Thursday, August 27, 2009

Starting a Small Business: Types of Business Entites

FIRST, and before you do anything else, you need to choose what type of business you want to have-this effects how you will register your company with the government.

There are four (4) main types to choose from in the US:
1. Sole Proprietorship: this is the simplest form of business type. They are inexpensive to form, easy to dissolve and generally have no tax aspects, since profits and losses of the business are simply part of the owner's personal income and the company is disregarded for tax purposes. However, since legally the company is nothing more than an individual using a trade name, you are liable for the company's obligations. On the death of the owner, the company immediately ceases to exist. Highest Personal Risk.
2. Partnership: relatively inexpensive to form, and can be as simple or complex in structure and administration as the partners want it to be. Partnerships are formed by two or more persons who make an agreement to share profits and losses. Each partner has what is called joint liability to the partnership, which means either partner can be made to pay the entire debts of the partnership, regardless of what they contibuted. Partnerships have pass-thru taxation, which means the partnership itself pays no taxes; it is only required to file an informational return to the government to report what the profits and losses of the partnership were and how these were split between partners. A partnership ceases to exist at death or bankruptcy of a partner; or if they decide to end the partnership. Medium to High Personal Risk.
3. Limited Liability Corporation/Limited Liability Partnership: this is a hybrid of corporations and partnerships, combining the features of both. LLC's are extremely flexible, and can be used for a very wide range of businesses. The members (equivalent to shareholders or partners) can, but do not have to, have limited liability. LLCs can, but but do not have to have, managers (equivalent to directors and officers in a corporation) and can elect to be taxed either as corporations, or as partners (if they have two or more members) or be disregarded for tax purposes like a sole proprietorship. Like partnerships, LLC's can be as simple or complex as the members desire. Depending on state law, an LLC can have the same limited liability for members as a corporation, or have some members with limited liability and some without limited liability (like a limited partnership), or even have no limited liability for any members (like a general partnership). Unlike corporations, some States require that their LLC's designate a date in the future at which the LLC will automatically dissolve. Some States also require that if a member dies, goes bankrupt or meets some other calamity the remaining members of the company must either dissolve or vote to continue. LLCs are more expensive to set up, and although a lawyer is not required, one would be very helpful in guiding you through the process. There are more fees involved in set up, and the main partner/officers must pay a registraton/renwal fee every year. Medium to Low Personal Risk.
4. Corporations: much more complex than partnerships or sole proprietorships, in that a new legal person (entity) is created. A corporation is an entity that is separate from its owners, so that regardless of what happens to shareholders, the corporation continues until it is legally dissolved. Depending on state law, a corporation can be owned by just one person and have just one director and officer. The owner(s) of a corporation are known as shareholders. The shareholders elect directors to set the policies of the corporation and represent their interests. The directors appoint the officers of the corporation to manage day to day operations. Corporations are legally required to follow more formalities than any of the other entities, including annual meetings of the shareholders and directors, as well as board approval of most significant acts by the corporation. Because a corporation is separate from its shareholders, for example, even if one person is the sole shareholder/director/officer, that person cannot just take company funds for him/herself without documenting the reason and entering a board resolution into the corporate records. Taxation of corporations is much more complex than sole proprietorships or partnerships: depending on the number of, residency of and type of shareholders, a corporation can elect to be treated for tax purposes as a if it were a partnership (an S corporation) and therefore not pay taxes itself, or it can be treated as a taxable entity (a C corporation). Definitely consult with a lawyer before forming a corporation. There are many forms and fees that will need to be filed properly. Low Personal Risk.

Choose your business entity based on your current needs as it can be changed as you grow: a sole proprietor ship can choose to form an LLC or C Corporation, a partnership can become an LLP or C Corporation. A C Corporation can elect to become and S Corporation (usually for tax purposes).

Notice to those planning to form partnerships: please but keep in mind that partnerships have a higher failure rate, usually based on lack of unity in vision and goals. If you choose to form a partnership, have a lawyer draft an agreement that assures all of your partners are liable for exactly what they put into the business and that you have an exit strategy (a plan for how one or both of you can get out of the agreement).

Most artists can set up a small business as a sole-proprietor with a minimum of labor, and it is probably a good way to start out, since you can always change to a LLC or take on partners as your business grows. Just keep in mind that as a sole proprietor, your business finances directly effect your personal finances.

Wednesday, August 26, 2009

Starting A Small Business: How Up from the Ashes was Germinated

I recently sent a friend some information on starting a small business. I realized while I was typing up the information, that some of this could be useful for artists who are looking to break from the studio and into entreprenuership. I have spent oodles of time and energy researching how to make our business a success, so I thought I would take some blog space to share what I have learned and present resources for artists and artisans to use to start their own businesses.

How Up from the Ashes was Created in a Trial by Fire:
I graduated from college with my degree in fine art and no practical knowledge what-so-ever about how to start and run my own art career. Typical of my former self, I jumped in feet first and realized I had no idea how to swim.
A dear friend and I created Up from the Ashes in 2004, based on our mutual desire to create amazing and magical products to sell, and the hope that one day we would be able to have a booth at the PA Reneiassance Faire.
I'm not kidding, that was our goal.
Our only discussion about business structure was that since there were two of us, we should form a partnership. And the business plan? What is a business plan? Do we need one?
So we sent $70 to the government and filed our ficticious name. We applied for an EIN and a tax resale number. My dad suggested we get a website, so we registered for a domain name. We had business cards printed with our charming new logo designed by my long-suffering boyfriend, Jason. He also pasted up our first website, which was not much more than a convoluted description of our intentions pulled from our EIN application and some pictures of things we made. Yes, they were horrible pictures.
We applied to some fairy festivals and craft shows, and surprisingly were accepted to some considering our level of disorganization. We learned the hard way that some craft shows one of us would sell great and the other would sell nothing, thus generating some tension, since both of us were spending money on the fees and travel.
We both worked full time and my partner was earning her masters, so we had very little time and energy to contribute to our fledgling company. We had no practical experience or backround in management, and had no idea who to turn to for help. I think, that if it were not for my obsession with making things and then having to find places to sell them because I was running out of room in my tiny apartment, we both would have given up after the second year.
We made all the usual mistakes: we spent waaaaay too much on supplies (well, I did at any rate-my credit card still hates me), we had no set goals or plans about where we wanted to go, we did not do more than basic research to create the entity, we underestimated how much time we would need to devote to the cause, we did not create an exit strategy in case on or both of us wanted or needed to get out, we did not properly track our finances, we did not perform market research, we did not spend enough time developing products-new and old. And we have not even made it to the Reniassance Faire yet. We both, at one point or another, wanted to give up.
At the moment, our little company is five years old, and finaly starting to make a little profit. My partner is taking a break while she works on getting her doctorate, so I am working hard to continue getting our name out there. We have a long way to go, but the road is starting to look a bit less rocky.

That being said, here are some things to think about if you are thinking about starting your own small business:

(these are things to look out for so you can prevent failure)
Statistic: According to Dunn & Bradstreet, 88.7% of all businesses fail due to management mistakes.
1. Mistaking a Business for a Hobby.
2. Asking Friends and Relatives for Advice: unless Uncle Joey actually successfully runs the type of business you want to have, ask a professional-they have the experience and they answers (Lawyer, Accountant, Banker, Insurance Broker are the Big 4)
3. Asking Friends and Relatives for Money: Big no-no because relatives and friends are emotionally involved, and if the business fails, it can ruin good relationships. This is what banks are for.
4. Mismanaging Money: Your Accountant can help with this or you can take courses to learn what you need to do online or through small business associations. Also, don’t go first class from the start as overspending is a serious problem for beginning companies-if you are not making money yet, that $2,000 suit and first class plane ticket could be a nail in your business’s coffin. Allocate your limited start-up resources to where they will make the most profit.
5. No Business Plan: the business plan directs your focus and establishes your goals. You need to have your focus written down before you can get to work.
6. Inadequate Pricing: you need to charge the going rate for your services from the start, so know your competition, your clients, and know how you do things better.
7. Inability to Manage Growth: this actually is a major issue; if you have a surge, you need to be able to plan to meet demands.
8. Lack of Commitment: you are gung ho now, but that may change as pressures increase and you get worn out from working all the time. You need to be sure you are committed to your business success, and find new ways to recommit if you feel yourself lagging.
9. Failure to Set and Revise Goals: this is where your business plan comes in. Once you set your initial goals and get to work, you may realize that your focus needs to change to a different aspect or you need to broaden your horizons; this is not only okay, it is a very good idea-revision ensures you are directing your focus to make your business the biggest success it can be.
10. Inability to Develop and Monitor Financial Statements: Financial statements monitor the pulse of your business. Banks use them to evaluate what type of funding they will give you. You need to track all of your incoming and outgoing funds, and this can be done with simple programs like quickbooks or peachtree.
11. Inability to Balance Family and Business: think of this business as your baby; you need to be prepared to care for it 24/7. You may be working 12 to 16 hour days during the start up phase (which can be more than a year based on the type of business and product you have) and you and your family need to acknowledge the drain and strain this will put on you. You can work from home if your office needs are small, but you need to be able to work without interruptions.
12. Underestimation of Time Requirements: this goes with the previous. Many small business owners think that if they hang up their shingle, customers will come running to partake of their services. In reality, you are going to need to be marketing yourself and your product 24/7, and always be thinking of more ways to get your name out there. If you plan on doing this full time, you may actually be working those 12 to 16 hour days. You will get tired, but you need to prevent burn out to succeed.
13. Lack of Market Awareness/Poor Marketing: you can’t buy a product you can’t find. KNOW YOUR CUSTOMER: it is a complete waste of time and resources to market your product to someone who cannot use it or pay for it! Be sure your product is ready for your customers before you start marketing it. Know how much of your product you need to sell to stay in business and make a profit. Understand that it will take time for you to show a profit and make back your start up money.
14. Failure to Research Industry Norms: If you have no experience in field you are planning on jumping into, check with professional associations to find the statistics for the industry. This will help you know what to expect from the economy, your competition and your customers.
15. Insufficient Startup Capital: It can typically take 2-3 years before most businesses begin to make money. You need to plan where your funds are going, and you need to make sure you will have enough to cover expenses until that profit begins to arrive. IF you have employees, make sure you can pay them (this includes your own paycheck).
16. Over-Reliance Death Trap: DO NOT have one good customer that makes up 70-80% of your business. This may make you money short term but you will be screwed if they fold or choose to go with another provide. Change your marketing strategy and re-evaluate how you are getting your clients to avoid this.
17. Entrepreneurs that Fall in Love with a Product that Does not Sell: if you are not getting a return on a product, no matter how wonderful you think it is, scrap it and move on to something else if you want to stay in business.
18. You Will Make Mistakes: it is call being human, so get over it. It could be your lack of focus, it could be your pride, it could be that you spent all your petty cash on widgets: it is part of your entrepreneur experience, so take that information, file it in you mind, learn not to do it again and move forward.

This list came from a class I took about starting small businesses (oh, about a year and a half or so after we started our comany!)-the list is from the class, the comments are mine. ;)
More to come!

Tuesday, August 25, 2009

Custom Luna Moth Wings

Just finished this gorgeous pair of Luna Moth wings for a lovely lady in Canada to wear to Faeriecon this year. Lunas actually have reddish purple veins and outer edges, but I made them navy blue this time to match her dress.

Tuesday, August 11, 2009

Custom Strapless Fairy Wings

Just finished these gorgeous wings for a custom order. This fairy is going to pair these wings with an exquisite teal gown for her Halloween costume this year.

Thursday, August 6, 2009

A Midsummer Nights Masquerade Treasury

Many thanks to JKarnos for featuring my Puck Leather Mask in this Awesome treasury!

Wednesday, August 5, 2009

Fit for a Queen Treasury

Many thanks to ThisYearsGirl for including my Titania Crown in her beautiful treasury!!!

An interview with Rick Malwitz/Malwitz Surfboards

An interview with Rick Malwitz/Malwitz Surfboards

Posted using ShareThis

Check this out! This is an interview with my seriously talented cousin Rick who makes handmade surfboards!!!!

Monday, August 3, 2009

For My Princess: Pretty In Pink Treasury Feature

HUGE Thank you to lachiffonniere for including my pink and black Ceres fairy wings in her pretty pink treasury!!!