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Your Top Start-Up Questions Answered

You've got questions. We've got answers. What could be more divine?
July 1, 2002
URL: http://www.entrepreneur.com/article/53284

Entrepreneur.com is a virtual gold mine of information, but sometimes it's nice to have all your top questions and answers in one spot. That's why we decided to create a kind of FAQ section just for homebased startups, culled from questions posed to our former Startup Expert, Keith Lowe. Read on to glean tons of useful tidbits from these, your top start-up questions.

e-Business

Reselling Products

Q: I have decided to start a business on the Internet selling computer hardware, software, books and accessories. Do I need to obtain the products for sale on my Web site from the manufacturers? Is this allowed, or do I have to go about it another way in order to sell products online?

One of the reasons why I am asking is to make sure this is allowed or whether I will require licenses in order to sell my products. I would also like to know if I am too young to do this.

A: There are a few ways to go about this. One is to buy some products, store them in your basement and ship them to customers as you sell them. The positive side to this is that you can usually make more money if you do this by taking more risk. The negative side is the possibility of getting stuck with stuff you can't sell. That's why you sometimes see department stores having sales for 75 percent off-they are trying to get rid of stuff that they bought and now can't sell.

Another way to go about this is to use a fulfillment company. If you go to www.google.com and search on "fulfillment company," you'll find out more than you want to know about how they work. Many will handle everything-they'll give you a list of products and the wholesale prices, you take the orders, and they do the rest.

I'm not quite sure what you mean when you ask, "Is this allowed?" If you mean can you buy products, keep them in your basement and then resell them, the answer is yes, provided there are no city zoning restrictions that would prevent you from keeping inventory on the premises. Check with your city's zoning department on any restrictions, for inventory or otherwise. And check with your city on any needed licenses or permits.

When in doubt, a good attorney or accountant will be able to answer these types of questions, and it's always a good idea to consult them when starting a business. I think you are on the right track, and I would encourage you to keep trying and keep pushing until you get this thing going!

Selling on eBay

Q: I am just itching to get into the business world, but I have limited financial resources. Can you give me any suggestions on low-cost businesses to start that mostly involve the Internet?

A: Well, there are so many opportunities, I don't know where to start. First you need to find something that interests you-it is pretty easy to find tons of services to offer (from Web site promotion to retail to being a technical writer to you name it).

There are many ways to go about this, and many can be done without a lot of risk or investment. One way is to start on eBay. There are lots of people making great money just selling things on eBay (but you need to pick something you have expertise with). I've got a friend who sells several hundred thousand dollars' worth of used golf clubs per year on eBay, works his own hours and has a blast.

If you wanted to get started with something like that, try buying and selling a couple of inexpensive things (but be careful!) just to see how things work. One word of caution: To do well on eBay, you must sell something you know a lot about-my friend is very successful, but mostly because he's an expert in golf clubs.

I've got another friend who quit his job in Atlanta, moved to a small town in Georgia and became a ghost writer-he will write articles and books for people and get them published. He lives in a small town with a low cost of living and works in a local coffee shop. What a life!

The key here is to find something that interests you, hopefully something that you can be passionate about!

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Getting Started

Buying a Business

Q: I currently work for a small company that has been profitable for about 30 years. The two owners are thinking about getting out, and I'm very interested in buying them out and taking this business to a whole new level. How do I determine a fair price? A friend of mine recommended figuring out what their profits are (after paying out salaries), then multiplying this figure by five years, and that's what the purchase price will be. Is this accurate?

A: What your friend said is one rule of thumb, and you can sometimes use it, but the problem is that there are hundreds of rules of thumb! Sometimes you might use a multiple of cash flow; sometimes you might use a multiple of yearly cash flow. You've got to take many, many different factors into account, including the industry and the state of the economy.

There are a couple of things you can do. First do some research-check out www.bizbuysell.com and www.usbx.com. If you go through a few of these, you'll see some rules of thumb that stick out. Another route is to hire a valuation firm (that's what my company does)-your accountant or estate planning attorney probably can recommend one-and have them advise you on what that business is worth. You can spend a few hundred bucks and probably save a lot of money by having them help you avoid a mistake.

Help! Where Do I Start?

Q: I want to start an IV therapy center. I know what to do in the center, but I don't know where to start with the business part. What do I need to do?

A: Getting started is difficult, and there so many unknowns. The way I often try to solve a problem like this is to just start a list of things to do, and add to it as I think of more issues. Just write down everything you can think of, in no particular order (you can organize later). In your case, your list might look something like this:

And so on. One thing to keep in mind: Knowing how to do technical work is very different from running a business that does that technical work. (A great book on that subject is Michael Gerber's The E-Myth.)

The main thing that I would do is to go to some nearby towns (where you won't be competing for business), find a few similar places and talk to the owners. They will almost certainly be happy to tell you about their experiences and mistakes and give you advice. Nothing you can do will be more valuable than this.

Finally, for the mechanics of starting a business, I'd say to start with a good attorney. They'll guide you through the mechanics of getting started, and anything you pay them will be money well-spent.

Inventions

Q: I came up with an idea for a product, but I have no idea how to make a prototype. My questions are:

  1. Who can build me a prototype of my product?
  2. How can I trust this person if my product isn't patented yet?
  3. How do I check to see that this product doesn't already exist, and if it doesn't, how do I patent it?
  4. How do I locate a manufacturer for the product?

A: You can absolutely find your way through this, but be prepared to do a bunch of research and leg work. It is hard to advise you on where to go to get a prototype built without knowing more about the product. The first place I'd look would be to go to www.google.com and search on "XX prototype," with XX being your product. You'll find contract manufacturers who will be able to do it for you.

There really isn't a good answer for whether you can trust them not to steal your idea. In general though, I don't usually worry about this because I have found that by itself, an idea isn't worth much. The real value is in the talent, brains and determination to make it successful. The vast majority of people you deal with wouldn't steal your idea, and of those who might, most of them don't have the time to use it-they probably have their own company and plenty of ideas of their own. It is a tremendous amount of work to bring a product to market, and few people would try it with the risk of you suing them hanging over their heads.

That being said, my understanding is that this is a bit more of a risk when dealing with very large companies, which sometimes see stealing ideas as just another way to do business. The best thing, in my opinion, is just to trust your gut and go for it.

The patent process is pretty straightforward-there is a lot of information on the U.S. Patent and Trademark Office Web site. If you move forward with this, you will probably want to work with a patent agent or patent attorney who can guide you through the process and help you with searching for similar products. Also, go back to Google for that.

Once you get through all that and are ready to manufacture your product, you'll find many, many companies ready to do that for you-just search on "contract manufacturers" on Google, and you'll be amazed at how many there are.

Selecting Retail Space

Q: I operate an interior decorating business out of my home. The business is successful by many standards. My husband and I have discussed branching out and opening a home specialty store in one of the local shopping centers. We've searched for information on starting a small retail store, but most of the information for starting a business that we find deals with manufacturing, franchises or other homebased businesses. Where can I find information on how to select retail space and how much space is needed, where to get store fixtures and products, and how to finance the early stages of a retail store?

A: I talked to a friend of mine who had a great deal to say on this. I thought his wisdom might help. Here's what he had to say:

First, talk to some small retailers. Ask them how it's going and how they started. Some may be unwilling to talk to a potential competitor; find someone else. Don't try to hide what you're doing; many people will be delighted to offer information. Small-business owners tend to be a clubby sort, particularly in a strip sort of area, where more stores means more traffic and everyone can win. Obviously, this won't work well if there's already a store of your type in the strip you're looking at.

The next fairly simple thing to investigate, math-wise, is the cost of retail space. Anywhere there's a blank retail window, there's a phone number of the person who wants to fill the space. Call them and ask about the cost of the space, what that includes, the minimum lease times, and the typical utility costs or whether they're included. While you're at it, ask about typical traffic for the unit.

Check with surrounding business owners, too. Ask how the landlord is about problems, whether they're happy where they are, whether they get good traffic. Ask them about who provides their insurance in the retail sector, and you'll get some agent names. Ask the lessor what kind of shop was in the space before you and maybe even before that.

Next, find the market that sells what you'd sell, and go there. There are homebuilders' shows, retail clothing, jewelry, furniture, everything. And until you go and actually talk to some wholesale vendors-the people you'll be buying from to equip and fill your store-you simply won't know what you can and can't get and how much it will cost you. Some places won't sell you just what you need; there are often minimum amounts to buy, particularly for more popular brands.

On the other hand, wholesale vendors may offer you great ideas for starting your store. Don't be bashful about the fact that you're opening a new store. You've been in business for a while, you're experienced in your field, and now you're adding a retail outlet and looking for experienced vendors to help you make it a success. I guarantee they'll talk to you. It's all in how you present yourself. If you seem serious at all, they'll take time and help you. If they don't, find another vendor-the next booth over is probably perfect. (That's the great thing about shows.)

Keep in mind that the time spent managing the store will not only include the time that your doors are open, but also the time buying, receiving, stocking and returning inventory. It will include trips to the bank (hopefully lots of those!), monthly inventory checks, tax preparation, licenses and so on. That's not a reason not to do it; it's just time that you have to spend. But you should be paid for that time, and that should enter into the "cost" of the store. You should be aware of it upfront, and then make your decision.

Start-Up Resources

Q: I'm an absolute novice about starting a business. Could you please give me some ideas or a Web site where I could gather step-by-step information on starting a business?

A: Wow, that's a tall order! There are lots of books on this subject (just try a search on Amazon.com), such as Start Your Own Business by Rieva Lesonsky and the staff of Entrepreneur, and lots of Web sites, but I don't know of one that I'd really recommend, other than Entrepreneur.com! Seriously, if you are looking for "getting off the ground" advice, that's the place to look. You'll find articles on licenses, incorporating, working from home, you name it.

If I can just give you some basic advice (and a lot of this depends on the kind of business you are going to start)-watch your overhead like crazy-it is easy to get caught up in the excitement of starting a new business and, especially if you came from a big company, think that you need all kinds of expensive equipment, office furniture, etc.-and usually you don't.

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Legal Issues

Licenses & Permits

Q: I'm thinking of starting an e-commerce site that sells products to college students, such as dorm room decorations and lights. What licenses and permits do I need to do this? Should I incorporate if my products are coming from a wholesaler and I simply distribute the goods?

A: My advice is to definitely form a corporation. And don't do it on the Internet or out of the back of a magazine-get a real attorney to help you. This will cost you less than $1,000 for the whole thing, but if you don't have the money to do this, try to do it as soon as you can.

One major reason to incorporate is to separate you personally from the corporation for liability reasons. You may have heard a reference to the "corporate veil." In general, you can't be held personally liable for anything that happens in the corporation, and your personal assets (house, car, etc.) can't be attacked by creditors or a lawsuit on the corporation.

In order to have that protection, you must act like a corporation. That means you need to do things like have board meetings, take notes and publish minutes in your corporate books. Be sure to have a separate corporate checking account and, if you need them, corporate credit cards. Don't use corporate money for personal things, and vice versa (unless you file an expense report). Many people think that they don't need to go to all this trouble if it is just a one- or two-person company, but in order to be treated like a company, you must act like one. Your attorney will be able to give you a lot more details.

To determine what permits and licenses you need, contact your city or county. They can tell you exactly what you need.

Registering Your Company

Q: How do I register my company-not the Web page, but the company?

A: Company names are registered by state. When I've started a company, I've always had my attorney do a name search-I think there is a state database that most lawyers have access to. I'm sure you can do this yourself, but it has always been part of the start-up process-my attorney has drafted articles of incorporation, bylaws and the name.

Skipping the attorney and incorporating yourself is something that I absolutely do not recommend. The odds are that somewhere, sometime, someone will wind up suing you. If they do, you want to be protected personally, and a good set of corporate documents is the best way to do that.

Subchapter S Corporation

Q: I am starting the first of three Day Spas in the Tri-Cities, Tennessee/Virginia area. My question is regarding subchapter S corporations. I will be starting the business with one other partner. After much research, we decided on the S corp structure for the tax and limited liability aspects.

The name of our corporation will be different from the name of our spa. How does this work tax-wise? Under the corporation, there will be at least three to six different businesses within the next five years.

A: This used to confuse me considerably. Eventually, I figured it out-you can have an official name for your company "XYZ Corp." and then have as many "doing business as" (dba) names as you want. For example, I used to run a contract engineering company (WireSpeed), and with my brother-in-law, I started a golf vacation business (Tucker Golf). As you can see, those companies are very different, with different employees and different clients. Instead of incorporating a new business for Tucker Golf, we just ran it under WireSpeed as a dba. Officially it was "WireSpeed dba Tucker Golf," but to the public it was "Tucker Golf Co." We kept a separate set of books, had a separate checking account, separate corporate credit cards, etc. No one knew or cared that they were really the same company.

Then one day we decided that it was big enough to stand on its own, so we incorporated Tucker Golf Corp. We did this because we wanted to start out small and cheap and not spend the money on paperwork for the new company until we knew it would be successful.

You can do the same thing even if you don't ever plan on making them separate corporations. You will need to register your dba name with either your local or state government. There are always tax, accounting and cross-liability considerations with such a strategy, so contact your accountant and attorney for advice.

Trademarks

Q: I am a graphic designer in the process of starting my own company. I am the sole proprietor and principal designer. I would like to use the business name "Divine Design." I've checked with the official government trademark registration office via the Web, and there is no business officially registered as that. However, there is a Web site, divinedesign.org, that has a TM next to its "Divine Design" logo. Does this forbid me from using that name for my own business?

A: You have hit on one of the hardest things about starting a business these days-getting a decent name! With so many people out there registering domain names, it is tough to get a good one anymore.

As for the trademark, the only way to be sure is to check with a decent corporate attorney. My advice, though, is to come up with a name that is unique to you. Having a cool name like Divine isn't as important as having one that means you! Come up with something that you can attach a good domain name to-in the graphics business, that's probably where most people will find you anyway. Even if you can legally use the name Divine Designs, you don't want people to be confused or to go to the other Web site looking for you.

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Changing Directions

Q: My husband and I run a fence business from our home, and we offer financing, but it is done through an outside company. We are interested in opening our own finance company, but we don't know where to start. We would mainly be offering financing for fence jobs and maybe personal loans-it depends on the information I can dig up.

A: Are you interested in doing this because your experience has given you a good feel for which customers are a good risk and which are not? Unless the answer is an absolute yes, I'd think carefully about this. I'm not saying that you don't want to do this, but be sure you fully understand the risk. Outside agencies such as the one you are currently using have spent a lot of time and money developing the risk profiles that let them profitably decide whom to lend to and whom to refuse.

One argument against this is to ask "What kind of business am I really in?" Is it the fence business or the finance business? They are very different, with different risks and different skill sets involved. To me, you have the perfect setup-you can offer financing, but you don't have to manage it or take the risk. I'd be certain that I understood how much extra money I might make before I took on the extra headache.

On the other hand, if your goal is to eventually get out of the fence business and be in the finance business, then this is a good way to ease into it. I'd recommend talking to a banker or two and letting them explain as much of the process as possible. Then do some research on the Web, and also look for some financial consultants who can guide you.

I've had my share of problems trying to do too many things at once, and I've learned that focus is crucial to success. My advice is to pick one of the two businesses and concentrate all your efforts on making it as profitable as possible.

Q: I am considering approaching several individuals to be on my Advisory Board for my start up company. However I don't know what to offer candidates. I am raising money for the company by offering LLC units.

A: I've see different people do this different ways, and my advice is to offer your advisors some small number of LLC units for every advisory meeting they attend, plus some amount to agree to be and advisor in the first place. I think you want these people on your team, you want them to have incentive for the company to succeed, and you want to be generous with them. The number could vary but here's my opinion on a rough amount-if you have 1,000,000 membership units outstanding, I'd consider giving them a few hundred to start, and then after a few months if they are being of value, I'd up that to a few thousand each. For advisors who are adding significant value to the company, even more.

Titles

Q: I am starting a consulting company and am working on the logistics of getting the company up and running. I have a simple question regarding job descriptions. What are the major roles and responsibilities for the president of a company vs. the CEO?

A: I've come to see it this way: the president is an inward-facing position, and the CEO is an outward-facing position. The president (often combined with the COO title) is responsible for running the company-managing the consultants, interfacing with the customers when appropriate, managing the sales and marketing staff, making sure the bills get paid and money is being spent wisely, motivating the employees and so on. The CEO is more responsible for dealing with the press, vendors (especially your banker, attorney and accountant) and strategic partners. The CEO spends most of his/her time on the overall strategy of the company-and setting, understanding and communicating (with employees, vendors and customers) that strategy. A CEO's schedule is filled with networking, going to lunches and dinners, attending meetings, and looking for opportunities to tell the company's story. In one sentence, I'd say the CEO is responsible for articulating the vision/strategy, and the president is responsible for executing that vision/strategy.

Note that until a company is a certain size and can support more overhead, one person usually serves as CEO, president and COO (and of course CFO, CTO, IT support, bookkeeper, janitor, etc.).

When I first started out, we had a three-person company, and I spent a lot of time on job descriptions, employee policies, manuals, etc. Much of that was wasted time, because our real need was getting new business and making sure we delivered quality on the business we had. We really didn't need much of that until we had 15 to 20 people. This is not to say that procedures, policies and job descriptions aren't important, because they absolutely are. As you grow, if you've got good procedures in place, you don't have to reorganize the company every time you get a little bigger. But don't spend too much time on this early on-focus on getting new customers and delivering your service, and you'll have plenty of time to develop other things as you go.

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Money & Finance

Investors Vs. Bootstrapping

Q: I am seeking funding in one of the most unforgiving economic climates in modern history. My company specializes in making CD business cards. Initially, I drew up a business plan with a budget for $150,000. However, this is way too small for venture capital, while being a hefty price tag for an individual investor. By the way, friends, family, credit and SBA loans have all been explored.

So I drastically altered my budget, creating a $28K model. Now, after wining and dining one angel investor for months only to have him back out in the end, my question is this: Where can I find and approach people who would be interested in an investment of this size?

A: Yours is a classic problem, and it is difficult to solve. Most people don't want to invest in unproven businesses or people-they want to think that something is about to take off, and then get on board. That doesn't seem fair to an entrepreneur who is trying to get off the ground, but unfortunately that's the way it works.

If there is any way to bootstrap it-to take a job and work on this at night until you got revenue going-that would be my first recommendation. Getting investors is a major step, and after you have them, your life will be harder, not easier. Before that, you are only responsible to yourself-after that, you have to keep their best interests at heart, and there is responsibility and liability that goes with that.

If you believe that getting investors is the only way to go, then look around for a local incubator (preferably a nonprofit) by searching at www.nbia.org. You'll find people there who can help you network with investors.

Setting Prices

Q: I am in the process of starting a landscape design company. I have management degrees, horticulture degrees, affiliations, etc., but I seem to be clueless on where to set my baseline costs. I need some type of schematic for costing. Should I tell the potential client that it will cost a flat rate to visit-creditable to the design should they choose to undertake my services? What if they do not like my design and I have spent the initial time (five to 10 hours plus travel, photos, measuring, etc.)? Reimbursing them would be out of the question!

Currently, I visit a client, explain my fees and request $100 (nonrefundable)-this covers the usual one- to two-hour interview and measuring plus travel and photos. It is barely enough. Halfway through, I show them where my design has taken their yard, and at that point they may change it (somewhat) without penalty. Once we have all agreed on a direction the yard will take, I bring the design back to the drawing board for the homestretch. Upon finalization, I request the balance. The problem is, I am leaving myself open to a lot of gray area regarding personal interpretation of the design, and consequently nonpayment. I have not run into this yet, but it's only a matter of time.

A: It seems to me that you really have a handle on this business and are asking all the right questions. After reading this, I'm struck by the similarities between your business and mine (contract software development). The sales process is very similar.

My thoughts are that you should develop a nice one-page "fact sheet" or something that explains how you work. In it, I'd lay out the things that you will deliver and what you'll charge for them. This will give people a clear understanding that this is how you make your living and that they shouldn't expect free stuff.

At my company, we developed a two-phase development process. We would have a meeting with the client and learn about the project, and then tell them that phase one was the design phase. For that, we charged $X per hour, and at the end of that they would have a complete design for the project. Then we could do the implementation phase for $X per hour or they could take our design to someone else.

Now, your business seems to be different in that you only have the design phase, but I think you can handle it in the same way. I would meet with potential clients and tell them that there is no charge for an initial meeting. I'd talk about what they are doing, give them some ideas (a taste of your talent) and learn what they're looking for. Then I'd go back and work up a design proposal, saying that you charge $X per hour and that you estimate that this project will take between X and Y hours. Then bill them for every single hour you spend on it.

Depending on how large a job it is, you can give them preliminary reports to show them the direction you're taking-if they don't like it, they can either change it or stop it. Either way, you get paid. If they don't like your design, well, that's the way it goes.

The chance that any client of yours is taking is that they will need to spend a little money to see how good you are. I think that anyone who isn't willing to do that is probably going to be more pain than they are worth, and you probably don't want them as a customer anyway.

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Partnerships

Contracts

Q: I am considering starting a hair salon with two other people. We have an opportunity to buy an existing salon at a very reasonable price. One partner is very experienced with running salons and is also a licensed beautician. She will be hired only to run the business, but she will not have ownership of the business. The other partner and I will split the upfront financial requirements and handle the books, bills, etc. We are planning to incorporate the business and split ownership. However, I want to know how the business contract should be organized so that my financial interest will be protected. How is this explained in the contract?

A: It sounds like this is a reasonably simple deal, but there is only one place to go to be sure that your interests are protected. You definitely need to talk to an attorney and get them to draw up a contract for you. There are tons of gotchas in something like this, and unless you've done it a lot, you won't think of all of them.

That said, I do have one piece of advice: While it is important to have an attorney to draw up a contract, I don't believe a business relationship should be based on the letter of the contract. By that I mean that you must draw up the contract so that it is fair to everyone and so that everyone gets what they want out of the deal. Also, make the contract such that everyone can have a way out, if they want it, that doesn't hurt the other partners. I say this because if you ever have problems in the relationship with either partner (and the odds are that you will), you'll need a way to gracefully separate. Long term, if everyone isn't happy and doesn't think they got a good deal, then it won't work. And even though you may have a legal right to force someone to do something, if they aren't willing, you will have a very hard time running a successful business. So get an attorney to draw up a contract that is fair to all parties and spells out what is expected of everyone.

Do You Need a Partner?

Q: I will be graduating from Penn State University next December, and I am seriously interested in starting my own business. I served four years in the military, and during that time I was successful in writing a business plan that was approved by a bank for financing. I turned that offer down because I was not ready to live in that part of the country. My question is this: I have a plan for a business, but I could really use the help of having a partner. What should I look for in that person?

A: That's a tough question. I think finding a partner is like finding a mentor. (See my article "Finding a Mentor" for more on mentors.) However, since you will depend much more on a partner than you would on a mentor, you should choose carefully!

Have you considered why you really need a partner? Is it moral support? Is it that you have a big hole in your knowledge or skill base and need someone to complement your skills? I've started a business with someone I didn't know, and it didn't work out very well. The last few that I've started have been with people I've known and trusted for a long time. You can never be completely sure if you've selected the right person, but the better you know them, the more likely you'll make a good choice.

If you decide you really need a partner, then get as many personal references as possible, and check them carefully.

Who's the Founder?

Q: My partner and I are having a hard time determining the correct usage of the term "founder." Initially my partner, Jill, and I had a previous business relationship. Because of this, when Jill suggested selling gourmet foods through home parties, she called me. My response was, "I'd invest in that," and I did.

For two years, the company operated out of a building on my property, and Jill put in countless hours getting the business off and running. For four and a half years, I had little involvement other than some encouragement now and then. At that point, the business grew to the point that it needed someone like me to play the role of COO. Until recently, Jill and I titled ourselves president (Jill) and vice president (me). Because neither title refers to foundership, we are struggling with correct usage of the word founder. Is she the founder and I co-founder? Are we both founders? Are we both co-founders?

A: I would consider you both co-founders-you both started the company (you with money, her with time). My advice is not to worry too much about that. If you are searching for a way to refer to yourselves, I think co-founders sounds fine. You might also consider "principal"-that's more of a financial industry term, but it sounds pretty good and seems to fit here. I wrote an article on titles that you might find helpful, "The Relevance of Employee Titles."

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Advertising

Q: I am located in a small town in south Georgia. I've been in business for a few months now. I only have six Web hosting customers, and I'm trying desperately to get more. I am planning on putting ads in the newspaper in a local town that is a lot larger and will reach many more people. What do you think? Any advertising advise?

A: I'd be careful about spending a lot money on newspaper advertising. I've not found that to be very effective, and it can be quite expensive. Instead, get your own site in tip-top shape, then spend most of your time promoting it in the search engines and trying to drive as much traffic to it as possible. I've had a good amount of success in several different businesses by putting most, if not all, of my marketing efforts into driving traffic to my site via the search engines. Learn more about traffic at Web Site Secrets and Web Site Garage.

You should also network like crazy. The bottom line is to meet as many people as possible, tell them what you do and ask them if they have any business for you.

Getting Customers

Q: I own a computer network integration firm. To be honest, the business only exists on paper at the moment, along with a bank account and a credit card. Only a few people seem to know I exist at all, and that's where my question comes in. How do I get customers? My problem lies in the fact that I am in a small urban community, with small urban communities surrounding it.

A: Boy is this familiar. I was talking about this question with a friend of mine (with whom I've started several businesses), and he and I were remembering how hard this was for us. Here are some of his thoughts:

Word-of-Mouth

Q: I'm looking to start a carpet-cleaning business, and I'm wondering how to determine the demand for this service and the level of competition in my geographical area. Also, with the recent recession, do you think I should worry that people will stop purchasing this type of service?

A: The majority of your competition would probably be listed in your local phone book. But you may or may not care about how many other people are competing with you. I say that because in my experience, this is a business where you can start small and grow rapidly with good word-of-mouth if you provide good service. If you don't have to quit your job and do this full time, this could be a very good deal.

My opinion is that there is a lot of money to be made in this business by focusing on service, because so few people give good service. My personal experience with carpet cleaning is that most of the people who offer it show up late, do an OK job, aren't very careful in your house, and overall have a poor appearance and/or attitude. I think that if you can always keep appointments, do a good job, be careful and respectful of people's houses, look professional and be polite, you can clean up (no pun intended) in this business.

If you start this business, be sure to ask each client, after you've done a good job and they are happy, if they would give you the names of two other people who might want their carpets cleaned. If you can call someone and say "I just cleaned your friend Sarah's carpets, and she thought you might be interested in getting yours cleaned-please call her and ask her if she was happy with my work," then you'll have more business than you can handle.

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Taxes

Contractor or Employee?

Q: Currently I am employed as a developer for a small company. I have no benefits other than three weeks of vacation. I would like to start my own business and work as a contractor for this company. What advantages would there be to this arrangement, both for my current company and for me?

A: Your accountant can give you a lot more detail, but the bottom line is that you'll need other clients to be considered a contractor. If you become a contractor and only work for this one company, the IRS will classify you as an employee anyway. There is a list of rules that you can get (your accountant or the IRS will have them) that tells you whether you are a contractor or an employee.

That aside, advantages for you would be more flexibility (if they tell you when or where to work, then the IRS will say you are an employee), the ability to find other projects (and perhaps become in demand enough to raise your rates), and the feeling of being your own boss. The disadvantages are that you'd have to pay your own Social Security and employment taxes-be sure that if you become a contractor, you get more than you get now, because your expenses will increase. Plus, the company will have a lot less of a commitment to you-it is much easier to "lay off" a contractor than an employee.

Deductions

Q: I am starting an HR Consulting and Training business. My question is very broad: What are deductible expenses for a small, homebased start-up?

A: You'll definitely want to talk to an accountant to get the official version, but here is some basic data:

Any miles that you drive for business purposes-to a meeting, to buy company supplies and equipment, and so on-can be deducted. The easiest thing (and the most defendable to the IRS) is to get a mileage book from any office supply store and, whenever you get in your car, ask "Is this for business?" If so, record the beginning and ending mileage on that trip. Some people combine personal trips with business trips, but I'm not sure how the IRS views that.

Other things you could probably deduct would be computer equipment in your home office, possibly furniture and other supplies for that office, a digital camera or camcorder if you can show that you use it in your business, magazine subscriptions, and meals with clients. The rules on these things are always changing, so definitely check with an accountant.

Here are some good resources to help you:

Withholding Taxes

Q: I have been asked by a family in our city to supervise the homeschooling of their three children. They would pay me $450 per week. Obviously, I would owe taxes on this money. Would I be considered a small business and responsible for my own taxes and FICA, or are the people who hire me responsible for this?

A: You will need to sit down with them and decide one way or another. If I had to guess, I'd say that they have assumed you'll pay your own taxes, and this is the typical way (as it is a fair amount of work for them to make you an employee). If that's the case, then make sure you know how much taxes and FICA you'd owe, and subtract that from the $450, and make sure it is worth it for that amount. You may need to negotiate a higher amount after you take that into consideration.

Any accountant can explain this in detail, and I'd recommend that you contact one for detailed advice. This isn't something you want to mess around with-you want to make sure everyone is on the same page.

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Teen Startups

Choosing a Major

Q: I am college student, and I want to start my own business eventually. What major would be best for a future entrepreneur?

A: I'm not sure there is any one that would be best. As an undergraduate, you can major in just about anything. I majored in electrical engineering, then worked for a big company as a software developer, then a manager, then became an entrepreneur with a software development start-up, so my engineering background helped a lot. I know lots of entrepreneurs who have business-related or marketing degrees. So much of this depends on the person.

If you are a very technical person, I'd consider getting an engineering or computer science degree as a base. If not, a marketing degree would serve you very well-many entrepreneurs are very weak in marketing. A lot depends on your personality: If you are the kind of person who would do well in engineering, for example, the attributes that allow you to focus on one thing for a long time probably aren't great for schmoozing people (an important sales skill), and vice versa-most salespeople would have a very hard time spending much time in front of a PC.

Financing

Q: I am trying to start a business in the automotive sales and performance industry. I have done a lot of research on obtaining my Florida dealer's license and plan to buy and sell cars as one business while using that location to open an automotive performance shop. Here are the two problems I continue to run into: 1) I am 19 years old, and 2) I don't have a lot of upfront capital or assets to pledge for equity. How can I get the start-up financing I need? I am looking for less than $50,000. My partner is 20 years old and has less debt and a better credit score than me.

A: I'm not an expert on microloans, but that might be a good way to go if it is open to you. Unfortunately, as you probably expect, there isn't an easy answer to this. Because of your age, most people will assume that you are going to make a lot of mistakes before you get good at your business. Probably the best bet for you and your partner is to start out small and bootstrap yourself. Get your dealer's license (that doesn't cost much); buy a few cars on credit; and, after you sell them, put the profits back into buying more. Eventually you'll establish yourself, and credit will start to be easier to get.

Another option is to try to find a store or car lot that someone wants to get out of. There was a lot in my town recently where the guy had several cars and maybe 10 more on consignment, and he needed to move out of town so he was going to let the whole thing (including the office and equipment) go for something like $30,000. If you can find a good deal like that, that might give you your start.

One last tip: Go to our new online magazine for teens, TeenStartUps.com. You'll find a lot of helpful advice for people like you trying to overcome the age barrier and get financing for their start-ups.

Sorry I couldn't be more helpful, but you should understand the reality. Don't let this hold you back, though-keep pushing ahead and you'll make it!

I'm Young...Really Young

Q: I'm a 12-year-old Bill Gates. I love making money. But I just need some simple advice on starting a business. I know I can't go overboard at my age-I hate those child labor laws. They hold me back from making money on something larger than a lemonade stand! But if you can advise me, and kind of guide me through the steps, I would surely appreciate it.

A: I like your attitude. You are right that your age will hold you back a bit, but don't let that get you down. I became an entrepreneur reasonably late in life (from your perspective anyway) at age 32. I have sometimes thought back and regretted not preparing myself more-I didn't even know I was going to be an entrepreneur until just before I quit my job and dove in.

If I were 12 years old again, here is what I'd do. I'd take the long-term view and plan my entrepreneurial career. I'd educate the heck out of myself. I'd read magazines like Entrepreneur and Web sites like Entrepreneur.com (which, by the way includes the teen-focused TeenStartUps.com). I'd listen to audio tapes from people like Zig Zigler, Brian Tracy and Michael Gerber. I'd take classes that helped build my knowledge base. I'd not worry too much about my age and about its limitations. I'd do a lot of research on the Internet and find out what other young entrepreneurs are doing. I'd get part-time jobs in small companies and offer to do anything to learn how to do various tasks. If you do all these things, you'll be way ahead of everyone else when it is time to select a major in college.

I Want a Business Now

Q: I am a student working toward my business management degree. I am extremely interested in owning my own business. My ultimate goal is to own/operate my own resort. Obviously, I don't have the time or money for that right now, but I really want to start my own business immediately. I am extremely interested in public safety; I know the field really well. Do you think there is something I can do part time, selling the equipment or somehow making my own business out of it?

A: One of the hard lessons that I've learned in my life (at the expense of a lot of time, effort and money) is that experience is way more important than I had ever thought. When I got out of college, I worked as an engineer and a manager for 10 years, never thinking about becoming an entrepreneur. When I did become one, I really had to start from scratch, and therefore I had to make a lot more mistakes than I would have if I'd been preparing for that all along.

So I'd ask you to think about a few things. First, get as much practical experience as possible on someone else's dime. Find a job, and when you are looking for that job, don't make salary, vacation time or benefits your primary concern-look for something that will give you the training and experience you need to go out on your own.

If the desire to be on your own is too great to spend the time to establish a skill base (or if you already have some business skills or experience), then I'd recommend you start something part time and see what success you can have while you finish your degree. That would be a great proving ground, and if the first or second thing you tried didn't work out, keep looking-you'll find something that does.

Without knowing a lot more details, it's difficult to give specific advice, but I think you are on the right track with the thought of testing your sales skills with a product before diving in to something more major.

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Keith Lowe is a principal of Pretium Capital Group, a boutique investment bank in Huntsville, Alabama. Keith also mentors new entrepreneurs; serves as chairman of the board for Biztech, a nonprofit high-technology business incubator; and is a co-founder and officer for the Alabama Information Technology Association.