The following article was published by
the American Institute of Certified Public Accountants (AICPA).
Planning for Success
There are no certainties when it comes to business cycles, and no amount of guesswork will protect the small business owner from the ups and downs of a changing economy. There are, however, fundamental steps you can take to minimize disruptions from increasing prices, changing consumer habits, growing operating risks, competition and fraud.
Ten Critical Areas
These ten critical areas are important for the growth and continuity of your business and apply to most phases of the business life cycle. Although ten issues are identified, the list is not all inclusive, nor is it in priority order.
1. Business Planning
A business begins with a clear definition or statement of a mission. The following are some important considerations when developing your plan.
- Gauge your market’s potential size
- Recognize customer needs
- Analyze industry statistics and competitive market data
- Identify potential promotion and advertising strategies
- Define your offerings
- Determine the economic climate within your market (e.g., rising interest rates, increasing unemployment)
- Confer with professional advisers, such as a CPA (Certified Public Accountant), attorney, insurance broker or lender
2. Financial Planning
Not only do you need to have funds available to grow the business, you must also efficiently manage those funds. Your business proposal should clearly outline your plans for growth or expansion. It’s important to be prepared to articulate your objectives in running your
business and be able to answer these questions.
- What type of loan should I get?
- What is the repayment plan best suited to my situation?
- What is the cash flow necessary for me to repay the loan?
- How will I use the loan proceeds?
- What type of collateral might I need to get the loan?
At the same time, you must consider cash flow management. This involves —
- Forecasting, budgeting, receiving, controlling, disbursing and investing funds generated by your business’s operations.
- Improving liquidity and increasing profits by increasing cash inflow; reducing cash outflow; and investing idle funds in higher yielding vehicles.
3. Marketing Your Business
Here are some ideas for promotional efforts to raise the visibility of your business.
- Look for new niche markets you can serve and customize your advertising to appeal to the special needs of prospects in each niche.
- Identify and respond to emerging trends.
- Raise your visibility in the geographical market in which your business operates by giving speeches at local business associations like the Chamber of Commerce or the Rotary Club.
- Create brochures or flyers to distribute in the town or city in which your business operates.
4. Selecting the Legal Structure
The proper structure for your business will impact its operating efficiency as well as determine the tax treatment.
Sole Proprietorship — A one-person business. All business income and losses are reported on your personal income tax return, and you are personally liable for any business obligations.
Partnership — A business owned by two or more people, each personally liable for any business debts or legal claims. In a partnership, you as a partner pay tax on your share of the business income on your personal income tax return.
Limited Partnerships — A partnership where the general partner is responsible for running the business and is liable for its debts. The limited partner has minimal business control and no exposure to business debts. This type of structure is taxed similar to a sole proprietorship or partnership if meeting certain criteria.
Limited Liability Companies — A business similar to corporations in that they provide limited personal liability for business debts and claims. But, the owners of an LLC pay taxes on their share of the business income on their personal tax returns, like partnerships.
C Corporation — A corporation where taxes on business profits are paid by the corporation. You and the other owners pay individual income tax only on money that is withdrawn from the corporation as a salary, bonus or dividend.
To be continued…