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Tim
Sullivan's "Small Business Considerations"
After
maintaining a general law practice for the past twenty-two years,
concentrating in business and real estate transactions, one of the
most rewarding areas for me is advising the small business person.
Everyone
would like to own their own business due to the potential financial
rewards, the privilege of being your own boss and sometimes merely
the personal satisfaction that accompanies having built a successful
business enterprise.
Enthusiasm
for a new business venture can cause one to not have a realistic
respect for dangerous pitfalls.
When
initially meeting with a client who is hoping to start a new business
the following are considerations that I usually discuss:
1. Do you have adequate knowledge of the business you are entering?
For example, if you are purchasing a conveneience store do you have
an adequate knowledge of inventory control and do you know of the
outlets where you can purchase for the best price?
2.
Who is your competition and how are you going to deal with it? You
must remain competitive and keep in mind that in the event you are
successful more people will follow you into the business creating
additioonal competition.
3.
What is the demand for your product or service? Is there an existing
demand or do you have to create it in the consumer's mind?
4.
If you are entering a people oriented business do you have the personality
for it? If you do not have a friendly open personality going to
work will become a drudgery.
5.
As far as selecting a business entity, most usually you are best
off starting as a sole proprietorship. If you are successful you
can discuss the limited liability aspects or tax advantages of forming
a corporation after one to five years. It has been my experience
that partnerships are infrequently successful over the long term.
6.
If you are buying or leasing real estate have an attorney review
the lease or purchase and sale agreement before you sign it. If
you are leasing give careful consideration to the term of the lease.
If you become very successful in a short period of time and you
need larger quarters you will still be obligated on this lease.
7.
If you are borrowing from a bank use the skill and knowledge of
an experienced commercial loan officer for advice. They have seen
many businesses fail miserably and alternatively many that have
become a tremendous success.
8.
Hire a good accountant or bookkeeping service. Keep careful control
of the taxes that you have to pay, both income taxes and employee
withholding taxes. If you are going into the restaurant business
put the collected meal tax aside. It is not your money. There is
a tremendous temptation to use the money as collected with the thought
that you can come up with the payment when it is due. This has become
a fatal mistake for many restaurant owners. If the meal tax is not
paid the Massachusetts Department of Revenue can shut your restaurant
down.
9.
If you are borrowing money you still have to pay it back if the
business fails. If you have to pledge personal assets, for example
place a second mortgage on your home to secure a loan, make sure
that you will be able to make the mortgage payments if you have
to go back into the work force once again.
10.
A family health insurance plan is very important to have and is
very expensive. Know what that cost will be and make sure that you
allocate for it.
11.
If you are entering into a field that changes constantly, such as
the computer industry, make sure that you have the resources to
stay with changing technology.
12.
Make certain that you carry public liability insurance on any premises
that you own or lease. If you are to use motor vehicles in your
business make sure they are adequately insured. In addition, have
an umbrella policy cover both your premises and your vehicles. We
all dislike paying insurance premiums; however, if you have a problem
it may turn out to be the best investment you ever made.
In
conclusion, going into business may be the most important and rewarding
thing that you ever do for yourself. Make sure that you are informed
and prepared. Consult an attorney and accountant before you make
any commitments. GOOD LUCK!
Attorney
Tim Sullivan
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