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The Small Business Advisor Newsletter for February, 2000

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CONTENTS

• Notes, tips, etc
• Picking a Business Partner
• Reduce your Taxes! Business Deductions

INTERNET FACTS. According to esearch.com here are the percentage of visitors to an e-commerce site who did not complete a transaction for various reasons:
41% Site is too slow
20% Site looked unprofessional
16% Site didn't take credit cards
14% The check out area could not be found
12% Could not find a return policy

INSURANCE ... always a problem for small businesses or sole proprietorships. It's important to shop - packages vary greatly. Get some help from http://www.quotesmith.com, a site where you can get price/package comparisons from hundreds of carriers. Before selecting a carrier check with the insurance commission of the state where the company is located to ensure the company is in good shape.

TAX REGULATIONS written so you can understand! Visit http://www.irs.ustreas.gov/tax_regs/index.html .

MARKET RESEARCH TOOLS. For an amazing amount of "business Patterns" data visit http://tier2.census.gov/cbp/cbp_sts.htm. For a variety of demographic data, check out http://www.infods.com. There is a lot of free data and more you can purchase. Very useful site. Use these tools rather than paying big bucks for a marketing firm to do it for you.

OUR (CURRENT) FAVORITE SEARCH ENGINES: http://www.google.com http://www.go.com

The Internet Marketing Center, http://www.marketingtips.com/t.cgi/7115 Marketing tips, strategies, and secrets for internet marketing, online advertising and website promotion that will skyrocket your small, medium or home based business profits through the roof.

PICK THE RIGHT PARTNER by Robert Sullivan

Before you even start looking for a business partner, the first thing you must ask yourself is why you want to have a partner. This applies whether your business has yet to be launched or is already operating. Here are some good reasons to take on a partner:

1. Wanting to have a teammate with whom to share the day-to-day stresses, decisions and annoying details.

2. Needing someone to share the financial risks involved in the business.

3. Having someone with skills you don't have to establish a firm management foundation for the business.

Now here are some reasons that do not justify taking on a partner:
1. You're lonely and you want company.
2. You need capital.
3. You want someone to lighten your workload.
4. You hope to make useful new business contacts

THE SELECTION PROCESS

If, after careful thought, you conclude that taking on a partner is the way to go, your first rule of thumb is: Don't choose a partner who is like you. A truly effective partner is someone with abilities and skills that complement your own and can expand what you can do as a team.

If you're both engineers or have financial skills, for example, who will manage the sales and marketing?

On the other hand, both partners must share the same business goals. After all, you're each going to be putting in considerable amounts of money, time and effort. You need to know that you agree on where you're trying to go - for both the short term and long term.

If your partner's idea of business is to get rich quickly and that doesn't jibe with your ethics, better to find out now - before finalizing any kind of partnership agreement.

Don't be too quick to make a decision about taking a partner. You should discuss everything in great detail.

Unless the prospective partner is a longtime acquaintance or a family member, it will take a while to truly understand the person you may be working with. The wrong partner is worse than no partner at all.

Difficult as it may be to discuss certain things about your life - such as health or personal problems - nothing should be off limits in a pre-partnership discussion.

Two seemingly perfect partners each had money to invest in a gourmet-food business, had different areas of expertise and shared common goals. Despite having a great idea and working well together, their partnership dissolved because on partner became distracted by a recent divorce. This partner had conveniently failed to mention the divorce during discussions about the new business.

Caution: An old friend or family member does not necessarily make a good business partner. Old friends have the advantage of being known entities, but being buddies for many years may make you too casual about formalizing the business arrangement. That could mean that you would leave critical details about responsibility and accountability unmentioned in the planning process.

Similar difficulties arise when husbands and wives go into business together. In this case, success comes down to how well the partners' skills complement each other ... and how well they can separate their marital and business roles.

THE PARTNERSHIP AGREEMENT

A well-thought-out and formally executed partnership agreement is a must for a successful, long-lasting partnership. Get the help of a good attorney who will write the contract in understandable English. Ideally, both partners should have independent legal representation in drafting or at least reviewing the agreement.

The partnership agreement should include ...

1. Full description of each partner's responsibilities in operating the business ... including who has responsibility for such matters as hiring and firing ... tax issues ... purchasing, etc.

2. Clear language about each partner's initial financial contribution and how profit/loss will be divided.

3. Provisions that spell out the timing of withdrawal of partnership profits.

4. Clear, easily understood "buy/sell" provisions in the event that one partner wants out. Spell out how the value of the business will be determined in this situation, and how a buyout will be executed.

5. Provisions for continuing the business in the event of death, disability or withdrawal of one of the partners.

6. A prohibition against either partner becoming involved in another competing business. Finally, in a two-person partnership, it is essential to add to the agreement a plan for resolving disputes. A fifty-fifty partnership creates stalemates when disagreements arise. Having each partner take 49% and giving the remaining 2% to a mutually trusted outside individual can solve this. This person, then, can cast the deciding vote and avoid a deadlock.

Business Deductions Will Help Reduce Your Taxes By Jan Zobel, EA

Are you paying more income taxes than you need to? To reduce your tax liability, you either need to make less money or deduct more expenses. It's easy to miss taking some deductions because you don't know about them, you forget about them, or your business records don't adequately reflect the expenses you've incurred.

Expenses can be deducted if they are ordinary and necessary. Ordinary means that someone else who has a business like yours would likely have a similar expense. Necessary means that you needed to spend this money in order to operate your business. In general, business expenses are deductible if they are costs you wouldn't have had if you didn't have your business. In other words, if you would have had this expense, even if you didn't have your business, it's probably not deductible.

A list of common deductible business expenses follows. You may have expenses, unique to your business, that aren't on this list. If they are ordinary and necessary for your business, they are deductible.

• Advertising and promotion, including charitable contributions that result in publicity for the business.
• Accounting and bookkeeping fees (including the portion of your tax return preparation fee that includes your business return)
• Bank service charges
• Car and truck expenses. You can either use the mileage rate method (32.5(/mile through March 15 and 31.5(/mile for the remainder of 1999) or the business percentage of the actual auto expenses you had (gas, insurance, repairs, lease payments, car depreciation, etc.) Don't forget the miles you drive on errands such as picking up office supplies and going to the post office.
• Contract labor, including subcontractors and consultants. It's best to list these expenses on your return in the category of expenses covered (i.e. 'graphic artist', 'computer consultant', etc.) rather than listing them as 'independent contractors'.
• Credit card annual fees for cards used in your business. If your card is used partly for business and partly for personal expenses, pro-rate the fee accordingly.
• Computer supplies.
• Depreciation on business furniture and equipment and vehicles. Under Section 179 of the IRS code, up to $19,000 worth of items purchased in 1999 can be depreciated in full on your 1999 return.
• Dues and fees
• Education, including seminars and conferences that increase your knowledge and skills. You can't deduct the cost of education that prepares you for a new line of work.
• Employee pensions and benefit programs
• Entertainment and business meals (these are 50% deductible)
• Equipment, including computers (see information about depreciation.)
• Furniture for your office or home office
• Gifts to business associates or clients (up to $25 per person per year is deductible)
• Home office expenses, if you qualify. The rules for deducting a home office have relaxed as of 1999. You qualify to take the deduction if you have a space in your home that's used regularly and exclusively to do the administrative work for your business. If you claim the deduction, the business percentage of all related expenses (i.e. insurance, real estate tax, mortgage interest, rent, maintenance, etc.) can be taken Even if you don't claim the home office deduction, you still can deduct phone expenses and the purchase cost of such items as a file cabinet or desk.
• Insurance. This includes liability, malpractice, business overhead, workers compensation, and other business-related insurance. Disability insurance is not deductible.
• Interest on business credit cards and loans. As with credit card fees, interest on a card used for both personal and business expenses needs to be pro-rated.
• Legal and professional fees, including costs for preparing the business portion of your tax return
• Licenses and fees
• Magazines and books that you need for your business. General circulation publications, including the local newspaper, are usually not deductible.
• Maintenance and repairs on equipment and office or store space
• Office supplies
• Online fees, based on the percentage you use the Internet for business
• Parking and tolls. Don't forget to include the amount you spent on parking meters.
• Payroll taxes that you pay on behalf of your employees (not the taxes that are withheld from your employee's pay checks.)
• Postage, delivery, and freight costs.
• Printing, copying, and fax charges.
• Rent of equipment and store or office space
• Small furnishings and equipment
• Small tools
• Telephone (you can deduct long distance business calls made from home even if you don't qualify for an office-in-home. Monthly service charges are deductible only if you have more than one phone line in your home.)
• Travel for business, including costs to go to seminars and conferences. Deductible travel costs include hotels, airfare, taxis, car rentals, tips, and so on. These expenses are 100% deductible. Travel meals are only 50% deductible.
• Uniforms or special work clothing (i.e. steel toed boots or coveralls)
• Utilities
• Wages paid to employees

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