will never be able to read your mind, so be a very good communicator regarding training, job expectations, company goals, scheduling and pay from the start. Review job performance every three months, and consider a raise every six months. Ask employees what kinds of projects inspire them. The more commodity-driven your business, the more important even the smallest motivators will be to keep turnover low.

Continue learning: For more information on hiring the best employees, read our hiring how-to . For the nitty-gritty on all those regulations you need to be aware of, visit our Employment Law section .

Marketing and Sales

Marketing Smarts
How you spread the word is as important as the word itself.

You may have the greatest product or service in the world, but if nobody knows about it, they can't buy it from you. That's why effective advertising and marketing are so important, especially at the startup stage. Doug Hall , founder of The Eureka Ranch, a Newtown, Ohio, creativity think tank that helps clients tap new ideas, advises the following to make your advertising and marketing more effective:

55. Give them a reason to believe. Too often, says Hall, entrepreneurs assume that people will believe in their business, product or service because when they talk to their friends or family, those people think the idea is great. However, effective has elements that give the business credibility. Hall suggests testimonials, clear explanations and limited hyperbole. "Don't say 'Our muffins are the best-tasting.' Say 'Our muffins have more chocolate flavor because we use more chocolate chips than our competitors.' That gives your customer a reason to believe your product is better."

56. Articulate the message. "Small-business owners often think features are benefits," says Hall. "Features are the stuff; benefits are what the customer will receive, enjoy or experience. So don't sell me books; sell me knowledge." Customers need to know what's in it for them. (new graph) Be wary of going overboard, however. "After they've figured out how to [sell] benefits, many businesses start throwing in more and more," says Hall. Research indicates that you need to stand for just one thing, he says. While it's tempting to pile on all the great things about your business, you only have a brief window to capture a prospect's attention, so focus on the one thing about your product or service that will make them say "Wow!"--and make them want to do business with you.

57. Choose the message before the medium. New business owners often get a barrage of inquiries from media representatives trying to sell them advertising. Local newspapers, radio stations, cable TV networks and the like all want your advertising dollars. But, says Hall, it's critical to remember that the message is the most important element of any marketing activity. "If you spend hundreds of millions of dollars on a Super Bowl [ad, but your] ad has zero effectiveness, zero times hundreds of millions is still zero," he explains. "Don't listen to people who tell you they have a cool radio station. It's the message that makes a difference."

58. Testing, testing. Hall advises his clients to continually test their messages and weed out those that don't work. From using different telephone sales pitches to sending regular postcard mailings with different offers, he believes that entrepreneurs should always test, track results and try to top their most successful efforts.

59. Plan for the long term. When you create your advertising and marketing plan, be ready to commit to it for the long haul. "Too often, small businesses consider marketing and advertising an on-off switch. You do marketing to get work, then get too busy and don't do any marketing. Then when the work's done, [you] worry," says Hall. Instead, you need to invest in a program of consistent, effective marketing and advertising to keep attracting customers and getting the name of your business out into the marketplace.

Continue learning: Our marketing coach Kim T. Gordon is full of amazing ideas. Read her archive  to jumpstart your own marketing campaign.

Sales Force
Get out there and show 'em what you've got--literally.

Every small-business owner knows that selling is a critical part of keeping the doors open. After all, without customers, no business can survive. So of course, having a game plan to move your product or service from your business to your customers is of the utmost importance. The following tips will help you get things moving.

60. Know yourself. "The first thing to know is why someone would buy your product," says Louise Anderson, president of Anderson Performance Improvement, a Hastings, Minnesota, sales consulting firm. Having confidence in your product or service, its benefits and how it serves a need that the customer has will give you the confidence you need to sell. And that confidence will come across in your voice and demeanor, making you a more effective salesperson.

61. Celebrate the "nos." Getting lots of "no" responses shouldn't be discouraging. "Sales is ruled by the law of numbers," says Anderson. Even when the responses aren't positive, if you're getting out there and contacting customers regularly, you're making progress.

62. Find out why. Anderson says that too few business owners dig deeper after a sale is made. She advises her customers to ask questions after the sale and find out why the customer decided to make the purchase.

63. Plan for cycles. Every type of business has a different sales cycle. During a strategic sale, Anderson says, a customer may need to be contacted a dozen times or more. Use your knowledge of the industry and research your competitors to determine what your sales cycles are likely to be. Will you have spurts of business during seasonal periods? Will you need to invest months of time to make a sale? Are sales more likely to occur at a particular time in your customers' fiscal year? Anderson says that by looking at the factors of making a sale, you'll be better able to plan your sales activities.

64. Educate the customer. According to Anderson, conventional sales wisdom dictates that spending time educating the customer about a product or service is a waste. She couldn't disagree more. "You have to be willing to educate the customer, sharing time with them, showing them why you're better than your competitor."

65. Choose the right channels. From retail locations, catalogs and independent distributors to websites and direct marketing, choosing the right venues by which your product or service is delivered to the marketplace is critical. Look at the myriad options you have to sell your product, and look for ways to maximize your return. While you may initially have thought you would sell only through your retail location, you may find that selling online--through your own website, an online retailer or even eBay-boosts your bottom line and the market you can reach.

Continue learning: To learn more about the sales process, visit our Sales section, which covers everything from prospecting and cold-calling to managing a sales team and tips from experts.

Financial Management and Taxes

By the Books
Money is the lifeblood of your business, so keep close tabs on it.

Keeping your books balanced and your business finances under control begins with one of the popular small-business accounting software packages, says Suzanne Caplan, a Pittsburgh consultant and author of Streetwise Finance and Accounting: How to Keep Your Books and Manage Your Finances Without an MBA, a CPA, or a Ph.D. "They're really cheap and really easy," Caplan says. "They'll issue your checks; they'll do your invoicing. They'll do everything you need to run your business and stay on track." Try Microsoft Office Small Business Accounting 2006 ($180), Peachtree First Accounting ($100) or QuickBooks Premier Accountant Edition 2006 ($400). From there, follow these steps to keeping your books and finances in order:

66. Do a cash-flow projection. This should be one of your first financial exercises. Without knowing your cash-flow needs and supplies, you can't draw money out of the business for your own living expenses. "You want to know how to do cash-flow projections so you'll know when there will be money," says Caplan. Don't plan on having cash to pay yourself from Day One. "Figure out how much you'll have to grow revenue to be able to pay yourself," she says. "If it doesn't look like you're ever going to be able to pay yourself from the business you're starting, maybe you shouldn't do it."

67. Open a checking account for your business. Then, take care not to mingle business and personal funds. "It jeopardizes your bookkeeping as well as your legal standing," Caplan says. "If you commingle your personal funds with [funds from] a corporation or an LLC, you don't have corporate protection anymore." With separate accounts, you'll always be able to identify a business expense because it's been drawn from the business account.

68. Seek professional assistance. "Choose a good accountant from a small firm, and buy two hours of his time," Caplan says. "Make a list of your questions, and pay him to give you his best answers." Suggested questions include: How do I set up my books? When do I need to file tax returns? What returns do I need to file?

69. Start a relationship with a bank, even if you don't yet need or want a loan. "Drop in and meet your branch manager," Caplan says. "Tell them what kind of business you're starting so when you need to do some banking, you'll have someone to rely on." When you are eligible to get a line of credit, it's not a bad idea to get one, draw it down and pay it back. Then you'll have a history of repaying it. "A line of credit you retire in full is probably better for a startup than a longer-term loan," Caplan says. "You don't end up borrowing money that you won't pay back for a couple of years, and [that] may stretch you with debt service."

70. If you plan to sell your business someday, take extra care to keep good records. "Understand that you're creating value," Caplan says. "And make sure that you're selling something of value." For most businesses, value creation depends on gaining customers who are buying your products and making a profit on an ongoing basis. You can sell that future profit to a buyer who thinks he or she can run the business as well as or better than you. Says Caplan, "As long as your current value is growing, you can sell your potential to someone else."

Continued learning: Get in charge of your financial destiny with "The Basics of Money Management," which will help you learn how to accept payments, create a credit policy and more.

Taxing Matters
Doing taxes right can save you money in the long run.

Keeping accurate records is the first line of defense against tax trouble, says Frederick Daily, a St. Petersburg Beach, Florida, tax attorney and author of Tax Savvy for Small Business: Year-Round Tax Strategies to Save You Money. Keep the following in mind:

71. Look at your payroll. It's the most likely place for you to get in trouble with the taxing authorities, even if you're the only employee. "If it's just you, then you're probably going to have to make quarterly estimated tax payments," says Daily. It's difficult for a startup owner to accurately forecast income a year in advance. "Nevertheless," Daily stresses, "it's the law. You're still liable for estimated quarterly tax payments."

72. Take care in calculating estimated income, social security and medicare taxes. It gets trickier if you or your spouse has a day job. But if you don't figure these right, you'll be subject to a tax penalty and interest, Daily warns. If you have the time and inclination, studying up on the topic should help you do the job adequately. Otherwise, he recommends you get personal tax advice from a professional.

73. Get professional help, especially if you have employees. Taxes get a lot more complicated with employees, since you're required to withhold taxes for each employee and report this on a quarterly or monthly basis. "This is where it pays to talk to a tax professional, and if you've got multiple employees, even get a payroll tax service that will make the filings for you," Daily says. Even this expert admits he has made mistakes with employment tax reporting, either by not filling in the forms correctly or not getting them in on time. Says Daily, "Anybody who's been in business for any length of time with employees is going to get in trouble [at some point]."

74. Log your miles. If you have a vehicle you use for both business and pleasure, invest in a pencil and notebook to track business use of the car. Log sales calls, trips to pick up or deliver materials, travel to entertain clients, or any other business use of a personal vehicle. This will allow you to accurately deduct operating expenses for business use of the vehicle. More important, it will keep you from getting in trouble in case you're audited. "It's an easy 'gotcha' for the IRS," Daily says. "They know most people don't keep records." It's also one of the best tax breaks for small-business owners: It can amount to thousands of dollars a year.

75. Think about your retirement. Even when you're just starting out and retirement seems a long way off, consider taking advantage of the tax savings represented by a retirement plan. IRAs, 401(k)s, Simplified Employee Plans and other retirement plans give you tremendous tax-saving opportunities. "The benefits are twofold," Daily explains. "You get an immediate tax deduction, and then the money accumulates, tax-deferred, until you withdraw it, which may be on retirement, or you may be able to withdraw it earlier under other rules."

Continued learning: Visit our Tax Center for top resources and information that'll help you with this not-so-fun business task.

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living. Amanda C. Kooser is Entrepreneur's assistant technology editor.
Gwen Moran is co-author of The Complete Idiot's Guide to Business Plans. Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.