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Answers to Commonly Asked Questions about Self-Employment
What other legal aspects must I consider?
The state or federal government may require legal recognition of certain kinds of business structures. For instance, within Washington State, members of limited partnerships, limited liability partnerships, and limited liability companies must obtain and file with the state the appropriate certificates. Additionally, the federal government mandates that members of business corporations identify their corporations for taxing considerations.
How can I predict my profit amount?
Standards of comparison, or industry ratios, may help the first-time entrepreneur predict their profits. These figures are determined by industry averages. They are classified by the type and size of industry they describe. Industry ratios are available at libraries and through the Small Business Association.
How do I set the price of my product or service?
A reasonable price level is based on three key figures:
- Cost of direct materials
- Cost of labor
- Cost of overhead
Once these costs have been met, the price may be adjusted for reasons of profit and/or competition. Since this can be a complicated and difficult process, new business owners may wish to consult with a pricing expert.
What should I name my business?
- When deciding upon a name, strive for clarity and recognition. The most effective business names:
- Are distinctive, unique, creative, and memorable
- Evoke a positive mental image that communicates the business purpose
- Translate well and do not have negative connotations in other languages
- Are easy to say and spell
- Are registered and protected
What should I expect when requesting a loan?
Typically, lenders ask three initial questions:
- What is the size of the loan being requested?
- How will the loan be used?
- How will the loan be repaid?
Loan applicants should expect to prove their ability to repay the loan by establishing the viability of their business concept. They should be prepared to present projected financial statements and a cohesive, clear business plan.
How do I pick the location of my business?
Location is crucial to the success of any business. The following considerations may be instrumental to this decision-making process:
- Type of business
- Market potential of the candidate location
- Availability of employees in the candidate location
- Number of competitive enterprises in the candidate location
Should I buy or lease?
When deciding whether to buy or lease equipment, it is prudent to weigh the advantages of the options against their respective disadvantages. For example, as a financial advantage, buying the equipment allows the owner to claim the purchase, or a portion of the purchase, as a business expense. However, by leasing one can more easily upgrade the equipment, if possible, and avoid making a substantial cash payment up-front.
Should I hire family members?
For some small business owners, hiring family members to help out in the business is a rewarding experience. But for others it can lead to a conflict of interests, cause additional frustration, or complicate and compromise relationships within the family. In order to determine if hiring family is a good idea, small business owners might ask themselves: Will this individual have loyalty and respect for me as the owner and supervisor? Can I reasonably marry my personal feelings and professional interests with regard to this individual?
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