Many business owners find themselves in a quandary on how to  generate additional sales, how to cut costs and increase their profit margins.  These situations may be the result of poor planning or no planning.  Deciding how to fix business problems could be a problem in itself.

Hiring a consultant to fix a particular area of the business without understanding how that area interconnects with the other areas could be disastrous in the long-term.  For  example, hiring someone to develop a marketing campaign without clarity on what  the return on investment should be and how it ties in with sales is common among small business owners.  They believe that fixing marketing will fix everything and there are marketing consultants who will work on fixing marketing with no concrete discussion on the expectation for sales.

Areas in business that interconnect include staffing issues and customer service, sales, marketing as well as cash management.  Consultants are “a dime a dozen” and many will focus myopically on their specialty without understanding how what they do will affect other areas of the business.  Some small business owners have paid for specific consulting services only to find themselves losing market share or experiencing decreases in profit margins in the long-term.  More than one area was affected and only one area was addressed; this will not solve the problem.

If one needs to close a serious wound, it makes more sense to use sutures than a couple of band aids. Temporary fixes just do not work and end up causing more damage as time goes on.  Do it right the first time and every time.

It is best to look at the entire operation and get some understanding on how each area interacts with the other areas so that it becomes clear how problems in a particular area will affect results in another area.  For example, if employees are not managed well, sales can be affected negatively, expenses can increase and this obviously leads to less profits.  Marketing strategies that are not properly implemented can also lead to less revenue.

When hiring a business consultant for whatever area of business, that consultant should have some clarity on other areas of business as well so that any advice given will benefit the business as a whole.  Working with business consultants who do not have, at minimum, a basic understanding of business financial statements can be problematic for the business owner.

Every decision a business owner makes affects the finances; therefore, business owners should become strategic thinkers and understand what they are doing, why, when, where and how.  They should have some understanding on what the expectations are for every decision and, if those expectations do not bring a return on investment, they may have to refrain from taking action and rethink the situation.  A good example is hiring employees.  Whatever the owner pays an employee is an investment in the business and that employee must perform to bring a return on that investment.  Owners must understand what the return on investment should be and how long it will take to realize the return.  This understanding could lead to better employee management, higher employee morale and more importantly, higher sales and better profit margins.

Owners should not habitually try quick fixes, though sometimes it is necessary to make a quick fix.  They must train themselves to take an in-depth look at the many situations that present and, thus make the best decisions to bring lasting prosperity to the entire operation.

With the economy facing recession and many people losing jobs and unable to find employment, it is no wonder that so many new businesses are being created. This is a wonderful phenomenon in itself, since the backbone of any economy is small business. However, according to the SBA and others who have studied the success of small businesses in the US for decades, approximately 90% of these businesses are destined for failure.

Anyone starting a small business must have some basic understanding of what it takes to operate a successful business and they must be willing to take action. In addition to having the necessary permits and licenses, registering with the city or state and getting appropriate identification numbers with the IRS, here are some steps that are necessary for any business:

1. Planning – every business owner should have a written plan. The start-up business owner must be able to address the next five years and plan accordingly. Businesses already operating have to always look back at prior behavior to understand what must be planned to ensure success in the months and years ahead. Business owners must always be fully aware of what they are be doing, why, when, how and who must be involved. A well-written plan is not about its length, but rather about the understanding of the interconnectivity of the various areas that are crucial to a well-run operation. These areas include marketing, sales, employees, production and financials. Whether or not the owner is seeking financing, a written plan is necessary. Of course, in today’s world, lenders and investors will not be convinced unless they can peruse a strong business plan.

2. Flexibility – business owners must be flexible. Everything changes yet everything remains the same. Businesses face the same problems that their predecessors faced and successors will face. These problems include financing, management, employees, competition and yes, technology. Technology is new today and can be obsolete tomorrow and businesses that want to compete must keep up. It could be as simple as replacing a cash register for one that improves the efficiency of operations. Business owners must be in a position to constantly measure their operations and be willing to make the appropriate, necessary changes to improve their profit margins. Being able to quickly recognize and address problems, being willing to change and adapt to situations, being able to take reasonable risk and being able to make informed decisions are crucial to the repertoire of talent business owners must possess.

3. Management skills – these are necessary and are so broad that most business owners will need help in this area. Managing a business includes every aspect of what the business needs in its efforts to become a profitable enterprise. The business owner must be willing to acknowledge his or her areas of weakness and must be willing to get help to fill those gaps. Failure to do so will almost certainly guarantee becoming part of the 90%-failure statistics. It makes sense for owners to do everything they are capable of doing to develop the business. Without help, there will most certainly be a time when the owner will become overwhelmed and not be able to function, either efficiently or effectively, to take that business to its pinnacle of success. So many businesses are barely breaking even and may not even realize this, unless it is too late, because the owners are so overwhelmed with marketing and sales, for example. Managing marketing, sales, employees and finances can prove to be too much for many owners. Marketing must be done regularly and consistently so that sales can be accomplished. This in itself is time-consuming and many times is neglected because the owner is busy focusing on other areas. Companies that succeed invariably employ people to fill positions that the owners once handled. Some of these companies grow to the place where these positions become departments with several employees working on a common purpose.

4. Employees – any business that intends to grow will need employees. Hiring and retaining employees can be complicated and overwhelming for business owners. There are myriad laws that govern labor in the United States and many mistakes are made when owners do what they believe makes sense to them or they continue behavior they learned from past experiences. One disgruntled employee has the power to take down a business, so owners must do whatever they can to stay compliant with labor laws; and these kick in when the first employee is hired. Proper planning is key to successful employee relations – when will employees be hired, will they be full-time or part-time, what and how will they be paid are some of the questions that must be answered in advance. Employee handbooks, job descriptions, application forms, reference checks, drug testing policies, offer letters, I-9 verifications, payroll, and proper file maintenance are some of the issues that are absolutely necessary for the average business owners who plan to hire employees. It is best to get professional help rather than make costly mistakes by failing to properly address these issues.

5. Financials – a basic understanding of financials is necessary for any business owner. It’s all about numbers since every decision a business owner makes affects the numbers. Many people want to start businesses but do not want to take the time to learn and understand the basics of their business financials. All the numbers tie in with each other beginning with the start-up costs. Owners must know how much funding is necessary to launch or expand the business and which part of that funding will be allocated to start-up expenses and which part will be allocated to start-up assets. They must also understand how many individuals make up potential customers so they can plan properly for marketing to that segment or segments. Next, how much will they be able to sell in the coming months and years have to be considered. This will be based on what is happening in their industry, what they can produce and also on what their competition is doing. Business owners must plan for profitability, so they must know when to expect profitability and what needs to be done to sustain the company until such time. It is also necessary to do a breakeven analysis using the sales, costs and expenses. Understanding the messages that are sent regularly from the Profit and Loss, Cash Flow and Balance Sheet financial statements are a must. Based on the business plan, these statements tell the business owners how strong or how weak the business is as well as what must be done for sustainability.

These five points are not everything there is to know about operating a successful business, there are so much more; but these are necessary basics. Business owners must be vigilant and be able to react quickly to circumstances that can lead to financial disasters. An in-depth understanding of the business’ strengths and weaknesses is necessary and must be analyzed constantly in conjunction with the opportunities and threats that present themselves. Failure to stay vigilant and failure to act quickly can be costly.

We have just started a new year, 2010.  We cannot help but be thankful that we have survived all the years past that we have been on the planet and we can only hope that we can find the courage to persevere and to have a future that gives us all the desires of our hearts.   Those desires are not possible if we cannot make right decisions –but we must be righteous in our thinking and in our acting.  Remember all things are possible, but we have to believe.   Many of us are willing to make decisions without first understanding the need to have information that can help us prevent costly mistakes.

Making a decision – big or small – is important.  Once made, we have to stand by that decision – right or wrong – and bear the consequences.  Blaming someone or something for the outcome of a decision is a sign of weakness.  It is so important to get necessary information, study the risks involved, and look at all possible outcomes before making any decision.  Sometimes, we have a lot of time and sometimes it can come down to a split second.  As entrepreneurs, we have to train ourselves to make decisions that we can be proud of.  This means we must be constantly seeking the information that will help us take our businesses and ourselves to higher levels.  We must surround ourselves with wisdom and understanding so we can have the information we need, we must acknowledge that when we are ignorant of anything we must humble ourselves, be teachable and/or be willing to learn.  We have to know that because we don’t have the knowledge about something doesn’t mean that it doesn’t exist or is not true.  Knowledge is endless and we can never learn everything that there is to learn; we can only be open to learning every day.  The more we learn is the more we grow.  Sometimes we will suffer through our learning; we refer to those times as mistakes – but we have to overcome and go on to higher heights.

Most entrepreneurs fail in the first year of doing business.  There are so many reasons for this, but mostly because people are not willing to admit they are ignorant of the knowledge they need and sometimes when they do realize this ignorance, they are not willing to get the best help.  It is almost like people suffering with high blood pressure and self-medicating.  The stress levels do not change, the diet does not change; but they self-medicate and think they can successfully overcome the disease without professional help.

A business owner who is focused on having a successful enterprise that can help mankind – by offering great products or services and by giving jobs to people – is remiss if he or she does not do everything possible to make this success happen.  Sometimes, sacrifices are in order.   Sometimes we have to give up something we like that may be a big part of our lives (but insignificant in the long run) in order for us to grab hold to success.  Many of us are like an embryo in the womb that develops and should be birthed but refuse to come forth because we are not willing to stand our own, we refuse to let go of the “cord” that binds us to the “zone” we operate in.  We want to operate like someone birthed (learning everyday to grow strong, falling down but always getting up) but we are still holding on to the “cord”.  We operate in fear and live a lie, but we lie to ourselves.  Anyone who operates in fear cannot make right decisions.

How can growth, or change or living occur when we cannot make the right decisions that will take us to a level of success where we can achieve the desires of our hearts?  Righteousness will give us the desires of our hearts.

Please let 2010 be the year that you can let go of all fear and be willing and able to push yourself to the pinnacle of what you now see.  Believe me, when you get to that pinnacle, you will see how much further you can go.  You cannot have that view when you stay at the bottom of the mountain, be willing to climb, be willing to be inconvenienced on that journey, be willing to let go of some loads you are carrying.   You will soon get to the top and you will see what else you can conquer – if you can make the right decisions.

You have a great idea, a wonderful vision, a fantastic dream – and you are trying to figure out how to bring it to fruition.  This could just be legacy you will leave for your children.  You have found the path you must travel to gain the ultimate freedom.  You must now avoid the mistake many others have made – deciding on how to operate without first understanding what the operation is going to be.

Many entrepreneurs are fully cognizant of the fact that they know what they want to do but don’t fully understand how to do it.  They go to professionals they trust for advice and, unless those professionals understand the dimensions of a successful business, they are often misled.  You will be misled if you do not know which questions to ask.  It is a good idea that you be fully acquainted with your needs before you seek advice.

Those professionals that give advice about the right entity for an entrepreneur to choose must know, at the very least, the average annual taxes that the business is projecting to pay over the next few years and how much growth is anticipated for the future.

The usual entities that entrepreneurs choose are (1) Entrepreneurship (2) General Partnership (3) Limited Liability Company (4) S Corporation and (5) C Corporation.  These entities differ in various ways including the deductions that are allowed and how taxes are paid.  For the first four entities, taxes are paid through their owners and are like payroll taxes.  The C Corporation pays its taxes separate from its owners.  For payroll taxes, the more income a person declares to the government is the higher the tax bracket that person is aligned to.

The owners of some of the first four entities end of paying close to 50% of the taxable profit while some C corporations with the same taxable profit pay 35% in taxes.  Get the information you need before you make a decision and get it from a professional who understands all the dimensions of a successful business.  It is sad, but true, that many of those professionals that give this type of advice to entrepreneurs do not know how to successfully develop their own companies – yet they are giving advice.

It follows then, that unless you know your numbers, you cannot decide which entity you will be choosing to operate under.  This means you should have a well-written business plan.  If you are under the impression that a business plan is only written when someone is looking for loan or equity financing, you should readjust your thinking.  You need a business plan for your own use as a roadmap to guide the development of your business.  You will be proactive rather than reactive when situations occur that ordinarily could be detrimental; and you will be more likely able to overcome them instead of giving up in frustration and desperation.

Of course, deciding on the entity will take several factors into consideration including

·         How much profit the business will declare for tax purposes

·         How many partners, shareholders or members will be liable for the taxes

·         How many expenses the entity will have to deduct

These are examples of some of what the business owner has to be aware of.  As a responsible business owner, you will seek advice from the best sources.  You will be willing to give up time and money to get whatever you need to make the best decisions to grow your business.  A business that is not growing is dying.  After first determining if there is a need for your product or service; after developing and writing your business plan, you will then determine the best entity to operate under.  There are no shortcuts to this determination.  Doing it backwards can cost you thousands of dollars in taxes.  If you decide on the entity before you understand your numbers can put you in a hole that may take precious time and money from you as you struggle to get out.

Deciding how to operate will take research on your part, since there are different entities of operation under the law.  How much taxes you pay will be determined by the business entity you operate under.  You have to understand your business plan and therefore know which entity best serves your business goals.  In order to legally operate your business, you must, at the very least, complete a d/b/a (doing business as) form, which you file with the County Clerk at the Court House in the county in which you live.  This allows you to operate as a Sole Proprietor or if you have a partner as a General Partnership.  You can then apply for a Federal Employer Identification Number (FEIN), and open a bank account in your business’ name.

With respect to taxes for the Sole Proprietorship or General Partnership, you simply attach a Schedule C to your 1040 Federal Tax Form and outline your income and allowable expenses, the balance can either increase or decrease your taxable income.  There is no difference between you and your company and therefore, no protection from liability.  This is why you are a d/b/a; for example, Susan Smith (your name) d/b/a Bright Stars Company (your business name).

You can also incorporate your business as a “C” corporation and file a Certificate of Incorporation with the Department of State.  A corporation is a legal entity separate and distinct from the individual(s) who compose the business. It has rights and abilities similar to those of a natural person.  Principal features are perpetual duration, limited liability and easy transferability of interests.  Your business can then carry the suffix “inc.” which shows that it is an incorporated entity.  You can also incorporate as “pc” (professional corporation) if you are in the profession of law, medicine or education (check Title VIII of the Education Law).  Before filing taxes as a “C” corporation, you can complete Form 2553 and instruct the IRS to tax you as an “S” corporation.  “S” corporations not treated differently from “C” corporations by New York State except in the way they are taxed.

With respect to taxes for the “C” corporation, this entity pays its own taxes separate from the shareholders or owners of the corporation.  Funds must be kept separate – no co-mingling.  Any money the shareholder or owners take from the corporation is always liable for income tax even after the corporation has paid its taxes; hence the term “double taxation”.  If you choose this entity, it is prudent that you pay yourself and leave the corporation’s money intact as retained earnings to be used for growing the company.

You may also want to operate as a Limited Liability Company or a Professional Service Limited Liability Company (if your business meets the requirements) and file Articles of Organization with the Department of State.  Owners are members; not shareholders.  Within 120 days of the effectiveness of these articles of organization, you have to publish a notice of formation in two newspapers designated by the County Clerk in the county in which the office of the LLC is located.

You may also want to operate as a Limited Partnership by filing a Certificate of Limited Partnership with the Secretary of State.  If you are an attorney, counselor-at-law, licensed physician or an educator under Title VIII of the Education Law, you may want to operate as a Limited Liability Partnership.

The forms for incorporating under any of the entities mentioned above (except sole proprietorship) can be downloaded from the NYS Secretary of State website, www.dos.state.ny.us.  All information with respect to forms, filing instructions, responsibilities, and fees are also available at this site.

Except for the “C” corporation, all entities (including the sole proprietorship) pay taxes through their owners.  After filing appropriate tax forms to outline income and expenses, any profits of the entities increase the taxable income of their owners and any losses reduce the taxable income of their owners.  Note that tax rates are normally higher for the “C” corporation (around 35%) than for the other entities, unless your taxable income from your income and the entity you form put you in a higher tax bracket.  You pay income taxes once per year, unless your accountant recommends you pay them quarterly.  If you have employees, you pay your payroll taxes quarterly.  If you are a retail establishment or collect taxes from your customers for services, you pay these taxes quarterly.

You should get as much information as possible to be sure you are making the best tax decisions for your business.  You should always start with a complete business plan as your guide.