Starting a Business You Care About

Before you commit to starting or buying a business, be sure you are genuinely interested in what the business does. If you aren't, you are unlikely to succeed in the long run-no matter how lucrative you think the business could be. Yes, going into business with a firm plan to make a good living is important, but so, too, is choosing a business that fits your life goals in an authentic way. Here are a few things you might want to consider before you take the leap:

• Do you know how to accomplish the principal tasks of the business? (Don't open a transmission repair shop if you hate cars, or a restaurant if you can't cook.)
• If the business involves working with others, do you do this well? If not, look into the many opportunities to begin a one-person business.
• Do you understand basic business tasks, such as bookkeeping and how to prepare a profit-and-loss forecast and cash-flow analysis? If not, learn before, not after, you begin.
• Does the business fit your personality? If you are a shy introvert, stay away from businesses that require lots of personal selling. If you are easily bored, find a business which will allow you to deal with new material on a regular basis (publishing a newsletter, for example).

Why you need to write a business plan

A business plan is a written document that describes the business you want to start and how it will become profitable. The document usually starts with a succinct statement outlining the purpose and goals of your business and how you plan to realize them. It should also contain a formal profit-and-loss projection and cash-flow analysis designed to show that if the business develops as expected, it will be profitable. Your business plan enables you to explain your business prospects to potential lenders and investors using the financial language and tools they have been trained to understand. Even more important, the intellectual rigor of creating a tight business plan will help you see whether the business you hope to start is likely to meet your personal and financial goals. Many times when budding entrepreneurs take an honest look at their financial numbers, they see that hoped-for profits are unlikely to materialize. Or, put another way, one of the most important purposes of writing a good business plan is to talk you out of starting a bad business.

Pick a Memorable Name For Your Business

Start by assuming you will want to market your products or services under the business name you choose. (This will make your name a trademark.) Assume, too, that you will have competitors (what business doesn't?) and that the name you choose will be a big part of your marketing identity. For marketing purposes, the best names are those that customers will easily remember and associate with your business. Also, if the name is memorable, it will be easier to stop others from using it in the future.

Most memorable business names are made-up words, or are somehow fanciful or surprising, such as Exxon and Kodak (made-up words), Double Rainbow ice cream (fanciful) and Penguin Books (surprising). And some notable names are cleverly suggestive, such as The Body Shop (a store that sells personal hygiene products) and Accuride tires.

Names that tend to be forgotten by consumers are common names (names of most people), geographic terms and names that literally describe some aspect of a product or service. For instance, Steve's Web Designs may be a name that delights Steve, but it's not likely to help Steve's customers remember his company when faced with competitors such as Clever Spider Web Designs and even Left Bank Web Designs. Similarly, names like Central Word Processing Services or Robust Health Foods are not particularly memorable.

While it's true that over time even a common name can occasionally become memorable through widespread use and advertising, as with Ben and Jerry's Ice Cream, it's also true that most small business people can't afford the advertising it takes to accomplish this.

Caution: Professionals Face Special Rules & Customs

Although change is in the air, custom and the rules of some professional licensing groups often restrict the names that their members can use. For example, lawyers, physicians and CPAs are limited in many states to using the names of one or more of the licensed professionals who own the business. If you wish to use a different name-"The Evergreen Accounting Group," for example-check with your state's licensing board to see if this is permitted.

Are You Legally Permitted To Use Your Chosen Business Name?

Your first step depends on whether you plan to incorporate your business. If you do, you should check with the Secretary of State's office in your state capital to see whether your proposed name is the same or confusingly similar to an existing corporate name in your state. If it is, you'll have to choose a different name. If you don't plan to incorporate, check with your county clerk to see whether your proposed name is already on the list maintained for fictitious or assumed business names in your county. In the few states where assumed business name registrations are statewide, check with your Secretary of State's office. (The county clerk should be able to tell you whether you'll need to check the name at the state level.) If you find that your chosen name (or a very similar name) is listed on a fictitious or assumed name register, you shouldn't use it.

But beware-even if you are permitted to use your chosen name as a corporate or assumed business name in your state or county, you might not be able to use the name as a trademark or service mark in either area. To understand what all this is about, consider the three potential functions of a business name:

• a business name may be a tradename that describes the business for purposes of bank accounts, invoices and taxes
• a business name may be a trademark used to identify and distinguish products sold by the business (for example, Ford Motor Co. sells Ford automobiles), and
• a business name may be a servicemark used to identify and distinguish services sold by the business (McDonald's Corporation offers McDonald's fast food services).

While your state's corporate or assumed business name registration offices can legally clear the name for the first purpose, the do not speak to the second and third. For example, you may get the green light from your Secretary of State to use IBM Toxics as your business name (if no other corporation in your state is using it or something confusingly similar), but if you try to use that name out in the marketplace, you're asking for trouble from the IBM general counsel's office.

To find out whether you can use your proposed name as a trademark or servicemark to identify and market your products and services, you will need to do what's known as a trademark search.

Assuming you find that the name is available and your service or product will be marketed in more than one state (or across territorial or international borders), it is wise to file an application with the U.S. Patent and Trademark Office to reserve the name for federal registration.

Locating Your Business: Let Common Sense and a Clear Knowledge of Zoning Rules Guide You

Commercial real estate brokers are fond of saying the three most important factors in establishing a business are location, location and location. While true for a few types of businesses-such as a retail sandwich shop that depends on lunch time walk-in trade-for most, locating in a popular high-cost area is a mistake. For example, if you design computer software, repair tile, import jewelry from Indonesia, or do any one of ten thousand other things that doesn't rely on foot traffic, your best bet is to search out convenient, low-cost, utilitarian surroundings. And even if yours is a business that many people will visit, consider the possibility that a reasonably-priced offbeat location may make more sense than a high-cost trendy one. Think of it this way, Businesses that pay a comparatively low rent have lots of money to spend on other important aspects of their business or can pass some of their savings along to their customers in the form of lower prices.

But no matter what location you choose, never purchase property or sign a lease without being absolutely sure you will be permitted to operate your business there. If the rental space is in a shopping center or other retail complex, this involves first checking carefully with management, because many have contractual restrictions (for example, no more than two pizza restaurants in the Mayfair Mall). If your business will be located in a non-shopping center area-especially an off-beat one-you'll need be sure that you meet applicable zoning rules, which typically divide a municipality into residential, commercial, industrial and mixed-use areas. You'll also need to find out whether any other legal restrictions will affect your operations. For example, some cities limit the number of certain types of business-such as fast food restaurants or coffee bars-in certain areas, and others require that a business provide off-street parking, close early on weeknights, limit advertising signs or meet other rules as a condition of getting a permit. Fortunately, many cities have business development offices which help small business owners understand and cope with restrictions.

How To Negotiate a Good Lease

Almost all small businesses start out in leased premises; many use leased space throughout the life of the business. By leasing rather than owning, you avoid tying up valuable working capital. And it's easier to move to new quarters if your space needs change.

When you get serious about an available space, chances are you'll be presented with a typed or printed lease prepared by the landlord or the landlord's lawyer. Rule 1 is to understand that the terms almost always favor the landlord. Rule 2 is to know that with a little effort you can almost always negotiate significant improvements.

Obviously, one big issue to consider is how much rent you'll pay. Commercial space is usually priced by the square foot and figured by the year; $20 a square foot, for example, means $20 per square foot per year. Space is sometimes priced by the month; $1.60 a square foot would mean $1.60 per square foot per month, or $18 a square foot figured yearly. Either way, it's sensible to check out rates for comparable spaces and ask for a reduction.

When you're shopping around, look carefully at who is required to pay taxes, insurance, repairs and utilities. With a "gross lease," you pay for none of these. By contrast, with a "triple net lease" you pay for them all--potentially a large sum. In fact, the best approach may be to pay a relatively higher amount for rent in exchange for eliminating these extras.

But don't just focus on what you'll pay each month. Other concerns can be more significant. For example, if you'll need lots of improvements (called build outs), you may want to use the lion's share of your bargaining power to have the landlord provide them at no cost to you. Or if your move will be costly, resulting in a temporary cash flow problem, you may want to ask for a few months of reduced rent.

Your negotiating power on these and other issues depends on whether your local rental market is hot or cold. If plenty of commercial space is available, you can successfully probably win many landlord concessions. If your area's rental market is tight or you are after a unique space, you'll have considerably less leverage.

One area of the lease you should always focus on is the length of the lease. Occasionally, a small business that's just starting out wants a month-to-month tenancy, permitting the tenant to move on with 30 days' written notice. The majority of small businesses, however, prefer the protection of a written lease that lasts a year or more.

If your business isn't particularly location-sensitive (a mail order business or software testing lab, for example) and plenty of commercial space is available in your area, a short-term lease probably makes the most sense. Even if the landlord doesn't renew your lease, finding comparable space won't be a problem.

But if you have found an especially favorable location for a retail shop, restaurant or other business where location is key, deciding on how long a lease to ask for is far more problematic. If your business does well, you'll want the right to stay on for an extended period. On the other hand, you're probably nervous about signing a four-year lease in case your business goes kaput.

A good solution is to bargain for a short initial lease with one or more options to renew--say a one- or two-year lease with an option to renew for two or three more years. Typically, an option gives you the right to exercise your option to stay by notifying your landlord in writing a certain number of days or months before the lease expires.

If you ask for an option, expect the landlord to want a higher rent for the renewal period. If the property is particularly desirable, the owner may also want an extra fee in exchange for giving you the choice to stay or leave.

Know What You Are Doing Before Hiring Employees

• wage and hour laws (including the minimum wage and when you are required to pay overtime), as well as the laws that govern retirement plans and healthcare benefits
• properly classifying independent contractors (and avoiding illegally treating part-time or full-time employees as independent contractors)
• proper hiring practices, including how to write appropriate job descriptions, conduct interviews and respect employee privacy rights
• workplace safety rules and regulations
• how to avoid sexual harassment as well as discrimination based on sex, age, race, pregnancy, sexual orientation and national origin, and
• how to avoid trouble if you need to fire an employee.

Many of the laws that affect employers are discussed elsewhere under the employment heading for this site. For a more detailed explanation of your rights and responsibilities as an employer, take a look at the following comprehensive self-help resources:

Define Your Risks to Protect Yourself and Your Businesses

Start with a list of the aspects of your business where legal trouble is likely. Every business faces potential legal hassles regarding taxes, hiring and firing employees, collecting overdue accounts and, of course, how best to organize the business--as a corporation, partnership or sole proprietorship.

Add to this list your particular concerns. Consider carefully what your potential liabilities are if someone is injured or suffers an economic loss if your product is defective or your service substandard. For example, suppose you operate a copy shop in leased premises with ten employees. You have a heavy walk-in trade, and you also make deliveries to important customers. Potential legal risks of your business include:

• customers being hurt on your premises;
• a delivery vehicle accident;
• the possibility that an employee may lose or damage a customer's original documents;
• storage and disposal of toxic chemicals;
• problems with your lease, and if it ends soon, the legal and practical aspects of renewing it; and
• the possibility that an employee will quit and open up a similar business across the street, having stolen your confidential customer list.

Legal Concerns of Selling Products and Services Directly to the Public

Many federal and state "consumer protection" laws regulate the relationship between a business and its customers. These laws cover such things as advertising, pricing, door-to-door sales, written and implied warranties and, in a few states, layaway plans and refund policies. You can find out more about consumer protection laws by contacting the Federal Trade Commission, 6th and Pennsylvania Avenue, NW, Washington, DC 20850, (202) 326-2222, and by contacting your state's consumer protection agency.

The two legal areas business owners get into most trouble over are deceptive advertising and deceptive pricing. Let's look at each.

Deceptive Advertising

Under both federal and state law, an ad is unlawful if it tends to mislead or deceive, even if it doesn't actually fool anyone. Your intentions don't matter either. If your ad is deceptive, you'll face legal problems even if you have the best intentions in the world. What counts is the overall impression created by the ad--not the technical truthfulness of the individual parts.

Over the years, the Federal Trade Commission (FTC) has taken action against many businesses accused of engaging in false and deceptive advertising. If FTC investigators are convinced that an ad violates the law, they usually try to bring the violator into voluntary compliance through informal means. If that doesn't work, the FTC can issue a cease-and-desist order and bring a civil lawsuit on behalf of people who have been harmed, seek a court order (injunction) to stop a questionable ad while an investigation is in progress and require an advertiser to run corrective ads admitting that an earlier ad was deceptive.

Consumers often have the right to sue advertisers under state consumer protection laws. For example, someone who buys a product in reliance on a deceptive ad might sue in small claims court for a refund or join others (sometimes tens of thousands of others) to sue for a huge sum in another court.

Deceptive Pricing

The two pricing practices most likely to get your business into trouble are: making incorrect price comparisons with other merchants or with your own "regular" prices, or offering something that is supposedly "free" but in fact has a cost.

Offering a reduction from your usual selling price is a common sales technique. But unless the former price is the actual, bona fide price at which you offered the article, the pricing is misleading. For example, if you announce a new product for $129, but sell it to wholesalers as if it were a $79 product and similarly discount it to direct customers, the $129 price never really existed--and you have broken the law. It misleads customers into thinking they are receiving a discount.

It's even more blatant to buy a special batch of merchandise especially for a sale and create a fictional "regular" price or one you adhered to for only a day or two. Some merchants are tempted to do this when they buy seconds or discontinued product lines at a deep discount and want to pretend customers are getting a bargain.

If your ad compares your price with what other merchants are charging for the same product, be sure of two things:

• the other merchants are selling the identical product, and
• the other merchants sold enough sales at the higher price in your area so that you're offering a legitimate bargain.

In other words, make sure that the higher comparison price isn't an isolated or unrepresentative price.

Regarding offers of "free" products or services, you can offer gifts only if there are no strings attached. For example, if you offer a free paintbrush to anyone who buys a can of paint for $14.95, the brush really isn't free if you:

• Usually charge less than $14.95 for this kind of paint.
• Usually provide a service (such as free delivery) with a paint purchase, but don't when the customer gets a "free" brush.

Although it's essential to understand and follow the rules that protect consumers, most successful businesses stay out of trouble by regarding them as only a foundation on which to build customer-friendly policies designed to produce a high level of customer satisfaction. For example, instead of worrying about whether their state has a law requiring a merchant to post a sign if merchandise can only be exchanged for credit within a certain number of days after purchase, many enlightened businesses tell their customers they can return any purchase for a full cash refund at any time for any reason. Not only does this encourage existing customers to continue to patronize the business, but it can be a highly effective way to get them to speak well about it to their friends. Finally, a customer whose problem you resolve is unlikely to complain to any agency or board with power to license or oversee your business. Anyone who has had to cope with an investigation knows that even if the original complaint has no merit, the process can be worrisome and, if lawyers are involved, expensive.