1. Create a Business Plan

Choosing a Name, Logo & Slogan:

• Your name is the first impression you give of your business. Make it good. If you’re in a professional field, is your business name/slogan appropriate and professional? If you’re not in a professional business, does your name stand out? Will consumers remember your name? Is it easy to search on the internet and through a URL to get to your website? Your website name should also be simple enough to remember and get to.

Competitor Analysis: Questions to ask and research

• Is the market oversaturated? Are there a few big players with control of the market share or is there lots of competition in your area/location?
• What prices do your potential competitor’s charge?
• What are their estimated product costs which include direct materials, direct labor and overhead including rent and what would your estimated product costs be? You must allocate materials, labor and overhead to each product or service. Product costs are important to know in order to price your products and services correctly to generate the most profit.
• What are your competitor’s sales, estimated profit and profit margin?
• What is your estimated breakeven point? Once you calculate your total startup costs, you have to determine the number of units or clients you need to sell in order to break even. Breakeven point= Fixed costs divided by (Sales price per unit – Variable cost per unit). Variable cost is the cost to produce the product or service including direct materials, direct labor and variable overhead that need to be allocated.
• How long have they been in business? If they have been in business for a long time, they most likely have an established brand and credibility in the market. It is difficult to compete against companies that have an established reputation with credibility.
• How do your competitors market themselves? Do they use radio, tv, billboards, community events, signs, email marketing, social media etc?
• What are your competitive advantages? You need to have competitive advantages to break in to a saturated market. Are you going to reduce price? Will your services be available 24/7? Are you more efficient at conducting your business? Do you have a better product or service? Is obtaining your product or service more convenient than your competitors which includes responding to email or phone inquiries within 5-10 minutes. Do you always deliver on customer expectations? Competitive advantages can include all of these things as well as proprietary technology, unique location and niche market. What sets you apart from your competition?

Survey/Viability/Market Test: Questions to ask and research

• Have you conducted a survey on your product or service to see if there is demand?
• Have you run a trial run and tested the market to see if it’s a viable business? One way to accomplish this is to provide the product or service for free and ask for honest feedback and to gain experience and improve in your business.
• What are your start up costs?
• Do you have enough capital/cash to last a few years before seeing a profit?
• Is the profit margin reasonable enough to be a viable business when you factor in the time spent?

Product, Price, Promotion, Place & People (5 P’s of Marketing):

• Product: Do you provide a quality product and service every single time? Consumers want consistency. For example, when you go to any Starbucks or McDonalds in the country, you can generally expect the same tasting coffee or burger/fries. They have engineered their supply chain and processes to provide consistency. How can you improve the product or service to be better than your competitors?
• Price: How will you go about determining your price? Part of it might be analyzing what your competitor’s charge, however if you provide a product or service that is a lot better than them, then you may be more inclined to charge higher prices. You want to reach an equilibrium where supply meets demand according to price. If the price is too high, you may lose customers. If the price is too low, you are not valuing your time and product enough and may face challenges of too many clients or the wrong type of clients that haggle you for pennies. One strategy is to cut prices to gain clients and then increase prices once you have a strong clientele base. Is your price competitive in your market and niche? You have to determine who your product or service is geared to. What is their demographic? How much income do they make? What is their gender and age? Is your product or service geared towards the poor, middle class or rich?
• Promotion: What is your promotional strategy? Will you be using capital or sweat equity to promote your business or both? Will you be marketing, prospecting or both? Prospecting is a more cost effective strategy as it requires more of your time where as marketing requires more capital. Have you studied or ran samples to see which marketing or prospecting strategy provided the highest return on investment of your time and money? To generate a positive ROI when marketing, you usually have to spends lots of money while doing the right thing, delivering the right message at the right time to the right customers over an extended period of time. Research shows it requires customers to see your brand and name at least 7 times to generate a sale. Will your marketing efforts be business to business or business to client or both? Business to business tends to be more profitable for certain industries. Creating referral partners and relationships with other businesses can be a powerful tool. Will you have a website, Facebook, Instagram, Google listing? Will you host or attend local or national events to build relationships? If you build a website and Google listing, will you invest in SEO to rank your page higher on Google researches or will you pay for Google and Facebook ads? Ranking high on Google also includes obtaining reviews from clients. Will you give back to the community as a business promotional effort?
• Place: Location is very important to a business’s success unless you choose to go the virtual and ecommerce route which both require a greater deal of marketing, prospecting and building relationships to create a sphere of influence. Are you in a good location for your demographic? Does your plaza have a lot of foot traffic? How much foot traffic does your plaza get every day? Do you have competitors close to you? Are there any complimentary businesses near you that you could build relationships with and increase foot traffic?
• People: Determine your niche, types of clients you want to focus on and demographic of said clients

First Mover’s Advantage

This term deserves it’s own heading. First mover’s advantage is a marketing term for being FIRST to the market for a certain product, service or location. If you were first to the market in a certain geographical location, consumers in that area would have almost no other option but to choose you if there is a need for your product or service. If there are 10 Chinese restaurants in a certain radius, being the 11th one does not provide you an advantage, however if there were 10 Chinese restaurants and you provided a Mexican restaurant, it does provide you with an advantage. It can even be a menu item that other similar restaurants do not have for example Mexican sushi.

Being first allows a company to establish strong brand recognition, credibility, trust and customer loyalty before competitors enter the arena. Being first allows you to scale up faster, take market share and create a monopoly in that geographic location.

Once you gain market share in your niche, you may think about vertical and/or horizontal integration. Vertical integration is when a company builds companies up or downstream in line with the supply chain. For example, Walmart not only owns retail stores but they also own their distribution and many of their products come from their own manufacturing plants as well. That is how they are able to sell goods cheaper than most if not all of their competitors. If you own a house cleaning company, you may decide to start complimentary businesses/service such as carpet cleaning. This is not a great example but gets you thinking. Another example might be if you own an auto repair shop and also provide car detailing or have a separate business and marketing channel just for car detailing. Do not water your services down. If you take on more than you can chew and have not mastered your skills, your brand identity will suffer and customers will lose trust in you. If you haven’t mastered your skills yet, you may think about providing the service for free until you build confidence to build a customer base.

Process Map

• Create a process map/flowchart outlining the steps you take from start to finish after the initial contact with a potential customer
• Do you have or need an onboarding and offboarding guide?
• You can learn about other’s experiences with your business on reddit by Googling that business or a question about that business with the words Reddit and learn about other’s processes and experiences starting that specific business which will give you a better idea of that industry.
• What is your lead time as in as in how long does it take for you to deliver your product or service once a client has walked in or placed an order? Do you have an efficient system in place to not create long wait times? A bottleneck in supply chains refers to a congestion in a production system. You must respect your client’s time and deliver your product or service in the fastest amount of time possible while still providing a great service and quality product. For example, one of the reasons Amazon is the largest ecommerce business in the world is because they an efficient supply chain and lead time where they can deliver the product to you as soon as the same day.

Business Phone & Email

• You can make a free Google voice number through the app store or purchase a business phone service from a company if you are a larger business.
• You should also obtain a business email either through Gmail or one that is connected through your website domain and with Outlook.
• You can also start an email marketing campaign through Mailchimp to market your services and product to an organic email list. A custom template for Mailchimp can be designed by someone from Fiverr which is one of my favorite websites for business owners. Mailchimp also has an app.

Google Analytics

• There is a Google analytics app that tracks the number of visitors on your website and provides you with other data and demographics. The code would have to be installed onto your website to function.

Referrals

• Referrals eventually become the lifeline of many businesses. After initiating a clientele base, many businesses just live off of referrals.
• How will you generate referrals? Will you follow up with previous clients and ask how they’re doing, if they have any friends or family members needing your services?
• Will you send your past clients gifts?
• The point is you must have a system to always be in touch with them in order to develop something more than just a transactional relationship.

2. Should you be a Sole proprietor, LLC or S-corp?

• A sole proprietor is simply when someone starts conducting business. That is all that is required to be considered a sole proprietor. Your income and expenses are self reported on Schedule C of your 1040 individual tax return. The term sole proprietor has no legal bearing.
• LLC’s do have legal bearing. It is used to protect your personal assets in the event of a lawsuit. For example if someone were to sue your business and you didn’t have insurance, they would in an ideal world only be able to come after your business assets and not your personal assets. That so called “corporate LLC veil” can be broken if you do not separate the bookkeeping, revenue and expenses from your personal and business venture. You must have a separate business bank account, an EIN which acts as a social security tax number for your business and keep track of your business income and expenses on either excel, Quickbooks or a different bookkeeping software. You should also never use your personal card to purchase business assets and never use your business debit or credit card to purchase personal items. There is LLC overkill in America. Five year olds selling lemonade on the sidewalk are creating LLC’s. If your business has low liability or you don’t have many personal assets, then you may want to think about waiting before creating an LLC.
• An S-corp is a tax election made through an LLC. It provides the same legal benefits as an LLC with the addition of tax savings. It is recommended for business’s who net more than 30-50k per year consistently. An S-corp tax election can generate up to 15.3% in tax savings. When you are a sole proprietor, single member LLC or a partnership, you have to pay self employment tax also known as Social Security and Medicare tax of 15.3%. When you are an employee and receive a W2, the 15.3% is split between with your employer who pays the other half. The other term for it is FICA. FICA is a massive tax bill that everyone on W2 income has to pay. The government collects a massive amount of tax revenue from FICA and still manages to mismanage the funds. With FICA, income tax, state tax, sales tax and property tax, some people pay close to 50% of their earning to the government.
• DBA: DBA stands for “Doing Business As.” It can be created for $10 on the Arizona Corporation Commission website although they may have increased prices. When you are creating the DBA, you would list the LLC as the owner. This way you can market your business through the DBA instead of the LLC. For example, John Doe may have an LLC called John’s Cleaning Services LLC but his DBA might be John’s Wonderful Cleaning & Handyman Services.
• Obtain business insurance if it is needed but in a lot of cases, it may not be needed especially starting off.
• Create a business bank account and business credit card. I prefer U.S bank and their business triple cash credit card. U.S bank does not have a minimum balance requirement such as other banks. To withdraw your business’s revenue, just transfer the funds from your business bank account to your personal bank account with the terms “Owner’s draw” on the notes section and to contribute money into your business bank account from your personal account, write the terms “Owner’s contribution” in the notes section.

3. Sales Tax

• Service based businesses are generally not required to pay sales tax. Products sold to consumers in AZ require sales tax to be collected. If you sell products to people outside of Arizona, generally you are NOT required to pay sales tax until you hit a certain threshold in sales which is usually around $100,000 for most states. If you sell on a marketplace such as Ebay or Amazon, sales tax is automatically levied against your sales. Read more on this topic here: https://azdor.gov/transaction-privilege-tax/retail-sales-subject-tpt/out-state-sellers and here: https://azdor.gov/transaction-privilege-tax/retail-sales-subject-tpt/out-state-sellers/frequently-asked-questions
• You should purchase sales tax software such as TaxJar and connect it to your website. Sales tax software should automatically collect and pay the sales tax on your behalf.
• If needed, you should also obtain inventory management software to keep track of your inventory.

4. Point of Sale System (POS):

• A point of sale system is the device/software you use to collect payments such as with Square or Clover. These Point of Sale software’s connect to other software’s such as Quickbooks for bookkeeping (revenue and expenses) mainly and TaxJar for sales tax reporting. Then you may connect Quickbooks to your business bank account.

5. Bookkeeping and Taxes:

• It is important as a business owner to keep track of your revenue and expenses followed by your assets, liabilities and equity. This helps when making managerial decisions, tax reporting and credit purposes. You can either keep track of your revenue and expenses on excel, pen and paper or software such as Quickbooks, Wave, Xero etc.
• As a business owner that starts to grow and generate lots of profit, it is important to create tax saving strategies through a tax plan. Some of that may include creating an S-corp to save 15.3% while still being able to qualify for a mortgage or loan, creating self employment retirement accounts such as a SOLO 401k, hiring your children in the business to save taxes, renting property to your business to save taxes etc.

6. Common Myths:

• You need an LLC to start a business. WRONG. An LLC is for liability protection if you even have something to protect or are in a high risk business.
• You need a business license. WRONG. Many businesses do not need any type of license besides perhaps a sales tax license also known as TPT. If you’re performing contracting work over a certain dollar amount, you might need a contractor’s license. There is no such thing as a “Business license.”
• You need to pay quarterly taxes and file quarterly returns. WRONG. If your business owes more than $1000 after the calendar year, the IRS might charge a small interest penalty for not paying quarterly which is so small that you may not even notice it. You are probably better off investing the money into stocks than paying the government quarterly and just eating the small interest penalty when you file your individual tax return. The idea behind taxes is the government wants their money when you earn it which is why they would like you to send them a check every 3 months or so estimating your tax liability. Then when you file your 1040 tax return the following year, you would let the IRS know on your return that you sent them money. Funny how not only do they want you to pay quarterly taxes but they also want you to let them know that you paid them. Typically if you choose to pay quarterly, you would go online to the IRS website and send them the funds electronically. There are also safe harbor rules that protect you from any interest and penalties for example if you paid at least 100% of your previous year’s taxes or 110% of this years taxes quarterly, then you would owe no interest or penalties.

7. Conclusion:

If it makes sense, then JUST START. The worst case scenario is you will be able to deduct your business losses against your W2 income and other forms of income. I would recommend everyone starting a side business with their main stable source of income until their business starts generating enough revenue and clientele. This way, any business losses the first few years can still be deducted against your W2 income. The business can even be purchasing and managing rental properties, commercial properties, land, storage units etc.

The amount you would invest in a business planning consultation would be $250-$500. You may schedule a consultation by emailing me at [email protected].

S.L Tax & Accounting is the best Laveen, Tolleson South Phoenix Arizona Tax Preparation and Accounting business providing the best services.