Starting a Business as a Sole ProprietorFor many, the American Dream includes starting a small business. One of the first steps toward the dream is to decide what legal form your business will take.

The simplest structure, and therefore most popular, is a sole proprietorship. Yes, it may be the most difficult to pronounce and spell, but it is the simplest legally!

You do not have to file legal papers to become a sole proprietor. If you are doing business and you do not have another type of legal structure, you are considered a sole proprietor. About 70 percent of businesses in the U.S. are sole proprietorships.

However, like any other business, you must file for the proper licenses/permits required by your state and local governments when starting a small business, as well as any industry requirement. Every state and locality has their own rules about what you need to file.

If you are not operating under your given name, you will likely have to file a fictitious name, trade name, or “doing business as” (also known as a DBA) with your state government. It is important to do some research for your business name to ensure you are not infringing on a trademark or another business name. You will need the paperwork from this filing in order to open a bank account under your business name. You may also need the proper local certifications.

In some areas, you need to file with the state, then county, then city. In other places, the city comes before the county. But, you will usually need to start with the state, even if you are operating under your own name.

One of the easiest ways to find out the laws in your area is to call your bank and ask them what you need to open a business account. Many state and local governments now have information online. Also, your local Small Business Development Center (part of the federal Small Business Administration) can help you sort out the local regulations. Their assistance is free and they are located throughout the country. Visit sba.gov and click on Local Assistance. There is an interactive map to help you find your local resources.

As a sole proprietor, you will be paying taxes on your overall earnings. However, you will be deducting your business expenses from those earnings, according to the federal, state, and local tax codes. Your “salary” as a sole proprietor is not considered a business expense and you don’t have to decide what your salary will be in advance.

Since you won’t be paid as an employee, no income tax will be deducted from whatever you withdraw your business earnings.  What you’ll have to do is file an estimated tax return (and possibly pay estimated taxes) on a quarterly basis. Check with the IRS for Publication 334, Tax Guide for Small Business. An accountant or bookkeeper is very helpful for estimating taxes and understanding the complex system for what you might need to pay quarterly.

Here are a few of the advantages to consider when starting a small business as a sole proprietor:

It is the easiest and least expensive business structure to start. Legal costs are minimal.

You have full control over all business decisions. You don’t have to consult a partner or shareholders on decisions or changes you want to make.

Tax preparation is not significantly more cumbersome than filing your regular income tax. You will use a Schedule C to report your income/loss to the IRS, and most states have similar forms or use your federal information. You will need to file an extra form if you have a profit to report and pay self-employment taxes.

Here are a few of the disadvantages to consider when starting a small business as a sole proprietor:

Your personal assets are more at risk as a sole proprietor. Because there is no legal separation between you and your business, you can be help personally liable for the debts or other obligations and that includes liability for any legal actions.

It can be more difficult to raise money as a sole proprietor because you cannot sell stock to investors and banks may be more reluctant to lend money to a sole proprietor.

Next up: Small Business 101: What is a C Corporation?

About the Small Business 101 Series from Small Business Divas

There is plenty of expert advice on small business available, but often the basic questions aren’t answered. And for someone new to a subject, it’s difficult to understand the information without a good understanding of the basics. The Small Business 101 Series is all about the basics: what, why and how.

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key to success cmptFranchising is a type of business where an existing business licenses its business model, brand, trademarks and methods to another business person. Franchising is sometimes referred to as a “business in a box.”

There are advantages and disadvantages to buying a franchise versus starting an independent business.

Some advantages may be:

  • Start-up advice and expertise
  • A ready-made business model
  • Access to a well-known brand
  • Proven marketing strategies
  • Employee training
  • Assistance with site selection

Some disadvantages may be:

  • Less flexibility in business model
  • Restrictions in territory
  • Up-front costs for purchasing franchise and equipment
  • Sales quotas
  • Exclusivity in suppliers

Generally, there are two types of franchises. In the first type, the business selling the franchise owns the rights to a name/trademark and sells that right to a franchisee. This is known as “product” or “trade name” franchising. In the second type, the business selling the franchise expects to have an ongoing business relationship with the franchisee, and provides services such as training, startup consulting, help with site selection, marketing guidance, product suppliers, and so on. This type of franchising is known as “business format” franchising.

Before deciding to purchase a small business franchise, you should do some detective work. Research the primary business and their current franchisees. Talk with other franchisees about their experiences. Compare the costs of the franchise against the costs of an independent startup.

The law requires that potential franchise sellers provide certain pieces of information to potential buyers.

Here are a few questions to ask while investigating a franchise:

1-What can the franchise/franchisor do for you that you cannot do yourself?

2-How many years has the company been in business?

3-Is the franchising firm adequately financed?

4-Does the franchising company have an experienced management team?

5-Does the company offering the franchise have a reputation for honesty and fairness among the current/past franchisees?

6-Has the franchisor provided certified financials indicating profits/losses of one or more of its franchisees, and have you checked out the financials?

7-How many years does it take the average franchise to become profitable?

8-What services does the company franchisor offer its franchisees? Are there additional fees or costs for any of the services?

9-Have you had an attorney review the franchise contract and discuss the ramifications with you?

10-Under what circumstances can you end the franchise contract, and at what cost to you?

Buying a franchise is not a guarantee of small business success. It can provide a measure of security and a leg up. Surveys show that fewer than 20 percent of franchise businesses fail, while the overall failure rate for new businesses is between 60 percent and 80 percent.

About the Small Business 101 Series from Small Business Divas

There is plenty of expert advice on small business available, but often the basic questions aren’t answered. And for someone new to a subject, it’s difficult to understand the information without a good understanding of the basics. The Small Business 101 Series is all about the basics: what, why and how.

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magnifying glass for small business nicheA niche is the specific, well-defined segment of a population that a small business serves. Niche refers to the service or product that meets a special area of demand. You can think of it as a small corner of a market or a specialty.

In ecology, a niche refers to the place or position of an organism or a population within an ecosystem. It defines the role the organism or the population plays in the general scheme of things. The niche dictates the ability of the species to survive. It is the one which determines whether an organism or a population will perish or thrive.

As in ecology, niches are important, especially when starting a small business. Niches can determine if a business will survive and thrive, particularly for a business that needs to demonstrate expertise, compete online, or build authority to succeed.

Niches may be based on demographics, such as age, education level or marital status, or on psychographics, which are attitudes, interests, or lifestyle choices.

Niche marketing is the process of finding market segments that may be small, but are profitable. One of the great things about niche marketing is that it allows you to be unique and one-of-a-kind. Instead of being forced into a crowded marketplace, competing against larger, more established marketers, you can build a strong, profitable business based on your niche.

The ability to reach your niche market is an important consideration in choosing and defining a niche. It does not help a business to serve a specific niche if there is no avenue for marketing to those customers.

Using the web and social media, niches can be more profitable and easier to reach than ever before. Because customers who are passionate about a niche can easily connect to and pass along information to other people who share their passion, businesses that  focus on a niche can thrive online.

Gauging the potential of a niche before starting a small business is essential. Test marketing, competitive research, and market research can all help to determine the potential of a niche. Unlike in the old days when seeing competitors in a marketplace would discourage someone from starting a small business, today seeing existing businesses that target a niche is a good sign that the niche is profitable. Of course, evaluating the competition and having a competitive advantage is still important.

About the Small Business 101 Series from Small Business Divas

There is plenty of expert advice on small business available, but often the basic questions aren’t answered. And for someone new to a subject, it’s difficult to understand the information without a good understanding of the basics. The Small Business 101 Series is all about the basics: what, why and how.

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brick wallOur culture in the U.S. is rife with tales of the great idea. We are fascinated by the inventor, whether it is a historical Edison, Bell, or Einstein, or a contemporary Jobs or Gates. We view idea generators, especially those who grow a small business to a big one,  as icons of success.

What our culture doesn’t celebrate is implementation, even though it often takes more time, sweat, and “smarts” to make something happen than to dream it up. In fact, we view doers, somehow, as lesser beings than so-called “visionaries.”

I do believe that ideas and theories are important. But maybe it is time to celebrate the real work of action, instead of this myth of the great idea. Because I believe the test of a great idea, in small business or large, is this: Can it be translated into something useable? Is it applicable and beneficial?

When I worked for Saatchi & Saatchi, we had a saying: “Strategy is everything, implementation is everything else.” It illustrated the recognition that big ideas are important, but implementation is just as (and sometimes more) critical.

What blocks many of us from taking an idea to fruition is the shift in thinking and energy that is needed to move from ethereal to corporeal. In fact, that shift can feel like trying to walk through a wall — a bit like Patrick Swayze’s first attempts to rearrange his molecules to slide his ghost-body through the closed door in the movie, Ghost.

The thinking shift is from your Connective intelligence — the intelligence of creativity that allows you to make connections between seemingly unconnected things — to the rational, linear, logical thinking needed to plan and implement. I’m not saying that these two intelligences cannot work in tandem, because they can. But it takes a thinking process that encourages both, and the practice and skills to move through that wall.

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Ideas are not organic things that are simply born out of a brain fully formed. They are edited over and over again and go from lumps of clay to masterpiecesEvery so often, a book comes along that’s not just a great read; it’s a must do. For small business owners, The Impact Equation is a great read and a must do.

I was fortunate to get my hands on an advance copy of the book by Chris Brogan and Julien Smith (you can buy it now!). I’ve been a fan of the authors since their bestseller, Trust Agents. For me, Trust Agents was on one of those books that crystallized how to be human online as a business.

So when I got my hands on The Impact Equation, I had high expectations. And even my high expectations were exceeded.

In The Impact Equation, Chris and Julien once again take a complex concept and brilliantly translate it into an actionable formula. This time, the formula we need as small business owners to get the attention of our customers, their influencers, and the world around them.

The formula is made up of six elements: contrast, reach, exposure, articulation, trust and echo (yes, it does spell ‘create’).

What’s cool about this equation is that the ingredients are not all that different from those you need to consider when you are working on a small business plan. Take, for example, articulation. High articulation, in this equation, means “an idea is like a sword, cutting through the fog of the brain, and hitting you in exactly the right place to make you understand it.” For many small business owners, articulation is a tough challenge. But it is one that must be conquered to get the attention of our most important audiences.

Fortunately, Chris and Julien not only explain how the ingredients combine to make impact, they also tackle the ingredients of the equation and show how to develop each of them.

You’ve heard some or all of these ingredients before in relation to your business, but in this context and combination, it’s a whole new ball game.

How important is impact for small business? Let’s say you have an idea for a business that would change the lives of thousands. If you can’t get the attention of the thousands, or those who influence them, your idea remains…just another idea. Enter The Impact Equation. You work on each of the ingredients — contrast, reach, exposure, articulation, trust and echo – and voila: watch your impact expand.

In fact, my favorite quote from the book relates to ideas: “Ideas are not organic things that are simply born out of a brain, fully formed. They are edited over and over again and go from lumps of clay to masterpieces.”

Now that I’ve read The Impact Equation, and understand the formula and its ingredients, I’ll be hard at work on my Impact Equation. How about you?

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green plus signsIn the news, a story about the oldest cancer specialty hospital in the country embracing alternative medicine (also called complementary medicine), along with the traditional western practices. It started me thinking about how hard we often fight against ideas, advice or practices that seem contradictory in our small businesses, instead of embracing the Genius of the AND.

In the landmark book, “Built to Last,” Jim Collins wrote of the Genius of the AND. Collins showed that companies that prospered over time learned to embrace practices that were seemingly contradictory or mutually exclusive. As Collins put it:

A truly visionary company embraces both ends of a continuum: continuity and change, conservatism and progressiveness, stability and revolution, predictability and chaos, heritage and renewal, fundamentals and craziness.”

Failing to embrace the AND leads entrepreneurs to believe there is one right way to do business, one successful model in an industry, one way small business should be done.

Big mistake.

Today’s fast-changing business environment rewards different methods, alternative perspectives, and inclusive, not exclusive ideas.

So, where can you use the Genius of the AND to prosper in your small business?

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© michaeljung - Fotolia.comOne of the tragic mistakes people make when starting a small business or running a business is to fear or avoid competitors.

For example, do you know someone who is searching for a business where there are few or no competitors?

How about someone who goes to great lengths to exaggerate minor differences in their business (usually those that customers don’t care much about) just to pretend they are the only business of its kind in their “space”?

Or, do you know someone who avoided pursuing a specific business model because market research showed lots of competitors?

Instead, smart small business owners hug their competitors.

Why?

In the research phase of starting a small business, or developing a new product or service, competition is a welcome sign. It means customers are willing to pay money in that arena.

Hug your competition and thank them.

Indirect competitors (those in a similar market, but different enough that they aren’t perceived as direct competition) are invaluable. Analyzing their business model, marketing strategy, products or services, can enhance your understanding of customer psychology, or even open your mind to future possibilities.

Hug your competition and learn from them.

Direct competitors offer opportunities to partner in expanding the pie, to emphasize your own uniqueness, or showcase the richness and variety of a marketplace.

Hug your competition and partner with them.

For example, I am a member of a Joint Venture Women, a community for women who want to build joint ventures with other women. Do I have competitors that are members of Joint Venture Women? Yes.

Do I have qualms about hugging them and partnering with them? No.

Stop making the mistake of fearing or avoiding your small business competition.

Thank them. Learn from them. Partner with them.

Hug them!  

P.S. Want to expand your community by 464%? Find out how in this September 20 teleclass from Joint Venture Women.

Get your free invite here:
http://jointventurewomen.com/Teleseminars.html

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What is Your Small Business Cupcake?Starting a small business is exciting, intimidating, energizing and exhausting, all at the same time. One of the best ways to ensure that your startup will succeed is to be clear on why you are in business and how your business fits your life and goals.

Pam Turkin is the Founder and Chief Cupcake Officer of Just Baked, a gourmet cupcake and cake shop (JustBakedShop.com) based in Michigan. In the midst of the recession, in a state that took an economic hit harder than most, Pam followed her dream and built a thriving business with twelve bakeries across the metro Detroit area, plus an agreement for a national franchise expansion.

How did she do it? First, Pam was very clear about what she wanted to do. She wanted to bake cupcakes. But she doesn’t just enjoy cupcakes. She is passionate about cupcakes.

It is important, Pam believes, to be very clear about what you are committing to when you are starting a small business. As she said, “be sure you will still want to do it on the 99th day.”

You may love to create your product or provide your service when there are no pressures to perform, but will you still love it when you’ve done it hundreds of times, on a deadline or budget?

Will you love to bake your cupcakes when it’s one hundred degrees out and you are locked for hours in a steaming hot commercial kitchen?

Will you love making your product when you have the flu and orders to fill?

Will you love your service when your client asks you to help them with the same issue you’ve dealt with 42 times already for previous clients?

Asking yourself tough questions like these will help you be clear you are starting a small business that will succeed. One that serves your life, goals, and dreams (which is also the goal of everything we do here at Small Business Divas).

So, what is your small business cupcake?

P.S. Just Baked cupcakes are oh, so yummy. If you are in the area, you have to bite in!

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Stop right there hand signWith all of the information emerging from the Sandusky trial and aftermath, it’s clear that for some of the people who saw or heard about Sandusky’s activities, beliefs prevented them from seeing the truth.

Don’t misunderstand me; there are obviously people who are guilty of helping to cover up Sandusky’s crimes. But we will probably never know (and people may never realize) how many people were blinded by their beliefs.

Why does this matter for your small business?

Your beliefs have a significant impact on your business. They determine how you interact with people. They shape the assumptions in your small business plan. They influence your decisions.

Here’s why:

To cope with the complex lives we lead, our brains build groups of mental shortcuts, which I call mental maps. We all have them. In fact, we each have an entire atlas of maps.

These maps act like prescription eyeglasses: they impact how we perceive ourselves and the world; they impact what we see and what we don’t see.

We build mental maps for simple activities like driving and going to school, and for more complex activities like living in our families and working in the business world. And our maps are made up of unwritten rules and assumptions that once learned, we rarely question.

It’s important to recognize that many of our assumptions and rules, we don’t even consciously choose. We learn them from growing up, from our parents, teachers, and coaches, and later from friends, coworkers and so on. We even learn them from stories, movies and jokes.

We rely on mental maps, made up of rules and assumptions, as mental shortcuts to navigate our world. We use them every day: to perform tasks, to know what to do in a given situation, and to predict the behavior of others.

Which is why mental maps can blind us. If our rules and assumptions tell us that someone who is a respected public figure (like a football coach) and does good works (such as having a nonprofit organization) cannot be a predator, then we won’t see that person’s behavior as predatory. We pass it off with what we believe is a logical explanation, such as harmless “horseplay.”

To label the behavior as something else would require us to actively challenge our own mental maps. And then to actively challenge the maps of those around us.

In fact, there are many famous psychology experiments that prove that our brains can actually prevent us from seeing physical objects, if they don’t fit our mental maps.

Whether you are starting a small business, working on a business plan or interacting with people, the rules and assumptions that make up your mental maps influence your results.

For example, think about how you would fill in the blanks below and how your beliefs impact what you do or don’t do.

  • Everyone knows that…
  • It doesn’t work that way, you have to…
  • I’d like to…, but you know what people would say
  • Women shouldn’t…
  • Men shouldn’t…
  • People who do good works are…

So, what lessons can small business owners learn from the Penn State Sandusky tragedy?

Learn to recognize and actively challenge your mental maps, so your beliefs don’t blind you when it counts.

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creatively insecure woman

I have been fortunate to work with and observe many types of creative people in my career, and it’s clear to me that we have one characteristic in common: We are all tone deaf to our own creativity.

Whether it is art, writing, design, building, or small business ideas, when we evaluate our own creative product — especially early in the process — it’s usually not a favorable evaluation. And when we measure our own product against that of others, our work suffers by comparison. I’ve seen it happen with my creative friends and I’ve experienced it myself.

This tendency can prevent us from creating at all, depriving the world of our talent and us of the joy that comes with expressing creativity.

When the fear of being judged and found lacking by society, colleagues, or others keeps you from expressing your creativity in your ideas for your small business, instead of trying for a masterpiece, allow yourself to just do it badly.

It might seem counterintuitive or even downright wrong, when for years you have probably heard people say, “If it’s worth doing, it’s worh doing well.” But for many of us, especially women, trying to do something well blocks us from even starting.

It’s just too intimidating to try to be perfect all of the time! Just do it badly!

For example, I’ve never been one to write to an outline, in spite of the many teachers who have urged the technique. If I try to write in the perfect, linear fashion, with nice, neat transitions, it is a laborious, painful, and often fruitless process. On the other hand, if I let myself follow my natural tendency to write in a messy, circular, jumbled process without expecting linear transitions or the perfect words, I eventually write my way to a product I can point to with pride.

Doing it badly means forging ahead without worrying about the outcome. It’s a bit like sticking your tongue out at the perfection ogre.

Where can you unleash creativity in your small business ideas by just doing it badly?

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