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Making the Transition from Employee to Employer

Many of us dream of quitting our jobs and starting a company that will make us happier and hopefully more money than we ever dreamed of. Most business owners don’t become millionaires, but if they succeed, they’re usually more satisfied with their work. According to the National Federation of Independent Business, small business creates 80 percent of all new jobs in America. Making a new company a success requires preparation.

The first decision of creating a business pertains directly to your character. Do you have the right material to start and sustain a company?

Why a Business Plan is Necessary

A business plan is a road map not only for you, but also for potential lenders who won’t give you the time of day otherwise. Very few business owners can finance a business start-up completely out of their pockets. A business plan may seem like a lot of bother when you are absolutely, positively sure that your business concept will work. But producing one will allow you to really think through the idea, structure, and money resources for what you plan to do. Putting everything on paper eliminates the dream aspect of going into business-you are putting your dreams in black and white. A business plan should cover the following:

Executive summary. This kicks off the plan, but you should write it after you’ve had the chance to create the rest of the document. An executive summary should be no longer than one page and capsulize the business, its products and services, risks, opportunities, target strategies, competition, finances, and finally, your projected return on investment.

Mission statement. A one or two-sentence statement that describes the culture of your business and its goals.

Business concept. Explains the business that you want to finance and the technology, concept, or strategy on which it is based.

The team. Lists CEO and key management by name, experience, and very important, past successes.

Industry analysis. This section gives an informed overview of market share, leadership, players, market shifts, costs, pricing, and competition. The company wants to deliver the message that it has the leadership and ideas to overcome the obstacles.

Competition. Outlines the competitive challenges faced and how you plan to defeat them.

Goals and objectives. Essentially a three- to five-year plan. This section requires you to outline measurable objectives for market share, revenues, and profitability.

Day-to-day operations. Describes staffing plans, training, and other personnel-related issues. How will you use people? This section also talks about business support activities such as advertising and marketing.

Financing. This is the detailed section that explains what you have to invest and what you’ll need from lenders. Most important, explain how long you expect to pay it back.

Appendix. Lenders want to see tax returns and any other third- party information that will help the lender know about the business.

What to do With Your Retirement funds at Your Soon-to-be-Former Employer?

The time to start thinking about what you’ll do with your retirement funds as well as your benefits  is before you leave your current employer. You don’t have to advertise you’ll be leaving the company, but you should really do your homework on the transferability of what you’ve earned and get some solid financial advice on what you’ll do with the money once it’s in your control.

What is COBRA?

We’re not talking about a snake. COBRA is the Consolidated Omnibus Budget Reconciliation Act, a federal law passed in 1986 that amended the Employee Retirement Income Security Act (ERlSA), the Internal Revenue Code, and the Public Health Service Act to provide continuation of group health coverage that otherwise would be terminated. You might want to consider COBRA coverage on a temporary basis.

Keeping Records: Developing and maintaining business records is essential for new business owners. As entrepreneurs. they typically throw their heart and soul into marketing their products or services and running the business day-to-day. As for record-keeping, they sometimes put that at the end. Little do they realize that keeping accurate business records can affect the company’s profitability, its attractiveness to lenders, and in many cases, can be the difference between success and failure.

Here are key steps to putting your records in order:

Buy financial tracking software. Today, software manufacturers such as Quicken design financial tracking and tax software for the smallest of businesses. Even if you get help, make sure all your accounts, income. and daily expenditures are posted on the computer-it makes it easier to track what you’re doing and categorize various transactions for tax time. If you’re a paper person, at least separate accounts between business and personal. Not doing so makes it a nightmare to separate records at tax time.

Ask a tax professional to help you set up your record-keeping system. It you are planning to work with a lax professional annually-and if you’re in business, it’s generally a good idea-take the time to set up your record-keeping for tax purposes correctly as you start the business. You won’t develop as many bad habits that need to be corrected later.

Do a P&L. A profit-and-loss statement should be done at least every quarter, and even monthly it you own a cyclical business such as a restaurant. Keeping a close eve on the numbers can help you spot problems before they loom so large as to endanger the business.

Track meetings and registrations. New businesses typically require a host of documentation. including registering the business, applying for appropriate identification numbers, tax records, and so on. Incorporated businesses need organizational meeting records, articles of incorporation. Failure to meet necessary requirements can result in fines or other liabilities. For instance, if an Internal Revenue Service (IRS) field auditor finds a lack of documentation for actions taken by the corporate officers. The IRS may challenge certain business deductions.

Keeping these records can be a headache for companies, but the  headache is minor compared with the pain of a business that performs poorly or even goes bankrupt. Talk with your financial planning professional about establishing a good record-keeping system. Some planners even provide corporate record services including generating records. minutes. and notes. It tends to be very expensive-when you start your business. But you might be better off immediately checking independent insurance options. This might be one of the most important resolutions you’ll make when going into business, and it will also be one of the toughest to keep. Talk to your tax and financial adviser(s) about retirement issues before you quit. You will be very tempted to use money you would otherwise place in your retirement accounts to fund your business.

Making the Transition from Employee to Employer by