Introduction

Profile of an Entrepreneur

Business Pitfalls and Opportunities

Business Basics

Forms of Business Organization

The Business Plan

Financing Your Business

Government Rules and Regulations

Business Insurance
 

INTRODUCTION

This handbook is intended to provide a basic guide for information and sources of assistance on starting and operating a business in Mississippi. This handbook is only a general guide for most businesses and is not intended to cover all details and specific requirements. Throughout the handbook, references are made to federal, state and local agencies if more detailed information or other materials are required.

Additionally, Small Business Development Centers (SBDCS) and many local, regional, and state economic and business development professionals are ready to assist you in your efforts to start and operate a business enterprise.

If you have any comments about this business guide and how it can be made more useful, please write the Mississippi Small Business Development Center, B 19 Track Drive, P.O. Box 1848, University, MS 38655-1948 or E-mail msbdc@olemiss.edu
 

PROFILE OF AN ENTREPRENEUR

A first and often overlooked step is to determine WHY you want to go into business. From the list below, check the reasons that apply to you.

                                                                                                 Yes                                No

Do you enjoy being your own boss?

Are you a good leader?

Are you a confident person?

Do you want to improve your standard of living?

Do you adapt well to changes?

Are you a good organizer?

Do you plan ahead?

Do you like to make your own decisions?

Do you have will power and self discipline?

Do you enjoy competition?

Are you a self starter?

Do you realize that many business owners

work 60 to 80 hours a week?

Do you have work experience in the type of

business you are considering?
 
  Scoring the above checklist cannot tell you whether or not you should be in business, but it will give some areas to consider. A "yes" answer should be considered a good indicator and a "no" answer indicates some potential problem areas. You should carefully consider the "no" answers and determine how you will deal with problems that may arise. After reviewing the results of this exercise ask yourself one final question: "Would you be better off working for some else?"
 

PITFALLS AND OPPORTUNITIES

Being your own boss can have many advantages and disadvantages. Take a few moments to examine each statement carefully and think about how it may apply to you.

Opportunities

Being your own boss and not having to report to a superior.

Having the independence and authority to make your own business decisions.

Direct contact with customers, employees, suppliers and others.

The personal satisfaction and sense of achievement that comes with being a success, plus the recognition that goes with it.

The opportunity to create substantial wealth and job security for yourself.

The opportunity to be creative and to develop your own idea, product or service.

The chance to make a living doing something you truly enjoy.

Doing something that contributes to others, whether it be providing an excellent product or service, providing employment, paying dividends to stockholders, or doing something else that is useful or that creates value.

Pitfalls

In many ways you are still not your own boss. Instead of having one boss, you will have many - your customers or the government agency to whom you must report.

There is a larger financial risk. The failure rate is high in new businesses, and you may lose not only your own money but also that of your friends and relatives who may have bankrolled you.

The hours are long and hard. When you start your business, you will no longer be working 9 - 5. Count on working 10, 12, or even 15 hour days, often six or seven days a week.

You will not have much spare time for family or social life. And you can forget about taking any long vacations for the first few years since the business is unlikely to run itself without your presence for any long length of time.

Your income may not be steady like a salary. You may make more or less than you would working for someone else. But in either case, your income may fluctuate up and down from month to month.

The buck stops with you. If a problem arises, there is no boss you can take it to and say 'What do we do about this?" You are the boss and all the responsibility is yours.

As a business grows, the amount of activity now associated with the primary business objective will increase. You will spend more time on personnel, administrative and legal matters and less doing what you may have wanted most to do in your business.

Increasing legislation and litigation make owning a business risky. You can work a lifetime to build a business only to have it lost because of a lawsuit or a new law or regulation.
 

THE BASICS

Identifying the Market

Remember, no matter how good you think your product or service is, what the customer thinks is what really counts. And, even if your product or service is well-liked, you need to be sure that your customers will buy from you often enough, and in large enough quantities to consistently generate the revenues needed to support and maintain your business and make a profit.

The product or service

What evidence is there of a need for the prospective service or product?

How will you price it?

Why is it unique?

Why will customers prefer your product/service over the alternatives?

The customers

What kinds of people have a need for your product/service?

Is the population of prospective customers large enough to support your business?

How often will the typical customer use your product or service?

Is the customer base growing or shrinking?

The competition

Who are your competitors and how large are they?

Where are they located?

How do they price their products/services?

How are their operations similar or different from yours?

How many similar companies were opened last year?

How many similar companies went out of business lost year?

Location of your business

Is the location properly zoned for your type of business or service?

Is there adequate parking available for customers and employees?

If customer traffic is important to your business, is it adequate in the proposed location?

Is there room for expansion in the future?

Is the property well maintained?

You can determine the answers to these questions through market research that may involve talking to potential customers and future competitors or looking at census data.
 

WHAT FORM WILL YOUR BUSINESS TAKE?

There are four major legal forms of business organization to meet the different personal and business needs of business owners. Listed from the simplest to the most complex they are:

The sole proprietorship

The partnership

The corporation - C corporation and S corporation

The limited liability company (LLC)

Sole Proprietorship

Most common form of business ownership

Owner runs the business

No shareholders

Inseparable from owner

Advantages

Quick, easy and in-expensive to set up

Sole ownership of profits

One owner has control and decision making power

No separate taxation

Disadvantages

Unlimited owner liability

Difficulty in raising outside capital

Business may dissolve when owner dies

Partnership

Traditional form of business ownership for professional organizations like legal and accounting firms

Owned by two or more people

A written partnership agreement is essential

Inseparable from partners but can have debt and property in its name

Advantages

Ease of formation

Taxation as individual partners

Flexibility in decision making

Disadvantages

Unlimited partner liability, also liable for partners' acts

Relative difficulty in obtaining large sums of capital

Legally dissolves upon change or death of partner

Corporation - C Corporation

Separate legal entity created and operated with the permission of the state in which

it operates

Can sue or be sued, pay taxes, borrow and repay money Can have one owner or many owners

Articles of incorporation are filed with Secretary of State

Advantaqes

Limited liability for investors

Continuity of life

Easy transfer of ownership

Greater access to capital

Disadvantages

Can be costly to set up

Double taxation of corporation and investors

Extensive government regulations and required reports

Corporation - S Corporation

Major differences between C and S Corporations

Shareholders limited to 35

Only one class of stock permitted

Shareholders are taxed individually

Limited Liability Company (LLC)

Relatively new form of entity in the U.S.

Separate legal entity, but not perpetual

Advantages

Limited liability

Unlimited number of owners

Easy to raise capital

Disadvantages

Can be costly to set up

Due to its newness as a form of business ownership, the law regarding the LLC is

still evolving
 

THE BUSINESS PLAN

Your Business Plan is the most important document you will ever put together. It provides a road map to help guide your business as it grows. In it you establish benchmarks and a set of checks and balances to keep your business under control. It will safely guide you through the turbulent waters of constant change.

It will also serve as an instrument to raise capital and obtain financing. It is your representative at the bank and as such will provide answers to the bank loan officer and the credit committee.

The following is an outline for the business plan. The elements are flexible and can be changed or altered to fit specific situations.

Business Plan Outline

Introduction and Executive Summary

Business description

Product or service to be offered

Market potential

Management and ownership

Amount and purpose of the proposed financing

Loan retirement

Financial summary

Section 1: The Company

Description of the company

State the company's goals and objectives

Company history (if applicable)

Company objectives and strategies

Sections II: Amount of Financing Needed

Amount the business needs to borrow

Use of the funds

Payback period

Section III: Products or Services

Describe the product or services

Describe any patents, trademarks or royalty agreements

Need for manufacturing and engineering (if applicable)

Section IV.- Marketing Strategy

Industry

The current status and prospects for the industry

New products and developments, new markets and customers

Market

Market size and history

Seasonal fluctuations and growth potential

Customers

Demographics and size of customer base

Basis for purchase decision

Competition

Type of competition in terms of location, size, reputation and market share

Strategy

Define market strategy

Current and projected market share

Product pricing and profitability

Advertising and promotion plans

Selling methods

Service and delivery

Section V.- Operations

Plant location(s) and description

Cost and quality control

Production process

Labor force

Capital equipment requirements

Sales forecasts

Section VI: Management

Organization chart

Management team, duties, responsibilities, skills

External advisors and relationships

Board of directors (if applicable)

Section Vii: Financials

Latest balance sheet and income statement for past two to three years

Profit and loss and cash flow forecasts by month and quarter for first year, and by year for years two and three

Forecasted balance sheets at year end

Section Viii: Proposed Financing

Amount of proposed financing

Use of proceeds

Payback and collateral

HOW WILL YOU FINANCE YOUR BUSINESS?

The need for capital is common to all businesses, both large and small. However, small businesses often have a more difficult time attracting investment capital. A major cause of business failure is inadequate financing. It is important that the business owner look carefully at the needs of his/her business and develop the documents necessary to convey these needs to investors or a commercial lender.

How much money will you need to start your business?

One assumption every business owner can be assured of is that it will take more money than anticipated to start the business. Be sure to take into account the following:

Initial expenses

- Advertising and promotion

- Beginning inventory costs

- Supplies and furnishings

- Renovation and/or remodeling

- Licenses and permits

- Signs

- Furniture and fixtures

- Deposits (electricity, water, telephone, gas, lease, etc.)

- Professional fees (legal, accounting, etc.)

- Miscellaneous

- Monthly expenses

- Salaries and wages

- Rent

- Utilities

- Advertising and promotion

- Supplies

- Taxes

- Interest

- Maintenance

- Miscellaneous

It is advisable to have working capital on hand to cover the first few months of expenses until the business begins generating income to cover these expenses.

Where will you get the money to finance you business?

Personal resources

- Savings, stocks, bonds

- Family, friends

- Credit cards

- Home equity loan

- Loan against cash surrender value of insurance

Equity capital

- Partners

- Public stock offering

- Sell part of the business to a venture capital company or angel investor

Conventional lending sources

- Bank loans

- U.S. Small Business Administration

- Finance companies

- Certified Development Companies

- Local revolving loan programs
 

HOW DO GOVERNMENT AGENCIES AND REGULATIONS AFFECT YOUR BUSINESS?

There are certain government regulations that you must adhere to. Among the things you need to do are:

Building Permits and Inspections:

Zoning clearance (if any construction takes Place)

Building permit (if construction or demolition takes place)

Health inspection (for any food service business)

Electrical inspection (if additional lines needed)

Gas inspection (if additional lines needed)

Sanitation inspection (if on non-municipal septic system)

Licensing:

City privilege license

State business license

State income tax registration

Federal tax registration

Unemployment insurance regions (businesses with one or more employees for more than 20 weeks per year or pay wages over $1500 in a calendar quarter)

Workmen's compensation registration (businesses with five or more employees)

Incorporation registration (business wishing to incorporate)

  MS Secretary of State Business Services   Phone: (800) 256-3494

Franchise tax registration

Alcoholic beverage license (if alcohol sold on premise)

Surety bond (if applicable)
 
  FEDERAL REGULATIONS

Federal Employee Identification Number (FEIN)

Before hiring anyone in your business, you must first obtain a Federal Employee Identification Number (FEIN) which will be used to identify your business payroll and income tax returns.  An application form SS-4 may be obtained by contacting the IRS at 800-829-1040 or by visiting the Small Business Development Center (SBDC) nearest you.

Employee's Withholding Allowance Certificate (IRS Form W-4)

An employee must fill out and complete this form for his employer when employment begins.  This form guides the employer in determining how much federal income tax to withhold from wages.  The Internal Revenue Service "Employer's Tax Guide, Circular E" provides federal incometax witholding tables.  Further information may be obtained by contacting the IRS at 800-829-1040 or by visiting your nearest SBDC.
 

Social Security Taxes (FICA)

An employer must deduct half of the required social security tax (FICA) from wages paid to employees. The employer pays the other half of this tax and remits the total amount to the United States Internal Revenue Service when withheld federal income tax is deposited. The total amount of FICA taxes paid is reported quarterly on Form 941. The IRS 'Employer's Tax Guide, Circular E' has social security tax table for employees. Further information may be obtained by contacting the IRS at 1 -800-829-1040 or by visiting your nearest Small Business Development Center (SBDC).

Immigration Reform and Control Act of 1986

The Immigration Reform and Control Act of 1986 requires that businesses hire only American citizens and aliens who are authorized to work in the United States. If you employ anyone to perform labor or services in return for wages, you must complete an Employment Eligibility Verification (Form 1-9) for each employee within three days of the date of hire to verify that the employee is eligible to work in the U.S. and documentation has been verified. A Form I9 may be obtained from the Small Business Development Center.

Occupational Safety and Health Act of 1970

The Occupational Safety and Health Administration (OSHA) enforces federal safety and health standards for business and industry. OSHA's standards apply to all businesses with one or more employees. Additional information may be obtained by contacting OSHA, Jackson, MS, at (601) 965-4606.
 

STATE REGULATIONS

Mississippi Income Tax Withholding

Businesses must provide for the withholding of individual income tax from all employees whose salaries and wages are taxable to the state. The business must obtain a Mississippi income tax account number by registering with the Mississippi State Tax Commission (601 359-1141).

Mississippi Sales Tax Number

Any business who sells tangible property to an end user and collects sales tax must register with the Mississippi State Tax Commission (601-359-1141)
 

Mississippi Unemployment Compensation
 
 All employers must register with the Mississippi Employment Security Commission and make contributions to the unemployment compensation fund (601-354-8711).

Mississippi Department of Environmental Quality

Many businesses must meet specific environmental impact standards. Be sure to check with DEQ to see what the regulations are for your business. It applies to many common businesses such as restaurants, service stations, dry cleaners, etc. Environmental Resource Center phone is: 1-888-786-0661 or (601) 961-5171
 

WHAT INSURANCE DO YOU NEED?

The importance of proper insurance is often overlooked by the small business owner.  If used correctly, insurance can help reduce the uncertainty under which your business operates.  Insurance can help keep your business operating under adverse circumstances and help improve your credit rating.  Talk with a qualified insurance agent to discuss the needs of your business.

Insurance checklist:

Fire

Worker's compensation

Disability insurance

Key-man insurance

Group life

Group health

Automobile/truck

Crime insurance

Business interruption

Retirement income

Rent insurance

Business life
 

Remember, your local Small Business Development Center is available to help you through this process and to continue to provide assistance after your business is in operation. Their assistance is free.

May your business become one of the many successful Mississippi Small Businesses. 

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