These days, it seems like almost everyone has a startup – and if you have a great business idea, why not join in on the fun? Every year, thousands of entrepreneurs across the nation launch their own business. The internet marketplace makes sales easier than ever. If you’re ready to start your own business, here’s a step-by-step overview of what you need to do to make your vision become a reality.
- Start with an Idea and Brainstorm
Perhaps you’ve already have zeroed in on a product or service for your new upstart. While having an idea is a good start, it’s important to get your mental muscles turning and brainstorm that idea. Is there a demand for the product or service? Who is your target market? Are there additional related services or products that can be tied into the primary offering? Keep in mind that adjunct services and products are an effective way to increase your bottom line. Thinking about potential problems and having solutions in place will also help your launch run more smoothly. The key takeaway with brainstorming is that it’s a powerful tool which will get you to think critically about your idea.
- Draft a Business Plan
A business plan is the road map of your new business. It defines and clarifies the direction of your business, products or services and a description of your customers. It’s also an effective way to plan for market changes and focuses on your future vision for company goals. When drafting your business plan, be sure to include facts, statistics and figures that support your idea. This will better help attract investors, partners, suppliers and executive level employees for your new venture. The typical business plan averages 15 to 20 pages and includes an overview of the plan, business description, development, competition analysis, management, market strategies and financial information. A business plan is required to secure funding at the start-up phase and your map to the future.
- Fund Your Business
To turn your dream idea into a viable business, it’s going to take money. There’s no magic bullet here, so you’ll have to explore your resources and determine which one is most attractive. You can opt for a credit line of credit or a bank loan. Just keep in mind that you’ll have to have a solid credit history or existing assets to put up for collateral. Another option is to join a startup incubator. Organizations like Y Combinator not only provide free resources to startups, but seed funding. Some startups find funding from local angel-investor groups. Most metropolitan areas have groups of angel investors who are interested in supporting startups and willing to fund up to millions of dollars for qualified startups. Once of the newest ways to get funding to launch a business is to start a crowdfunding campaign online. Online sites like Kickstarter gives you the opportunity to have folks make pledges for a startup. Other ways to garner monies for your new company include getting a small business grant and asking strategic partners, friends or family members.
- Select an Accountant and Attorney
Both an accountant and attorney should be on your startup team. Entrepreneurs must keep endless amounts of records for tax and legal purposes. An accountant – such as one from Dagley & Co. – can provide you with a wide range of services through the early stages, including business entity selection, expense tracking, business licenses, financial planning, month-end accounting, tax preparation, an accounting system, W2s and 1099s. Outsourcing with our accounting firm lets you focus on your core business instead of non-core business. Accountants are also essential when it comes to raising funds, structuring deals and financial reporting. An attorney adds value to a startup in a variety of ways. Not only does an attorney assist with entity formation, they help you work with the government, third parties and other company founders. You don’t want to violate any laws, and an attorney will keep you on the right side of the law. They help you draft the proper legal documents to control risk with suppliers, protect intellectual property rights, employees and customers. Plus, they can assist multiple founders of a startup in drafting up agreements that outline the rights and duties of each.
- Apply for Tax ID and State Sales Tax Permit
You’ll need to fill out a tax identification application to get your tax ID. This number identifies your business on all types of documents and registrations. As a matter of fact, most banks will require your tax ID before you can apply for a business loan or set up a business checking account. You can apply for a tax ID at the IRS website. Just print out a copy of the SS-4 form. And if you’re selling any services or products that are subject to sales tax in your state, you must collect that tax from your customers and pay it to the state. It’s important to note that if you have more than one location for your business, you must obtain and display a Sales and Use Tax Permit in each location.
- Obtain a Business License
Your new business needs a business license in order to operate legally, even if you’re operating from home. You can find all the information to do this at the SBA website or your city’s business website. You’ll need to know your business code. Different codes require a specific application process, and each city has its own set of rules and requirements. Generally, you’ll have to provide your federal ID number, type of business, number of employees, business address, contact information and the name of the business owner.
- Know the Labor Laws
Workers compensation coverage is required for businesses with more than three employees. If you have more than three employees, you’ll need to attain workers compensation on a self-insured basis, through a commercial carrier or through the state Workers Compensation Insurance program. Employers are also required by federal and state laws to display posters in the workplace that inform employees of employer responsibilities and employee rights under labor laws. You can easily attain these posters free from state and federal labor agencies.
- Choose a Business Location
Deciding where to set up shop is a critical business decision. The real estate mantra of “location, location, location” has merit for a successful business venture. You’ll want to ensure that the area has the human resources to meet staffing needs. For example, if your startup is focused on detailed work, you most likely wouldn’t want to choose a rural community for its location. Always investigate the available labor pool in your chosen area. Determine the demographic profile of your location. You’ll need to know who your customers are and their proximity to your location. This is important if you’re a retailer or in some type of service business. If you’re customer base is local, you need to ensure that there is a sufficient percentage of the population that needs your product or services to support your business. The community of the location should also have a stable economic base.
Launching a new business takes a lot of planning and effort, but it can lead to a very rewarding lifestyle. Follow our steps and you’ll be in good shape to tackle the task. Contact us at Dagley & Co. so we may help you with every step of the process – and your business taxes!
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In accounting, there is a saying: “Those who keep records win.” If you are an investor, you may have a variety of securities, including stocks, bonds, mutual funds and more. When you sell those securities, you want to minimize your gains or maximize your losses for tax purposes. Gain or loss is measured from your tax basis in the investment (asset), which makes it important to keep track of the basis in all your investments.
What is Basis? Generally, your basis in an investment begins with the price that was paid to purchase the investment. However, that will not be the case if the investment was acquired by gift or inheritance. For inherited assets, the basis generally begins with the FMV of the asset on the decedent’s date of death or an alternative valuation date, if chosen by the executor of the estate. Assets acquired by gift actually have a basis for gain – the donor’s basis – and a basis for loss – the fair market value of the asset on the date of the gift. When an asset is acquired through a division of property in a divorce, the asset retains the basis it had when it was owned jointly by the couple.
Basis is not a fixed value; it can change during the time the asset is owned and is adjusted by certain events. For an investment asset, these events include:
• Reinvested cash dividends,
• Stock splits and reverse splits,
• Stock dividends,
• Return of capital,
• Additional investments,
• Broker’s commissions,
• Interest previously taken into income under an election under the accrued market discount rules,
• Interest taken into income under the original issue discount rules,
• Attorney fees,
• Acquisition costs,
• Casualty losses, etc.
These events can increase or decrease the tax basis in the investment, which makes adequate recordkeeping so important.
Another issue associated with basis is when a portion of the investment is sold. Let’s say 100 shares of a particular stock were purchased in 2011 at $10 a share and another 100 shares in 2013 at $20 a share. The investor plans on selling 100 shares of the stock at $30 a share. Using the general rule of “first in – first out,” there would be a $20 per share gain. However, if the investor can identify each specific block of stock sold, such as the 100 share block bought in 2013, there would only be a $10 per share profit. This is known as the “specific identification” method.
The following is a discussion of the more commonly encountered basis adjustments where recordkeeping is essential:
• Reinvested cash dividends – Investors are frequently given the opportunity to reinvest their dividends instead of taking them in cash. By participating in these plans, they are actually purchasing additional sales with their taxable dividends. Unless records are kept, the investor can’t prove how much he or she paid for the shares or establish the amount of gain that is subject to tax (or the amount of loss that can be deducted) when it is sold.
• Stock dividends – It is possible to receive both taxable and nontaxable stock dividends. Stock dividends that are taxable provide the investor with additional stock with a basis equal to the taxable stock dividend. If the dividends are nontaxable, the number of shares that are owned increases, but the basis remains unchanged. If the investor can associate the dividends with a specific block of stock, then the basis of that block can be adjusted accordingly. If not, the adjustment will apply to the entire holdings in that particular stock.
• Return of capital – A return of capital is a nontaxable return of a portion of the investment. Thus, a return of capital will reduce the investor’s basis in security. Suppose an investor has 100 shares of XYZ Corporation that cost $1,000 ($10 per share), and the corporation distributes to him a $100 nontaxable return capital. His basis in the stock is reduced to $900 ($1,000 – $100) or $9.00 per share. If, over a period of time, the return of capital exceeds his basis in the investment, then the excess becomes taxable because he cannot have a negative basis.
• Stock splits – Stock splits can be confusing if they are not tracked as they occur. Let’s assume that an investor owns 100 shares of XYZ Corporation for which he paid $2,000 ($20 a share). Later on, the corporation splits the stock 2 for 1. The result is that he now owns 200 shares, but his basis in each has been reduced to $10 per share (200 shares times $10 equals $2,000 – what was paid for the original shares). This generally occurs when the “per share value of stocks” becomes too high for small investors to purchase 100 share blocks. Also watch for reverse splits, which have the opposite effect.
• Stock spin-off – Occasionally, corporations will spin-off additional companies. The most classic example is the break up of AT&T some years ago into regional phone companies, who themselves later split into additional companies or merged with others. Each time one of these transactions takes place, the corporation will provide documentation on how to split the prior basis between the resulting companies. Tracking these events as they happen is very important, as it may be difficult to reconstruct the information several years down the road.
• Broker fees – Although broker fees are a deductible expense, they are generally already accounted for in most stock and bond transactions. The purchase price of a block of stock generally includes the broker fees, and the sales price reported to the IRS (gross proceeds of sale) is the net of the sales costs.
Depending upon the investment vehicle, tracking the basis in an investment can be quite complicated. If you have questions, please get in touch with us at Dagley & Co. You’ll find our contact information at the bottom of this screen.
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