Startup FAQ
Small Business and Entrepreneurship FAQ: Fred's News
Frequently Asked Questions
Questions Asked by New Entrepreneurs
Entrepreneurship? What's that?
Entrepreneurship is the startup process of building a business. While it may include non-profit organizations, for the purposes of this discussion we'll cover for-profit business startups. An entrepreneur is a person who develops the business idea, finds the resources to make it happen, then executes the startup with the intent of making a profit.
New business startups are best started when?
Right now. Seriously: Startup your small business. Some of the most well known businesses were started duing recessions or depressions, including Disney, McDonald's and Boeing. There really is no "best" time to start a business. If your business is dynamic, well managed and performs soundly on all the business fundamentals, then there is no bad time to start.
Small businesses need money. How much will I need?
Startups have a lot of variables. If you can answer that, you're smarter than most business managers and owners! The fact is, how much cash you need depends on how you run your business. Established businesses often operate on enough cash to run for just a few days. Others have enough cash to pay their expenses through several months. These firms are established and have a customer base, you don't. A common rule of thumb for starting a small business is to get six months worth of expenses, and expect it to run out in three months!
Does my small business need a website?
Yes. And no. The answer is, "It depends on your startup." Almost certainly at some point you'll need a presence on the web. Unless you are a technology business or building an online store, you should probably focus on building your marketing plan and generating sales first. If you have the resources or at least some basic knowledge of html, visit the Entrepreneurs Resources page to find links to web resources. If you don't have the knowledge or resources, focus on building your traditional marketing, and get the website running when you have the time.
Should my startup be an S-Corp, C-Corp or LLC/LLP?
Entrepreneurs and small business owners get lots of financial advisors, accountants and other people trying to give them advice on what form of business to start, mostly for tax reasons. These people are paid to think about taxes and financial management. "You don't want to pay too much in taxes!" they'll say.
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Chris Hanks, director of the University of Georgia's Graduate Entrepreneurship program discusses this issue freqently. His response: It doesn't matter. The issue of taxes is a minor one to consider when starting your business. In fact, you generally won't worry that much about taxes until you're making a profit. Spending a great deal of time worrying about optimizing your tax structure is, most of the time, probably a waste of your energy. Consider what kind of business you are starting, then look at how the businesses in that industry are commonly organized. It's likely that this tax structure is best for you.
Besides, what a wonderful problem to have to be paying too much in taxes with your new business! That means you're making money!
Entrepreneurs and small business owners ask me if I've ever "Made a payroll." What does this mean?
Small business slang is pretty common among those who build startups. "Making a payroll" is entrepreneur slag for a time when cash is short and something has to be done in order to pay your expenses. Most often, these expenses are payroll-based, since these are fixed payment dates that can't be missed and usually the largest expenditure in your small business. Making a payroll is done either by cajoling a customer to pay their bill early or by cutting payments somewhere else (often the owner's own salary). Many entrepreneurs consider this a badge of honor.
Franchinsing. How does that work? What is a franchise?
A franchise is a business where someone else has already done the planning for you, and sells you their business model. This is the model of McDonald's, Krispy Kreme, Chik-fil-a and Seven-11.
Franchises come in two forms: The corporate franchise, and the small business franchise.
Corporate franchises are multi-site, company-owned locations built in a region, nation or throughout the world. These can be stores like Best Buy and Home Depot or restaurants like Ruth's Chirs Steakhouse and most Waffle Houses. Airlines are essentially a franchise concept, and no one is better at the franchise end of it (that is, providing the consistently similar experience) than Southwest Airlines.
Small business franchises are more decentralized. These are the regional or national brand names that are owned by local entrepreneurs. These can include McDonald's, Radio Shack, the various dollar stores and many more. Most of these are restaurants, but virtually any kind of business has a franchise player.
Why are franchises so often successful?
One of the reasons for McDonald's success is its consistency. If you travel within the United States, then you find that in large measure every McDonald's provides consistently the same experience. There are some minor differences, such as some stores have a PlayPlace and the occasional regionally popular item. Otherwise, every McDonald's sells the same hamburger, the same french fries, the same chicken sandwich; has a similar look, a similar greeting, a similar layout. That is because McDonald's prescribes the way everything is done, according to their specifications. In fact, if you look back in the kitchen you'll find that a lot of the cooking is done by machines!
While people may argue about whether chain restaurant food is "quality" food, successful restaurants are certainly of a consistent quality. The experience at a Shoney's, Waffle House or Sonic is essentially the same on every visit, no matter where you go. As an entrepreneur, this means you have one of the most important steps in starting your business, the Plan, already written for you. You'll still need to write a plan and be able to show that your franchise will be a good investment, but
The one thing you won't be allowed to do with a franchise is to be creative. It is ironic that one of McDonald's most profitable sandwiches, the Big Mac, was almost a non-starter. A franchise owner in Pittsburg developed the sandwich, and it took a long time for the sandwich to gain the approval and favor of the chain. If you want to be creative, be different and develop your own way, the franchise probably isn't for you.
Starting a business sounds great, but I don't know what kind I want to start. What should I do?
Consider yourself lucky. You are the best type of entrepreneur, and the type most likely to succeed. Rather than having an idea about a particular business and seeking to become an entrepreneur, you are an entrepreneur in search of a business that will excite you. There are lots of things you could do, and unfortunately only you can answer this question. The best thing to do is probably to think about problems you have in your life, and think of ways to solve them. If this is a common problem that lots of people have, you may have just found your new business!
Should I pay an accountant or do my own finances?
That is a multi-faceted question. First, ask yourself if you have the basic knowledge to do the accounting. Can you balance your checkbook without help? Did you take accounting classes in school?
Now consider the following: How much time can you afford to spend doing your own finances? If you run a business with a few large transactions a week, you're probably just fine to do your own. If you can figure out how to use accounting software like Quicken/Quickbooks or Peachtree, you can probably do several dozen transactions per week. If you're doing hundreds of transactions per day, you'll almost certainly need an accountant.
When tax time rolls around, unless you're a CPA, you'll probably need to have an accountant help you with your taxes. Your job is to run your business, not read all 60,000-plus pages of the tax code!
Small business? Why not go larger?
That's pretty much up to your dreams and how much effort you want to put into it. If your dream is to start the next Google, General Electric or Ford, you're going to need lots of Venture Capital and be willing to give up those two-week vacations and weekends off for the first few years (in fact, you'll probably need to do that for the first several months no matter what). If your dream is to have something that will support a casual lifestyle, then you probably don't need a very large business. Perhaps a franchise is the path for you?
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