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LAST UPDATE: 2/16/2014


Small Biz FAQ's        

This page 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.

Use your browsers "find" function to search. On most systems "Ctrl+F" will open the "find" window. If you have a question, please send it to us via e-mail and include "FAQ" in the subject line.

What is a business cash advance?
What is bonding?
Do I need a Federal ID number?

How do I determine the worth of my business?

SEP/Keogh requirements?

What's a DBA?

Do I need a business license?

Where can I find minimum wage information?

What's SCORE?

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 sales?

How do I determine if I can deduct home office expenses?

What is the advantage of incorporating over a partnership?

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?"

Do I need a business license and if so where do I get one?
What is the difference between a "copyright" and "trademark?"

Q: I recently read something about business cash advances? What is this and why are they useful?

A: 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.

Learn more about business cash advances at www.fastupfront.com.


Q: I was told that I needed to be bonded by one of my customer's. What is bonding and how do I get bonded?

A: BONDS AND BONDING.

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 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.
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.

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.


Q: 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.


Q: I'm thinking of selling my business. How can I determine its worth?

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.


Q: 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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Q: 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.


Q: 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.


Q: Where can I find minimum wage information for my state?

A: Information 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.


Q: 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 confidential business 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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Q: 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.

Basic questions you must answer include:

  • Who are likely customers?
  • 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 competition?
How to find the answers:
  • 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)
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.
 

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.  


Q: How do I choose a franchise?

A: There 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.
 


Q: 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 details.


Q: 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:

Table from IRS Pub. 587


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Q: 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.

Partnership Advantages:

  • 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.
  • Investment 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.
Partnership Disadvantages:
  • 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.
Regular Corporation Advantages:
  • Shareholders (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 changes.
  • 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).
Regular Corporation Disadvantages:
  • More expensive and complex to set up than other legal structures.
  • Completing 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 corporate fees.
  • Tax rates are higher than individual rates for profits greater than approximately $75,000.
  • 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?

A: Worker's 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 start!

Workers Compensation 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.

Worker's Compensation 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.

Your insurance agent can explain this coverage as it relates to the laws in your particular state.

(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 flannagan@iiaa.org. Visit the IIAA website at www.independentagent.com)


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Q: Can a husband and wife be a "sole proprietorship?"

A: 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 details.


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Q: Do I need a business license and if so, where do I get one?

A: 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.

Most small and home-based businesses will only require a local business license or permit.

It is 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.

If you 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.

Certain 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.

For 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.

Each 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 "trademark?"

A: Copyrights and Trademarks are often misunderstood and confused with each other. Here is some basic information about to help you understand their importance.

A copyright 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.

A trademark 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.