A recent Harvard Business Review article, What You Can Learn From Family Business, compared the performance of similar sized family businesses to traditional public companies with some interesting results.
Seven key difference were identified:
We’ve all seen that many of the businesses that have survived this recession have done so because they have strong balance sheets. Strong in that they are holding significant amounts of cash and little debt. Family run businesses seek to be self-sufficient and not beholden to lenders. They take the long view of protecting family wealth. So, they may not be the innovative risk takers and therefore miss some opportunities; however, they are the backbone of business that provides stability in this ever volatile world.
“A negative economy has little effect on a given business’ survival. Businesses started in expanding economies in 1995 and 2005, those started just before the downturn in 2000, and those started just after the downturn had almost identical survival paths”…(Source: BLS, Business Employment Dynamics.)
Many new small businesses go under within their first two years but usually the failures can be explained. Knowing the pitfalls associated with a new business and having a professional team, including a Certified Public Accountant (CPA), can maximize your chances of success.
Being your own boss is exciting. It also means hard work and risk taking when you start a new business. You can be a successful business owner if you already have or can learn the right traits, such as being a self-starter, goal-oriented, committed and resilient, to name a few.
You have what it takes. Now what? You need to do your homework and develop a business plan. Here are some things to consider:
• You take on more risk if you build your business from the ground up.
• Because a start-up has no previous track record, raising capital to acquire an existing business with a proven track record of success may be easier than a start-up business.
• If you decide to acquire an existing business, engaging a CPA to assist in the transaction is advisable, and will be mandatory at some step of the process for financial credibility and tax purposes.
What’s the best type of ownership for your business (sole proprietorship, corporation, partnership, LLC, S corporation)? There are advantages and disadvantages for each type of ownership. Which software and accounting method is appropriate for your specific business needs? How can you raise capital for your business? Where’s the best location for your business? Should you buy or lease? These are all questions you should consider in developing your business plan.
Before you make your first dollar, you must comply with the state and local licensing requirements. These include state registration, state and local sales and use tax license, and local business licenses and permits. You’ll need to apply for a federal employer identification number (EIN) if you plan to have employees, or if your business will not be owned as a sole proprietorship.
Your business is now ready for operation. You must keep good accounting records for the preparation of year-end taxes as well as other compliance reporting. Examples include preparation of payroll reports and other government forms. You may also need advice on estimated tax payments that you should make during the year. Let your CPA help you with the record keeping and compliance issues, while you concentrate on running your business.
Having experienced support from the start will help your small business succeed. The right CPA can help you launch your business, assure long- term success and prevent costly mistakes through all the cycles of your business adventure.