It is very satisfying and exciting when your hobby, be it cake decorating, woodworking or pottery, grows into something more. If customers are clamoring, you’ve outgrown the basement, and friends and family keep asking when and where you’ll sell your product, it’s time to consider taking it to the next step by opening for business.
Starting an owner-operated business seems even more appealing during tough economic times because it provides an opportunity to control and increase income. But all aspects must be considered. Even a home-based business that would have limited overhead, such as one run from a basement, garage or spare room, needs to have its bottom line carefully reviewed.
Rules and regulations will vary by location, so expect to do an appreciable amount of legwork to find out what is expected. The Kentucky Small Business Development Center offers the following basic tips for prospective small business owners (If employees are added later additional steps will need to be taken.).
Write a business plan.
According to Alison Davis, executive director with the Community and Economic Development Initiative of Kentucky, this is a critical part of gauging your business’s feasibility and the cornerstone of your plans. Cover as many details as possible, writing everything from a general overview to yearly, monthly and daily (even hour by hour) operations.
Some of the questions your business plan needs to answer:
1. What does your business do?
2. What are its products?
3. Where and how you will sell them?
4. Who is your customer, and how will that customer find you?
5. What is the pricing for the product?
6. What kind of budget do you expect? (Include operating costs, financing, and a projected profit and loss statement.)
7. From whom will you purchase raw materials?
8. Who is your competition?
9. What makes this product unique and/or desirable?
10. Research and understand applicable environmental and Occupational Safety and Health Administration regulations.
11. Comply with zoning, plumbing and electrical regulations, including securing permits for remodeling or new construction and for exterior signs.
12. Choose an operating entity (which for a small home-based business would usually be a sole proprietorship or LLC).
13. Register with your county clerk and the state secretary.
14. Apply for any county or city permits and licenses.
15. Register trademarks.
16. Obtain a federal employer identification number (EIN) from the Internal Revenue Service.
17. Obtain liability insurance appropriate to your business.
18. Register for a sales and use tax license with the Kentucky Department of Revenue, which must be paid in regular intervals (options include monthly, quarterly or yearly).
19. Visit your bank to open a business checking account. You can also discuss financing and apply for a line of credit.
You also will need to consult an accountant. Look for one who can provide small-business advice in your field. Some of the issues your accountant can help you with are deductions, depreciation of equipment and paying estimated quarterly taxes.
For more information on starting a small business, visit http://www2.ca.uky.edu/CEDIK/
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