Starting a business: What you must do before hanging the ‘open’ sign

TRAVERSE CITY – Back in February, Sterling Hill decided to start his own business. He wanted to be in charge of his own destiny and knew what he wanted to do-own and operate a coffee shop.

"I just dove in and started making calls," Hill said. The first thing he did was find a location. He ran into zoning and other problems with the first two locations he scouted out, but the third one proved to be the charm.

Hill will soon open Old Town Coffee on Union Street, between Eighth and Ninth streets. A little off the well-beaten paths along and near Front Street, Hill decided the focus of his business would be on the surrounding residential neighborhoods. With a business plan "based on numbers, not emotions," Hill said he leased the space and got to work setting up his shop,

After two months in the building, the interior was being painted and the floors redone. Many of the preceding weeks had been spent navigating through building permits, fire code requirements, health department regulations and training, and lining up vendors.

He hired an attorney and formed a limited liability corporation, and hired an architect to get a drawing of the building and started the permit process-getting approval first from the city planning commission and then working with various entities to turn a place that had been used as general retail into a coffee shop. Hill said all through the permitting process he was told exactly what he needed to do, step-by-step.

He is using the accountant who handles his personal taxes to help him set up his business financial records. He plans to keep things small and only hire a couple employees.

While there have been plenty of obstacles and surprises along the way, Hill said he kept reminding himself of something Henry Ford once said-"Obstacles are those frightful things you see when you take your eyes off your goal."

So you want to start a business?

You've got a great idea for a new business. How do you put it into action? Chris Wendel, regional director of the Michigan Small Business and Technology Development Center (SBTDC), said determining the market for your new product and service is a crucial initial step-as Hill did in offering something he felt the neighborhood needed.

Wendel said all potential new successful business owners need to first determine if there is a big enough market for the product or service. Among the common pitfalls in determining that market are: underestimating the size of the market needed, not knowing who the target market is and/or not paying enough attention to the competition.

So how do you best determine the size of your market and how best to reach it? The SBTDC offers a couple of different analytical tools among a multitude of services available to current or future business owners that can help-a Lifestyles Index, which can determine how many people in a particular geographic area are potential customers, and a Site Ring Analysis that can help define the best location for a future business.

"Of course, the great equalizer in all this is the Internet," Wendel said, adding that he advises some new retailers to start an e-commerce site to help define and establish their market before building a physical storefront.

Your business team

An attorney, an accountant, an insurance professional and a mentor are all people to have on your side when starting a new business, said Wendel. Both the SBTDC and the local chapter of SCORE small business counselors are available free to current and future business owners. Local legal and accounting professionals recommend seeking out their services very early in the process of launching a new venture.

Your business name, legal structure, and employees are the basics that need to be addressed at the outset, according to Rachel Roe, an attorney with Smith Haughey Rice and Roegge in Traverse City.

Registering your business name

Finding out if you can use your new business name or if someone else has rights to it is very critical information to get from your attorney.

"There is not one central repository of this information," said Roe. Just checking with the county in which you plan to do business is not enough. So before you spend a lot of time and money developing a logo and other materials around a business name and idea you love, make certain it's yours and yours alone. Also, don't forget about trademarks and Internet domain names.

Your attorney will be able to lead this process and get the business registered properly.

Determining your business structure

You have a few different choices here and consulting with a lawyer and/or accountant is the best way to know if you are setting up your business the right way. The most common options are unincorporated sole proprietorship, corporation, limited liability corporation (LLC) or partnership. Whether it's structured as an LLC or a corporation basically comes down to a tax issue, and there are pros and cons to having partners in a business or doing it alone, Roe said. Your accountant or attorney can guide you to the right arrangement and can help get the paperwork filed with local, state and federal agencies.

Roe recommends either a corporation or limited liability corporation since either legal structure protects your personal assets from a business lawsuit. If the business is structured as a sole proprietorship or a d/b/a ("doing business as"), you could lose your shirt-and everything else-since you are not recognized as being separate from the business.

"I would be committing malpractice if I set up a d/b/a." said Roe

Taxes and bookkeeping

Kristina Singer, owner of Accountable Bookkeeping and Business Services in Traverse City, said in her 10 years of experience she's seen people wait too long to consult with a certified public accountant or bookkeeper and it ends up costing more time and money than if it had been one of the first things on the "to do" list.

But don't just pick any name out of the phone book; ask other business owners for recommendations, Singer advised. It's also important to know that not all accountants are the same.

"Many have a specialty, so when calling them, ask about their experiences," she added.

Getting registered with the Department of Treasury and determining all your tax liabilities is the first step. Another good thing to discuss with an accounting professional is accounting software, said Singer. If you are going to use it, what kind is the best for your particular business? Also, who is going to handle "the books?"

Singer strongly recommends hiring a bookkeeper so you don't have to worry about this aspect of your business while you are busy trying to get it off the ground.

"Bookkeeping is a necessity in any business, but when starting a new one you need to stay on top of costs and revenue so that you can be more successful," said Singer, adding that a bookkeeper is usually more cost-efficient than a CPA for the handling of your weekly accounting activity.

Your employees

No matter if you're hiring one person or 35, there are many tax, insurance and regulatory requirements that are your responsibility and need to be in place before you hire your first employee, according to Roe. They include everything from using a legal employment application and creating an employee policy handbook to purchasing workers compensation insurance and getting a federal Employer Identification Number.

A CPA can help with the beginning processes of payroll, said Singer.

"Many documents need to be filed with agencies and these documents can be very confusing," she added.

Resources:

Small Business and Technology Development Center can be reached at 922-3780. SCORE small business counselors can be contacted at score-tvc.org or by calling 947-5075.

The state web site, Starting a Business in Michigan, contains a plethora of information and is located at: ref.michigan.org/medc/services/startups.

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