Brad Sugars: Startup Basics 7 Biggest Mistakes in Setting Prices

Learn about the pricing paradox that's driving away sales from most startups.
By Brad Sugars

One of the biggest challenges for any business is pricing.

This applies not only to a startup, but also to well-established businesses, especially those in lower-margin, highly competitive industries. The common theme with most pricing issues is risk: risk setting prices too high and you may push potential customers away; risk setting prices too low and you cut profits.

This "pricing paradox" drives most owners to default to discounting. However, risk in most cases can be eliminated by getting better information. Generally, the more you know, the less risk you perceive. From that perspective, pricing is all about getting as much information as you can about your market, your customers and your own internal numbers that drive your profit.

As I like to say, there are no secrets in business, there is just information you don't know yet. When it comes to pricing, here are seven ways to avoid mistakes in your startup. If you can avoid these, you'll not only be ahead of your competition, but also you'll be ahead of most other businesses.

1. Going in too low and undercutting all the time--For some businesses, this isn't a mistake, it's an entire strategy, and it's not a very good one. Going in too low all the time might be great for your top-line revenue number, but it wreaks havoc on your bottom-line profit number--the one you will need to survive. You need to profit and price accordingly. You might not get business out of all of your price-conscious customers, but that's OK. Your competition will--and then they will have to figure out how to profit from the "price shoppers" when there is little or no profit to make.
2. Using the same margin for all products--There's no rule, law or commandment that says all products need the same margin. In reality, slower moving items need higher profit margins. You can afford a smaller margin based on high sales volume. Even then, you should find ways to add value and increase those margins. Because in the end, even those incremental increases over time will make a big difference to your bottom line.
3. Not understanding the difference between margin and markup--Margin is always based on sales price. Markup is always based on cost. I once had a client who didn't understand the difference, and offered a line of products with a 100 percent markup … then had a 50 percent off sale. The end result? The store was essentially selling the line at cost. Don't make the same mistake.
4. Forgetting to take all costs into account. In order to price correctly--every cost needs to be identified. Even "little" things like credit card processing fees--which typically add 1 to 2 percent on every transaction--add up over time. Other items, like delivery or shipping costs, can also sneak up on you. View them as diligently as you would your cost of goods sold as having an impact on your bottom-line.
5. Finding out what competition charges and doing the same--Instead of "following" your competition, do a bit more homework and start to discover and uncover the value you truly offer your customers. Then price for value. That way, you are in an excellent position to defend your price against the competition, with a lengthy list of your own "reasons why" your offering is worth its price.
6. Setting sales commissions based on sale prices vs. percentage of profit--For companies using a commission-based sales force, this is similar in scope to the margin/mark-up distinction. Commission based on the top-line vs. commission based on the bottom line directly impacts profitability. Again, profit is the only number that matters. Paying commissions out of revenue streams can mean you are literally giving away your company to your sales people.
7. Discounting instead of adding value. Discounting takes a toll on profits--At just a 10 percent discount, a typical firm would need to sell 50 percent more units to keep the same profit on the bottom-line. Costs also increase in the "discount" game, so companies can literally discount themselves out of business. Instead of cutting cash out of the deal, ask yourself if there is there a way you can add value to your product or service. This "value added" proposition means you can "give away" something that won't come out your profits. Done right, it can also add to the experience your customer has of both the transaction and your company. A great experience is key to getting that customer back--which in turn is key to a highly profitable company over time.

Avoiding pricing mistakes and being strong in your pricing proposition go hand-in-hand in building a profitable business. Master the so-called "pricing paradox" and you will master an area of business in which even the most experienced entrepreneurs sometimes struggle. Once you do, you'll be confident that your products and services have value, and you'll effectively position yourself against competitors who will be too eager to "give away the store."

You won't win every pricing battle, but in the long run, your extra profits will take your company to the top.

Brad Sugars is Entrepreneur.com's Startup Basics columnist and the writer of 14 business books including The Business Coach, Instant Cashflow, Successful Franchising and Billionaire in Training. He is the founder of ActionCOACH, a business coaching franchise.

You Lost Me at Hello

If prospects think you're just like everyone else, let your marketing kit prove otherwise.
By John Jantsch | Entrepreneur Magazine

No one likes to be sold, but everyone likes to buy. Your marketing materials should be designed in a way that guides your prospects logically along a path from education to trust to wanting to build a relationship.

At first, your prospects believe your firm is pretty much like any other firm that does what you do. And just looking on the surface, they're right. If you're an electrical contractor, your employees probably wire a ceiling fan the same way other electricians do. The difference, though, is the level of service, professionalism and communication you provide--and of course, your 27-point safety checklist and personal story. That's the stuff they need to hear, the stuff that makes them say, "This is someone I can trust to come into my home, someone I want to refer to a friend."

Don't turn your prospects off from the beginning with the typical sales copy. Your marketing materials should function more as informational products than as sales materials. A marketing kit is an effective tool to help educate prospects about your business. If properly constructed, your marketing kit will make your firm the obvious choice when prospects compare it to other businesses that do what you do.

Your marketing kit should include some combination of the following information:

* Your "difference" page: Use this page to explain how your firm is truly different than your competition and designed to meet a very specific need in a very specific way. In this section, don't worry about telling your prospects what your firm does; focus on how you do it in a valuable or unique way.
* A list of services: Here, tell prospects what you do or offer. You may even need to create a separate sheet for each of your services or service areas.
* Case studies: Pick representative clients or industries and outline how your product or service solved their challenge. Case studies allow your prospects to see how they, too, can find relief.
* Process description: Show prospects how you do what you do. Create detailed checklists and flow charts that show how you keep your promises. Many people underestimate how much goes into delivering a quality product or service.
* Your story: Many companies have interesting--and even gut-wrenching--histories. Tell your story in an open, honest and entertaining way, and you'll win their hearts as well as their heads.

You can also add testimonial letters, FAQ pages, copies of articles you've written, and reprints of any media coverage your firm has received.

The individual pieces of your marketing kit can, in many cases, consist of word-processed files that are laser-printed onto a template and tucked in a pocket folder for delivery. This format allows for inexpensive printing and a great deal of flexibility when you need to change or update your marketing materials. This format makes for great web content as well.

But will prospects even read all this stuff? As with all marketing efforts, some people will read it and some won't, but the ones who do won't hesitate to pay a premium to acquire the services of such an obvious expert.

John Jantsch is a veteran marketing coach, award winning blogger and author of Duct Tape Marketing: The World's Most Practical Small Business Marketing Guide. Find out more at ducttapemarketing.com.

Kim T. Gordon: Marketing The Hottest Marketing Trends for 2008

Kim T. Gordon: Marketing
The Hottest Marketing Trends for 2008
Learn about the hottest new marketing trends plus the best ways to increase sales in 2008 By Kim T. Gordon



Marketers nationwide are setting their plans in motion for 2008. Big-name brands will embrace new technologies and adjust their budgets in some surprising ways. And as an entrepreneur, you can use some of these tactics to reach your own audience in the coming year.

In 2008, you can expect major marketing trends to include:

A shift from traditional to "alternative" media
Advertising in newspapers and magazines, and on radio and TV will continue to be marketing staples, but spending in new media will show the biggest growth as advertisers move money into online, mobile and alternative out-of-home advertising. Many marketers are finding alternative media the best way to reach audiences effectively and to yield a measurable ROI. A communications industry forecast published by Veronis Suhler Stevenson predicts alternative advertising spending will increase more than 23 percent from 2006 to 2011, while traditional advertising will have a compound annual growth rate of just over 1 percent.

A growth spurt for interactive marketing
Interactive marketing spending will more than triple over the next five years, reaching $61 billion by 2012, according to Forrester Research. To put this into context, interactive marketing, which currently accounts for just 8 percent of all ad spending, will increase to 18 percent of marketers' total advertising budgets in five years.

Interactive encompasses new marketing channels such as e-mail and search marketing, online video ads and social media. Mobile marketing, also a form of interactive media, is getting hotter as consumers become increasingly comfortable using personal computing handsets. Other emerging channels, including game marketing, podcasts and RSS feeds, will claim increasingly larger shares of marketers' budgets.

More off-line support for online campaigns
Here's where the value of advertising synergy hits home. In 2008 and beyond, the trend toward using off-line media to drive customers to the web will continue and pick up speed. Traditional media are increasingly relied on to support new interactive campaigns. Display advertising, in particular, will be the workhorse that Forrester Research predicts will reach $14 billion by 2012.

TV is another traditional advertising medium that will increasingly be used to pique consumer interest and point prospects to a website where they can find more in-depth information. Once there, entertaining online video ads may be used to tell a longer, more involved story. Consumer adoption of online video is growing, and most age groups are expected to step up its use in 2008.

Taking Advantage of the Trends
In 2008, the major marketers who set the trends will help consumers adopt new media consumption methods. And they'll pave the way for small business owners to follow suit without the risk or heavy financial outlay.

Here are four ways to increase sales and your advertising ROI by capitalizing on the hottest trends for 2008.

1. Engage the customer. The move toward alternative advertising versus some of the more traditional methods coincides with the emergence of technologies that enable a one-on-one dialogue with customers. For example, follow the trend of social media by posting your products on sites that encourage customer or peer reviews. Social media add an element of impartiality and are increasingly looked to as reliable sources of information.

2. Integrate your off-line and online campaigns. Look for ways to use off-line media to drive traffic to a website with specialized landing pages that tell a deeper story. Use print and TV ads to start the customer education process and direct potential buyers online to learn more and take the next steps in the purchase process. And direct an e-mail campaign to your current customer database to offset the cost of direct mail. Simply alternate e-mail and postal mail for a cost-effective one-two punch.

3. Move some off-line dollars online. Online advertising now offers a strong alternative to some traditional media, such as print yellow pages. Consider moving some of your traditional directory advertising dollars into online directories and search engines. The vast majority of Americans research their products online before making purchases, so a paid search campaign is an ideal way to make sure you turn up at the top of search results.

4. Follow your customer. Alternative out-of-home advertising opportunities let you place your message wherever your customers go. You can put your name and company logo on the umbrellas used by urban street vendors, or name hiking trails in wilderness areas. The key to using these new opportunities effectively is to place your message where it will appear in the proper context and reach your potential customers when they are in the right frame of mind.

The new year comes full of high-return marketing opportunities. By closely watching the hottest trends, you can make smart choices that let you step ahead of your slower-moving competitors.

Kim T. Gordon is the "Marketing" coach at Entrepreneur.com and a multifaceted marketing expert, speaker, author and media spokesperson. Over the past 26 years, she's helped millions of small-business owners increase their success through her company,National Marketing Federation Inc. Her latest book ,Maximum Marketing, Minimum Dollars, is now available.

Gail Goodman: E-Mail Marketing 5 Key Ways to Build Customer Relationships

Gail Goodman: E-Mail Marketing
5 Key Ways to Build Customer Relationships
Never underestimate the value and reach of a loyal, repeat customer. Keep customers coming back for more--and bringing their friends with them--with these smart tips.
By Gail Goodman | May 01, 2005

Money can't buy one of the most important things you need to promote your business: relationships. How do customer relationships drive your business? It's all about finding people who believe in your products or services. And when it comes to tracking these people down, you have two choices:

You can do all the legwork yourself and spend big marketing dollars. But that's like rolling a boulder up a hill. You want to drive your business into new territory, but every step is hard and expensive. There's another less painful--and potentially more profitable-way...

You can create an army to help you push that boulder up the hill instead. How do you do that? You develop relationships with people who don't just understand your particular expertise, product or service, but who are excited and buzzing about what you do. You stay connected with them and give them value, and they'll touch other people who can benefit your business.

Powerful relationships don't just happen from one-time meetings at networking events--you don't need another pocketful of random business cards to clutter your desk. What you need is a plan to make those connections grow and work for you. And it's not as hard as you think. Here are five essential tactics:

1. Build your network--it's your sales lifeline. Your network includes business colleagues, professional acquaintances, prospective and existing customers, partners, suppliers, contractors and association members, as well as family, friends and people you meet at school, church and in your community.

Contacts are potential customers waiting for you to connect with their needs. How do you turn networks of contacts into customers? Not by hoping they'll remember meeting you six months ago at that networking event. Networking is a long-term investment. Do it right by adding value to the relationship, and that contact you just made can really pay off. Communicate like your business's life depends on it. (Hint: And it does! Read on.)

2. Communication is a contact sport, so do it early and often. Relationships have a short shelf life. No matter how charming, enthusiastic or persuasive you are, no one will likely remember you from a business card or a one-time meeting. One of the biggest mistakes people make is that they come home from networking events and fail to follow up. Make the connection immediately. Send a "nice to meet you" e-mail or let these new contacts know you've added them to your newsletter list and then send them the latest copy. Immediately reinforce who you are, what you do and the connection you've made.

You rarely meet people at the exact moment when they need what you offer. When they're ready, will they think of you? Only if you stay on their minds. It's easier to keep a connection warm than to warm it up again once the trail goes cold. So take the time to turn your network of connections into educated customers.

3. E-mail marketing keeps relationships strong on a shoestring budget. Build your reputation as an expert by giving away some free insight. You have interesting things to say! An easy way to communicate is with a brief e-mail newsletter that shows prospects why they should buy from you. For just pennies per customer, you can distribute an e-mail newsletter that includes tips, advice and short items that entice consumers and leave them wanting more. E-mail marketing is a cost-effective and easy way to stay on customers' minds, build their confidence in your expertise, and retain them. And it's viral: Contacts and customers who find what you do interesting or valuable will forward your e-mail message or newsletter to other people, just like word of mouth marketing.

4. Reward loyal customers, and they'll reward you. According to global management consulting firm Bain and Co., a 5 percent increase in retention yields profit increases of 25 to 100 percent. And on average, repeat customers spend 67 percent more than new customers. So your most profitable customers are repeat customers. Are you doing enough to encourage them to work with you again? Stay in touch, and give them something of value in exchange for their time, attention and business. It doesn't need to be too much; a coupon, notice of a special event, helpful insights and advice, or news they can use are all effective. Just remember: If you don't keep in touch with your customers, your competitors will.

5. Loyal customers are your best salespeople. So spend the time to build your network and do the follow-up. Today there are cost effective tools, like e-mail marketing, that make this easy. You can e-mail a simple newsletter, an offer or an update message of interest to your network (make sure it's of interest to them, not just to you). Then they'll remember you and what you do and deliver value back to you with referrals. They'll hear about opportunities you'll never hear about. The only way they can say, "Wow, I met somebody who's really good at XYZ. You should give her a call," is if they remember you. Then your customers become your sales force.

If real estate is all about location, location, location, then small business is all about relationships, relationships, relationships. Find them, nurture them, and watch your sales soar.

Gail F. Goodman is the "E-Mail Marketing" coach at Entrepreneur.comand is CEO of Constant Contact, a web-based e-mail marketing service for small businesses. She's also a recognized small-business expert and speaker.

How to Start a Business Blog, Part 10: Crisis Management Plan

This is part 8 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Sooner or later, your company will experience a crisis. It could be a customer service crisis. It could be a financial crisis. It could be a natural disaster in your region. Whatever it is, tell me: where will people go in order to learn what’s going on?

That’s right: your website. And what will they see when they arrive at your website, hoping for the latest information freshly posted only minutes ago just like they get on so many other websites?

If you said “the same static marketing-speak page we’ve had up since 1997,” that would be what we in the biz call “the wrong answer.”

Alright, let me get my tongue out of my cheek and get serious. A company blog is probably the best crisis management tool you will ever have. During any kind of crisis, people will eagerly wait for every post that updates them on the situation. Stony silence and traditional communications channels are going to hurt you. Big time. Dell learned this the hard way when they started handing out grenades cleverly disguised as latptop batteries. Kryptonite bike locks learned this the hard way when it was discovered that their locks could be compromised with a simple ball point pen, and video of it spread across the internet. Kryptonite’s response was to shove its collective head further into the sand. Their reputation was ruined, not by their badly designed bike locks, but by the way they so poorly handled the crisis.

Even if your company has never had a blog before, if a crisis hits, whip through the decisions I’m going to outline below and set up a blog immediately. Put a big fat link to it from your home page. Manage the crisis through to the end, and then you can figure out what to do with the blog and your site.

Creating a Blog Crisis Management Plan

1. Decide who is going to do the crisis blogging.
   If your company has multiple bloggers, but you want only one voice to be the official source during the crisis, then have the other bloggers link to the main source of crisis information and then defer to that source. If you want your multiple bloggers to cover the crisis, then make sure they have access to information so that nobody is posting at cross-purposes with each other or with the company. Set up a central information hub for your bloggers through email or RSS.
2. Decide what you’re going to say and, just as importantly, what you’re not going to say.
   Normally, I’m adverse to bringing lawyers into anything about blogging, but in a crisis you may want their advice. That doesn’t mean it will be any good or that you have to follow it. Especially if their advice will cause you to lose customers and create an even worse public relations nightmare. If they tell you not to say anything at all, get new lawyers who understand the internet and the new rules. The most important thing is to talk to people in your blog like you are a human being and your audience members are, too. If someone pushes you to speak to something you’ve decided not talk about, be polite but firm and ask for their understanding and patience.
3. Decide whether you’re going to allow comments during the crisis.
   If you really get blogging, you will of course allow comments on your company blog. Depending on the nature of the crisis situation, you may want to temporarily turn off commenting. There may be perfectly good reasons to do so, time and manpower being two of them. However, you will be missing out on the greatest opportunity to really show your customers how awesome you can be by how you respond to and handle comments on crisis blog posts. When the shit hits the fan is your biggest chance to impress, to win people over, to win them for life. I suggest you take that chance.
4. Use traditional media to your advantage.
   Inform your traditional media contacts that crisis information will be available from the blog, and that they can treat each post as a press release.
5. Make sure your web servers can handle the traffic surge.
   You may not have had all that much traffic before, but a crisis can send a tsunami of traffic that will crash your web servers in no time flat. Make sure you’re prepared: upgrade your hosting service or your own equipment if you maintain in-house. If you pay for hosting, contact your hosting representative immediately when the crisis starts and let them know they’ll need to be able to handle a spike.

If you think all of this sounds overly serious, I have one word for you: Mattel. Here is their recall page. What a bunch of corporate crap. Don’t you feel safer already for your kids? Me neither. Can you imagine how powerful a blog would be for this? How it could win people’s trust back even stronger than before? Apparently, Mattel can’t.

How to Start a Business Blog, Part 9: Write the Initial Content

This is part 8 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Conventional Wisdom

It’s been given out as good advice that a blog should have something more than a few measly posts for people to read if you’re going to make a big production out of announcing the blog’s existence. If you’re not going to make a big noise about starting a blog, then this isn’t as crucial. But if you’re an established business with a bit of longevity and presence in the market, then when you announce the launch of your blog, the standard good advice really is pretty good: there had better be something to read.

Many companies have one foot in the old-school world of business management, and the other foot is testing the waters of technological empowerment and its consequences. A good old-fashioned press release can drive an initial surge of traffic to the new blog, so, you know, first impressions and all that.

What are you going to offer your new readers that will impress them and convert them into RSS subscribers and long-term readers? Something good, I hope! Many other great bloggers have written plenty of excellent material on creating initial content for a blog. Yaro Starak calls it pillar articles, Chris Garrett calls it flagship content. Whatever you want to call it, it needs to be written before the blog launches.

How Much Initial Content?

How much initial content should your blog have? There’s no single answer to this. There’s no formula you can apply. But you can answer a question for yourself: when you visit a blog and see there’s hardly any posts older than a month, what’s your gut reaction about the trustworthiness of that blog? It depends! Some blogs (like Skelliewag didn’t have much content when starting but what was there was great and the newborn status of the blog didn’t matter. But think about how much content you’d want to see at a blog before you would ever consider trusting it or subscribing to it. My own personal threshold for this sort of thing is usually more than a couple months. The exceptions to that aren’t businesses.

Should You Backdate Your Initial Content?

Simple answer: no. You cannot fool people by backdating your content. This sort of thing can easily be exposed on the internet, so don’t even think about it. You will be found out.

Instead, do a soft launch. A soft launch is when you make the blog public and you begin posting, but you don’t blare the trumpets from the mountaintops about it. Some of your customers might naturally discover the blog before you’ve launched it officially. That’s fine, think of these people as allies to help you get started. Recruit them. Write them personal emails thanking them for any feedback they might care to give. Once you’ve built up some material then you show yourself to the world officially.

How to Start a Business Blog, Part 8: Choosing Categories

This is part 8 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Nearly all blogs have categories, labels, or tags as a means of organizing and classifying blog content. Business blogs should have categories, and at some point, you’ll need to decide what they are. Most business blogs seem to divide their content into the following general categories:

• Company news and announcements
• Tips or information on specific product/service lines, with one category for each particular product or service
• Customer success stories
• Relevant industry news and opinion (for example, a software company that specializes in network security might blog about how a recent botnet acted as an invisible spam network)

A business blog doesn’t need a lot of categories. Even for specific products or services, you only would want categories for the ones that warrant it. When you see what kind of traffic and comment activity your blog gets for certain categories, you will have a greater understanding of how your business is perceived. You can leverage your knowledge of that perception in the market to strengthen and build on your position.

Another reason to keep your initial list of categories small is to give it room to grow over time. Significant events (for good or ill) may occur in the future and might warrant their own categories. New products and services will go online and might need their own categories. You really shouldn’t remove any categories (but if you have to, make sure to have your web people redirect the old addresses to relevant new ones), but it’s very likely you’ll add some new ones down the road.

How to Start a Business Blog, Part 7: Design Considerations

This is part 7 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

One aspect of personal blogging that doesn’t translate into business blogging is blog design. Personal blogs are like kitchen junk drawers, overflowing with widgets, advertising, blogrolls, shoutboxes, music lists, phases of the moon, and all other kinds of cruft. It’s one of the things that makes personal blogging personal, and nearly all of these things have no business being on a business blog.

There is still a large percentage of the general population who may be your customers that do not know what a blog is when they see it. People tend to ignore that which they don’t understand. Leave out all those blog-specific items and focus on the content and fulfilling the purpose of the blog. All you generally need are the following:

• Subscription tools for visitors, both RSS and Email, with the email more visible and prominent than RSS.
• Categories
• Archives
• About or author information

Make sure your business blog carries your brand. Do not just get an off-the-shelf or free template. That’s not you. It’s somebody else. Have your blog theme or template professionally designed, or for goodness’ sake at least customize a free theme enough to “make it yours.” If you’re redesigning your entire site to use the blog CMS, have your theme professionally designed. There are plenty of good designers out there, myself included.

Some final tips:

• Pay for a good stock photography and let your blogger(s) use it to add visual interest to posts.
• Make sure your blog looks great in all common browsers: Internet Explorer 6 and 7, Firefox, and Safari for the Mac.
• Make it clear that it’s a blog. Use the word “blog” or “weblog” prominently at the top.
• Use non-bloggy terms, like “permanent link” instead of “permalink” and “links to this post” instead of “trackbacks.”

How to Start a Business Blog, Part 6: Blog Platform and Site Issues, Continued

This is part 6 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Another issue to consider when starting a business blog is what do with the existing site. Here are your choices:

1. Create a blog as an entirely separate site on its own domain
   This allows you to have a different look for the blog compared to the main business site. If the blog doesn’t work out, you can easily “cut it off” since it never was deeply intertwined with the main site. Disadvantages are that your online presence just got a split personality which may confuse some customers, and you still have to figure out a way to link to the blog from the main site.
2. Create a blog as a subdomain or directory of the existing site
   This shows a greater dedication to blogging, which your blog-savvy customers will appreciate. You’ll have to get the blog and the main site to play nice with each other, though. You’ll want visual consistency between the blog and the main site. You’ll have to figure out how to add links to the blog from the main site where appropriate without making it look like you duct-taped your site. This is a common option, and for good reason: it makes sense from all points of view, from blogger, to company, to visitor.
3. Replace your current site with the blog’s CMS
   This option gives you the chance to do that redesign of the old site that probably needed to be done anyway. The WordPress blog system, in particular, makes an excellent content management system for even large websites, as well as small. You don’t even have to have the blog on the home page, if that’s your preference. The win-win in this situation is that not only did you get blogging, but your company’s entire website just got insanely easier to manage. There’s even a secret bonus for doing this: with only a few tweaks, your new WordPress-powered site will probably be far more optimized for search engines than before.

As you can probably tell, I’m strongly in favor of the last option. The people behind WordPress have plans to continue ah… pressing forward (sorry!) with WordPress’ CMS capabilities, making it even more powerful in future releases.

How to Start a Business Blog, Part 5: Blog Platform and Site Issues

This is part 5 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Step 6: Determine Blog Platform and Blog / Website Integration

For a business, deciding to blog opens the doorway to many possibilities and questions. Some of these possibilities will challenge the company’s culture to reinvent itself in order to stay current with the times. Some of these possibilities mean taking a hard look at the way things have been done in the past, with an eye towards doing things in a new way.

There are several business website configurations and your business will conform to one of these:

• Single domain, static site
• Multiple domains or subdomains, static sites
• Single domain, dynamic site
• Multiple domains or subdomains, dynamic sites all on the same platform
• Multiple domains or subdomains, dynamic sites all on different platforms

Domains are the website address names, such as yourcompany.com.

Subdomains are a way to have multiple sites on a single address, such as finances.yourcompany.com and products.yourcompany.com.

Static sites are comprised of web pages written only in HTML (hypertext markup language). This is how all websites were once created, and many are still static sites.

Dynamic sites store all their content in a database. Software on the webserver called a content management system (CMS) puts the content together as HTML and sends it to a visitor’s web browser. Company employees can add and modify website content using the CMS with little to no technical skills. Most websites nowadays are dynamic.

Although some web designers/developers are using WordPress as a CMS (content management system), this is still quite rare. Likely, your company’s website is not a WordPress site.

Blog Platforms

There are a great many blogging platforms. By “platform,” I mean any kind of software or service, regardless of where that software is located (your company’s servers or hosted by a third party). However, there are really only a few that you would want to go with. This is due to their widespread support by extensive, knowledgeable communities and so that your company is taken seriously. They are:

• WordPress
• TypePad
• Moveable Type
• Blogging add-ins for other CMS’s, such as Drupal, Joomla, or Microsoft SharePoint. Some of these are native to the CMS, others allow for integration of WordPress or TypePad blogs into the site.

How to Start a Business Blog, Part 4: Business Blog Policies

This is part 4 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging. Previously: How to Start a Business Blog, Part 3

Step 5: Determine the Business Blog’s Policies

For a business of any size with a blog or multiple blogs, having clear blogging policies and procedures is essential. And when I say “clear,” I mean: plain English that anyone can understand, not “clearly this was written by lawyers and you have no hope of understanding it.” If you’re going to join the blogosphere, don’t go writing something that sounds like a contract from the 1700s.
Business Blog Policies should:
• Clearly state what the blog topics are to be.
• Clearly state what is unacceptable or out-of-bounds.
• Clearly state what should be done if there is any doubt whether or not a topic is acceptable (most of you might take that to automatically mean don’t publish it, but that may not be the best thing to do–risk does have its rewards, after all).
• Provide a mechanism for review and approval of gray area topics.
• State expectations for posting frequency and length.
• Explain the business blog’s commenting or no-commenting policy (this is the subject for a future post in this series).
• Clearly outline the bloggers’ authority, capacity, and procedures for customer service issues that may arise through the blog if the blog allows comments.
• List what company resources the blogger has at her disposal (information, images, printers, computer, and audio/video equipment, etc.) and what, if anything, can be expensed.
• Outline what should happen if bloggers temporarily cannot fulfill their obligations: who they should contact and what will be done (skip posts or employ a guest blogger, etc.).
• For ghostwriters or professional company bloggers, explain the pay package and payment schedule.
As you can see, there is more to this than you might first think. Many business decision-makers understand the power and benefits of blogging, but are afraid of the risks. I think the benefits far outweigh the risks. Use the framework above to draft some common-sense business blog policies.
The above are policy points for company blogs–not for employees’ personal blogs (that’s also a topic for another day).

How to Start a Business Blog, Part 3: Choosing Authors

This is part 3 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging. Previously: How to Start a Business Blog, Part 2

Step 4: Determine who the Authors of your Business Blog will be
With personal blogs, an author can choose to go it alone or join with others as a group blog. The choice is up to the author. With business blogs, there are also many possibilities, ranging from a single author to a team. Business bloggers are not necessarily company employees, who often already have plenty to do without adding blogging responsibilities. Below is a list of some business blog authorship possibilities:
• Single company person, who becomes the public voice of the company. This person must be chosen with care, as they will become the spokesperson for the company. Choose someone who is a people person, who is articulate, and who can act as a bridge between customers and the company. This person can be a company leader (such as GM’s Bob Lutz) or a more front line individual (such as Robert Scoble was for many years at Microsoft).
• Multiple company employees, who share a common general company blog or who can author multiple company blogs according to the company’s different service and product groups.
• Ghostwriters, who do not work for the company, but blog for the company on the company’s blog. The word ghostwriter can have negative connotations for some people, but there are many professional ghostwriters who do excellent work. There is nothing wrong with hiring ghostwriters to help busy high-level executives blog. You don’t have to hide it, but you don’t have to draw undue attention to it, either. A plain-language disclaimer page is all that’s needed. The whole point behind ghostwriters is that they don’t take direct credit and are unknown.
Which option is best depends on the size of your company and whether or not company people have the skills or time to blog. There’s no reason why the second and third options couldn’t both be employed. You can always begin with just one person and grow from there as needed.
Choose the Willing
Only choose people who are already blogging on their own or who really want to do it. The unwilling and skeptical will make for lousy bloggers, and will harm the company’s image, not enhance it.
Get Samples
Ask for writing samples from your prospective bloggers. This applies to employees just as much as it does to ghostwriters. Don’t choose someone who sounds like a commercial or a lawyer. Choose someone who sounds like they’re carrying on a conversation with another human being, like they’re just being neighborly.
Updates to This Post
Chris Garret has a great post about Freelance Blogging that is very helpful not just to bloggers, but also to business decision-makers attempting to judge whether or not to hire ghostwriters or bloggers from outside the company to blog on the company blog.

How to Start a Business Blog, Part 2

This is part 2 of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

Step 3: Determine the Purpose of Your Business Blog

One way in which business blogs are unlike personal blogs is that they’re not… well, personal. They need to fulfill a business purpose. Or, if you turn it around to face the customer: a business blog should meet customer needs. A business has a purpose beyond just earning money. Earning money is the result of a business fulfilling its greater purpose. A business blog helps the business fulfill its purpose. Hammering out the purpose of a business blog is one of the most important early steps in the process of starting a business blog.

To help you choose a direction, I’ve listed some non-mutually exclusive overarching goals a business blog can strive towards:

• Convey company news and events.
• Demonstrate knowledge, expertise, passion, and authority in a niche or industry.
• Provide helpful tips and info on getting the most from company services or products.
• Pass along success stories from customers about how your business has helped them become more successful.
• Dominate a niche or industry in search results (hence market and mind share) by becoming the authoritative source for information on a subject and using good SEO.
• Become a resource for the media and cottage industry about your business’ market, elevating your business’ position and brand.

When I speak of a business blog, I’m not specifying any size of business. I will in future articles, where necessary, because there are some things a large company should do differently than a small one. What I’ve written above could just as easily apply to a business of one (like a MicroISV) as to a Fortune 500 company.

The points above can be combined in any way: all of them or some of them can be the goals of a business blog. The first one alone would make me and everyone else yawn as we reached for the back button. They aren’t exhaustive, either; I’m sure others could add to the list.

How to Find the Best Location

A guide to scouting out a location for your food or retail business, sizing up demographics and getting the help you need

By Karen E. Spaeder

Chances are, you've heard the term "location, location, location" more than a few times. But if you're in the throes of creating a spectacular menu for your new restaurant or finding wholesalers for your first retail store, it might not be the first thing on your mind.
It's time to put location at the top of your to-do list. If you're preparing to open a food or retail business with a storefront, putting your business in the proper location might be the single most important thing you do at startup. Of course you need a winning product, too, but how will anyone know about that product unless you get them through the door?

"In the brick-and-mortar retail world, it's said that the three most important decisions [you'll make] are location, location and location," affirms Irene Dickey, a lecturer in management and marketing at the University of Dayton's School of Business in Dayton, Ohio. "Careful determination of new sites is critical for most retail and consumer service businesses."

Check Your Demographics

Making these determinations can be as simple or as complex as you make it. There are, for instance, sophisticated location analysis tools available that include traffic pattern information, demographic and lifestyle data, and competitive analyses. Adds Dickey: "For a price, a retailer can ask such questions as, 'If I'm looking to add a store to a particular market, what's the optimum level of traffic as it relates to the specific targeted trade area? What is the overall type of traffic? Once consumers are in the store, is there any way to measure the traffic patterns in the store?'"

"Do your due diligence," advises Michael Rodelle, director of real estate for the Papa Gino's Inc./D'Angelo Sandwich Shops franchise, based in Dedham, Massachusetts. "Get a demographic overview of the area you're looking at-age, income, households, etc."
In addition, you should look at neighborhood traffic generators, such as other retailers that draw people to the area, industrial or office parks, schools, colleges and hospital complexes. You'll also want to look at both highway and foot traffic. Carlos Silva, co-founder of Memphis Championship Barbecue in Las Vegas, learned all about finding a good location when he and his three co-founders (Dick Hart, Mike Mills and Dan Volland) opened their first restaurant in 1994. "We opened our first business in the middle of nowhere, and we had to work to get people to go to it," says Silva.

That's not to say it was a bad location-Silva says it fit in terms of the restaurant's theme. But it did require more of an effort to establish a presence. With three other locations now up and running, one of them inside a casino, the founders seem to have found their groove. "What we've done in Vegas is gone to each corner of the city," says Silva, who says the restaurants' sales have grown 25 percent over last year's, with 60 percent growth projected for 2004. "You're able to get to a Memphis restaurant within 10 minutes."

Look Your Competitors in the Eye

Many experts agree, though, that the answer to where you should locate is more straightforward than many entrepreneurs make it. "Quite simply, the best place to be is as close to your biggest competitor as you can be," says Greg Kahn, founder and CEO of Kahn Research Group in Huntersville, North Carolina, and a behavioral research veteran who's done location research for Arby's, Buffets Inc., Home Depot, Subway and other major and minor players. "Foot traffic is obviously important, but landing the 'perfect' customer is far more crucial. By being in close proximity to your competitors, you can benefit from their marketing efforts."
In other words, your competitors chose their locations based on the ideal demographics of a particular area, says Kahn. In many cases, they've also devoted large portions of their advertising budget toward driving traffic to their locations. "Why spend the money when they've already [spent it] for you?" asks Kahn. "It's that easy."

What's more, being located near your competition can be a boon to business, provided you're confident enough in your product to outsell your competitors. "Competition is good," concurs Blake Tartt III, president and CEO of commercial real estate firm New Regional Planning in Houston, known for his work on major malls and other commercial developments. "It makes the retailer or the restaurant better-competition breeds more business, more traffic, and that's a positive. If my clients are good, I tell them to go right up against the competition."
Of course, it's still a good idea to make your own evaluations of a particular property, even if your competitors seem to be thriving in the area. Staying ahead of the game in this regard will help your business grow should you decide, for instance, that you later want to open another location.

Do You Need Professional Help?

But your job isn't done even when you think you've found a good spot for your business. Negotiating a lease that works for you and your business is just as important as the location itself. "It's very important that you have a good lawyer who can negotiate your lease-that's another cost," says Tartt. Your attorney can help you look at things like the term of the lease, buildout allowance and the condition of the property.

He or she can also help you talk to the landlord so you ask the right questions. "Interview the landlord as hard as you look for the location," cautions Tartt. "You're marrying your landlord. There are a lot of unscrupulous [ones] out there-they tend to have a 'me' mentality."
Making use of a local real estate professional who understands your customers as well as you do is also a great idea. Depending on whether you're opening a food business or a retail store, you'll want to discuss things like the type of merchandise your target customers buy or the sort of food they like to eat. "I believe that in every town, there is some real estate professional who knows his or her city backward and forward," says Tartt. "The really with-it real estate person is studying all those trends, traffic patterns and demographics."

Having someone help you with your business plan before you even begin the location search can be invaluable as well. Entrepreneur.com has a guide to writing a business planthat offers information and resources to help you in this process, so that's a good place to start. A business coach or business plan consultant can also help you through this process; ask around in your network of colleagues for referrals, or check with your local Small Business Development

Centerfor additional assistance.

"Know what your business plan [says] when you're looking for a location," says Tartt. "Know what your strategic objectives are."
Being aware of all the location costs involved with starting your business will do wonders for your ability to weather any storms that might-and likely will-come your way. Underestimating the costs and the time involved with launching your business-especially when it comes to your location-is one of the most common startup mistakes, and one you can avoid if you plan properly. If you take into account everything from broker, attorney, engineering and architect fees to zoning and planning hearings, you can see that both the costs and the time to startup can vary widely.

The best advice? "Talk to other people in the business-learn from them what they've experienced, what the pitfalls are, what things to look out for," says Rodelle. "You've gotta do your homework. You can protect yourself and come out ahead."

Knowing What to Ask

Answering these 22 questions for each of the sites you're considering can help you decide on the best retail location for your business:
1. Is the facility located in an area zoned for your type of business?
2. Is the facility large enough for your business? Does it offer room for all the retail, office,
storage or workroom space you need?
3. Does it meet your layout requirements?
4. Does the building need any repairs?
5. Do the existing utilities-lighting, heating and cooling-meet your needs or will you have to do
any rewiring or plumbing work? Is ventilation adequate?
6. Are the lease terms and rent favorable?
7. Is the location convenient to where you live?
8. Can you find a number of qualified employees in the area in which the facility is located?
9. Do people you want for customers live nearby? Is the population density of the area sufficient
for your sales needs?
10. Is the trade area heavily dependent on seasonal business?
11. If you choose a location that's relatively remote from your customer base, will you be able to
afford the higher advertising expenses?
12. Is the facility consistent with the image you'd like to maintain?
13. Is the facility located in a safe neighborhood with a low crime rate?
14. Is exterior lighting in the area adequate to attract evening shoppers and make them feel
safe?
15. Will crime insurance be prohibitively expensive?
16. Are neighboring businesses likely to attract customers who will also patronize your business?
17. Are there any competitors located close to the facility? If so, can you compete with them
successfully?
18. Is the facility easily accessible to your potential customers?
19. Is parking space available and adequate?
20. Is the area served by public transportation?
21. Can suppliers make deliveries conveniently at this location?
22. If your business expands in the future, will the facility be able to accommodate this growth?

Then, for tips on negotiating your lease, read "Lease Lessons"from our December 2004 issue of Entrepreneur magazine.
________________________________________
Karen E. Spaeder is a freelance business writer in Southern California.

How to Start a Business Blog, Part 1

This is the start of a new series on how to start a business blog, and is aimed at businesses of all sizes. In these articles, I’m going to address business-specific concerns and requirements for business blogging.

UPDATE:

Let’s preview the entire series:

1. Part 1 covers the basics and benefits of starting a business blog
2. Part 2 is on determining the purpose of a business blog
3. Part 3 is about choosing authors for a business blog
4. Part 4 covers policy-making for business blogs
5. Part 5 is about blog platform and website/blog integration
6. Part 6 is a continuation of blog platform and site integration
7. Part 7 covers business blog design considerations
8. Part 8 is about how to choose blog categories for a business blog
9. Part 9 tells you what you need to know about creating initial blog content in the pre-launch phase
10. Part 10 was a very interesting look into business blog crisis management planning and its importance

Businesses of all stripes and sizes are taking the plunge into business blogging. Business blogs need to be treated differently than personal or professional blogs (where the blog itself is the revenue-earning vehicle). Let’s take a look at how to start a business blog and highlight what’s different from personal blogs.

Step 1: Understand Blogging in General

A business would be ill-advised to start a blog without understanding what blogging is all about. Blogging might seem strange and foreign to a more traditionally-inclined businessperson. Some people in the company might know about blogging, read blogs daily, and have personal blogs. Others simply haven’t a clue, and may not care about blogging. If you’re contemplating a blog for your business, chances are you already know about blogging. You will need to help others understand what is a blog, and why you should have a blog.

Step 2: Know the Benefits of Blogging for Business

Blogging offers some compelling advantages for business. If it didn’t, nobody else would be doing it. But every day, more and more businesses have blogs. Here are some of the benefits:

• Attracts new customers from new demographics than your company has previously serviced. People who read blogs generally spend more money online than people who don’t. Helps you answer the question: where are my next generation of customers coming from?
• Provides your existing customers with a new window through which to see you–and through which you can see them, via visitor statistics and/or comments.
• Provides an additional tool alongside more traditional marketing methods such as press releases, and yet also lets you bypass traditional news media so that you can speak in your own voice directly to your audience.
• Increases your company’s presence and placement in search results. Blogs constantly churn out new content full of keywords your potential customers will using to search online for products and services related to your company.
• Puts a human face on an abstract entity such as a company.
• Provides your company with the best possible crisis communications channel available.
• Less expensive and more effective than traditional methods of marketing and public relations.

Choose Your Business Structure

Of all the choices you make when starting a business, one of the most important is the type of legal structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money.

Mark Kalish is co-owner and vice president of EnviroTech Coating Systems Inc. in Eau Claire, Wisconsin, a company that applies powdered paint through an electrostatic process to items ranging from motorcycles to musical instruments. Kalish has also been involved with a number of other start-up businesses, both as an owner and in various management positions. The answer to the question of "What structure makes the most sense?" depends, he says, on the individual circumstances of each business owner. "Each situation I've been involved with has been different," he says. "You can't just make an assumption that one form is better than another."

It's not a decision to be entered into lightly, either, or one that should be made without sound counsel from business experts. Kalish says it's important for business owners to seek expert advice from business professionals when considering the pros and cons of various business entities.

"I've heard horror stories from people who, in hindsight, wish they had taken the time and spent the money to get expert advice upfront," Kalish says. That advice can come from a variety of sources, ranging from the no cost/low cost, such as the SBA or the Service Corps of Retired Executives (SCORE), to pricier attorneys and accountants who can serve as valuable sources of information throughout the life of your business.

Types of Business Entities
The type of business entity you choose will depend on three primary factors: liability, taxation and record-keeping. Here's a quick look at the differences between the most common forms of business entities:

• A sole proprietorship is the most common form of business organization. It's easy to form and offers complete managerial control to the owner. However, the owner is also personally liable for all financial obligations of the business.
• A partnership involves two or more people who agree to share in the profits or losses of a business. A primary advantage is that the partnership does not bear the tax burden of profits or the benefit of losses-profits or losses are "passed through" to partners to report on their individual income tax returns. A primary disadvantage is liability-each partner is personally liable for the financial obligations of the business.
• A corporation is a legal entity that is created to conduct business. The corporation becomes an entity-separate from those who founded it-that handles the responsibilities of the organization. Like a person, the corporation can be taxed and can be held legally liable for its actions. The corporation can also make a profit. The key benefit of corporate status is the avoidance of personal liability. The primary disadvantage is the cost to form a corporation and the extensive record-keeping that's required. While double taxation is sometimes mentioned as a drawback to incorporation, the S corporation (or Subchapter corporation, a popular variation of the regular C corporation) avoids this situation by allowing income or losses to be passed through on individual tax returns, similar to a partnership.
• A hybrid form of partnership, the limited liability company (LLC), is gaining in popularity because it allows owners to take advantage of the benefits of both the corporation and partnership forms of business. The advantages of this business format are that profits and losses can be passed through to owners without taxation of the business itself while owners are shielded from personal liability.

Selecting a Business Entity

When making a decision about the type of business to form, there are several criteria you need to evaluate. Kalish and EnviroTech co-owner John Berthold focused on the following areas when they chose the business format for their company:

1. Legal liability. To what extent does the owner need to be insulated from legal liability? This was a consideration for EnviroTech, says Kalish. He and Berthold had a hefty investment in equipment, and the contracts they work on are substantial. They didn't want to take on personal liability for potential losses associated with the business. "You need to consider whether your business lends itself to potential liability and, if so, if you can personally afford the risk of that liability," Kalish says. "If you can't, a sole proprietorship or partnership may not be the best way to go."

Carol Baker is the owner of The Company Corporation, a firm based in Wilmington, Delaware, that offers incorporation services. She points to the protection of personal assets as "the number-one reason our clients incorporate. In case of a lawsuit or judgment against your business, no one can seize your personal assets. It's the only rock-solid protection for personal assets that you can get in business."

2. Tax implications. Based on the individual situation and goals of the business owner, what are the opportunities to minimize taxation?

Baker points out that there are many more tax options available to corporations than to proprietorships or partnerships. As mentioned before, double taxation, a common disadvantage often associated with incorporation, can be avoided with S corporation status. An S corporation, according to Baker, is available to companies with less than 70 shareholder returns; business losses can help reduce personal tax liability, particularly in the early years of a company's existence.

3. Cost of formation and ongoing administration. Tax advantages, however, may not offer enough benefits to offset other costs of conducting business as a corporation.

Kalish refers to the high cost of record-keeping and paperwork, as well as the costs associated with incorporation, as one reason that business owners may decide to choose another option--such as a sole proprietorship or partnership. Taking care of administrative requirements often eats up the owner's time and therefore creates costs for the business.

It's the record-keeping requirements and the costs associated with them that led Kalish to identify the sole proprietorship as a very popular form of business entity. It's the type of entity in place at his other business, Nationwide Telemarketing.

"I would always take sole proprietorship as a first option," he says. "If you're the sole proprietor and you own 100 percent of the business, and you're not in a business where a good umbrella insurance policy couldn't take care of potential liability problems, I would recommend a sole proprietorship. There's no real reason to encumber yourself with all the reporting requirements of a corporation unless you're benefiting from tax implications or protection from liability."

4. · Flexibility. Your goal is to maximize the flexibility of the ownership structure by considering the unique needs of the business as well as the personal needs of the owner or owners. Individual needs are a critical consideration. No two business situations will be the same, particularly when multiple owners are involved. No two people will have the same goals, concerns or personal financial situations.

5. · Future needs. When you're first starting out in business, it's not uncommon to be "caught up in the moment." You're consumed with getting the business off the ground and usually aren't thinking of what the business might look like five or ten-let alone three-years down the road. What will happen to the business after you die? What if, after a few years, you decide to sell your part of a business partnership?

The issue of ownership was a key one for EnviroTech. "When we started EnviroTech," Kalish remembers, "our reasoning for forming it as a corporation was because of ownership; we wanted to be able to bring in stockholders as we grew."

"A corporation's capital," Baker says, "can be expanded at any time in a private offering by issuing and selling additional shares of stock. This is especially helpful when banks are being tight with money."

Another important question to ask yourself is, "What do I want to happen to the business when I'm no longer around to run it?" While a sole proprietorship or partnership may dissolve upon the death of its owner or owners, a corporation can be readily distributed to family members.

Keep in mind that the business structure you start out with may not meet your needs in years to come. Many sole proprietorships evolve into some other form of business-like a partnership or corporation-as the company grows and the needs of the owners change.

The bottom line? Don't take this very important decision lightly, and don't make a choice based on what somebody else has done. Carefully consider the unique needs of your business and its owners, and seek expert advice, before settling on a particular business format.

Sole Proprietorship

The simplest structure is the sole proprietorship, which usually involves just one individual who owns and operates the enterprise. If you intend to work alone, this may be the way to go.

The tax aspects of a sole proprietorship are especially appealing because income and expenses from the business are included on your personal income tax return (Form 1040). Your profits and losses are first recorded on a tax form called Schedule C, which is filed along with your 1040. Then the "bottom-line amount" from Schedule C is transferred to your personal tax return. This aspect is especially attractive because business losses you suffer may offset income earned from other sources. As a sole proprietor, you must also file a Schedule SE with Form 1040. You use Schedule SE to calculate how much self-employment tax you owe.

In addition to paying annual self-employment taxes, you must also make quarterly estimated tax payments on your income. Currently, self-employed individuals with net earnings of $400 or more must make estimated tax payments to cover their tax liability. If your prior year's adjusted gross income is less than $150,000, your estimated tax payments must be at least 90 percent of your current year's tax liability or 100 percent of the prior year's liability, whichever is less. The federal government permits you to pay estimated taxes in four equal amounts throughout the year on the 15th of April, June, September and January. With a sole proprietorship, your business earnings are taxed only once, unlike other business structures. Another big plus is that you have complete control of your business-you make all the decisions.

There are a few disadvantages to consider, however. Selecting the sole proprietorship business structure means you're personally liable for your company's liabilities. As a result, you're placing your own assets at risk, and they could be seized to satisfy a business debt or legal claim filed against you.

Raising money for a sole proprietorship can also be difficult. Banks and other financing sources are reluctant to make business loans to sole proprietorships. In most cases, you'll have to depend on your own financing sources, such as savings, home equity or family loans.

Partnership

If your business will be owned and operated by several individuals, you'll want to take a look at structuring your business as a partnership. Partnerships come in two varieties: general partnerships and limited partnerships. In a general partnership, the partners manage the company and assume responsibility for the partnership's debts and other obligations. A limited partnership has both general and limited partners. The general partners own and operate the business and assume liability for the partnership, while the limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as the general partners.

Unless you expect to have many passive investors, limited partnerships are generally not the best choice for a new business because of all the required filings and administrative complexities. If you have two or more partners who want to be actively involved, a general partnership would be much easier to form.

One of the major advantages of a partnership is the tax treatment it enjoys. A partnership doesn't pay tax on its income but "passes through" any profits or losses to the individual partners. At tax time, each partner files a Schedule K-1 form, which indicates his or her share of partnership income, deductions and tax credits. In addition, each partner is required to report profits from the partnership on his or her individual tax return. Even though the partnership pays no income tax, it must compute its income and report it on a separate informational return, Form 1065. Personal liability is a major concern if you use a general partnership to structure your business. Similar to a sole proprietorship, general partners are personally liable for the partnership's obligations and debt.

In addition, each general partner can act on behalf of the partnership, take out loans and make business decisions that will affect and be binding on all the partners (if the general partnership agreement permits). Keep in mind that partnerships are more expensive to establish than sole proprietorships because they require more extensive legal and accounting services.

Protect yourself and your business with a partnership agreement.
Starting a business with a partner? It may be difficult to talk about problems during your honeymoon stage, but that's exactly when you should. A written partnership agreement helps guide you when questions arise.

According to W. Thurston Debnam Jr., a partner with Smith, Debnam, Narron, Wyche, Story & Myers LLP, a law firm in Raleigh, North Carolina, a partnership agreement should answer the following questions:

• What is each partner's investment? Is one investing cash and the other energy? Do any of the partners own equipment that you'll use in the business, and does that fact deserve consideration as part of the start-up investment?

• What are the responsibilities and duties of each partner? Be specific about each partner's role in the day-to-day operations of the company.

• If a partner becomes disabled, how long will he or she get a share of the profits? If a partner dies, what happens to that share? A good way to deal with this issue: life insurance on all partners.

• Can the partners have other outside partnership interests? In particular, can interest be in similar or competitive businesses?

• What will you do if one partner wants to withdraw? Typically, you'll set up a buyout agreement, but it's a very good idea to decide on the terms before the situation arises. You'll also want to include a noncompete covenant.

• How will you restrict partnership-interest transfers? Can a partner transfer his or her ownership to anyone, or can you limit that transfer? This means the remaining partners won't find themselves in partnership with someone they object to. This is frequently used to protect the business in the event that one of the partners gets a divorce and his interest becomes a part of the divorce settlement.

• Can a partner pledge his or her interest as collateral for a loan?

• Are additional contributions mandatory? If the business needs capital in the future, are partners required to make capital contributions?

• How will conflicts be resolved? Most often, an arbitrator is used.

Debnam recommends that every business partnership-regardless of the relationship of the individuals-begin with a written agreement. "It ensures that the partners have the same vision," he says.

But there's another reason for a partnership agreement. "Poorly drawn agreements keep litigation attorneys in business," Debnam notes. "The best reason to have a good agreement is to avoid the legal fees when you have a meltdown.

Corporation

Using the corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements.

The biggest benefit for a small-business owner who decides to incorporate is the liability protection he or she receives. A corporation's debt is not considered that of its owners, so if you organize your business as a corporation, you're not putting your personal assets at risk. A corporation also can retain some of its profits, without the owner paying tax on them. Another plus is the ability of a corporation to raise money. A corporation can sell stock, either common or preferred, to raise funds. Corporations also continue indefinitely, even if one of the shareholders dies, sells the shares or becomes disabled.

The corporate structure, however, comes with a number of downsides. A major one is higher costs. Corporations are formed under the laws of each state with their own set of regulations. You'll probably need the assistance of an attorney to guide you through the maze. In addition, because a corporation must follow more complex rules and regulations than a partnership or sole proprietorship, it requires more accounting and tax preparation services.

Another drawback: Owners of the corporation pay a double tax on the business's earnings. Not only are corporations subject to corporate income tax at both the federal and state levels, but any earnings distributed to shareholders in the form of dividends are taxed at individual tax rates on their personal income tax returns.

To avoid double taxation, you could pay the money out as salaries to you and any other corporate shareholders. A corporation is not required to pay tax on earnings paid as reasonable compensation, and it can deduct the payments as a business expense. Keep in mind, however, that the IRS has limits on what it believes to be reasonable compensation.

How to Incorporate
To start the process of incorporating, contact the secretary of state or the state office that is responsible for registering corporations in your state. Ask for instructions, forms and fee schedules on business incorporation.

It's possible to file for incorporation without the help of an attorney by using books and software to guide you along. Your expense will be the cost of these resources, the filing fees, and any other costs associated with incorporating in your state.

If you do file for incorporation yourself, you'll save the expense of using a lawyer, which can cost from $500 to $1,000. The disadvantage of going this route is that the process may take you some time to accomplish. There's also a chance you could miss some small but important detail in your state's law.

One of the first steps you must take in the incorporation process is to prepare a certificate or articles of incorporation. Some states will provide you with a printed form for this, which either you or your attorney can complete. The information requested includes the proposed name of the corporation, the purpose of the corporation, the names and addresses of the parties incorporating, and the location of the principal office of the corporation.

The corporation will also need a set of bylaws that describe in greater detail than the articles how the corporation will run, including the responsibilities of the shareholders, directors and officers; when stockholder meetings will be held; and other details important to running the company. Once your articles of incorporation are accepted, the secretary of state's office will send you a certificate of incorporation.

Once you're incorporated, be sure to follow the rules of incorporation. If you don't, a court can pierce the corporate veil and hold you and the other owners personally liable for the business's debts.

It's important to follow all the corporation rules required by state law. You should keep accurate financial records for the corporation, showing a separation between the corporation's income and expenses and that of the owners'.

The corporation should also issue stock, file annual reports and hold yearly meetings to elect officers and directors, even if they're the same people as the shareholders. Be sure to keep minutes of these meetings. On all references to your business, make certain to identify it as a corporation, using Inc. or Corp., whichever your state requires. You also want to make sure that whomever you deal with, such as your banker or clients, knows that you're an officer of a corporation.

The S Corporation

The S corporation is more attractive to small-business owners than a standard (or C) corporation. That's because an S corporation has some appealing tax benefits and still provides business owners with the liability protection of a corporation. With an S corporation, income and losses are passed through to shareholders and included on their individual tax returns. As a result, there's just one level of federal tax to pay.

In addition, owners of S corporations who don't have inventory can use the cash method of accounting, which is simpler than the accrual method. Under this method, income is taxable when received and expenses are deductible when paid. Some relatively recent tax law changes brought about by the Small Business Job Protection Act of 1996 have made S corporations even more attractive for small-business owners. In the past, S corporations were limited to 35 shareholders. The 1996 law increased the number of shareholders to 75. Expanding the shareholder number makes it possible to have more investors and thus attract more capital, tax experts maintain.

S corporations do come with some downsides. For example, they're subject to many of the same requirements corporations must follow, and that means higher legal and tax service costs. They also must file articles of incorporation, hold directors and shareholders meetings, keep corporate minutes, and allow shareholders to vote on major corporate decisions. The legal and accounting costs of setting up an S corporation are similar to those of a standard corporation.

Another major difference between a standard corporation and an S corporation is that S corporations can only issue common stock. Experts say this can hamper the company's ability to raise capital. In addition, unlike a standard corporation, S corporation stock can only be owned by individuals, estates and certain types of trusts. The 1996 Small Business Job Protection Act law also added tax-exempt organizations such as qualified pension plans to this list starting in January 1998. Tax experts believe this change should help provide S corporations with even greater access to capital because a number of pension plans are willing to invest in closely held small-business stock.

Limited Liability Companies

Limited liability companies, often referred to as "LLCs," have been around since 1977, but their popularity among small-business owners is a relatively recent phenomenon.

An LLC is a hybrid entity, bringing together some of the best features of partnerships and corporations. "An LLC is a much better entity for tax purposes than any other entity," says Ralph Anderson, a CPA and small-business tax specialist with accounting firm M. R. Weiser. LLCs were created to provide business owners with the liability protection that corporations enjoy without the double taxation. Earnings and losses pass through to the owners and are included on their personal tax returns.

Sound similar to an S corporation? It is, except an LLC offers small-business owners even more attractions than an S corporation. For example, there's no limitation on the number of shareholders an LLC can have, unlike an S corporation, which has a limit of 75. In addition, any member or owner of the LLC is allowed a full participatory role in the business's operation; in a limited partnership, on the other hand, limited partners aren't permitted any say in the operation. To set up an LLC, you must file articles of organization with the secretary of state in the state where you intend to do business. Some states also require you to file an operating agreement, which is similar to a partnership agreement.

Like partnerships, LLCs do not have perpetual life. Some state statutes stipulate that the company must dissolve after 30 or 40 years. Technically, the company dissolves when a member dies, quits or retires.

Despite the attractions, LLCs also have their disadvantages. Since an LLC is relatively new, its tax treatment varies by state. If you plan to operate in several states, you must determine how a state will treat an LLC formed in another state. If you decide on an LLC structure, be sure to use the services of an experienced accountant who is familiar with the various rules and regulations of LLCs.

Even after you settle on a business structure, remember that the circumstances that make one type of business organization favorable are always subject to changes in the laws. It makes sense to reassess your form of business from time to time to make sure you're using the one that provides the most benefits.

Why LLC?

• Limited liability. Your only risk is capital paid into the business. Business debts and other liabilities can't be squeezed out of your personal assets. Caution: If you personally guarantee a debt, you've forfeited your "limited liability."
• Tax simplicity. Profits and losses are reported and taxed on owners' individual returns. There's no separate business tax return, unless you have more than one member and choose to be taxed as a partnership, in which case you file Form 1065. And there's no corporate "double taxation," in which both the business and the shareholders are taxed.
• Flexible management. A "member" (shareholder equivalent) can be a person, partnership or corporation. Members get a percentage of ownership. If your idea people can't manage their way out of a paper bag, you can hire management help. Smaller LLCs are usually member-managed, but not always.
• Flexible distribution. Profits and losses don't have to be distributed in proportion to the money each person puts in. A regular C corporation can't allocate profits and losses. And in a subchapter S corporation (taxed as a partnership), profits and losses are in proportion to shares held.

Why Not?
And now for the downsides:

• No stock. LLCs are tough if you have several investors or raise public money, since you don't have shares or stock certificates to offer. If you give a percentage of ownership to outside investors, you must decide whether they'll be managing members. Seidel cautions entrepreneurs: "Ask yourself if you need more flexibility in terms of corporate stock ownership, financing options, etc. If so, the LLC is probably not a good idea-try a C corporation."
• Two's a crowd. LLCs in most states require only one member: you. But if you live in Massachusetts or the District of Columbia, you must have two members, and that could be a deal-buster.
• Fewer incentives. LLCs aren't ideal if you want to give fringe benefits to yourself or employees. Unlike with a C corporation, you can't deduct the cost of benefits with an LLC. And since there's no stock, you can't use stock options as incentives for your employees.
• Paperwork. LLCs file articles of organization with the State Corporation Commission or Secretary of State and must draft an operating agreement listing members' rights and responsibilities. Some paperwork that must be filed, like an application for employer ID number (IRS Form SS-4) and choice of tax status (IRS Form 8832), are one-shot; others (annual report, quarterly withholding and tax deposit coupons, and business bank account) are ongoing. While it's not an impossible burden, there's more paperwork than if you're a sole proprietor.
• Taxes. LLC members pay self-employment taxes, the Medicare/Social Security tax paid by entrepreneurs; it's calculated on 15.3 percent of profits. Contrast this with an S corporation: Self-employment tax is due on salary only, not your entire profits. You're caught in the self-employment tax net if: 1) you participate in the business for more than 500 hours during the LLC tax year; 2) you work in a professional services LLC (health, law, engineering); or 3) you can sign contracts on behalf of the LLC.

Ultimately, the LLC decision is one you won't want to make alone. "Get advice from a specialist about the ideal corporate form to take," advises Seidel. "It can make a huge difference later on." In business, as in life, one size rarely fits all.

Secretary of State and Commerce Web Sites

Find the information you need to choose your business structure at the following state websites:

Alabama
Alaska Division of Banking, Securities and Corporations
Arizona Secretary of State
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii Division of Business Registration
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah Department of Commerce
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

Source:Start Your Own Business, Entrepreneur magazine and Entrepreneur.com