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November 2010

Dear Jim, I'm currently a graduate student while my wife works full-time. However, I'm also a master electrician and would like to use my skills occasionally when jobs come up. I went online to register as an electrical contractor, since that is required to pull permits in many municipalities. The form asks for a FEIN, which I don't have, but then the federal website seems to indicate that I don't need it since I don't have any employees. My desire is just o be able to do legitimate work when it is occasionally available. I'm just not sure what is required of me. Any thoughts?

Good question! Technically, you are correct. If you are a sole proprietor without employees, you do not need an EIN. However, I recommend you get one anyway for several reasons:

• As you just found out, many other government agencies, vendors, and others want an EIN number to support the legitimacy of your business.
• Many banks will not allow you to open a business checking account without an EIN. And yes, you should have a separate checking account for your business.
• If you do not have an EIN, you will have to use your social security number in many public places, resulting in increased opportunities for identity theft. Having an EIN reduces this risk.
• Having an EIN simply gives your business more credibility

So yes, go ahead and get the EIN.

Dear Jim, I've been self-employed for 10 years but switched from an LLC to an S-corp last year. Now there's a question of taking income as salary or as a distribution. What are the pros and cons of each, and is there a formula to follow in determining which is best?

This is not really a question in which you get to discuss the "pros and cons." The IRS has some very strict guidelines regarding Sub-S corporations.

If you are an owner actively involved in the business, you MUST pay yourself a "reasonable" salary. This means you must treat yourself as you would an employee, including taking withholding taxes, social security, Medicare, etc., from your paycheck paid on a regular basis. A reasonable salary is one which you would have to pay someone else to do the same job. Sometimes that can be a burden for a small company. But that is the choice you made when you decided to become a Sub-S.

Dear Jim, I have an idea. The start-up costs are considerable and I would need a grant to enable this to begin, and then supplement that with investors. Where do I go to seek government grants for innovative technology start-up money?

As a general rule, the government does not fund start-up businesses. However, if your concept truly involves innovative technology AND it is something that the government might be interested in, you need to check out Small Business Innovation Research grants and Small Business Technology Transfer grants (SBIR/STTR).

You can access information about both of these at www.sbir.gov as well as information about state and local research grants that might be available. In addition, the only reliable source of grant information for most government agencies is at www.grants.gov. You should check both of these websites.

Be very careful about contacting the many grant assistance businesses which advertise on the web and on television. Many of these are shaky at best and fraudulent at worst.

Dear Jim, I am at the point in my consulting business where I have a vision for a product line which I developed from my teaching experiences. I ran this idea past my banker and my accountant and they smiled - it does have potential. My question is a philosophical one at this point because... well, here's the question: What is the relationship between thinking and reality? I have no direct experience with directing the taking of an idea into 'reality'...I feel as though I am in totally alien territory and find it hard to process the marketing and technical verbiage... I have gone from one who teaches to a consultant with an entreprenurial vision...and this is an unexpected turn of events. Should I write a new business plan?

If you think about it, virtually all human actions are planned. From brushing our teeth to getting married, thought precedes action. With the possible exception of spontaneous, “knee-jerk” reactions to immediate danger, we are not capable of acting without planning in advance.

The business plan is a way of organizing, coordinating and focusing our actions toward a specific goal. SBDC consultants often meet with clients who have the plan in their heads. But it is almost always disjointed and disconnected. A business plan helps remedy that problem. Writing a business plan compels you to think about all of the aspects of what can turn out to be a major venture in your life. A well-written plan not only outlines the necessary actions to be undertaken but also clarifies the scope and goals of those actions. It analyzes and evaluates the results of those actions and allows you to sort the effective from the useless.

Finally, study after study has shown that businesses with plans have a much greater rate of success than those without plans.

So, yes, you should write a business plan. The SBDC has many resources, including classes and consulting, to help you with this. Take advantage of them.

Dear Jim, I'm having trouble not knowing the first steps of opening my business idea. I'm trying to write my business plan, but can't even continue past the executive summary. I would like to open an establishment that will give world class service to hard-working people. I have to obtain a liquor license that will pass health codes, but before that I have to find a location - it has been a difficult process for me thus far. What are the first steps to take for me to get the ball rolling? I want to make sure my business becomes a success.

You need to write a business plan. It is clear that you have a lot of ideas in your head about what this business will look like and some thoughts about what is needed to make it happen. But the whole purpose of a business plan is to bring all of these elements together in one focused, written document. It is absolutely the best way to do this.

For example, you cannot write an executive summary until you have written something to summarize. That should be the very last thing you write, not the first.

Helping future business owners write business plans is one of the major functions of the SBDC. We have both classes and consultants that can help you with this. Look at the other resources on this web site for classes that can help including Business Plan Basics and the NxLeveL for Entrepreneurs 12-week course. Sign up for consulting to get assistance with this.

Good luck.