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many of us are turning to contracting/freelancing as the job market slows,
we need to realize that, as a contractor, you are your own small business.
Or, maybe you've got a great idea or you just want to be your own boss.
Here is some information and resources to help you get started.
Company Summary - What are your objectives, goals, mission statement?
Product/Services Summary - What products or services are selling,
Market Analysis Summary - Who are your competitors? What will you
do differently, better, etc.
Strategy and Implementation Summary - Specifics: How will you market
your business? What is your sales strategy? Who are your customers and
how will you reach them?
Management Summary - Who is in charge? How many employees and who
Financial Plan - What are the costs of running your business? Examples:
wages, equipment, materials, utilities, insurance, taxes. What is your
Sole Proprietorship - Ownership of business entity by an individual;
individual is the business.
- Ease of formation and implementation, Lack of Structure, Unlimited Liability,
Profits/Losses taxable/attributable to proprietor, Taxes payable at individual
rates, Limited to assets of proprietor, SEC regulations prohibit investing.
Partnership - A voluntary association of two or more persons for
the conduct of a business enterprise for profit as co-owners.
- Governed by PA Uniform Partnership Act, Quasi separate entity (Paperwork,
liability, ownership, taxes shared by owners), profits shared by partners
in accordance with partnership agreement, Taxes reported by each partner
on individual returns.
Limited Partnership - Special type of partnership for the conduct
of a business in which there is at least one general partner and one limited
- Most characteristics same as above, Limited partner contributes cash/property
in exchange for an interest in profits, losses, credits, deductions, etc.
Corporation - “Artificial” legal entity that exists independently
of the people who own and manage it.
- Owned by shareholders, centralized management, Generally perpetual,
Generally no owner liability. Corporate name must include the word "corporation",
"company", "incorporated", or an abbreviation of one of the above. Articles
of incorporation and Docking statement must be filed, Taxes filed at corporate
Type S - Can have no more than 75 share holders. Taxes filed in pass through
manor.... Avoids double taxation of Type C corp.
Limited Liability Company - An independent legal entity created
pursuant to statutory law. Can be managed by members or by managers.
- Can be member operated or manager operated, limited liability to individual
members/managers, Certificate of Organization and Docking Statement must
be filed, name must contain the word "limited", "limited liability company",
or an abbreviation of either. Taxation is similar to partnership
Talk to your BANK!!!!
Even if you are a sole proprietor, keep your business funds in a separate
Collateral - Found in business balance sheet and personal financial
statement. Types of collateral: equity in home or other property, cash
balance in CDs or money market accounts, Stocks, Bonds, Cash value of
Character - Your credit history. Also previous job experience,
or prior success running a business.
Capacity - Your ability to pay back the loan. Determined by combining
business cash flow, projected cash flow, and personal financial strength
Note: Projected cash flow generally does not carry much weight for bank
loans. However, the SBA does consider projections important .
Capital - Business equity and personal net worth of guarantors.
Condition - Overall market/economic conditions locally, nationally,
and in your industry.
Your proposal should include:
- Business Plan
- Copies of last
3 year's business tax returns
- Copies of your
last 3 year's personal tax returns
- Current personal
- Details of loan
request (amount, term, collateral, interest rate)
- Projected cash
To use the SBA for
your loan, you must meet your lenders requirements. The SBA does not lend
money, it guarantees loans up to 80%. There are many types of SBA loans.
For more information visit: www.sba.gov.
Venture Capital - Looking for a 30-50% return. Will want to see a plan
for cashing out: IPO or Buy-out... 5 years max. Investment range: $500,000
Friends - Could be business associates. Looking for a return, but not
nearly as large or as quick as VC. Investment range: $5,000 - $10,000
Angels - Ideal candidate is already successful entrepreneur who can help
you. Looking for return in 15-30% range. Check into Angel networks such
as ACE-net or North Eastern PA Angel Network. Investment range: $25,000
You will be expected to give up equity in your business.
- VC: 15-45%
- Angel: 10-15%
- Friend: 5%
- The ability to accept credit cards.
Swipe, Non Swipe, Internet, Paper, Electronic Paper
Factoid: Internet transaction are among the safest of all credit card
Fees: Application Fee, Set up fee, monthly statement fee, transaction
fee, yearly or monthly minimum, discount rate. Consult with your bank
for what arrangements are best for your type of business.
Your financial statement:
Assets: Cash, equipment, furniture, property, trademarks, inventory, patent,
Income: Fees, commissions, sales.
Liability: accounts payable, vacation pay, taxes, loans.
Expenses: Insurance, rent, utilities, equipment, payroll, supplies, interest,
Assets minus Liabilities = Equity... bottom line of your financial
Records you need to keep:
- Revenue and expense
- Petty Cash Record
- Inventory Records
- Fixed Assets Log
- Accounts Payable
- Accounts Receivable
- Milage, entertainment,
and travel expenses
- Payroll Expenses
- Continuing Education
- Customer data base
Forms, forms and more
- Quarterly payroll
(941, PA W-3R, Local, UC2)
- Federal and State
- Federal Unemployment
- OPT - withholding
- Federal - Employee
ID Number (ss-4)
- State - PA - (PA-100)
- Local registration
- W-4 and I-9 for
- 1099 for each contractor
- Sole Prop. - 1040,
- Corporation - 1120,
1120S, due 3/15/XX
- State - Corporate
- Partnership - 1065
and state report - generally due 4/15/XX
- Limited Liability
Company - Single member - 1040, schedule C
or See Corporation and partnerships
- Fictitious name
- Sales Tax:
See form PA-100
May also require use tax.
- Check your municipality
for licenses and business privilege tax.
Errors and Omissions (Professional Liability)
Auto for Business
Networking! Build B to B contacts and customer base.
Speak at seminars and conferences. Check out your local chamber of commerce.
- Who? Your target
market... What do they read, watch, do, listen to, where do they go?
- What? Your product/Service...
What are the benefits?
- When? Set time
line... Right it down, but be adjustable.
- Where? Ask: How
did you find us?
- Why? What is the
value of this product or service?
- How? Strategy/Implementation
TV, Radio, Newspaper, yellow pages, Press release, direct mail, newsletters,
FAX, inserts, rack cards, brochures, point of purchase.
Price Point: You don't have to have the lowest priced product. Maintain
attitude that you are worth the price.
Know your and your competitors Strengths, Weaknesses,
Opportunities and Threats.
Internal Revenue Service - www.irs.gov
PA Department of revenue - www.revenue.state.pa.us
- Click link to PA Open 4 Business
Small Business Administration - www.sba.gov
Small Business Development Centers - Phila.: www.sbm.temple.edu/~sbdc
Online Women’s Business Center - www.onlinewbc.com
Working Women - wwww.workingwomen.com
WMBX: Women and Minority Business exchange - wmbx.wwa.com/wmbx
Your "Tool Box"
Business Plan - Be thorough... Be flexible.
Your Bank - Get to know your banker. They want to help you succeed.
Accountant - Keep careful records. Make sure your tax forms are filled
Lawyer - Paperwork, licenses, trademarks, etc.
Insurance Representative - Discuss liability and other insurance particular
to your business.
Marketing Resources - Network... Make "friends" who can support your business.
Yourself - YOU CAN DO IT!!!!!