The Small Business Empowerment Foundation, Inc.

Frequently Asked Questions

Do I have what it takes to own/manage a small business?
What business should I choose?
What is a business plan and why do I need one?
Why do I need to define my business in detail?
What legal aspects do I need to consider?
What do I need to succeed in a business?
Would a partner(s) make it easier to be successful?
How can I find qualified employees?
How do I set wage levels?
What other financial responsibilities do I have for employees?
What kind of security measures must I take?
Should I hire family members to work for me?
Do I need a computer?
What about telecommunications?
How much money do I need to get started?
What are the alternatives in financing a business?
What do I have to do to get a loan?
What should I know about accounting and bookkeeping?
How do I set up the right record keeping system for my business?
What does marketing involve?
How do I set price levels?
Are some locations better than others?
Is it better to lease or buy the store and equipment?
Can I operate a business from my home?
How do I find out about suppliers/manufacturers/distributors?
Does the SBA have business grants?
How do I incorporate my business?
Where do I get a business license?
Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
Are partners considered employees of a partnership or are they self-employed?
Must a partnership or corporation file a tax form even though it had no income for the year?
Is an employer ID number the same as a tax ID number?
What is the difference between not-for-profit and tax-exempt status?
Does a small company need a tax ID number?
How do I apply for an employer identification number (EIN) or Tax ID?
Under what circumstances am I required to change my employer identification number (EIN)?
If I have an employer identification number (EIN) and do not need it, how can I revoke the EIN?

Do I have what it takes to own/manage a small business?
You will be your own most important employee, so an objective appraisal of your strengths and weaknesses is essential. Some questions to ask yourself are: Am I a self starter? How well do I get along with a variety of Personalities? How good am I at making decisions? Do I have the physical and emotional stamina to run a business? How well do I plan and organize? Are my attitudes and drive strong enough to maintain motivation? How will the business affect my family?
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What business should I choose?
Usually, the best business for you is the one in which you are most skilled and interested. As you review your options, you may wish to consult local experts and businesspersons about the growth potential of various businesses in your area. Matching your background with the local market will increase your chance of success.
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What is a business plan and why do I need one?
A business plan precisely defines your business, identifies your goals and serves as your firm's resume. Its basic components include a current and pro forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals.
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Why do I need to define my business in detail?
It may seem silly to ask yourself, "What business am I really in?" Some owner-managers have gone broke because they never answered that question. One watch store owner realized that most of his time was spent repairing watches while most of his money was spent selling them. He finally decided he was in the repair business and discontinued the sales operations. His profits improved dramatically.
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What legal aspects do I need to consider?
Licenses required, zoning laws and other regulations vary from business to business and from state to state. Your local Small Business Administration (SBA) office and/or chamber of commerce will provide you with general information, but you will need to consult your attorney for advice specific to your enterprise and area. You also must decide about your form of organization (corporation, partnership or sole proprietorship) or tax status.
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What do I need to succeed in a business?
There are four basics of success in small business: Sound management practices. Industry experience. Technical support. Planning ability. Few people start a business with all of these bases covered. Honestly assess your own experience and skills; then look for partners or key employees to compensate for your deficiencies.
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Would a partner(s) make it easier to be successful?
A business partner does not guarantee success. If you require additional management skills or start-up capital, engaging a partner may be your best decision. Personality and character, as well as ability to give technical or financial assistance, determine the ultimate success of a partnership.
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How can I find qualified employees?
Choose your employees carefully. Decide before hand what you want them to do. Be specific. You may need flexible employees who can shift from task to task as required. Interview and screen applicants with care. Remember, good questions lead to good answers-the more you learn about each applicant's experience and skills, the better prepared you are to make your decision.
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How do I set wage levels?
Wage levels are calculated using position importance and skill required as criteria. Consult your trade association and accountant to learn the most current practices, cost ratios and profit margins in your business field. While there is a minimum wage set by federal law for most jobs, the actual wage paid is entirely between you and your prospective employee.
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What other financial responsibilities do I have for employees?
You must withhold federal and state income taxes, contribute to unemployment and workers compensation systems, and match Social Security holdings. You may also wish to inquire about key employee life or disability insurance. Because laws on these matters vary from state to state, you probably should consult local information sources and/or SBA offices. Use the link to www.business.gov to locate state business laws.
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What kind of security measures must I take?
Crimes ranging from armed robbery to embezzlement can destroy even the best businesses. You should install a good physical security system. Just as important, you must establish policies and safeguards to ensure awareness and honesty among your personnel. Because computer systems can be used to defraud as well as keep records, you should check into a computer security program. Consider taking seminars on how to spot and deter shoplifting and how to handle cash and merchandise; it is time and money well spent. Finally, careful screening when hiring can be your best ally against crime.
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Should I hire family members to work for me?
Frequently, family members of the owner "help out in the business." For some small business owners it is a rewarding experience; for others it can cause irreparable damage. Carefully consider their loyalty and respect for you as the owner-manager. Can you keep your family and business decisions separate?
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Do I need a computer?
Small business today faces growing inventory requirements, increased customer expectations, rising costs and intense competition. Computers can provide information that leads to better returns on investment. At the same time, they help you cope with the many other pressures of your business. Computers are not cure alls, however, and considerable care should be given to: deciding if you need one, and selecting the best system (or personal computer) for your business.
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What about telecommunications?
All small businesses share some common functions: sales, purchasing, financing, operations and administration. Depending on your individual business, telecommunications can support your objectives in any or all of these areas. In its basic form, the telephone (the terminal) and the network (local or long distance) make up the basic components of telecommunications. It is an effective tool that can easily change with seasonality and growth. How you use telecommunications can affect how efficiently and profitably your company grows in the future.
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How much money do I need to get started?
Once you have taken care of your building and equipment needs you also must have enough money on hand to cover operating expenses for at least a year. These expenses include your salary as the owner and money to repay your loans. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your accountant to estimate your cash flow needs.
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What are the alternatives in financing a business?
Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash. Ask your local SBA office for information about these various sources.
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What do I have to do to get a loan?
Initially, the lender will ask three questions: How will you use the loan? How much do you need to borrow? How will you repay the loan? When you apply for the loan, you must provide projected financial statements and a cohesive, clear business plan which supplies the name of the firm, location, production facilities, legal structure and business goals. A clear description of your experience and management capabilities, as well as the expertise of other key personnel, will also be needed.
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What should I know about accounting and bookkeeping?
The importance of keeping adequate records cannot be stressed too much. Without records, you cannot see how well your business is doing and where it is going. At a minimum, records are needed to substantiate: Your tax returns under Federal and State laws, including income tax and Social Security laws; Your request for credit from vendors or a loan from a bank; Your claims about the business, should you wish to sell it. But most important, you need them to run your business successfully and to increase your profits.
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How do I set up the right record keeping system for my business?
The kind of records and how many you need depend on your particular operation. When deciding what is and is not necessary, keep in mind the following questions: How will this record be used? How important is this information likely to be? Is the information available elsewhere in an equally accessible form?
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What does marketing involve?
Marketing is your most important organizing tool. There are four basic aspects of marketing, often called the "four P's": Product: The item or service you sell. Price: The amount you charge for your product or service. Promote: The ways you inform your market as to who, what and where you are. Provide: The channels you use to take the product to the customer. As you can see, marketing encompasses much more than just advertising or selling. For example, a major part of marketing involves researching your customers: What do they want? What can they afford? What do they think? Your understanding and application of the answers to such questions play a major role in the success or failure of your business.
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How do I set price levels?
The price of a service or item is based on three basic production costs: Direct materials, Labor and Overhead. After these costs are determined, a price is then selected that will be both profitable and competitive. Because pricing can be a complicated process, you may wish to seek help from an expert.
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Are some locations better than others?
Time and effort devoted to selecting where to locate your business can mean the difference between success and failure. The kind of business you are in, the potential market, availability of employees and the number of competitive establishments all determine where you should put your business.
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Is it better to lease or buy the store and equipment?
This is a good question and needs to be considered carefully. Leasing does not tie up your cash; a disadvantage is that the item then has no resale or salvage value since you do not own it. Careful weighing of alternatives and a cost analysis will help you make the best decision.
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Can I operate a business from my home?
Yes. In fact, experts estimate that as many as 20 percent of new small business enterprises are operated out of the owner's home.
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How do I find out about suppliers/manufacturers/distributors?
Most suppliers want new accounts. A prime source for finding suppliers is the Thomas Register, which lists manufacturers by categories and geographic area. Most libraries have a directory of manufacturers listed by state. If you know the product line manufacturers, a letter or phone call to the companies will get you the local distributor-wholesaler. In some lines, trade shows are good sources of getting suppliers and looking over competing products.
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Does the SBA have business grants?
No. The SBA does not provide grants for the purpose of business start-up or expansion. However, SBA does offer several loan programs.
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How do I incorporate my business?
Once the decision to incorporate your business has been made, the legal process begins with the preparation of a certificate of incorporation. Whereas in the past this was prepared by three or more legally qualified individuals today, only a single incorporator is needed. The incorporator may or may not be a person who will own stock. The state is likely to have a standard form for incorporating a small business. The three typical pieces of information requested are: corporate name, purpose and corporate life span. The corporate name is usually required to be a business name dissimilar from any other firm incorporated within the state. In addition, the name must not be deceptive or misleading. The state charter office can tell you whether the name you want is available. The purpose of the business must be stated. It is a good practice to use a "specific object" clause that spells out the specific purpose for which the corporation is being formed. While most corporations are formed for an indefinite period, it is possible to set up a specific limited life. Often the reason for creating a corporation is because the life span of the business is unlimited. Incorporation documents will require: the names and address of incorporators; location of the registered corporate office in the state; the maximum amount and type capital stock to be issued at the time of incorporation; a provision for preemptive rights; a provision for regulation of internal affairs of the corporation; names and addresses of corporate directors until the first stockholders? meeting; and the right to amend or repeal provisions within the certificate of incorporation. The above requirements cover incorporating as either a "C Corporation" or Sub-Chapter S Corporation." However, the sub chapter S Corporation has several additional incorporation requirements such as: it must be an independent group not affiliated with any other; it may have only a single class of stock; no more than 35 stockholders and it may have only individuals or estates as stockholders; and it must be a domestic corporation. Before signing any legally binding documents, consult with your attorney for legal advice.
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Where do I get a business license?
Your state and local government provides business licenses.
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Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
It is possible for either the husband or the wife to be the owner of the sole proprietor business. The other person could work in the business as an employee. If the spouses intend to carry on the business together and share in the profits and losses, then they have formed a partnership.
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Are partners considered employees of a partnership or are they self-employed?
Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.
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Must a partnership or corporation file a tax form even though it had no income for the year?
A domestic partnership must file an income tax form unless it neither receives income (gross income) nor pays or incur any expense treated as deduction or credits for federal tax purposes, Has no income and no payments that would be treated as expenses (deductions) or credits for Federal income tax purposes. A domestic corporation must file an income tax form whether it has taxable income or not. The exception would be a corporation that is exempt under Section 501 of the Internal Revenue Code.
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Is an employer ID number the same as a tax ID number?
Yes, an employer identification number, or EIN, is also known as a taxpayer identification number, or TIN. A sole proprietorship that has no employees and files no excise or pension tax returns is the only business that does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.
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What is the difference between not-for-profit and tax-exempt status?
Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions. Although most federal tax-exempt organizations are non-profit organizations, organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as tax-exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code.
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Does a small company need a tax ID number?
A sole proprietor who has no employees and who files no excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.
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How do I apply for an employer identification number (EIN) or Tax ID?
To obtain an EIN or Tax ID, you must complete Form SS-4, Application for Employer Identification Number. After you have completed the Form SS-4, you can get the EIN by mail, FAX, or by phone. The instructions for Form SS-4 provide both an IRS service center address and a phone number for Tele-TIN. For more information, refer to
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Under what circumstances am I required to change my employer identification number (EIN)?
If you already have an EIN, and the organization or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows: An existing business is purchased or inherited by an individual who will operate it as a sole proprietorship, unless the new owner already has an EIN, A sole proprietorship changes to a corporation or a partnership, A partnership changes to a corporation or a sole proprietorship, A corporation changes to a partnership or a sole proprietorship, or An individual owner dies, and the estate takes over the business.
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If I have an employer identification number (EIN) and do not need it, how can I revoke the EIN?
If you do not need to retain your EIN and wish the EIN to be revoked, you can write to the Entity Control Unit at the IRS Service Center where you would normally file your returns and make that request. Make sure that either the President or Secretary Treasurer signs the statement, if it is a corporation, or the managing member, if it is a limited liability company.
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