is a listing of FAQ's (Frequently Asked Questions)
that relate to small business activities.
The Small Business Advisor is not engaged in rendering formal
legal, accounting, insurance, merchant
service or other professional advice. Please utilize the
services of a professional when in doubt.
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What is a business cash advance?
Do I need a Federal ID number?
How do I determine the worth of my business?
What's a DBA?
Do I need a business license?
Where can I find minimum wage information?
How do I market research a new idea?
How do I get certified as a women-owned business?
How do I choose a franchise?
Can I deduct expenses even if I have made no
How do I determine if I can deduct home office
What is the advantage of incorporating over
What's a business plan and do I need one?
What's special about incorporating in Delaware
& should I do it?
My Worker's compensation insurance has lapsed
- what to do?
Can a husband and wife be a "sole proprietorship?"
I need a business license and if so where do I get one?
is the difference between a "copyright" and "trademark?"
I recently read something about business cash
advances? What is this and why are they useful?
A business cash advance allows merchants to receive business financing
based on futurer credit card sales. Also known as a merchant cash
advance, it is a common alternative
to an unsecured small business loan for merchants typically
seen as "high risks" to banks.
about business cash advances at www.fastupfront.com.
I was told that I needed to be bonded by one of my customer's.
What is bonding and how do I get bonded?
From time to
time a small business, especially those performing contracting services
will be asked to bond his work in advance. In some states certain
types of contractors are required to be bonded. What are surety
bonds, how do you get one, and what does it do?
Simply put a bond
(sometimes referred to as a surety bond) is a third party obligation
promising to pay if a vendor does not fulfill its valid obligations
under a contract. There are various types of bonds such as LICENSE,
PERFORMANCE, BID, INDEMNITY & PAYMENT. A bond is a financial guarantee
that you will honor a business contract. Frequently a customer will
require that your company be bonded.
A bond is NOT an insurance
policy. This is important to remember. A bond provides assurance that
the contracted work will be satisfactorily completed only. For example
your bond will not pay for property damage or personal injury resulting
from your work. For this you need conventional insurance coverage.
- A PERFORMANCE
bond is a guarantee that you will perform work in accordance with
the terms of a contract.
- A BID bond
is a guarantee you will perform work if the bid is won by you.
- A INDEMNITY
bond promises to reimburse loss incurred if you fail to perform or
if you fail to pay other vendors in the performance of the contact.
- A LICENSE bond
is required by some states for certain businesses. In some cases you
pay the state directly rather than obtaining a bond.
- A PAYMENT bond
promises you will pay all subcontractors and material providers utilized
in the performance of a contract.
Your local yellow
pages will list companies that provide bonding services under "surety
bonds." Also, check with Bond-By-Fax, Commercial Surety Department at
1 (800) 395 CBIC. Generally speaking, bonding companies will only provide
bond coverage in an amount that you can cover with existing liquid assets.
Before you purchase
a bond from any bonding company, have the bond documentation reviewed
by your attorney and ensure that you understand exactly what the bond
can and cannot protect against - for you and your customer.
I'm starting a home based mailorder business that involves the buying
and reselling of Musical instruments. I am the only employee and I have
obtained a DBA certificate for my business name. Do I need to do anything
with the IRS at this time? Should I obtain a federal tax ID number
or just my own social security number?
A: You do
not need to get an EIN (federal tax ID or Employer Identification Number)
from the IRS if you are a sole proprietor without employees. You can open
your business bank account with your DBA name using your social security
number (SSN). You will file Schedule C at the end of the year with your
personal tax return, and if you have made a profit, Schedule SE (for self-employment
tax) as well.
I'm thinking of selling my business. How can I determine its
A: First of
all, never do it yourself! In all likelihood, you will not be objective.
Let the experts do it for you. Give a call to the Institute of Business
Appraisers at (561) 732 3202 and ask for a recommendation of a business
appraiser near you.
Can a SEP/Keogh be set up for a side business even if you are
covered by a pension plan at a full-time job?
A: Yes! You
can have your own fully deductible retirement plan even if you are covered
by a plan at your full-time job. The maximum contribution/deduction amount
is approximately 13% of your net Schedule C income for a SEP-IRA and 20%
for a Keogh. A Keogh must be set up by December 31 of the tax year for
which you want to take the deduction. A SEP, on the other hand, can be
set up and funded as late as the extended due date of your tax return
(which can be as late as October 15 of the subsequent year!)
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What's a DBA?
A: DBA is
an acronym for "Doing Business As" (also known as a "Fictitious Name.").
Most states require
that sole proprietorships and partnerships that are conducting business
under a name other than the owner(s) must file for a DBA certificate in
the county where business is conducted. The DBA certificate is generally
obtained at the Clerk of Court of the county in which business will be
conducted. Fees are typically $10 or less and most courthouses have records
that may be searched to determine if your suggested name will be unique.
Do I need a license for my new business? I am a sole proprietorship.
A: Maybe yes,
maybe no. It is safe to say that most small businesses probably do not
need a license. For example, if you will be consulting (a typical and
popular small business) it is doubtful that you need a license. However
most states have licensing requirements for certain types of businesses
and you should check with your local government offices to see if your
specific business needs a license. Examples of businesses requiring licensing
include Barbers, Attorneys, Doctors, Dentists, Contractors, Insurance
Brokers, Opticians, Veterinarians.
Where can I find minimum wage information for my state?
for each state is available at the Department
of Labor website. There is a handy clickable map of the United States.
Simply click on your state for the information.
What is SCORE?
A: The SCORE
Association (Service Corps of Retired Executives) is a nonprofit association
dedicated to entrepreneur education and the formation, growth and success
of small business nationwide. There are 389 SCORE chapters in communities
throughout the U.S. SCORE's volunteer
business counselors donate their time and talent to provide free and
advice to entrepreneurs as a community service. An easy way to find
a SCORE chapter near you is to visit their website at http://www.score.org
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I have an idea for a small business. How do I go about finding out if
there is a need and what the specifics of that need would be? Do I conduct
my own marketing research, and if so, how can I find out the proper questions
to ask? I'm sure a company that does this for you would be costly.
A: You are
right about the expense of market research companies. In general, this
can be an expensive approach but there are some things you can do yourself
to make a market determination.
you must answer include:
How to find the answers:
- Who are likely
- How can you
reach these customers?
- How much
will these customers pay for your product or service?
- How should
the product or service be marketed?
- Who is the
As you start this
process, you will be led to additional sources of information. It will
snowball quickly and you will end up with plenty of data upon which to
make your decision.
- Contact your
local SBA office (check specific STATE
information for contact information)
- Contact your
local SCORE office
- Check out
the Bureau of the Census website (http://www.census.gov)
- Browse the
web for the product or service using major search engines. (this
is a POWERFUL approach)
Q: How do I get
certified as a women-owned business?
A: There is no
certification process at the Federal level (although there is legislation
in process to do so). You simply "self-certify" yourself on the various
government forms. If, after a contract award, another vendor decides to
protest the award, you may be required to produce "proof" of your status.
Some States, however, do have a certification process for State procurements.
This process is usually administered through the State's Economic
Development Council. Contact your local SBA office for additional information.
How do I choose a franchise?
are thousands of franchise opportunities. Some good and some bad. Remember,
this will be your business. Be sure it is something that will hold your
interest. Don't select a franchise based on the promise of riches.
You must thoroughly
investigate any franchises you are interested in. Do this by talking
to some existing franchisees - find out if they are getting the support
they were promised. If the franchise you are interested in will not
give you names of other franchisees, drop them from your list of possibles!
Also acheck with the International Franchise Association at (202) 628
8000 or visit their website at http://www.franchise.org.
I'm starting a company and have purchased equipment and supplies to be
used for product development. I haven't sold anything this year but can
I still deduct these expenses?
A: If you
are developing a product for sale with intentions to make a profit (not
as a hobby, for instance), you will be able to deduct expenses even
if you made no sales. As always, check with your own tax advisor for
How can I determine if I may deduct home office expenses on my taxes?
A: IRS publication
#587 has the whole story. Download a copy from their site at http://www.irs.gov/plain/forms_pubs/index.html.
Also check the chart below (taken from #587) for a quick determination:
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What is the advantage of incorporating over a partnership?
A: I hate
to say this, but, 'it depends.' Each form has its advantages and disadvantages
and which is best is determined by your specific situation. Here is
a listing of some advantages and disadvantages of each. As always, before
you make a decision, check with your attorney and/or CPA.
It should also be
noted that there are various types of partnerships and corporations. "The
Small Business Start-Up Guide" discusses the differences in some detail.
- Synergy as
a result of pooling partners' different areas of expertise.
- The partnership
does not pay Federal in-come taxes. An informational tax return (IRS
Form 1065) must be filed which shows the pass-through of income/loss
to each part-ner.
- Liability may
be spread among the partners.
can come from the partners in the form of a loan which creates interest
income for the partners and a business deduction for the partnership.
- Formation and
subsequent changes in structure are complex.
- Problems with
partner(s) as the result of misunderstandings, different goals, etc.,
can weaken or destroy the partnership.
- Limited partners
are liable for debt if they are active managers in the business. General
partners have unlimited liability. You may also be liable for the
commitments of your partners.
(the owners) enjoy personal limited liability.
- It is generally
easier to obtain business capital than with other legal structures.
- Profits may
be divided among owners and the corporation in order to reduce taxes
by taking advantage of lower tax rates.
- The corporation
does not dissolve upon the death of a stockholder (owner) or if owner-ship
- Favorable tax
treatment for employee fringe benefits including medical, disability,
and life insurance plans.
- 70% of any
dividends received by the corporation from stock investments are deductible
(unless you purchased the stock with borrowed money).
- More expensive
and complex to set up than other legal structures.
tax returns usually requires the help of an accountant.
- Double taxation
on profits paid to owners (corporation pays corporate taxes on profits
and owner pays personal taxes on dividends from the corporation).
- Recurring annual
- Tax rates are
higher than individual rates for profits greater than approximately
- 28% accumulated
earnings tax on profits in excess of $250,000.
- Business losses
are not deductible by the corporation.
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Q: What's a "business plan" and do I need one?
A: A business
plan is a structured document that is a sales pitch for your new or
expanding business that you will use when attempting to obtain formal
financing. 99% of small or home-based businesses will not need a business
plan since either financing is not required or is being obtained other
than by bank loans, etc.
A business plan
is NOT a planning document and does NOT take the place of a strategic
plan for your business. (Learn more about the importance of strategic
planning in The Small Business Start-Up Guide).
The business plan
is typically 10-50 pages in length and includes the following major sections.
The actual length will be a function of the complexity of your business
and how much money you are looking to obtain. A small home-based business
looking for a bank loan would only require a "minimal" plan1. Table of
Contents2. Executive Summary - A short description of "the business."3.
Company Description - Details of what the business is about4. The Market
- Who is going to buy your product/service and why5. The Product or Service
- What you are selling6. The people - most important part of the plan!
Who is going to make it all work.7. Sales and Promotion Plans - Details
of how you will get the word out8. Financial Information - How the money
will be used9. MiscellaneousThere are plenty of references (check the
library and the Internet) for writing a business plan. Check them out.
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Q: What's special about incorporating in
Delaware & should I do it?
A: First of
all, you may incorporate in any state regardless of where your business
is physically located. Delaware has been a favorite in years past due
to their very liberal incorporation statues. However most states now have
corporation statues similar to those in Delaware. Also, if you incorporate
in a state other then where you are located, you may have to qualify to
do business in your state as a foreign corporation. Furthermore, you will
be subject to taxes in both your home state and the state in which you
are incorporated. There is generally no reason to incorporate in a state
other than your own. Before you make a decision, consult your legal advisor.
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Q: My Worker's compensation insurance has lapsed
- what to do?
Compensation laws vary state by state, but the first thing I recommend
is that you purchase new coverage IMMEDIATELY!! As worker compensation
coverage is a statutory requirement in almost every state when you employ
a certain number of persons, either full or part-time, you may be subject
to stiff penalities should an uninsured loss occur.
As for the past,
you need to explain your situation to your insurance agent. Coveage
cannot be written retroactively, so you won't be charged for the time
you had no coverage. And if you had no loss, you just need make a new
premiums are based on the payroll earned by employees during the policy
period (usually one year). Rates are determined type of work performed.
Widget makers are charged a different rate than clerical help, for example.
You will need to know what your estimated annual payroll (coming year)
will be for each type of work being performed at you business. This
will help your agent in determing your estimated annual premium.
is a pretty straightforward type of coverage. It provides payment for
all work-related injury medical bills, rehabilitation, and provides
a certain amount of "income" after a waiting period (usually 7 days).
It provides a death benefit, as well.
agent can explain this coverage as it relates to the laws in your particular
(This answer was
provided by Madelyn Flannagan, ACSR, Manager, Agency and Consumer Information
Services, Independent Insurance Agents of America, Inc. She can be reached
at firstname.lastname@example.org. Visit
the IIAA website at www.independentagent.com)
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Q: Can a husband and wife be a "sole
Ownership of your business can be shared with your spouse and will
still be classified as a sole proprietorship. The IRS views your
spouse as a "co-sole proprietor." Business profits may
be split if you file separate returns or all profits may be reported
on a joint Schedule C. Only spouses qualify to be a co-sole proprietor;
no other family members quality. Check with your tax adviser for
Depending on the type of business you are starting, you may be required
to obtain local, county, State or Federal licensing. It is important to
determine which of these will be required before you start conducting
any business since heavy fines are usually associated with conducting
a business without proper licenses and permits.
small and home-based businesses will only require a local business license
easy to determine what your local licensing requirements are. Simply call
or visit your city or county government offices (usually in the courthouse)
for information about licensing requirements. Nearly all businesses will
require a county or city license to operate. The license is easy to obtain
and normally only requires a short visit to the local courthouse. Fees,
if any, are small.
intend to operate a business from your home, be sure to also check local
zoning requirements (again, at the courthouse) as well as any property
covenants. Zoning requirements are those laws that regulate how property
can be used and in some cases, some activities may not be allowed.
businesses and professions will also require a State license. Examples
include attorneys, barbers, contractors, dentists, most businesses serving
food, and social workers. Each State has an agency dealing with these
types of businesses. Determine if your business requires a State license
by contacting your local government offices. They should be able to give
you information as to whether your business will require State licensing.
In some cases, these licenses can be expensive.
a very few businesses, Federal licensing is required. Examples would be
a business that is engaged in providing investment advice or dealing with
firearms. In general, Federal licensing is required if the business is
highly regulated by the government. It is best to consult an attorney
in these cases.
State has different business licensing requirements. A good source of
State specific information is your local library. Most libraries now provide
a "small business" section that includes informative brochures from the
local government agencies. Ask at the reference desk.
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Q: What is the difference between a "copyright"
and Trademarks are often misunderstood and confused with each other. Here
is some basic information about to help you understand their importance.
protects a "form of expression" such as writings, designs, and works of
art. A copyright is automatic in that anything you write, design, or otherwise
conceive, is protected by the copyright laws. This protection generally
lasts for your lifetime plus 50 years.
A copyright may
be registered with the Patent & Trademark Office. Having your copyright
registered can help if and when you need to defend it use by others.
is a word or series of words, a design or graphic that relates to your
product, service, or company. A trademark must be registered with the
Patent and Trademark Office and cost a few hundred dollars.
Learn more at the
Patent and Trademark website, http://www.uspto.gov
or call them at
1 (800) PTO-9199. There is also a help line at (703) 308 4357.