Millennium Training

A quaint Virginia shop. (Photo courtesy of VA Dept. of Tourism web site.)

Research is for your business what the four food groups are for your body: it is fuel; it is nourishment; it is essential for health and growth. Before starting a business, the entrepreneur needs to prepare a business plan. Before preparing a business plan, the entrepreneur needs to do a little homework, otherwise known as research. Research provides the “what,” “where,” and “how much” that every business owner needs to know to be successful. Keep up with your homework, and the whole process of starting and running a business will go much more smoothly. Your research will also create the foundation for all financial projections that you will make related to your business. Do a thorough job conducting your research and you will create a sound foundation for your future financial projections and for the future health of your business.

The first thing an entrepreneur needs to determine before starting a business is:

Look at your interests, your past experience, your skills. For example, if you spend your weekends taking car engines apart and putting them back together, perhaps you could operate a successful auto repair shop. If your whole family raves about your cooking, you may want to consider opening a catering business. If you have a knack for creating beautiful flower arrangements, consider becoming a florist.

If you need help coming up with ideas for your business, you may want to visit your local library. Ask the librarian for assistance in finding a helpful book or magazine. Here are some ideas for books:

     201 Great Ideas for Your Small Business: Revised &
     Updated Edition, by Jane Applegate

     Turn Your Talents into Profits: 100+ Terrific Ideas for
     Starting Your Own Home-Based Microbusiness, by
     Darcie Sanders and Martha Bullen

     What Color is Your Parachute, by Richard Nelson Bolles

     The 100 Best Businesses for the 21st Century, by
     Gregg Ramsay and Lisa Rogak

Here are some web sites that might help you come up with ideas for your small business:

http://www.sba.gov/library/pubs.html –This site will take you to the U.S. Small Business Administration’s on-line reading room. Peruse this site for articles related to developing an idea for a business to start.

http://www.sbomag.com – This is the web site for Small Business Opportunities magazine.

Krissy's Sno-Balls (Photo courtesy VA Film Office Web site)

Once you know what you want to sell, the next step is finding out as much as you can about your chosen business. Skipping this step is like building a brick house without mortar. The research you complete here will help you determine sales and income projections, the size of your market, and facts about your competition. In the United States, all types of businesses are classified with a number. This classification system is called the North American Industry Classification System, or NAICS. Formerly it was known as the Standard Industrial Classification (SIC) system. The NAICS classifies 1,170 industries, of which 565 are service-based. It is very specific in its classification. For example, a search using the word “food” produced forty-three matches, ranging from “Food Service Contractors” (number 722310) to “Food Machinery Repair and Maintenance Services” (number 811310). Each match is broken down even further. Select “Food Service Contractors” and the classification is broken down into seven more specific categories ranging from “Airline Food Service Contractors” to “Industrial Caterers.”

To find out the classification number for your business, go to the U.S. Census Bureau’s web site (http://www.census.gov/epcd/naics/framesrc.htm). You will be prompted to enter a word related to your business. For example, if you want to manufacture garden furniture, you could enter “garden.” From the list of businesses with “garden” in the description, there are three related to “garden furniture.” Once you know the NAICS number assigned to your business, you will be able to find out a lot of information about your specific industry.

To find out more about your industry once you know your NAICS number, go to the part of the Census site that contains data from the economic census (http://www.census.gov/epcd/ec97/us/US000.HTM). On this page, you can find information such as the number of retail trade establishments in your area. At the top right-hand side of the page, there will be a drop-down box from which you can select a location in which you are interested. Then once the data appears, click on the arrow located on the far left in the row next to the category in which you are interested. Clicking this arrow will make your search more specific. Continue clicking the arrow until the industry you are interested in appears.

People at the Salem Fair. (Photo courtesy VA Dept. of Tourism web site.)

Once you know what product or service you want to sell, you will want to find out who will buy it. Years of experience may have given you an excellent idea of who your customers will be. For example, if you are opening a shop that sells designer wallpaper, you may know that your customers have higher incomes and own their own homes. If you don’t really know who might be interested in what you are selling, do some homework. In both cases, once you have a general idea about your customers, you will want to find out their specific characteristics and where they can be found.

The first step of all research is to write down what you already know. So write down what you now know about your customer. The next step is to write down what you don’t know. You know that the customers for your designer wallpaper shop have higher incomes and own their own homes. You don’t know their age, their race, the neighborhoods they live in, their religion, their education level, etc. What might motivate them to buy your product? So make a list, and then find the answers to these questions.

Determine what information is already available. If the information you need is not currently available, you can gather it yourself. If you're opening a designer wallpaper shop, stop by the designer wallpaper shop in the neighboring town and see what its customers look like. Develop a brief survey and take it to an area of town where people who would purchase your product shop, live or congregate. Ask the questions on the survey to some of these people to gauge their interest in your shop. Offer coupons for a discount in your store (once it opens) if they answer the questions. You may also direct your survey questions to people on a random basis.

Ano

Shopping at a flea market. (Photo courtesy VA Dept. of Tourism web site.)

ther way to increase your understanding of your potential customers is to form a “focus group.” Gather together a small number of people whom you think may be interested in your business. Ask several open-ended questions and encourage a discussion. Take notes.

The type of information you gather from this kind of research is known as “primary data.”

Before deciding where to locate your business, you will want to find out about your competitors. Who are they? How many are they? Where are they located? Although there are exceptions, you probably will not want to locate your small business close to someone who would be in direct competition with you.

Finding out as much as possible about your competitors will help you in many ways. You may be able to avoid mistakes they made. You will gain information that will help you with decisions about where to locate your business, what to charge for your products or services, and ways to advertise your business.

If you have completed research about your industry and about your customers, you have already done some of the necessary homework for finding out about your competitors. Industry research will let you know, for instance, how many other businesses like yours are operating within your city or county. Customer research will guide you to where your potential customers are shopping and why. As part of your competitor research, you may want to ask potential customers survey questions geared to discover information about the competition. If they currently use products or services like yours, where are they buying them? What are they paying for them? What do they like and dislike about your competition?

C:\Program Files\Interactive Educational Concepts Inc\National EntrePlan Interactive Guide\help.htmlOnce your industry and customer research guides you to who your competitors are visit their web sites (if they have one). You can learn a lot from a visit to your competitors’ web sites. For instance, they may have information about prices, services, locations and contact information. The look and features of the web site itself will give you an idea of your competitor’s professionalism and possibly his or her resources as well.

After visiting web sites, you may want to call your competitors directly to find out more about them. Ask the kinds of questions a customer would: questions about the prices they charge, the types of products and services they sell, turnaround time for service, etc. If your competitor has a shop, visit it for ideas about products and advertising.

Another way to find out about your competitors is to talk to other business owners who have had dealings with them. What kind-of service did they provide? What were the pros and cons of working with them?

Woman quilting at the Virginia Highlands Festival, which features more than 100 exhibitors of crafts. (Photo courtesy VA Dept. of Tourism web site.)

If you have conducted research on your industry, your potential customers and your competitors, you have completed much of the homework you should do before deciding where to locate your business. For instance, if you find out from your research that your customers are only willing to travel fifteen miles out of their way to visit your shop, you will want to open it close to a neighborhood where many prospective customers live. If you are opening a donut shop, you will probably want to make sure you do not open on the same street as a nationally known donut shop.

Additional things to consider when deciding on a location include taxes, laws and permits, roads and facilities, incentives that might be offered to new businesses, access to interstates, availability of warehousing, and complimentary businesses located nearby. For instance, a shop selling wedding dresses might do well located close to a bakery selling wedding cakes. Another consideration is the cost of operating in a certain area related to the benefit. For example, perhaps your business does not need to be located in a high-rent mall. Keep in mind alternative locations for businesses.

One such alternative is a "business Incubator", which provides office space and office amenities, such as a receptionist, for small businesses. And, of course, many choose to run their small businesses from home. If you decide to operate from home, make sure you will be able to meet any county and state regulations related to running your particular home-based business.

You have a great idea for your business and you have found the best place to locate it. You know who will buy your product or service and you know who your competitors are. But starting and running your business is going to take cash, possibly a lot of cash.

Virginia State Capitol. (Photo courtesy VA Film Office web site.)

Working capital, otherwise known as cash, is the oxygen that keeps your business breathing. Without enough working capital, your business’s vital functions will fail. It won’t be able to meet its daily requirements for living, such as purchasing supplies, paying rent, and paying salaries. In a word, before creating your business, make sure you will have enough money to keep it alive. Inadequate capital is the most common reason given for the high failure rate of small businesses.

Where are you going to find the funds to start and run your business successfully?

There are several steps to take to ensure that your business will have enough capital to start and continue running.

The Business Plan includes a section about Financial Matters. Within this section, you will tabulate financial data and projections related to your business.

The Financial Plan portion of the Business Plan includes: a) Start-up Expenses; b) An Estimate of Future Sales; c) Estimated Cost of Units Sold; d) Fixed and Variable Expenses; e) Cash Flow Projections (very important); and f) A Break-Even Analysis.

2) Determine how much capital you will need to start your business and to keep it running. Based on the estimated projections contained within your Business Plan, you will be able to determine how much money you will need, both to start your business, and to keep it humming.

3) Determine how much cash you have available through personal sources that you are willing and able to use to fuel your business. (Personal sources include: savings accounts, insurance policies, stock and other investments, second mortgages, and donations from friends and relatives.)

4) Figure out how much money you will need for the business after you have contributed all of the personal funds that you are able and willing to contribute.

a. Debt. Debt is a loan made to you or your business. Sources of debt lending include banks, credit unions, federal lending programs and state financing programs.

b. Equity. Equity is ownership rights and privileges in your business that you give away in return for capital. Businesses seeking this type of financing must become a Partnership, Corporation or Limited Liability Company.

c. Alternative Funding. Alternative means of funding include: suppliers who provide concessions, such as extended payment periods and discounts; and grants.

6) Prepare a written Financing Proposal.
The Financing Proposal is used to secure loans and equity financing. Before preparing the Financing Proposal, complete the Financial Plan portion of the Business Plan. This section of the Business Plan will contain much of the information and data you will need for the Financing Proposal. The Financing Proposal contains the following:
a) Cover Letter;
b) Summary (contains the purpose of the financing, amount and terms requested, how the funds will be repaid, and collateral);
c) Details on how the capital invested or loaned will be used;
d) Details on Collateral (if seeking a secured debt);
e) Information on the financial return for investors (if seeking equity financing); and
f) Your prepared Business Plan (Financial data and projections are particularly important).

If you follow the steps above, you will equip your business with the cash it needs to breathe, both

Minority and women-owned small businesses face unique challenges. Fortunately, there are many programs geared to help them meet these challenges and succeed.

The United States Small Business Administration (SBA) defines the demographic group that includes minorities as "socially disadvantaged" and defines that description within its website as:

"Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as members of a group. Social disadvantage must stem from circumstances beyond their control. In the absence of evidence to the contrary, individuals who are members of the following designated groups are presumed to be socially disadvantaged:

You will be able to use much of the research you have completed when compiling and writing your business plan. The business plan is the blueprint or map for your business. Compare starting your business to going on a vacation. Your vacation will go much more smoothly with a plan. What week is best for the whole family to be away from home? Where do you want to go? How will you get there? Do you need a reservation? Will you have enough money for the trip? Without putting forethought into the trip, you might never leave your driveway. It’s the same with starting a business. In order to have the best chance of a smooth and successful venture, do some homework, consisting of research, analysis and planning. A business plan greatly increases your odds of success.

If the word “Analysis” makes you shudder and recall hated classes in science or math: relax. Analysis is just a way to make sense out of research. Analysis helps you figure out the answers to the questions you had when you started your research.

Look at the list of things you wrote down before you started your research. If you were uncertain about the type of business you wanted to operate, start with your list of questions. Now look at what you wrote down about your skills, interests and past experience. Compare your personal expertise and passion to information you gathered about different industries and opportunities. By comparing your questions (what you didn’t know) to the answers (information you gathered during the research process), you should be able to come up with a viable business that you would be both interested in starting and qualified to start.

Shenandoah Valley Music Festival. (Photo courtesy VA Dept. of Tourism web site.)

By looking at the secondary data and primary data (if needed) that you collected about your potential customers, you will be able to get a clear idea of who will be interested in buying your product or service. Knowing your customers will help you decide if your business idea will work because you will know if you have enough buyers to be profitable. Knowing your customers will also help you later when you put together a marketing plan for your business.

The information you gathered on your competitors is invaluable. From it, you can find ideas about what you should charge for your product or service, how you should market your business, where you should locate your business, any area not addressed by the competition in which you could specialize, and if the competition is too fierce in your industry. If you decide that your industry is already choked with competitors, try to come up with a niche or specialty, or start the research process again, choosing a different business.

Again, your research should direct this decision. After completing your research, you will know where your competitors are located; the cost versus the benefit of operating in different locations; and any rules, regulations and incentives for locating in a certain area. Armed with this knowledge, you can evaluate the pros and cons of different areas, and decide where to locate your business.

Once you have found answers to your questions and studied your answers, you are ready to set your business objective. Your objective is what you want to achieve. It is a mission statement. For example, if you want to start a house cleaning business, your objective might be to “offer affordable, reliable, high-quality cleaning service to families in (your county, city or town).” From a main objective, you can then decide on short and long term goals for your business, and the strategies you will use to reach them. Setting and reaching these goals will be covered in the Marketing section of the Business Plan you will write.

After researching your industry, setting a business objective, choosing a location, and finding out who your customers and competitors are, you are ready to do some preliminary marketing analysis. A first step in determining how to market your business is to prepare a SWOT Analysis. SWOT stands for “Strengths, Weaknesses, Opportunities, and Threats.” Based on your research, you should be able to list the strengths, weaknesses, opportunities and threats that apply to your business. Armed with this list, you will be better equipped to position your product or service in the marketplace. “Positioning” your product or service means finding the right way to promote it, package it, price it, and place (where to sell and distribute) it. A SWOT analysis is similar to making a list of pros and cons before making a big decision.

Sample SWOT Analysis

Jane Taylor is opening a pet-sitting service. After doing her research, she prepares a SWOT analysis.

Strengths

*20-years of experience volunteering with animal rescue groups;
*Strong references

Weaknesses

*No experience in accounting, computers or other skills needed to run a business

Opportunities

*People work long hours & travel & need a reliable person to take care of their pets while they're away.

Threats

*The county in which she lives already has two pet-sitting services, both focused on the care of dogs and cats.

Analysis: Jane decides to market her pet-sitting service in a county adjacent to the one in which she lives because the two most popular pet-sitting services in the region do not operate there. Because many people in this county commute 45-minutes each way to Richmond to work, she believes they will need someone to give their dogs a break while they are working. Jane also decides to expand her business and offer care for horses, as well as house pets, since many of the residents in this rural county own horses. Finally, she decides to hire a part-time bookkeeper to maintain the business’s records, so that she can focus on what she loves: taking care of animals.

Analyzing the research data you collected will help you make decisions. If you wanted to build a house, you would first think about the type of house in which you would like to live; you would research neighborhoods and land prices; you would talk to architects and contractors. You would do your homework. If you didn’t, you would end up like the pig who built the house out of straw. You would soon be homeless. Do your homework when building a business: finish your research and analyze your findings. Your business will then have a sound foundation. On this foundation, you can build the sturdy walls of a sound financial plan to hold it together and the reliable roof of good marketing to protect it from the elements. Then the wind and rain of competition, changing consumer demands, and improper planning will not blow it to pieces.

Starting a new business requires a decision about business organization

Starting a new business requires making many decisions. A business owner is, by default, a decision-maker. Fortunately, resources at the local, state and federal levels abound to assist you with decisions related to starting and running your new business.

Once you know the type of business you wish to operate, you will need to decide on its organization. Will it be a sole proprietorship, a partnership, a corporation, or a limited liability corporation? Perhaps these choices sound confusing, but once you understand the pros and cons of each, your decision should be easy to make.

Usually there are no special requirements in most states to form a sole proprietorship. Simply register your trade name and obtain a business license and you will be in business in most localities.

A business partnership is created when two or more persons agree, in person or in writing, to start a business. To form a partnership in most localities, you will simply need to register your trade name, and obtain a business license. To find the specific requirements for forming a partnership in your locality, please contact your local economic development department.

A general partnership is the easiest type of partnership to form. One additional step which you may wish to take if forming a general partnership is preparing and signing a partnership agreement. Partnership forms should be prepared by your attorney.

The biggest disadvantage to a General Partnership is that each partner is liable for the whole business. To explain this, here is an example:

You are also responsible for any poor business decisions Joe may have made. Compare it to a marriage. If your spouse buys a house in an unsafe neighborhood while you are away on business, you are just as responsible for the house payments as your spouse is, even though it wasn’t your decision to buy the house.

Downtown Richmond. (Photo courtesy VA Film Office.)

A Limited Partnership is similar to the general partnership, with several major exceptions. There are two actual classes of partners that make up the partnership: General Partners and Limited Partners. General Partners have the same pros and cons as in a general partnership above; however, each Limited Partner in a limited partnership is only liable to the extent of his or her individual investment. Limited Partners have no say in the day-to-day operations of the company; the General Partners actually manage the company. In essence, a limited partner is an investor. In the case of the Water Works example above, a limited partner’s loss would only amount to the investment made in the company. The company might fold due to one of the general partner’s poor decisions, but a limited partner would not have to bear financial losses above what was initially invested in the business. However, general partners (those that manage day-to-day operations) may have the same liabilities as under a general partnership.

A limited partnership is a bit more complicated (and expensive) to start than a general partnership. In addition to registering your trade name to protect it, you must file a Certificate of Limited Partnership with the State Corporation Commission.

A corporation is a legal entity that is separate from the people who own it. Shareholders govern the corporation indirectly by electing people to manage it.

Forming a corporation is somewhat complicated, and you may want to enlist the assistance of an attorney if you choose to organize your business this way. To form a corporation requires filing Articles of Incorporation with the State Corporation Commission and paying filing fees and other initial fees.

In addition, a corporation, once formed, must comply with several formalities, such as holding regular meetings and maintaining explicit records.

This is the most common form of incorporation for America’s largest companies. The letter “C” simply refers to a subchapter of the IRS for corporate tax purposes. The separate nature of the C Corporation creates advantages and disadvantages.

C:\Program Files\Interactive Educational Concepts Inc\National EntrePlan Interactive Guide\help.htmlSince the C Corporation is separate from its owners, also known as shareholders, the owners may be taxed twice for any profits. That is, the corporation pays taxes on its profits. Then the corporation distributes the profits to the shareholders in the form of dividends. The shareholders then pay taxes on these dividends. This is known as double taxation and is considered a disadvantage of forming a business this way. Pending legislation, however, may change this form of double taxation. Be sure to check with your accountant.

An advantage is that the shareholders are only responsible for the company up to the amount of their personal investment. They may lose all of their stock in a corporation if it goes belly-up, but they will not lose their homes or other personal belongings.

The S Corporation shares much in common with the C Corporation. Like the C Corporation, it is owned by shareholders who do not bear personal liability for the losses of the corporation. Also, the same filing requirements and formal rules apply to both types of corporations.

There are several differences between the two types of corporations, however. A major difference and an advantage of the S Corporation is that its shareholders will not be taxed twice for the company’s profits. All profits are passed through to the shareholders’ individual income tax statements.

Another difference is that the S Corporation cannot have more than 75 shareholders, while the C Corporation can have an unlimited number of shareholders. For this reason, larger corporations are C Corporations.

There are several other types of corporations, including: professional corporations (operated by licensed professionals, such as doctors and lawyers), nonprofit corporations, and cooperatives.

A Limited Liability Company (LLC) is not a corporation. It is a distinct form of business ownership that combines features of the corporation with features of the partnership or sole proprietorship.

Forming an LLC is similar to forming a corporation. Articles of organization must be prepared and filed and fees must be paid. You may wish to consult an attorney if you choose to form an LLC.

An LLC is like a corporation in that it provides liability protection for its owners. It is like a sole proprietorship, partnership or S Corporation in that it protects its owners from double taxation: profits are accounted for on the individual owner(s)’ income tax returns. The LLC owners may choose to operate the LLC like a corporation, and elect managers to run it, or they may choose to operate like a partnership and manage the company themselves. A single person may also operate an LLC.

Step Two: Operating a Business > Requirements

Starting a business is easier than you might think. In the case of a sole proprietorship or general partnership, often the only requirement is that you register your business and its trade name and you will be in business. Some states and counties do not even require a business license for many businesses.

To find out if a business license is required in your locality and for information about licensing your business, please contact the Commissioner of Revenue or tax agency in your state, city or county government entity. Some areas may require that you come in person to apply for a license and other areas may allow you to apply for your license on-line or by mail.

C:\Program Files\Interactive Educational Concepts Inc\National EntrePlan Interactive Guide\help.htmlAs your business grows, so will the requirements. As you make money, you pay taxes. In general, businesses are required to report tangible personal property used in the transaction of business and to pay taxes on this property. Many businesses must also collect, report, and remit appropriate fiduciary taxes. Fiduciary Taxes are collected by businesses on behalf of the city or state.

For more information about tax requirements in your state, city or county, please contact your local economic development department and/or your local Commissioner of Revenue.

If your business is a corporation, a limited liability company or a limited partnership, you must research what your state requires for specific types of businesses. Please visit your particular state government website for more information on state requirements.

The U.S. Small Business Administration has many local resources that can help you start your business. Click here for a map to find the agency closest to you.

Many Federal business regulations for small businesses relate to taxes and employment. Your business may be required to obtain an Employer Identification Number (EIN). This number identifies your business to the Internal Revenue Service and the Social Security Administration.

Other Federal requirements for businesses deal with environmental issues. As a small business owner, you should be aware that, depending on what type of business you own, you may have to abide by health and safety requirements. In addition, federal law requires that certain specialized businesses obtain and maintain licenses. The following types of businesses require a federal license:

Information about federal permits may be found at: http://business-law.freeadvice.com/permits.htm. Laws change, so if you are in doubt as to whether a special federal license is required for your business, consult an expert.

Unless you plan to run your business by yourself or with one or more partner(s), you will have to manage employees. If your business depends on its employees to thrive, remember these two rules:

1) Hire smart, capable people; and
2) Retain the smart, capable people you hire.

Different people are suited for different types of occupations. If you need a mechanic for your auto repair shop, you will look for someone with different skills and interests than the CPA who is looking for an accountant to help with her tax preparation business. Write a complete job description of the position you want to fill. Thinking about and writing down the specific skills and attitudes needed to complete the job at hand will help you find the right person. Once you have your job description, you are better equipped to both find and hire your new employee.

You may already have the perfect person in mind or be able to fill your opening from a personal reference. If not, there are many ways to advertise for employees, including trade journals relevant to your field; Internet sites; and, of course, the help wanted section of your local newspaper. The method you choose will depend on the position you are filling. For instance, placing a “help wanted” poster in the window of your coffee shop may be all you need to do to get qualified applicants for the open counter position, but this method will probably not work if you are trying to hire a computer programmer.

After completing the job description and finding one or more qualified applicants, the next step is making a job offer and hiring someone. You will probably want to interview your applicant(s). You may have a good idea of the applicant’s skills and experience based on his or her application or resume, but the interview will provide you an opportunity to get to know the person’s personality and level of enthusiasm. Do you click with your applicant? Personality and attitude are important factors to consider. You want to hire someone with whom you get along and who will function well in the position. For instance, someone with a friendly, outgoing demeanor would probably do well in a customer service position, whereas, an introverted person may perform well in a position as a bookkeeper. For sample interview questions, click here.

The following table (from NOLO.com) gives information on questions that can and cannot be legally asked during a job interview. Please note that these questions are not necessarily all-inclusive.

After the interview, always follow through and check references. It is a good practice to enhance your check of references with a background check. A background check is especially important for positions in security and law enforcement, health care, child care, and for positions that involve visits to customers’ homes or offices or where sensitive information will be handled. Be aware, however, that there are legal guidelines to follow when conducting background checks.

There are private companies that can conduct an affordable background check for you. Conduct an on-line search using the phrase “employee background checks” to find links to companies which do this type of work. Or look in your local yellow pages. Remember to check references of the company that you hire to do your background check!

Once you have a great employee working with your business, treat her or him as you would a great customer. Everyone is different, of course, and has different career goals and requirements, but, in general, your employees will want to be compensated, motivated and rewarded.

Compensation is the combined package of salary and benefits, including health insurance and time off. Be stingy with a good employee and it may end up costing you much more than the compensation would, both financially and in terms of the hassle-factor involved in finding and training a new person when your prized employee leaves for greener fields.

Motivating your employees will require finding out more about them, since different people are motivated by different things. Reviews provide a good forum for discussing issues such as motivation with your employees. They are also important for accountability and legal backup purposes. Keep records of your employees’ performance, including documentation of any needed discipline or reprimanding. Some people may need autonomy and control over a project in order to feel motivated. Others may require a certain type of work environment or an opportunity to take classes or receive training. Find out what motivates your employees and make sure you provide it for them.

Rewards are the good grades of the business world. Provide rewards, such as a share in profits or even something as simple as verbal recognition, to high achievers. Let them know they are doing a great job. Rewards help keep morale high.

If you take the time to interview your potential employees and check their references, you will hopefully hire a great and loyal employee and never have to go through the rough job of firing someone. But what do you do if the person you hire steals from your business, is rude to your customers, is unreliable, or is not getting the job done?

For some offenses, such as stealing, immediate dismissal might be the best solution. In other cases, you may not need to fire someone, but just provide additional training or other assistance. For instance, perhaps an employee clearly is trying to do a good job, but is making mistakes. More training may be all it takes to turn this employee into a loyal and capable addition to your staff.

In other cases, you may wish to give a series of warnings to an employee who acts in an inappropriate way to give her a chance to change before taking the drastic measure of firing her. For instance, perhaps you have a policy that your employees always show up on time for work. If someone is perpetually late, you could start with a verbal warning. If the poor attendance continues, you could follow the verbal warning with one or two written warnings. Finally, as a last resort, you may decide to fire the employee.

Sometimes you may have an employee who breaks a rule (such as showing up on time), but does an exceptional job. In this case, you may wish to overlook a rule. The product, in this case, the work completed, may be more important to your business than the process, in this case, the time in which the employee comes in to work. Remember that people have different personalities and different requirements for a work environment in which they can perform their best. Another idea is to discuss with your employee reasons for his or her misconduct. In the case of the employee who is late, maybe the employee has another obligation, such as getting a child to day care or school. You may be able to work out an adjustment in your employee’s schedule. An employee with less stress and who feels that you are on his or her side will be more likely to work hard and remain loyal to you.

If all remedies fail and you do have to fire someone, there is no easy way around it. One way to fire an employee is to call the employee into your office or another private work area. Explain the reasons why you are letting him go. Point out the series of warnings that you offered, and give details on how a final paycheck will be made. Give the employee a letter of termination which you prepared ahead of time. Above all, make sure you are abiding by all legal requirements related to firing someone. If possible, try to end the meeting on a friendly note, with a handshake and a wish for luck.

Sometimes you may have to let a great employee go due to budgetary concerns. In this case, it will be in your and your employee’s best interest to keep relations between you as excellent as possible. Providing an employee you must lay off with advance notice, a severance package and assistance in finding other work are three ways to help keep your relationship with your employee on positive footing. These steps will help your employee and they will help you maintain a positive image in the community. Also, if you need your former employee’s assistance later, he or she will be more likely to help you. As with firing someone, if you must lay someone off, be sure to follow all legal requirements.

An important part of managing your employees* will take place behind the scene. Make sure you take care of all tax and regulatory requirements related to your employees to keep the engine of your business humming. These requirements exist at the federal, state and local levels. It is very important to follow all laws regarding employees. A form is included at the end of this section to help you keep track of your decisions related to employees. Consult with an attorney, as needed.

(Note: The forms included in this section are current as of 2006. You may check for changes to any of the forms on the Internal Revenue Service web site at http://www.irs.gov. To exit forms and web sites in this section and return to the CD, please click the X in the upper right-hand corner of your screen.)

The Employer Identification Number, or EIN, identifies the business to the Internal Revenue Service and the Social Security Administration. It will appear on all business tax returns and all tax correspondence related to your business. Although sole proprietorships with no employees may not need an EIN, many states encourage all businesses to use one since the EIN is often used by state and local agencies as a means of cross-referencing businesses.

The U.S. Department of Justice, Immigration and Naturalization Service requires all employers to complete an Employee Eligibility Verification Form (Form I-9) for each employee hired. This form provides proof that the employee is eligible to work in the United States. With increased fears about terrorism, this form has become more important in recent months.

To access a copy of the Form I-9 in pdf format, click here. Information on Employee Eligibility Requirements and the form I-9 is available on the Bureau of Citizenship and Immigration Services web site. If you do not have access to the Internet, you may call 1 (800) 870-3676 to have the form mailed to you. A complete guide is located on this CD by clicking here.

Barter Theatre, Abingdon. Photo courtesy of the VA Tourism Corp. Photographer: Tim Thompson. (Photo courtesy VA Film Office web site.)

Federal regulations require that companies with employees must post certain posters in a conspicuous place so that their employees may read them. Four required posters are listed below. For additional information about these posters or to obtain information about other posters that certain employers may be required to display, you may view the Department of Labor web site at: www.dol.gov/osbp/sbrefa/poster/matrix.htm.

Employers subject to the Fair Labor Standards Act's minimum wage provisions must display, and keep displayed, in a conspicuous place a notice related to minimum wage. An approved copy of this poster is included on this CD, and may be accessed by clicking here.

Employers must post, and keep posted, a poster summarizing the major provisions of The Family and Medical Leave Act (FMLA) and telling employees how to file a complaint. An approved copy of this poster is included on this CD, and may be accessed by clicking here.

Employers covered by the non-discrimation and EEO laws are required to display the poster "Equal Employment Opportunity is the Law" in a prominent place. This poster gives information about laws and procedures for filing complaints of violations of the laws with the Office of Federal Contract Compliance Programs (OFCCP). An approved copy of this poster is included on this CD, and may be accessed by clicking here.

Employers must display the OSHA poster in a prominent place where all employees may read it. This poster gives information about the rights of employees to a safe and healthy workplace. An approved copy of this poster is included on this CD, and may be accessed by clicking here.

Federal Tax Requirements (Note: The forms included in this section are current as of 2006. You may check for changes to any of the forms on the Internal Revenue Service web site at http://www.irs.gov.)

Blue Ridge Mountains. (Photo courtesy VA Tourism Office web site.)

Employers must withhold income tax from each employee’s paycheck throughout the year. The amount withheld will vary based on pay rate, marital status, and exemptions. Each employee must fill out an IRS W-4 form before they begin employment. In return, employers must send an IRS W-2 form to each employee showing payments and withholdings no later than January 31 of each following year. By February 28, employers must furnish the Social Security Administration with copies of all of their employees’ W-2 forms, as well as the IRS Form W-3 (Summary and Transmittal Form). The Social Security Administration submits the data to the IRS. The table you use to compute how much tax to withhold is on page 35 of IRS Publication 15, Circular E, Employer’s Tax Guide (Revised January 2007).

Employers deposit the withheld tax either monthly, or semiweekly according to the total payroll amount, and submit it using Form 941.

“Form 941 Deposit Due Date. If you are a new employer and have never filed 941 forms, you are a Monthly Schedule Depositor for the first calendar year of your business unless you are a special exception to the rule. Monthly Schedule Depositors should deposit taxes from all of their paydays in a month by the 15th of the next month, even if they pay wages every week.

“Employers with prior payrolls and taxes of $1,000 or more per quarter must determine if they make either Monthly Schedule Deposits, or Semiweekly Schedule Deposits. This determination is based on your Form 941 taxes during a four quarter Lookback Period.” (Source: IRS web site.)

“Your deposit schedule for a calendar year is determined from the total taxes (not reduced by any advance EIC payments) reported on line 11 of your Forms 941 in a four-quarter lookback period. The lookback period begins July 1 and ends June 30 as shown in Table 1 below. If you reported $50,000 or less of taxes for the lookback period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor.”

For more tax information related to businesses, consult the IRS web site at: http://www.irs.gov/.

Keep in mind that tax laws change frequently, and you may wish to consult an accountant, attorney or tax expert.

$C:\Program Files\Interactive Educational Concepts Inc\National EntrePlan Interactive Guide\Images\new_uphigh.jpg$ The employer and employee share the Social Security and Medicare (FICA) tax. The employer withholds the employee’s share from each paycheck; the employer must then match this amount. For information on Social Security and Medicare Taxes, please refer to page 15 of the IRS Publication 15, Circular E, Employer’s Tax Guide.

Small businesses (reporting $50,000 or less in payroll taxes the prior year) must pay federal income and FICA taxes monthly; large businesses pay these taxes twice weekly. The payments are made with Coupon 8109-B directly to a bank. In addition, these taxes are filed four times a year on Form 941.

Funds from the FUTA and the state unemployment tax provide temporary financial relief to those who become unemployed through no fault of their own. Contrary to popular belief, employees do not contribute to the FUTA: employers are responsible for paying 100% of all unemployment taxes. The FUTA amount is based on an employee’s wages. Employers get credit towards the FUTA based on what they pay to their state for state unemployment taxes.

Employers file the FUTA annually on Form 940. It must be paid at least by January 31 of the following year or quarterly on Coupon 8109 if a higher payroll requires it.

Upon starting a business, state requirements vary. Contact your state's department of economic development for more information on the following:

Local requirements related to employment will vary. Please check with your local economic development department for the latest information on local requirements related to employment in your area.

* Employers should be aware of the difference between independent contractors and employees. Classifying an individual as an independent contractor can make a big difference in terms of federal, state and local requirements; and federal, state and local taxes. According to the IRS, the following factors indicate someone is an independent contractor:

1. The worker hires, supervises and pays her assistants;
2. The worker is free to work when and for whom she wants;
3. The work is done on the worker’s premises;
4. The worker is paid by the job or on straight commission;
5. The worker has the risk of profit or loss;
6. The worker does work for several businesses at one time;
7. The worker’s services are available to the general public; and
8. The worker can’t be fired except for breach of contract.
(Source: IRS)

To help keep track of your decisions about employees and requirements related to employees, you may click here to access an "Employee Management Form."

Subject	Lawful Inquiry	Unlawful Inquiry
Age	Are you 18 years of age or older? (To determine if the applicant is legally old enough to perform the job)	How old are you?
Marital status	Is your spouse employed by this employer? (If your company has a policy against nepotism)	Are you married?
Citizenship	Are you legally authorized to work in the United States on a full-time basis?	Are you a native-born citizen of the United States? Where are you from?
Disability	These [provide applicant with list] are the essential functions of the job. How would you perform them?	Do you have any physical disabilities that would prevent you from doing this job?
Drug and alcohol use	Do you currently use illegal drugs?	Have you ever been addicted to drugs?

2006 Lookback Period
2004		2005		2006
July 1 to September 30	October 1 to December 31	January 1 to March 31	April 1 to June 30	Calendar Year January to December