How to Deal with the IRS and Formal Business Requirements

Operating a home business on a full- or part-time basis may require taking certain legal steps to protect yourself and your venture, including the following:

* Get an employer's ID number if you have employees or are incorporated or in a partnership.

* Obtain a federal license if your job is covered by federal laws, such as those who are investment advisors or firearms dealers; similarly, make sure you have any required state and local business licenses.

* Obtain the trademarks, copyrights or patents needed to protect any products or services you have created.

* Incorporate or form a limited-liability company or a partnership if you are not a sole proprietor and are working with other people.

* Find out if you are required to collect sales tax for your product or service. If so, register with the state agency responsible for collecting sales taxes.

* Register your business name if you are using a name other than your own or a variation thereof.

Consult a lawyer or the appropriate government agencies in your city and state if you're not sure how these requirements may apply to your business or locale.

Claim Your Deductions
Whether you live and work in a house, apartment or condominium, you can deduct the cost of operating and maintaining that part of your residence used for business if you meet the basic criteria established by the IRS for a home office.

According to the IRS, the portion of your home you wish to claim as a tax write-off must be used exclusively and regularly for business.

In addition, the portion of your home you use must be either your principal place of business or a location where you meet with customers or clients in the normal course of business activities.

If you qualify for a home-office deduction, you can deduct a variety of expenses such as your mortgage payments and capital improvements, pro rated for the portion of your residence used as an office.

As a self-employed individual, you can also deduct numerous ordinary business expenses, from the cost of operating your car to dues you pay to professional and trade associations. However, be sure the IRS considers you a self-employed individual or independent contractor rather than an employee. The rules on this issue and on expense deductions can be tricky, so it's wise to consult your accountant for clarification.

Get Needed Insurance
Many home-based firms don't realize that their homeowner's or apartment dweller's insurance may not protect them against three basic business contingencies:

* Home/apartment insurance usually doesn't cover business property. Consider purchasing business property insurance to cover your computer and other office equipment and furnishings.

* Home/apartment insurance usually doesn't cover liability for accidents or injuries to customers or business visitors. Consider purchasing a rider to your policy to cover anyone who comes to your home on business.

* Standard auto insurance usually doesn't cover damaged or stolen business property. If you use your car for business, be sure to indicate that on your policy and pay the additional amount required.

Finally, depending on the nature of your business and the level of risk you want to assume, you may also wish to purchase any of the following:

* Malpractice or errors or omissions (E&O) insurance to cover you against claims that your product or service harmed someone or caused a business loss.

* Disability insurance to cover you against loss of income should you become disabled.

* Partnership insurance to cover you against suits arising from the actions of any partners you have.

If you manage a factory, wholesale outlet, retail store, Service store, or are a builder, you will have to sell. No matter how
good your product is, regardless of what consumers think of it, you need to sell to endure.

Direct selling methods are through private sales efforts, Advertising and, for most companies, display - including the styling and
packaging of the item itself - in windows, in the institution, or both. Establishing a fantastic reputation with the general
public through courtesy and distinctive services is an indirect method of selling. While the latter should never be disregarded,
this brief discussion will be restricted to direct marketing methods.

To establish your business on a business footing requires a Whole Lot Of aggressive personal selling. You might have established
competition to conquer. Or, if your thought is fresh with minimal or no competition, you have the additional problem of convincing
people of the value of the new idea. Personal selling work is nearly always necessary to achieve this. If you aren't a good
salesperson, seek an employee or asociate who's.

A second way to build sales is by marketing. This may be done Through papers, shopping newspapers, the yellow pages section of the
phone directory, along with other published periodicals; radio and tv; handbills, and direct mail. The media you select, in
addition to the message and kind of presentation, will depend upon the particular customers you wish to reach. Plan and prepare
advertising carefully, or it will be unsuccessful. Most media are going to be able to describe the characteristics of their
audience (readers, listeners, etc.). Since your initial planning described the characteristics of your potential clients, you need
to match these features with the media crowd. If you're selling expensive jewelry, then do not market in high school newspapers.
If you fix bicycles, you likely need to.

Advertising can be quite expensive. It Is a Good Idea to put a limit upon An amount to invest, then stay within that limitation.
To help you in deciding how much to spend, study the operating ratios of similar businesses. Media advertising salespeople will
help you plan and also prepare ads for you. Be sure to tell them your budget limitations.

A third method of stimulating sales is effective displays both in Your place of business and out it. If you've had no previous
experience in display function, you are going to want to examine the subject or turn the task over to someone else. Observe
displays of different companies and read novels, trade magazines, and the literature supplied by equipment makers. It could be
smart to hire a screen expert on your opening display and special events, or you could obtain the help of one on a part time
basis. Much is dependent upon your kind of business and what it requires.

The proper number and types of selling effort to use vary from business to business and from owner to owner. Some companies
prosper with low-key revenue efforts. Others, such as the used-car lots, thrive on aggressive, hoop-la promotions. In any event,
the significance of successful selling cannot be over-emphasized.

On the other hand, do not lose sight of your Key objective - to Earn a profit. Anyone can generate a large sales volume selling
dollar bills for ninety bucks. But that won't last long. So keep control of your own expenses, and cost your product carefully.

Record Keeping. 1 essential element of business management is the keeping of adequate records. Study after study indicates that
many manager failures can result from inadequate records or the proprietor's failure to make use of what information was available
to him. Without records, the businessperson can't see in advance that way the business is going. Up-to-date records may predict
impending disaster, forewarning you to take action to prevent it. While extra work is required to maintain an adequate set of
records, you will be more than repaid for the effort and cost.

If You Aren't prepared to maintain adequate records - or have somebody Keep them for you - you should not attempt and run a small
business. At a minimum, records are needed to substantiate:

1. Your returns under tax laws, such as income tax and social Security laws;

2. Your request for credit from equipment makers or even a loan From a bank;

3. Your claims about the company, should you would like to market it.

However, most important, you want them to run your business successfully And to raise your profits. With an adequate. Yet easy,
bookkeeping system you may answer such questions as:

How much business I doing? What are my costs? Which seem to be too large? What's my gross Profit margin? My net gain? How much am
I collecting in my charge business? What is the state of my operating capital? How much cash do I have on hand? How much in the
bank? How much do I owe my Suppliers? What is my net worth? That is, What's the worth of my possession of The enterprise? What are
the trends in my Receipts, costs, profits, and net value? Is my financial situation improving Or growing worse? How can my
resources compare with what I owe? What is the Percentage of return on my investment? How many cents from each dollar of Sales are
net profit? Answer these and other questions by preparing and studying balance sheets and profit-and-loss statements. To do this,
it's Important to record information regarding transactions as they occur. Keep This information in a comprehensive and orderly
manner and you'll be able to answer the above questions. You will also possess the answers to these other vital questions About
your business as: What products or services do my clients enjoy best? Next best? Not at all? Do I take the product most often
asked? Am I Qualified to render the professional services they need most? Just how many of my charge Clients are slow payers?
Shall I change to cash only, or use a credit card Bill program?

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