Business Resources

Starting a business, operating a business, and growing a business all take finesse and hard work. Here are some commonly asked questions that business owners ask us.

Read through to see if your question is here. If it’s not, get in touch with one of our CPAs to help your business succeed.

What can I do to prepare my small business for the generation to come?

SMEs (Small and Medium Sized Enterprises)are firms with fewer than 500 employes and they are the backbone of U.S. economy. They make up 99 percent of all firms, employ over 50 percent of private sector employees, and generate 65 percent of net new private sector jobs. They are also heavily dependent on the goodwill and expertise of a particular individual or founder for their continued success, and it is no surprise that less than a third of these enterprises survive the retirement of the founder, and less than half of that make it to a third generation.

The most common causes for failure of the transition of the small business are as follows:

  • There is no strategy.
  • The business stagnates.
  • The coming generations are not interested in working with the business.

How do I create a successful strategy for passing on my family business?

Just like retirement and estate planning, one must also have a solid succession plan so that your business survives your retirement or withdrawal from the business. Assuming that you would like to pass your business on to the next generation, consideration should be given to whether members of your family should and would play any roles in the business. Once that is done, you can then formulate a complete plan that focuses on grooming a future management team, setting dates for retirement and formalizing the buyout terms.

When implemented well, a business transition will have a much greater chance of success.

Do I have what it takes to own and manage my own business?

Most of us feel constrained, underutilized and unappreciated in our day to day jobs. Working for yourself offers the opportunity for you to control your future and to be independent both financially and professionally. However, this opportunity comes with a cost; owning and managing your own business means dealing with issues that you would not normally encounter; for instance, administrative issues such as accounting, license and insurance management, human resource management and other issues not directly related to work that is directly connected to earning revenue. Owning and managing your own business requires a lot of general business knowledge that you might not have been exposed to previously in your nine-to-five job.

When considering striking out on your own, you should formulate a business plan that takes into account the amount of time you would need to get up to speed on general business knowledge, and what issues are unique to your industry. You will also need to allot time to handle general business adminstration as well as performing work that will directly generate income.

A business plan or strategy is a good tool to help you clear your mind and think about the pros and cons of starting your own business. Most business plan templates come with a list of questions that is designed to help you work through the details of how your business will operate, define and refine your business goals and generally map out what you have to do in order to achieve them.

What should the business strategy contain?

A business strategy, when applied to your company, should include an introduction, details about marketing, financial management, operations of the company, and a closing statement.

    In the introduction of the business strategy, what should I incorporate?

    This segment of the business strategy should contain information about the company and its objectives. Detail the experience within your company and the structure of management and legal status. State what your business has to get ahead of the competition.

    In the marketing portion of the business strategy, what should I incorporate?

    This is where you should state the products or services being offered and their demand in the market. It should also detail the market and its particular location and size.

    In the financial management segment of the business strategy, what should I incorporate?

    You should outline the source and amount of the initial equity capital. You also should create a monthly operating budget for the beginning years, as well as expected return on investment (or ROI) and monthly cash flow for these years. After that, present the balance sheets and income statements for the first 2 years and state the break-even point. Discuss your own balance sheet and ways of compensation. Explain who will be in charge of accounting affairs and how they will be maintained. Lastly, think through the possible problems that may arise and develop solutions.

    In the operations segment of the business strategy, what should I incorporate?

    This is where the explanation of the management of the daily activities will be. It should include insurance coverage, lease or rent agreements and the processes related to the staff and employment. It should also detail what is necessary to produce the products/services and the processes of production and delivery.

    In the closing statement of the business strategy, what should I incorporate?

    You should restate the company's objectives and purposes and explain the dedication you have to make your company succeed. Be sure to include the methods you plan to use to reach your objectives.

How do I know if a business based at home is good for me?

Working from home requires a lot of self discipline, and the mental capacity to close off and compartmentalize the business portion of your life when you are not working. Although convenient, it is sometimes difficult to switch back and forth between home and work at a moments notice. You would also need close family members to support your decision to do so as working from home will also likely affect their daily lives. You should set up an environment that is devoted to the business; this might mean a dedicated office within your home.

Are there certain legal standards that will affect my home based business?

A home based business is affected by many of the same laws that apply to normal companies. You need to speak with a lawyer and any appropriate government agencies to learn which of these laws and regulations will come into play. For example, you will need to know your city's zoning regulations as well as knowing which products may not be produced from home if you are considering a manufacturing business.

Explosives, fireworks, toys, drugs, sanitary or medical products, and poisons are normally outlawed for production based at home. Other states will not allow the production of drink, food or clothing from home.

You may be required to obtain a business bank account, a separate business telephone line, a work certificate or license from the state, and determine if any state or local tax regulations impacts you.

If you have employees, you will be held responsible for social security taxes and withholding their income as well as observing the employee health and safety laws and minimum wage.

How can I prevent cash flow problems from hindering my small business?

One of the main reasons small businesses collapse is they have a poor cash flow strategy. The most common reason for this is that many small business owners do not have a grasp on basic accounting principles. You should learn the basics to maximize your cash flow.

You can either keep cash on hand or in a business bank account in order to take care of the expenses. This will be enough to allow the company to pay bills, to supply investment capital and to have sufficient funds in case of emergencies. Part of your business plan or strategy should include an estimate of how much you will require to pay operational expenses for a minimum of 6 to 9 months.

An operating cycle begins with the buying of inventory, and ends with receiving the payment for the inventory. It keeps track of the transition of assets to cash. Normally, you purchase an excess of inventory so as not to exhaust your stock as soon as sales are made. Accounts receivable and cash sales will make up your sales. The normal payment date for accounts receivable is 30 days from the purchase date, which is applicable to both your inventory and products sold. Cash and accounts payable are lessened with an inventory payment is made. The collection of receivables will raise your cash. At this point, the operating cycle and the cash has made a full circle and will start again.

An analysis of the cash flow will demonstrate if the everyday operations produce sufficient cash to reach the obligation and the relation between large expenditures to pay for obligations and large inflows of cash from sales. With this information, it will be apparent if the inflows and outflows of your business have a positive cash flow or a net loss. Over time, important changes will be seen.

A projection of the monthly cash flow will uncover and eliminate any deficiencies or surpluses in the cash flow and show the relations between previous projections and actual figures. A business financial strategy should be changed to allow for more cash when cash deficiencies are discovered. If a surplus of cash is found, it may be due to excessive borrowing or money that should be invested. The purpose is to construct a strategy to allow a well-balanced cash flow.

What can I do to develop a better business cash flow?

There are several options for increasing cash reserves:

  • Accounts receivables: Properly control your accounts receivables and retrieve overdue accounts as quickly as possible. If you are not aggressive with collection, profits are lost.
  • Having stricter credit standards: With the tightening of credit and terms, more clients are paying for their purchases in cash, which leads to more cash on hand and lowering the bad-debt expense. Although this is beneficial in the short term, it may not be as appealing in the long term. Less strict credit policies permit more clients to purchase the products or services.
  • Take advantage of the market: A common problem is many small businesses price their products lower than the market and do not make a profit. You should research the product's market, distribution costs and the competition before deciding on prices. Constantly keep an eye on the aspects that play a role on pricing and make adjustments when necessary.
  • Make use of short-term loans: Taking a loan from a financial institution can solve short-term cash flow problems. The common forms of credit used in these circumstances are revolving credit lines and equity loans.

Is a cash reserve necessary in my small business?

It is important to have sufficient cash on hand to pay for expenses and emergencies. Cash beyond this should be put in a manageable, low-risk, interest bearing account, like a savings account, Treasury bill or short-term certificate of deposit.

Should I hire an attorney?

It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.

The following should be considered when determining if an attorney is necessary:

  • Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney.
  • Does a book exist that will be able to help me so I don't have to hire an attorney? Some problems can be resolved with a little help.
  • Have you looked for non-Lawyer legal resources to help?

What process do I follow to handle the dispute by myself?

The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.

Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.
Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.

Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.
Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.

Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.

These are the low cost options in comparison to going to court or hiring a lawyer for representation.

Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.

What method should I use to find a good attorney?

Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.
Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.

More sources are the Who's Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).

If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.
The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.

What should I ask my possible lawyers?

Before beginning a consultation, the following questions should be asked:

  • Is the first consultation free?
  • How long have you been an attorney?
  • Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)
  • Are there references, such as trust officers in banks or other attorneys that I can contact?
  • Are there any clients or special-interest groups that you work for that may cause a conflict of interest?
  • Can we make a fee agreement? May we discuss the fees?
  • Is there anything in particular that I should bring to the first consultation?

Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.

It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with the attorney and the fee agreement.

Is a certain fee agreement better for me?

The basic rate for legal services depends on location. Based on your knowledge of the fees, a "fair" fee should be selected. Here are a few factors that play a role in the decision:

  • What can you afford?
  • Is this a routine case or do I need someone with special experience?
  • What is the going rate for the attorneys in my area?
  • What can I take care of without the attorney?

The following are basic fee agreements in use by attorneys:

  • Flat fee: There is a specific total that will be charged for work on your case.
    • Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.
    • This is normally offered only if the case is simple or routine.
    • Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.
  • Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney's fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.
    • Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.
    • The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.
    • Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?
  • Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenario, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.
    • Idea: Find out if the fee will be calculated before or after expenses are taken into account. This can make a significant difference in the amount of the fee.

What can I do to save money on legal fees?

Bear in mind that attorney fees are usually negotiable even though you will not be asked to bargain over the fees. The following are a few tips to make sure you save the most money possible:

  • Shop around for flat fees on routine cases.
  • Discuss the method of billing for hourly rates. To avoid problems, have a written agreement stating the fee agreement as well as what is involved.
  • Find an attorney with the qualifications necessary for your case. The majority of legal work is fairly routine. Knowing what form needs to be completed and then who to file that with plays a large role.
  • Propose to help with the workload.
  • Use the lawyer as the middleman. If you only need a letter written to the opposing party, some attorneys will negotiate a lower fee.
  • Work the lawyer as your coach. Hire a lawyer to guide you and review documents and letters that you prepared and signed if you would like to represent yourself in court (pro se).
  • Select an attorney that specializes in your particular case.
  • Always arrive prepared to lawyer meetings. The more information you have at hand means less time that the lawyer needs to spend looking for that information.
  • Be forthcoming with your attorney. To save time and money, make sure the attorney knows all the pertinent facts as soon as possible to reduce the need for more investigation.
  • If factors change, inform your lawyer immediately. This can possibly save the lawyer's time or keep the lawyer from working on the case in the wrong direction.
  • Be prepared when having contact with your lawyer. Ask all questions in one call. When you receive a letter or information in writing, pass it on to other staff members instead of contacting the attorney, unless you have a specific need.
  • Pay close attention to invoices. Ask that you receive an invoice regularly. This applies to all types of fee agreements including a contingency fee. If you have a question regarding any of the items, you should immediately speak with your attorney.

For my business, what types of records are important to keep?

A crucial aspect of your business success depends on thorough and accurate financial record keeping. Accurate records help to provide information to operate efficiently as well as allow you to identify all your business assets, liabilities, income and expenses. This data will help you locate both strong and weak cycles of your business.

It is necessary to keep good records to prepare current financial statements like income statements and cash flow projections. They will also help you maintain a good relationship with your banker. The records will even ensure you don't overpay or underpay your taxes. During an Internal Revenue Service audit, it is crucial to have good records in order to properly answer the questions and satisfy the IRS.

Financial records should demonstrate how much income you are currently making as well as what you expect to generate in the future. They will indicate the number of accounts and their balances in accounts receivable. They will also inform you of what you owe in terms of utilities, rent, merchandise, and equipment, and even expenses such as advertising, payroll, payroll taxes, equipment and facilities maintenance, and benefit plans for yourself and employees. Good records will show how much cash is being used for inventory and how much is on hand. They should also indicate which of your products are making a profit as well as your gross and net profit.

    The Basic Record Keeping System

    This should include a basic journal to record transactions, payroll records, accounts payable records, accounts receivable records, inventory records and petty cash records.

    With the help of an accountant, you can develop an entire system that fits your business needs. They can teach you how to update these records regularly. The records will become the base for your financial statements and tax returns.

How can I be certain that my small business product or service will be marketable?

To determine where and how you can successfully sell your product or service (and at what price), you will need to use one of the most critical elements of business planning - market research. This includes interviewing potential suppliers and investigating your competition and consumer base.

Market research has many different benefits. It can help you categorize marketing activities, generate primary and alternative sales approaches to a given market, make profit projections from a more precise base, establish the market's profit boundaries, and develop critical short/mid-term sales goals. You will need to identify your objectives and organize the collection/analysis process first.

What questions are appropriate to ask in market research?

You will want to learn about the consumers' location, needs and resources, and what they can afford. Significant questions should be addressed, for example, Can you compete effectively in price, delivery and quality? Where can the demand be created?

Can the product or service be priced to guarantee a profit? Also, discover how many competitors provide the identical product or service. You will want to have a basic understanding of the economy of the area in which you will sell your product or service and the areas where that market is growing or lessening.

When setting prices for my products or services, what should I consider?

There are different individual costs for each component of your service or product. Be sure to analyze every component of the product or service's total cost. Upon completion of the analysis, prices can be established to maximize profits and eliminate deficit services. Material, labor and overhead costs are included in the cost components.

Material costs are the total of the costs of all materials of the finished product.

Labor costs are calculated based on the total work put into preparing the product. To determine the direct labor costs, you multiply the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which should include workers' compensation, retirement benefits, social security, insurance, unemployment compensation, etc.

Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance, and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs. Don't forget to include shipping, handling and/or storage and any other cost components.