NEW VENTURE GUIDE
by the UALR Arkansas Small Business Development Center
Things to Consider when Going into Business
For many people, the desire to start a business is so intense that it is easy to overlook some important factors. These points represent opportunities and risks, and are best dealt with before the business begins operating.
Reward vs. Risk
Business ownership is a balance between the reward of success and the risk of failure. Only the owner(s) can define what success means. For some people, it is a specific level of owner income. For others, it is the joy of doing something they love regardless of the amount of money they can take from earnings.
For long-term success, the business must generate enough sales to pay all its expenses and provide an adequate reward to the owner. It should produce an adequate return on your investment of time and money relative to the amount of risk involved. Otherwise, you may be better off doing something else.
Time and Cost Overruns
The typical experience for people starting their first business is that the length of time it takes to get into operation is greater than they anticipated. Likewise, the expense to get the business going usually exceeds their original estimate.
Even after operations begin, it often takes longer to build sales in a new business than the owner expects. In the meantime, many costs continue whether or not sales occur.
Allow extra time to put your plan into action, and allocate some additional money for miscellaneous and unplanned costs. You don't want to run out of money and time before you get started!
Accounting and Legal Help
Use the services of an accountant or bookkeeping service and attorney. These professionals are necessities unless you truly have the experience and knowledge to handle their functions.
An accountant or bookkeeping service can help you set up a record keeping system to manage the business's financial transactions and meet its tax reporting requirements. An attorney can assist you in formalizing the legal structure of your business, review legally binding agreements, and protect your legal interests in purchasing a business or franchise. (Assessing the financial feasibility of your plans is still your responsibility.)
Most people who avoid the expense of using professionals for specialized advice make mistakes that cost them more in the long run. A significant number of business owners spend more money to correct errors than they would have spent if they had gotten accounting and legal help when they were starting their business.
Talk to friends, other business owners, or members of your community for recommendations of professionals who work with small businesses. Interview a few of them before deciding who you think will provide the level of help you need and you can talk to comfortably. Remember, accounting and legal help is a necessity, not an extravagance.
Pay Your Taxes
Money is usually tight for start-up businesses, and the temptation is great to use business cash to buy more inventory, pay rent and utilities all those expenses that are very visible in keeping operations going even when it means postponing payment of sales and payroll taxes. DON'T DO IT!
The state and federal tax agencies assess heavy penalties for late payments. They can file tax liens against the business and you personally; seize business and personal bank accounts to collect past due payments; or order the business closed if payments are not made.
Under the best of circumstances, the amount of cash the business needs to make tax payments is increased by the amount of penalties and interest added to the original amounts due. Avoid the headaches deposit those taxes on time!
Government Regulations
Federal and state laws designed to protect individuals and our environment may contain requirements that affect your small business. Laws such as the Clean Water Act and the Clean Air Act require proper use and disposal of hazardous materials and wastes. Other requirements exist for monitoring underground storage tanks to avoid groundwater contamination. Airborne chemicals that deplete the ozone are another example of contaminants subject to regulation.
Certain industries are more regulated by the government than others. Agencies such as the Food and Drug Administration may regulate your business. Find out what laws and agencies affect the type of business you plan to operate.
Contact the Arkansas Department of Environmental Quality for additional information regarding specific requirements related to the type of business you plan to operate. Trade associations specific to your line of business are another information resource. Get the necessary licenses and permits to ensure that your business is operating legally.
