Ending a business or “business dissolution” is not as simple as placing a “closed” sign on a business and walking away.  One must file the appropriate paperwork with government and tax authorities to legally end your business and prevent further taxations from the government.  One must also settle all business debts before walking away from a business for good.

Just as you had to file paperwork to start a business, incorporate an LLC or apply for tax emptions, you must file Articles of Dissolution.  The Articles of Dissolution is a notice to the state or relevant authority, be it city or county to stop taxing your business, as it no longer exists.  The business operations must either be shut down or sold and all debts to creditors and employees must be paid.  The tax authorities will have no way of knowing this and will keep assessing tax unless you go through the business dissolution procedures.  The Articles of Dissolution must be filed with your state’s Secretary of State and you may be charged a nominal fee.

In addition to the government requirements for articles of dissolution, creditors must be informed of the business dissolution, so that they may make arrangements to be repaid, either through the liquidation of remaining assets of other means.  Only after the creditors have been satisfied may the remaining assets from the business dissolution are distributed to those that owned the business.  Employees are also due their wages before dissolution as well.

The IRS has its own set of forms that must be completed to allow business dissolution:

Form 966 is the “Corporate Dissolution or Liquidation” from which must be filed.  This short form will identify the company being dissolved.  This form will require a copy of the resolution that states the shareholders have agreed to dissolve the company.  This will stop federal taxes against the company that you wish to terminate.

In addition to filing Form 966, you must file other income and employment tax returns, as typical until the end of the tax year.  The final tax return will be marked with “final” to inform the IRS that this is the last tax return they will receive on behalf of your company.

A business lawyer can help simplify the business dissolution process, especially for large enterprises with many employees and several creditors.  The business lawyer may charge a flat fee to prepare the documents necessary for business dissolution and may also charge hourly fees for meeting with him or her to discuss you dissolution options.  The business dissolution lawyer will be able to work with all state, local and federal authorities to ensure they are aware of the dissolution and can even work with creditors to ensure they are paid and satisfied with the claims against the business.  The business lawyer will also be aware of additional forms that may be necessary to dissolve certain legal entities, such as LLCs and LLPs.

A business plan is a formal declaration of a business’s set of goals, the reasons as to why they are attainable and the means for accomplishing said goals. A business plan may also contain background information concerning the team or organizational structure needed to reach these goals. 

A business plan may also target changes in branding and perception by the client, customer, tax-payer or community at large. When the business attempts to plan a new venture or partake in a major change to the model, a multi-year business plan is required to elucidate on expected returns for prospective and current investors. 

A business plan is typically constructed by a venture capitalist firm to explain or forecast the following:

• The venture capitalist business plan will provide a means for potential investors and venture capitals to find promising projects.

• The venture capital business plan will focus on a number of qualitative factors, such as the organization of a team

• The more sound the business plan, the better the chances of landing an initial investment—a venture capital business plan aims to secure financing.

A business plan may be internally or externally driven. Externally focused business plans will target goals that are fundamental to stakeholders and other external investors. These types of business plans will typically feature detailed information concerning the organization or team aligned to accomplish said goals. With a for-profit business, an external investor will include customers and investors, whereas in a non-profit model, an external stake-holder will include donors and clients of the non-profit’s model and services. In a government entity, an external stakeholder will include level government agencies, tax-payers and international lending institutions such as the World Bank. 

An internally-driven business plan will target intermediate goals that are required to reach the external goals. These goals will cover the development of new products, new IT systems, new services, a restructuring of the entity’s financial structure and refurbishing or restructuring of the entity’s production bodies (manufacturing plants) or organizational structure. Internal business plans are developed in tandem with a list of success factors or a balanced scorecard—two sources that illuminate the entity’s effectiveness. This enables the success of the plan to be measured using non-financial calculations. Business plans will identify and target internal goals, but will provide only general guidance on how they will satisfy the goals latent in their strategic plans. 

Business plans are used as fundamental decision-making tools. There is no fixed content or structure of a business plan. Rather, the format and content of the business plan is structured by the respective entity’s goals and audiences. 

The business plan utilizes all aspects of the business planning process to cover all processes and procedures attached to the business model, including its operations, human resource objectives, financing, marketing, advertising etc.

For instance, a business plan for a non-profit organization will discuss the relationship between the organization’s mission and how it fits into the tangible business plan. In contrast, a venture capitalist will be concerned about their initial investment, feasibility and their exit valuation. The business plan will be directly linked to the entity’s organizational structure and their short-term—as well as their long-term—goals. 

To properly construct a business plan one must draw upon a wide range of knowledge from a number of business disciplines, including the following: human resource management, intellectual property management, finance, supply chain management, operations management, marketing, advertising and others. It will prove beneficial to view the business plan as a collection of sub-plans; one specialty review for each of the main proponents of the business plan.

The format or delivery of a business plan will depend on the presentation context. It is not uncommon for an entity—especially a start-up business—to have three or four formations for a business plan: 

• A quick pitch can be used to deliver a business plan. These three minute presentations provide quick summaries of the business plan’s executive summary. The “elevator pitch” is typically used as a teaser to spark the interest of potential customers, strategic partners and other sources of funding.

• Another way to deliver a business plan is via the oral presentation. AN oral narrative—coupled with a slide show or power point presentation—is meant to trigger discussion and potential investment. The content of the presentation is typically limited to the executive summary and a few fundamental graphs depicting financial trends and key decision making benchmarks. If a key or new product is being proposed, a separate demonstration of the product may also be included in this presentation.

• A written presentation for external stakeholders is another means to deliver a business plan to a group of potential investors or customers. The written business plan provides a detailed and highly-organized plan that is targeted specifically at external stakeholders. 

• The internal operational plan is a detailed plan to describe the organizing and preoperational details that are necessary by management but may not be of interest to the aligned external stakeholders. These plans possess a higher degree of informality when compared with the other versions that are targeted exclusively to external stakeholders. 

The generic business plan will include the following information:

• The cover page and table of contents

• An executive summary

• A brief description of the business

• An analysis of the business affects the environment and the desired marketplace for the business’s product or services

• A description of the industry

• Information regarding the entity’s competitors

• Market analysis

• A detailed marketing plan

• Operations Plan

• A summary of all managers and executives aligned with the business

• Financial plan

• A series of attachments and targeted milestones

Once you have decided that you would like to open a business, you must record your thoughts within a formal business plan. By doing so, your idea is expressed in a formal and detailed plan; this living document will outline every fundamental aspect of the entity’s operation. 

All business plans are works in progress; they will vacillate and constantly change based on the health and fluctuating goals of your entity. As your business evolves and because it is influenced by outside forces, you must constantly update your business plan. In general, you should construct your business under the following organizational structure:

The first part of the business plan should include your executive summary. The executive summary is the most important section of the plan; it will provide a concise overview of the entire business, along with a history of your company. This section of the business plan will tell the reader where your company is and where you want to take it. Because it is the first section the reader will see, the executive summary must grab the attention of the audience. The executive summary should be constructed after the other sections of the business plan are completed. Remember, this section is a summary, so it is important to finish the other sections first. 

The Executive summary should include the following information:

1. The Executive Summary should begin with a mission statement—this statement will explain the thrust of the business. This portion of the summary can be two words, two sentences, an image or a paragraph. The mission statement should be as concise as possible and should give the reader a clear picture of what your business is about and what it plans to do. 

2. The date the business was formed and the date it officially opened its doors

3. The names of the founders and the explicit functions they perform

4. The number of employees

5. The location of the business and the locations of its branches or subsidiaries if applicable

6. A brief description of the facilities or plants used to produce/manufacture the entity’s products

7. A description of services rendered and products manufactured

8. A summary of your company’s growth including market or financial highlights—what has your company achieved in the last 6-months/1-year?

9. A summary of your future plans.

All above information should be delivered and highlighted in a brief/concise fashion. If you are starting a business, you will not have a lot of information for the above areas. If this is the case, focus on your individual experience and background along with the decisions that led you to create the business. You should also include information regarding the problems your targeted audience has and what solutions you aim to provide. To streamline the business plan—to assist your audience in locating specific sections in your plan—you should include a table of contents after the executive summary. The content titles must be very broad—avoid detailed descriptions in your table of contents. 

Section II of your business plan is Market Analysis. This section illustrates your knowledge concerning the particular industry your business operates in. This section should present general highlights and a conclusion of any marketing research data you have compiled. This section should include the following: an industry description and outlook, market test results, target market information an evaluation of your competition and lead times. 

When describing your industry, you should include the current size of the industry, the historic growth rate and characteristics related to the particular industry. When identifying your target market—your prospective group of customers that you target your product or service to—it is important to narrow the industry to a manageable size. 

Part 3 of the business plan should include a detailed look at how all the elements of your business fit together. The company description should include information about the nature of your business as well as a detailed list of the primary factors that you believe will make your operation a success. 

When you define the nature of your business, you must list the marketplace that you are attempting to penetrate. This description will include the ways in which you plan to achieve your goals through the use of your products and services. Finally, you must list the specific individuals (managers/employees) and organizations that you have identified to achieve these goals. Primary success factors will include an ability to satisfy your customers’ needs, effective personnel, key locations and streamlined methods to deliver your products or services. 

Section IV of the business plan should include the following: your company’s organizational structure, details concerning the ownership of your company, qualifications of your managers and profiles of your management team. 

The following questions should be elucidated on in this section of the business plan: Who does what in your entity? What are the backgrounds of these employees and why do they hold such high titles in your business? What explicit roles and responsibilities do these individuals fulfill?

This section must include biographical information regarding who is on the board and how you intend to keep them motivated and active. What salary and benefits do you offer these employees? What incentives do you offer? What is the typical route for promotion? 

In this section you should provide the reader with an organizational chart with descriptions of each manager. This section should also include information regarding the legal structure of your business along with the subsequent ownership information for each manager. Important ownership information in your business plan should include:

• Names of the individual owners

• Amount of percentage ownership for each individual

• The extent of involvement with the company

• Forms of ownership—do the individuals own common stock, are they general partners/limited partners?

• List of all outstanding equity equivalents (for example, warrants, convertible debts, options)

• Information regarding the issuance of common stock

A crucial element of this section will include information regarding the ability and track record of your owner/management team—you must let your reader know about the key people in your company and their individual backgrounds. When providing information for your key employees/managers, include the following information:

• Names of the individuals

• Positions

• Their primary responsibilities and authorities

• Their educational backgrounds

• Their unique experience and skill-sets

• 10-year history of their employment record

• List of special skills

• Past track record

• Industry recognition

• List their community involvement

• Number of years with your company

• Compensation levels and basis

Part V of your business plan will include information regarding the marketing and sales aspect of your business. Marketing is the process of creating customers, and of course, customers are the lifeblood of your business. The first thing you want to do in this section is define your marketing strategy. There is no uniform way to approach a marketing strategy; the strategy should be part of an ongoing business-evaluation procedure to your company. That being said, there are common steps you can following to help formulate a direction and a series of tactics you should implement to sustain customer loyalty and drive sales. 

• A strategy to penetrate the market.

• A growth strategy for building your business will include an internal strategy to increase human resources effectiveness, an acquisition strategy to streamline the purchase of other business entities, a horizontal strategy to help deliver the same products or services to different demographics, a vertical strategy that will help you to continue to provide the same products at different levels of the distribution chain and a franchise strategy to help your company branch out.

• A channels of distribution strategy will require you to choose between several distribution channels, including an internal sales force, retailers, distributors and/or original equipment manufacturers.

• A communication strategy is necessary because it will help you devise a plan to reach your wider customer base. Typically a combination of the following tactics will work the best: 

Sales Force Strategy: If your business is going to utilize a sales force you will need to answer the following questions: How many salesmen will you recruit for the team? Are you going to use independent or internal representatives? What type of recruitment strategies are you going to utilize? How are you going to train your sales force? How are you going to compensate your sales team?

Sales Activities: When defining a sales strategy, you must compartmentalize the initiative. For example, you will need to identify your prospects and then prioritize the contacts, by selecting leads with the highest potential to buy. After that, you need to identify the number of sales calls you will make for each sale, the average dollar size per sale and the average dollar size per vendor. 

Part VI of your business plan should describe your service or product, by emphasizing the benefits to potential and current customers. You should focus on the areas where you hold distinct advantages and identify problems in your target market for which your products or services provide a solution. Provide the reader with hard evidence that people will be willing to pay for your solution. Provide a list of your company’s products and services and attach any matching marketing materials. Also provide details concerning your suppliers, availability of products/services and costs associated with said products or services.

Part VII of your business plan will require you to request the amount of funding you need to start or expand your business. If it is essential, you may include different funding scenarios, however, you must be able to back up these requests with corresponding financial statements. 

In this section of the business plan, you must include the following: your funding requirements, your future funding requirements over the next three to five years, your plans regarding the use of the funds and a list of long-term financial strategies that you are planning to employ that would have any effect on future funding requests. It is essential, when outlining your requests, that you state your current and future funding requirements. 

The use of your funds is fundamental to creditors. Is the funding request for working capital, debt retirement, capital expenditures, acquisitions, etc.? You must state your motive for securing financing. 

Lastly, make sure that you list any strategic information related to your venture that may have an impact on future financial situations, such as taking your company public, engaging in a leveraged buyout, the method with which you will service your debts or whether or not you will wish to sell your business in the future. 

The last part of your business plan should be developed after you have analyzed the market and have established a list of clear objectives. 

Bookkeeping refers to the formal recording of financial transactions. Bookkeeping will document a slew of transactions, including sales, income, purchases, payments and receipts processed by an individual or business entity. Bookkeeping is typically performed by a professional bookkeeper or accountant; however, the act of bookkeeping is always held separate from accounting. 

Accounting is performed by a licensed accountant; this professional creates reports based on the recorded financial transactions offered by the bookkeeper. The accountant then files these reports/documents with the appropriate government agencies. Accounting practices are mandated to ensure that the individual or business entity complies with tax and business law. 

In general, there are two common methods of bookkeeping: single-entry bookkeeping systems and double-entry bookkeeping systems. 

A single-entry bookkeeping system is a distinct method of bookkeeping that relies on a one-sided accounting style to maintain an entity’s financial information. The majority of entities will record transactions based on the double-entry method; however, a number of small businesses will utilize the single-entry system to record only the “bare essentials.” In these cases, only records of cash, taxes accounts payable and accounts receivable will be recorded and maintained. Other records, including information regarding inventory, assets, revenues, expenses and other elements will not be kept in a single-entry system—this information will be stored in memorandum form. As a result, this system is typically ruled inadequate except where the operation is exceedingly simple and the attached volume is scarce. 

The double-entry bookkeeping system is a set of guidelines for recording financial information where every transaction changes at least two attached nominal ledger accounts. In the American double-entry bookkeeping approach, transactions are recorded based on the following equation: Assets=liability + capital. This accounting equation reveals the equality between the entity’s debits and credits. For the purpose of this equation, all the entity’s accounts are classified into the following categories: assets, income/revenue, liabilities, capital gains/losses or expenses. 

Under this system, an increase or decrease in one account will reflect an equal fluctuation in another account. There may be equal effects in both accounts depending on which accounts are altered or there may be equal decreases to the attached accounts. The following rules in respect to the categories of accounts will be observed:

1. Asset Accounts: Credit decreases in assets and debit increases in assets

2. Capital Accounts: debit decreases in capital and credit increases in capital

3. Liability Accounts: Credit increases liabilities and debit decreases liabilities

4. Revenues/Income Accounts: credit increases income and gains and debit will decrease income and gains

5. Expenses or Losses Accounts: Debit will increase expenses and losses while credit will decreases in expenses and losses. 

In general, the bookkeeping process will refer to recording the effects of financial transactions into accounts. In the course of business, documents are produced each time a transaction is finalized. For example, sales and purchases will be attached with invoices and receipts. Because of this paper trail, bookkeeping will involve the affirmation—via recording—these details of these source documents into highly-organized journals. After a month or so, the columns in these journals are totaled to give a summary for a particular period. 

Business loans are funds given to a business entity by a bank (financial institution), a private investor or a government agency. Business loans are used to finance the operation of the business; the loans pay for the materials, resources and property used to create manufacture and supply the entity’s product or service. Like all types of financing, a business loan must be repaid to the lender by a certain a date with a predetermined amount of interest. 

A business will attempt to secure a loan for a variety of reasons, including expanding existing business operations, improving or updating capital, compensate for shortfalls in operating capital, create a new business or venture or develop a new idea within an existing business model.

The most common way to secure a business loan is through a local financial institution (i.e. a bank). The majority of banks (both regional and national) supply business loans to individuals who qualify. That being said, the process to secure a loan—and the calculation of the attached variables—will depend on a number of factors associated with the macro-economy, the profitability of the business and the financial standing of the owner.   

A lender will assess interest obligations based on the prime rate set by the Federal Reserve, the business’s (or business owner’s) credit rating, the political climate, the operation’s risk and the presence of capital. Typically, the bank or lending institution will utilize the Cost-Plus Loan pricing model to construct interest payments and other variables tied to the loan. This model consists of four factors: the cost the bank incurred for raising the needed funds (were the funds obtained through customer deposits or money markets?), the operating costs of providing the loan and a risk premium to compensate the bank for the amount of risked involved with the financing and a profit margin that offers the bank an adequate return on its capital.

In addition to financial institutions, friends, family or private investors, the government is a reliable and common avenue of financing for business owners. It must be noted, that government loans are merely facilitated by the United States government. The funds are delivered by banks and financial institutions, while the government acts as the guarantor to the financing. The following list provides examples and attached qualification procedures for popular business loans provided by the United States government. All loans may be applied for on the SBA’s government website, located at www.sba.gov. 

The government provides loans to business owners (or prospective business owners) through a variety of programs. Loans are structured based on sector, location and owner of the business—the government will encourage diversity and innovation by offering business loans—at better rates—to individuals who bolster the eclecticism or efficiency in the marketplace. Specialized business loans will be offered for agricultural businesses, companies that produce or research alternative energy sources, female business owners, veterans, owners who suffered through a natural calamity and for the pursuit of education, housing etc. To view a full list of loans provided by government programs visit the following government website: https://www.govloans.gov/loans. 

These types of business loans are the most basic and popular type of loan offered by the Small Business Administration. All 7(a) loans are provided by participating lenders—not all American banks participate with the program, but most do. All business entities that are considered for financing under this program must: meet the size standards instituted by the SBA, be for-profit, not already have the ability to provide the financing internally and be able to demonstrate repayment capabilities. The maximum length of the loan offered under this program is 25 years for real estate purchases and seven years for working capital. The maximum loan amount offered with the 7(a) small business loan is $2 million. 

The majority of loans provided under this program are offered to specialized businesses, such as those that operate in rural areas, provide a very specific good or export to foreign nations. 

The Business and Industrial Guaranteed Loan Program aims to improve and finance businesses that operate in rural communities. Candidates for this form of finance may be individuals, cooperative organizations, corporations, partnerships, public bodies or Indian tribes. To qualify for this type of business loan, the borrower must be engage in a business that will: provide employment, promote the development and use of water for agriculture, improve the economic climate and reduce the reliance on nonrenewable energy resources. 

These loans are all guaranteed; the interest rates attached will be negotiated between the applicant and the lender. The maximum repayment for property loans will not exceed 30 years, while working capital may not exceed seven years. A borrower may not exceed $10 million worth of loans under this program.

These loans are offered to help small businesses secure the financing they need to participate in transportation-related endeavors or contracts. The funds are used to meet the short-term costs associated with performance or capital contracts that are already being financed. 

A Small Business for Sale is defined as a commercial endeavor whose purchase is made available to the public. When businesses are offered for sale, the owner is looking to legally transfer ownership to the purchasing party. 

Typically, the purchase of a small business for sale will take the form of one of the following:

• Stock Purchase: The buyer purchases a portion or all of the seller’s stocks. A seller of a small business will prefer this method because the buyer assumes his or her debts and liabilities.

• Asset Purchase: The buyer purchases a portion or all of the seller’s assets. A stock purchase is favored by buyers because they secure the assets attached to businesses for sale—including all of its inventory and equipment—without assuming the seller’s debts and liabilities.

• Merger: Occurs when two combines agglomerate to form a single, new entity. This method is liked—depending on the circumstances—by both the buyer and seller because a merger entails a tax-free exchange of stock in the new company for stock of the previous entity. 

Regardless of the purchase, the transaction will be structured with the following steps:

• Businesses for sale will require a pre-negotiation meeting between the buyer and seller

• A small business for sale will require preliminary negotiations before an affirmed figure can be reached

• The buyers and sellers must draft a formal contract that establishes the agreement to purchase and a pre-closing review

• Closing

During the pre-negotiation process, the buyer and seller of the small business will review fundamental aspects before an agreement can be reached. During this phase, the seller will establish the minimum price he or she is willing to accept for the business and the buyer will establish the maximum price he or she is willing to pay. 

The pre-negotiation process for businesses for sale will also include an evaluation of how the value of the business was calculated. After this is confirmed, the two sides will inspect the seller’s financial condition, including a review of the entity’s balance sheets, profit and loss statements and income/expense balances. 

During the initial phase, the parties will be required to discuss and agree on several matters, including:

• Necessary documents that were not examined during the pre-negotiation phase, such as federal and state income tax returns, property/equipment leases and employment contracts. 

• Is the approval of the board or shareholders necessary to finalize the sale?

• Is government approval required? Is a certificate of good standing (indicates that a business for sale was properly formed and authorized to conduct business) necessary?

• Will any employees be retained by the owner of the small business for sale? If so, the buyer will have to draft new employment contracts; if not, the seller will have to provide compensation to those employees.

• Are there any contracts which require third-party approval before the purchaser can assume control over them?

After this review, a letter of intent is typically constructed. This document will show that the buyer and seller are serious about the engagement. The letter of intent affirms the agreement; however, they are typically instituted as non-binding contracts. That being said, portions of the LOI may be enforceable; a letter of intent should contain the following information:

• The length of time the buyer and seller are willing to keep the deal open

• A guarantee by the purchaser not to disclose confidential information ( such as trade secrets and customer lists) to third parties or the public—this is known as a confidentiality agreement

• A guarantee by the seller not to negotiate with other prospective buyers for a certain period of time.

When the two parties assent to the above stipulations and issues, the formal agreement and pre-closing period can commence.

A final agreement is the culmination of the aforementioned negotiation periods. The agreement must contain all the details of the transaction: the sales price, when ownership will be transferred, etc. Typically the agreement will be produced in several drafts—it is not legally affirmed until it is signed by both parties. 

During the pre-closing period, the following details must be discussed and reviewed:

• Both parties must count and inspect all inventory associated with respect to businesses for sale

• Both parties must inspect all leases, contracts and loans—these must be assigned to the buyer of the small business for sale

• A bill of sale for assets must be constructed if the goods are being sold

• The parties should arrange for escrow—a third party will hold the funds used for purchase until all conditions of the sale have been met

The closing period denotes the completion of the deal. During this time, both parties should review the following:

• Make sure all documents are signed and notarized where required

• For the buyer: disburse the proceeds by paying the underlying creditors, government (for unpaid sales taxes), the escrow agent (if applicable) and the remaining balance to the seller. 

• Record all documents (deeds, titles and certificates) for record keeping.

A Small Business for Sale may exist in a variety of classifications with regard to the status of the business subsequent to the sale; while one Small Business for Sale may be sold in the form of an idea or a business plan, another Small Business for Sale may be in an operational state immediately after purchase:

 ‘Startup’ Small Businesses for Sale are considered to be a commercial endeavor available for purchase, whose availability occurs during the earliest stages of business development; this can range from mere business plans outlining a business structure to commercial activities within their premature organization

‘Turnkey’ Small Businesses for Sale are defined as a commercial endeavor available for purchase in a state of operation, which typically will not require startup costs or developmental administration; the term ‘Turnkey’ spawns from the notion that the purchaser of this Small Business for Sale will have the ability to initiate the operation of the business immediately after purchase:

The Fair Work Act of 2009, which is comprised of regulations set forth by the United States Department of Labor (DOL), states that a Small Business for Sale is classified as a business – or commercial activity – available for purchase within which the following classifications apply:

A Small Business for Sale will typically be privately owned

A Small Business for Sale will typically have an employee base not exceeding 15 individuals

A Small Business for Sale will typically render and incur a profit margin and earnings reports that are substantially smaller than those belonging to middle and larger sized businesses

Subsequent to purchase, a Small Business for sale is subject to applicable taxation requirements, which include employees, provide benefits, and liabilities undertaken by the Small Business:

IRS Form 8829: This form is used in order to claim any expenses that are incurred as a result of operating a self-employed Small Business for Sale subsequent to its purchase; typically, this form is specific to online-based Small Business conducted from one’s home or residence

IRS Form 1040: This form is a standard form used for filing taxes applicable to a Small Business for Sale subsequent to purchase; line 30 on this particular form entitled ‘Schedule C’ allows the owner of an small business purchased in order to substantiate profits or losses as a result of operating an online-based small business within the realm of self-employment

Schedule C – EZ: Subsequent to purchase, a Small Business for sale employed to operate from a residential base of operation – reporting business expenses not exceeding $50,000 – will be required to satisfy this tax form

Human resources is a broad term used to describe the individuals who comprise the workforce of a business entity—this definition is also attached to the term “human capital”. More specifically, human resources (commonly simplified to HR) is the name of the function within a business entity charged with the responsibility for implementing policies and strategies relating to the management of individuals (the human resources). 

A business entity’s HR management model attempts to maximize return on investment regarding the organization’s human capital. The HR management strategy, while attempting to streamline the function of individual employees, also attempts to minimize financial risk. 

A human resources manager will seek to achieve these goals by aligning the supply of qualified and skilled individuals and the capabilities of the entity’s current workforce, with the organization’s future business plans and requirements to achieve an efficient return on investment. 

To ensure these objectives are achieved, the human resources department will implement an organization’s human resources requirements, taking into account all laws (federal, state and local labor) and regulations which regulate the entity. 

A human resources department may develop policies, systems and standards that implement the department’s basic strategy in a variety of arenas. The following roles are typical for a human resources department in a wide range of industries and business models:

• An HR department will maintain awareness concerning compliance with local, state and federal labor laws.

• An HR department will recruit, interview, select and board resources—including the processing of new employees

• The human resources department is responsible for all employee record-keeping and confidentiality functions

• The human resources department will help with the organizational design and development of the business entity

• The human resources department will oversee performance, conduct and behavior of the entity’s employees

• The HR department will process new employee applications, payroll and employee benefits

• The HR department will institute and oversee training and development of new/current employees—this process is referred to as “learning management”

• The HR department will bolster employee motivation and the morale of the workforce—these functions aim to augment employee loyalty and retention

The implementation of the above policies may directly managed by a company’s HR department, or the functions may be indirectly supervised by managers or third party organizations. 

A human resources department is a fundamental component of employee well-being in any organization, no matter the industry or the size of the entity. Responsibilities of the HR department include all of the above and issues concerning hiring, firing and complying with state and federal tax laws. Furthermore, a company’s HR department is integral part of the organization’s risk assessment department. Aside from complying with local, state and federal labor laws, the human resources department will engage in safety inspection, dispute resolution and the filing of workers’ compensation—all rules and regulations that govern a particular business organization will be affirmed through the delivery of an employee handbook, which of course, is constructed by an HR department. 

Self employment refers to working for one’s self; a self-employed person works for him or herself instead of an employer. A self-employed individual’s income is attained through trade or business that the person operates personally. The business of a self-employed person is personalized; the business is the individual’s primary source of income.

The terms “self-employment” and “business owner”, although universally linked, are by no means identical in meaning. A business owner is not required to be active or hands-on with the daily operations of his or her company, whereas a self-employed individual must utilize an aggressive and hands-on approach to secure income. 

The United States Government views self-employment as a form of rudimentary entrepreneurship. Because a self-employed person is extremely active in the day-to-day operations of the business, most entity’s run and operated by a self-employed person are extremely small and niche-based. 

In the United States, an individual is considered self-employed (for tax purposes) if that person is actively operating a business as an independent contractor, a sole proprietorship, as a member of a limited liability company (only if it does not elect itself to be treated as a corporation) or as a member partnership. In addition to its tax classification, a self-employed individual must pay Medicare and Social Security taxes, as a result of the Self-Employment Contributions Act. 

In the United States, the self-employment tax is typically set at a flat-rate equivalent to the combined contributions of the employer and his or her employee under the FICA model. The self-employment tax is currently set at 15.30% (The 2010 Tax Relief Act reduced this figure to 13.3%, but the rate will increase back to 15.3% at the start of 2012); this rate consists of two parts: 12.4% is based on the self-employed individual’s social security responsibility and 2.9% is applied to the Medicare tax.

The social security aspect of the self-employment tax, in a hypothetical fashion, can be deducted by 50% against the individual’s self-employment income. Because of this deduction, only 92.35% of self-employment income is taxed at the 15.3% rate, deriving an effective tax rate of approximately 14.1%. However, this tax deduction will be terminated if the individual’s self-employment income exceeds $105,577 (this figure may change year-to-year, since the whole applicable amount of approximately $97, 5000 will be taxable at the 15.30%. 

A self-employed individual will typically declare more deductions than an ordinary worker. Equipment, travel, uniforms, car use, cell-phone use etc., can be deduced as self-employment business expenses. Self-employed persons are required to report their business income (or losses) on IRS Form 1040 within Schedule C. Self-employment taxes are calculated on Schedule SE of IRS Form 1040. Self-employment estimated taxes must be fulfilled quarterly through the use of IRS Form 1040-ES if the individual’s estimated tax liability exceeds $1,000.

A self-employed individual is not permitted to contribute to a tradition business-run 401K plan. That being said, self-employment enables an individual to save for retirement in a variety of forms, including the Simplified Employee Pension Plan IRA (25% of their income can be contributed or approximately $50,000 per year) or the Self-Employed 401k or SE 401k. 

A short term loan is a form of financing that is attached with a quick repayment schedule—short-term loans may have a maturation period as short as 90 days. The fulfillment of the loan is dependent on the amount of financing; however, all short-term loans possess maturity dates that are significantly shorter than regular loans. 

The repayment schedule associated with the financing is the distinctive characteristic of short-term loans. Unlike regular loans, which commonly have repayment schedules of 30 years, a short-term loan must be repaid in a much shorter timespan (between 90 days and fifteen years) or immediately after the borrower achieves satisfies his initiative for securing the short-term loan. For example, when a business secures a loan to keep afloat while awaiting customer pay for a service, a lender would expect repayment as soon as the company receives pay from their clients or customers. In contrast, a short-term business loan delivered to a company for inventory shortfalls would be repaid as soon as the inventory is sold off. 

Short-term loans are provided to businesses or individuals in need of quick financing—the funds are utilized to satisfy a payment, off-set a loss or to relieve a cash deficit problem. As a result, all initiatives tied to this loan schedule are used to alleviate shortcomings in the short-run; short-term loans are not used for long-term financing needs.  

The primary benefit of these loans is that they are immediately delivered, enabling the borrower to operate with increased liquidity. Moreover, because of their brief repayment schedules, short-term loans do not require serious commitment—the borrower is not indebted to the lender for a significant period of time.

Fast business loans are appropriate for both existing and new businesses. In regards to new businesses, banks or lending institutions will grant short-term business loans over regular loans because they are less risk—short-term loans provide less money at higher interest rates. Before short-term loans are granted, a lender will review the company’s cash-flow history and payment track record. Typically, short-term business loans are unsecured; they do not contain collateral and the bank relies solely on the borrower’s credit history and credit score.

The primary negative aspect associated with short-term loans is that this method of financing is more susceptible to default. This increased vulnerability results because of the loan’s conditions: short term loans have higher interest rates, shorter repayment dates and higher penalties if a default is realized. 

Short-term business loans are dependent on your credit history and the repay capability of your business—these variables will affect the conditions (interest rate, repayment date and associated fees) attached to your short-term loan. 

Short-term business loans can stretch as far as 15 years; however, lenders are likely to giver shorter term loans to new or unproven businesses. Short-term loans are typically used to pay off the business’s emergency financial obligations.

Angel investors are individuals, usually retired entrepreneurs and executives, that offer funding to start-up businesses.  The term “Angel Investor” is somewhat fitting considering that an Angel investor is often the only way that a start-up company, or a business in financial difficulty, can survive the tough economic times or the initial stages of a business where expenses are mounting but revenue has not yet begun to make the business lucrative.

Studies have shown that businesses who have the backing of Angel investors are less likely to fail.  The influx of capital, as well as the counseling, networking, and other resources that an angel investor can be the difference between a business thriving or going under.  Angel investors in the United States account for 60 times more investing in businesses than venture capitalists.  Where venture capitalists will only invest in large businesses, an angel investor is likely to invest in smaller business where they envision rapid growth.

An angel investor will often invest as much as $1 million to $2 million for a business with the average being around $450,000.  In return an angel investor will require some type of debt or equity in the business.  Angel investors also invest only in companies that they feel will have a high rate of return.  The average angel investor is looking to have their investment produce returns of 10 times their initial contribution within 5 years.  Investing in start-up businesses is a high risk venture and a such angel investors seek a high rate of return.  This is due to the a low success rate where 20% – 30% of investments fail.  So for every 5 investments that the angel investor contributes to they expect to lose on 4 of them and as a consequence angel investors seek high returns from those that succeed.  

There are numerous ways to seek out angel investors.  The first, and easiest, is to seek help from friends and family.  This has its advantages because they are more likely to play off emotions and give you a loan.  The disadvantages are numerous.  Borrowing money from friends and family can often cause a disruption in the relationship.  You will also only be able to get so much capital from using this route and lastly, you will not gain the experience, networking, and counseling that you can receive from a professional angel investor or someone retired from that industry.

Another option is to set up internet advertising and using internet resources to request angel investors.  Many times angel investors are looking for investment opportunities, they don’t come to you.  Many angel investors are retained simply because they saw your product or business model online and thought it was interesting and possibly lucrative.

You can also go directly to the angel investor yourself.  Many angel investors have their own angel investor companies with websites and contact information looking for entrepreneurs to invest in.  

When you meet with an angel investor you want to be prepared and open to discussion.  Many angel investors will not only want a guarantee on their return, and securitization, but also control over the start-up business.  You should consider this seriously.  You will receive great benefits in your business decisions by someone who has a large stake in the business and has obviously done well in finance in the past.  However, this is your business and you don’t want to give up absolute control of your company.  You may want to percentage of ownership, mandatory consulting, or a number of other options.

Also, be prepared.  Have you business plan concise and in working order to present you the angel investor.  The best way to get an angel investor to contribute to your business is to show them that you have a direction and you know what your goals are and that they are attainable.

When you are starting your own business it is important that you are in compliance with all federal, state, county, and local laws; this included getting the appropriate permits and licenses that go along with your specific business.

There are numerous permits and business licenses that you will be required to retain before you can successfully start your own business.  Whether you are a home based business or are starting your own brick and mortar store you will need to comply with these regulations.

One of the first business licenses that you will need to comply with are zoning ordinances.  If you are starting a manufacturing facility you will want to make sure that your land is properly zoned, not only for manufacturing, but manufacturing of that specific type.  Take into account the waste, equipment involved and hazardous conditions that may affect your ability to start your business in that area.  Home bases businesses also need to meet zoning ordinances and covenants that run with the land.   If your property is in residential zoning it may or may not allow a business to be operated from that location.  Your local city clerk will be able to help you determine whether a specific area is appropriate for your business activity.  You should also hire an expert to analyze your business operation to determine whether it is suitable.

Your State and the Federal government will also require licenses to perform certain types of businesses.  The federal government requires licenses to practice a number of professions including: broadcasting; drug manufacturing; ground transportation; sale and manufacture of firearms; investing; manufacturing; and production of meat products.

State licenses are required to practice a number of professions including: accounting; law; medicine and dentistry; auctioneering; appraising; barbers; bill collectors; construction contractors; private security guards; real estate agents; and many more.  You should consult your states business administration services department for information on what licenses you will need, depending on your profession.  

In addition, when you start your own business, you will need to have a business name registered with the local and state.  This can be done by going to the city clerks office and filing for a “Doing Business As” license.  Depending on your location you may also be required to publish the “Doing Business As” name in a local publication to give notice to other parties of your intent.  Depending on what type of business you are operating, you may also be required to register your business name with the Secretary of State in your jurisdiction.  The “Doing Business As” license allows your business to be in the public record and is essentially the way the government knows of your existence.  Most banks will require that you have a “Doing Business As” license in order to receive loans and open accounts in that institution.  It is not a federal requirement that you trademark your business name but there are advantages to doing so, especially if your business takes off.

If you are in retail, or involved in any type of selling of goods, you will also be required to have a sellers permit.  This permit is given out by the States and allows for you to collect sales tax from the sale of merchandise.  You can receive your sellers permit from your State’s Board of Equalization, Sales Tax Commission, or other like entity in your State.

You will also need an Employer Identification Number.  This acts as the businesses social security number and allows the federal, state, and local governments to tax your business.  

There are numerous other permits and licenses that you may need to receive, depending on your business.  These include: fire permits, health department permits, business permits, zoning, professional licenses, among others.  A helpful resource when going about retaining these permits and licenses is to have a checklist.  www.myownbusiness.org has a helpful checklist that you can use to make the process more manageable.