Month: October 2008

Choosing The Form Of Your Business

This is possibly one of the most important decisions when starting a business. Not all entities are suited for raising substantial amounts of capital or flexible enough to grow with your changing needs. Most business entities that need to raise capital will organize either as a corporation or limited liability company (LLC) because of the financing options available. With a little forethought and the ability to understand the advantages and disadvantages of the different types of entities, your business will have the capability to achieve your goals.

 

BASIC QUESTIONS TO ASK YOURSELF

 

How easy is it to set up and operate the entity?

What kind of capital can I raise in the entity?

What are the tax advantages and disadvantages of the entity?

Who is liable for the business debts and obi ligations?

What happens if I die or become disabled?

 

 

Sole Proprietorship

 

This is the entity to use if you are one person doing business in your own name (or under a fictitious name) and paying the applicable taxes on your own personal income tax return. In this type of entity you have unlimited personal liability for the debts and obligations of the business and you can NOT sell equity to fund your operations or expand the business. As a sole proprietor, you can use debt to finance your operations but you will be personally liable for the repayment.

 

Advantages:

Easy to set up

No organizational filings with the state (unless you do a fictitious business name)

No initial or continuing annual reports to file

No separate income tax forms to file – Just a schedule C with your 1040 form

 

Disadvantages:

Personally liable for all debt and obligations of the business

No stock structure – Can NOT sell stock to raise capital

Can only incur debt through loans or promissory notes

 

Partnership

 

There are two types of partnerships – General Partnership and Limited Partnership. One of the advantages these entities have is that they pay no tax at the partnership level. Instead, all profits and losses are passed through to the partners according to their percentage of ownership (in the absence of a special allocation), even if the profits remain in the business to fund continuing operation or expansion. Beyond this basic principle, partnership tax law is a complex subject to understand and is fraught with traps for the unwary. Make certain to consult with a tax professional that is familiar with partnership taxation.

 

General Partnership

 

A General partnership involves two or more people carrying on a business together, sharing the profits and losses. Unless limited by the partnership agreement, each partner has full managerial control over the partnership and unlimited personal liability for the debts and obligations of the partnership.

 

Advantages

 

Partners can combine their expertise and assets for a common goal. Most states do not usually require general partnerships to file organizational documents, unless there is a fictitious name filing required. The following states do require the filing of a “Statement of Partnership Authority” or similar for general partnerships.

California

Delaware

District of Columbia

Hawaii

Idaho

Kansas

Oklahoma

South Dakota

Virginia

 

In addition, a handful of states require the filing of initial and continuing annual reports. General partnerships have higher maintenance costs than a sole proprietorship because they must track assets and liabilities as well as income and expenses, but their operational costs are still lower than a corporation because they are not required to have the same governance formalities. In addition, the business can continue after the disability or death of a partner if there are more than two partners. Partnerships file their federal income tax returns on Form 1065. State income tax filings may also be required, depending on the state in which the partnership is domiciled.

 

Disadvantages

 

This is a potentially dangerous form of business entity because each partner is jointly and severally liable (meaning together and separately liable) for the debts of the partnership and the acts of the other partners within the scope of the business. Therefore, if you partner breaches a contract or signs a million dollar credit line in the name of the partnership, you can be personally liable. All parties share control and the death of partner may result in the liquidation of the partnership. It is often hard to get rid of a disgruntled partner.

 

A carefully drafted partnership agreement prepared by an attorney can mitigate the disadvantages inherent in partnerships.

 

 

Limited partnership

 

A limited partnership has characteristics similar to both a corporation and a partnership. The general partners have control and unlimited personal liability, but the limited partners, who put up money, have their liability limited to the amount of their capital contribution to the partnership (like corporate stock). A limited partnership must have at least one general partner and one or more limited partners.

 

Advantages

A limited partnership usually only needs to file a one page document called a Certificate of Limited Partnership, with the state upon formation and pay a fee. In a handful of states, however, the limited partnership is also required to file and initial report and continuing annual reports with the state to update the contact information for the partnership, resident agent, and general partners and in some cases the limited partners. Capital can be contributed by the limited partners who have no control over the business and no liability for its debts or obligations.

 

A limited partnership may define the term of its existence in its partnership agreement. In addition, the business can continue to operate after the death or disability of a general partner if appropriate survival language is included in the limited partnership agreement.

 

Just like general partnerships, limited partnerships have higher maintenance costs than a sole proprietorship because they must track assets and liabilities as well as income and expenses. They have lower maintenance costs than a corporation because they are generally not required to pay taxes (although they must file tax returns on Form 1065) and are not required to hold meetings or keep minutes like a corporation.

 

Disadvantages

 

Like a general partnership, your attorney should prepare a limited partnership agreement to set for the ownership and sharing arrangements of the partners. In a limited partnership, the general partner is personally responsible for partnership debts and for the business-related acts of other general partners.

 

Limited partners give up most of their control over the business in exchange for limited liability. When limited partners take an active role in the running of the business, they jeopardize their protection from liability and can be held liable as a general partner. Assuming limited partners take no part in management, they enjoy limited liability as in a corporation. Like general partnerships, limited partnerships are subject ot the same complex tax rules, so consult with a tax professional when forming your limited partnership.

 

In recent years, the limited liability company has overtaken the limited partnership as the tax-advantaged vehicle of choice, because everyone involved has limited liability and investors can participate in the decisions of the company.

 

 

Next time we will explore Corporations, and Limited Liability Companies

Interested In Pitching Your Idea On National TV?

Recent email from GoBIG

Hi, it’s Wil Schroter, the Founder of Go BIG.

I was speaking with the folks at Mark Burnett Productions yesterday about a new show that is about to air called Shark Tank. The show, which will air on ABC, allows entrepreneurs to pitch to a group of five investors (the “sharks”) on national television. The sharks may or may not invest, but by default you get to get the word out about your opportunity to the entire country.

If you’re interested, reply below to Charisse at Mark Burnett. The official call is pasted below:

New TV Pilot produced by Mark Burnett for Major Television Network now casting ENTREPRENEURS!

Do you have an amazing idea or product but need the money to back it? Would you like the opportunity to pitch your idea to several multi-millionaire investors at once?

If so, we want to hear from you!

Email a brief paragraph about yourself and your non-confidential idea along with contact info and a recent photo to:

Charisse Simonian
Casting Director
Mark Burnett Productions
[email protected]

ALL ENTRIES MUST BE RECEIVED BY OCTOBER 31, 2008!!

Get Ready For Some Golden Nuggets!

Get Ready For Some Golden Nuggets!

Over the next few weeks we will be presenting a series of posts on Financing Your Small Business. This information comes from many sources and years of experience, which we have boiled down into short informational pieces we are calling “The Golden Nuggets of Small Business Financing”.

We have encountered literally thousands of entrepreneurs seeking to finance their small business. There have been many successes and failures along the way.

Many of the so called “failures” learned from their mistakes and reinvented themselves, becoming stronger and wiser than before.

There are many reasons a small business many seek financing. If you are one of those people with an idea on a napkin, ready to seek fame and fortune, you may need to raise capital before you simply quit your day job and launch your business from ground zero. Among the things you may need at this point are:

A feasibility analysis to determine the viability of your idea;

Corporate organizational documents (articles, bylaws, minutes);

A summary business plan (or at least an executive summary);

A federal (and perhaps state) tax identification numbers;

A corporate bank account; and,

Local licenses (if required)

If you have already started a business by using your own cash (sometimes called bootstrapping) you may need to raise additional capital to:

Lease office space;

Purchase office equipment;

Develop a prototype of your product;

Hire a president, CEO or CFO

Design a logo to establish a branding and marketing program;

File for trademark or patent protection on intellectual property (IP; and,

Pay yourself a salary.

The list could go on and on.

A lot of information out there focuses on the narrower sense of financing through debt. We are going to address the broader sense of the term to cover both debt and equity. You can finance by borrowing, selling a part of the company or a combination of both.

We are going to provide you with a variety of simple techniques and resources to increase your chances of obtaining financing. We will be sharing our experience to help you avoid some of the pitfalls that can derail your business and steal your time.

The first topic we will go over is what type of company or organization you should form in order to raise capital and the various attributes of the entities. The choices include C Corporations, S Corporations, limited liability companies (LLC’s), limited partnerships (LP’s), and sole proprietorships.

Next is drafting a business plan for your company, including the various parts and the part most investors always read and some of the mistakes.

Equity Financing is after that, followed by debt financing. It is important that you understand Securities law, as this is how most emerging companies raise their initial capital. We then give you some alternatives in Licensing and Franchising as well as Friends, Angels and Venture Capital Sources.

When you are pitching your company before potential investors, you need certain skills to effectively present your case and obtain the funding. We will show you the mechanics of a good presentation, the use of presentation software and tips for speakers.

We will discuss the elements of corporate record keeping and selected issues of corporate governance. Next we go over guidelines for choosing your professional advisers. Compliance with securities laws can trap the unwary. Thoughtful entrepreneurs are well-advised to choose competent professionals to help them navigate the law and lore of this legal specialty.

Finally we will give you some of our favorite reference sources for further study!

Get Ready – and see you Next time on the Angel Network Blog.

Pitfalls of Business Failures and How to Avoid Them

1. You start your business for the wrong reasons

Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you’d have more time with your family? Or maybe that you wouldn’t have to answer to anyone else? If so, you’d better think again.

On the other hand, if you start your business for these reasons, you’ll have a better chance at entrepreneurial success:

  1. You have a passion and love for what you’ll be doing, and strongly believe — based on educated study and investigation — that your product or service would fulfill a real need in the marketplace.

  2. You are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies.

  3. You have drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever.

  4. Failures don’t defeat you. You learn from your mistakes, and use these lessons to succeed the next time around. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to “building on earlier failures;” on using failures as a “learning process.”

  5. You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints.

  6. You like — if not love — your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.


2. Poor Management (GFORCE coaches leaders to run effective companies)

Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster.

Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area which may be more prone to disregard once a business has been established.

A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future.


3. Insufficient Capital

A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.

It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs.


4. Lack of Planning (GFORCE specializes in planning, project management and operations)

Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning — and hard work — success would not have followed. The same could be said of most business successes.

It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.


5. Overexpansion (GFORCE helps companies guide their growth and implement systems)

A leading cause of business failure, overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies.

At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands.

If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself.


6. No Website

Simply put, if you have a business today, you need a website. Period.

At the very least, every business should have a professional looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services. Later, additional ways to generate revenue on the website can be added; i.e., selling ad space, drop-shipping products, or recommending affiliate products.

Remember, if you don’t have a website, you’ll most likely be losing business to those that do. And make sure that website makes your business look good, not bad — you want to increase revenues, not decrease them.

When it comes to the success of any new business, you — the business owner — are ultimately the “secret” to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed.

GFORCE: These are the clients I am seeking…if you fit the bill to the description above give me a call and let’s see how we can be successful together!


DID YOU KNOW?!

This seemed appropriate for 2 reasons….1) once you see what you need to do to run a successful company you will need one of these; 2) my sister is on a plane right now, headed for Denver to attend the Great American Beer Festival…I’ll be joining her tomorrow for the evening. Not sure I will get my monies worth, but it’s time with my sis.

Worldwide, 20,000 brands of beer are brewed in 180 styles, from ales, lagers, pilsner and stouts to bitters, cream ales and iced beers.

Beer has been a popular beverage for a long time. Babylonian clay tablets show detailed recipes of beer making in 4300 BC. Beer was also brewed by the ancient Chinese, Assyrians and Incas.

An Egyptian text of 1600 BC gives 100 medical prescriptions using beer. A few years ago, the New Castle Brewery in England brewed 1,000 bottles Tutankhamun Ale from a 3,200-year old recipe found in the sun temple of Queen Nefertiti.

Commercial beer making was established in 1200 AD in present-day Germany. In 1506, the German Purity Law is issued, specifying that beer ingredients must only be water, barley, wheat and hops. Bottling of beer started in 1605.

“Watch your thoughts; they become words.

Watch your words; they become actions.

Watch your actions; they become habits.

Watch your habits; they become character.

Watch your character; it becomes your destiny.”

– – Frank Outlaw

Only open if you need Celebrity Endorsements

To: Angel Network Entrepreneurs  

From: Ed Bracken – President  

RE: Can You Use Celebrities To Endorse Your Product?

 

Dear Entrepreneur,

 

Have you ever thought of using celebrities to endorse your  

companies product or service?

 

What if I could guarantee you to meet, face to face, with  

dozens of celebrities to pitch your product and ask them to  

endorse your company/product?

 

What if YOU could get pictures with them holding your product  

that you could use in your marketing material?

 

AND all this could take place in a 48 hour period of time?  In the next 45 days!

 

          *********************************  

     “Angel Network Can Make This Happen For YOU!”

 

          *********************************

 

You can meet, shake hands with and spend 2-10 minutes with  

each celebrity and pitch your product.

 

We’ve done this and now you can too!

 

My partner Greg Writer recently did just this and if you want  

to see the pictures he took with celebrities please visit this link:

 

http://www.gregwriter.com/famous-friends/

 

But here is the number one reason your should considering  

celebrities endorsements!

 

     —>>>> IT WILL HELP YOU RAISE MONEY!

 

And in today’s environment you need an edge and getting a  

celebrities to lend their name to your product could be the  

difference between getting funded and going broke!

 

Bottom line is that celebrities sell!

 

If you can figure out how to use celebrities to promote and  

market your product your sales will increase and it will help  

in your funding process.

 

So if you want to find out how you can participate YOU MUST  

call 760-489-1342 ASAP!

 

We only have room for about 5 entrepreneurs to participate in  

thIS program!  We have over 3,246 entrepreneurs that are  

getting this email and this opportunity will be on a 1st come  

1st serve basis.

 

So if you are serious and are ready to get meet and pitch  

celebrities then call now.

 

Have a great day!

 

Ed Bracken  

President  

AngelNetwork.com, LLC

 

 

PS Remember this program GUARANTEES you will meet face to face and have the opportunity to pitch your product to celebrities! Greg met over 75

celebrities and got interest 11 of them to  

endorse Children’s Educational Network!  If you want to apply  

for this program call 760-489-1342 now!

 

PPS  There are only 5 slots for this program so you must act  

fast and 3,246 entrepreneurs are getting this email, and these slots will go fast!

http://www.AngelNetwork.com

Serving The Needs Of High Net Worth Investors & Entrepreneurs.

 

Owned and operated by:

 

AngelNetwork.com, LLC

283 S. Escondido Blvd.

Escondido, CA 92025

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