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Answers to Business Questions The text below contains excerpts from THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK by Janet Attard. The book, which is published by Henry Holt and Company, contains practical, real-world answers to more than 900 of the most frequently asked questions about starting and running home offices and small businesses. The following is copyright (c) 1993 by Janet Attard. All rights reserved. The file may be copied to BBS and online services only if this copyright notice and all other information in the file remains intact. Used by arrangement with Henry Holt and Company, Inc. Excerpts from THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK by Janet Attard This week more than 39 million people in the United States are likely to spend some time tapping away at home computer keyboards, tinkering with gadgets in slightly musty basements, loading boxes or barrels or tools into vans or garages, or pursuing any number of other activities, all in pursuit of one common goal--making money at home.* Who are these people? How successful are they at making money at home? More importantly, should you work at home and will you be successful? Here are some insights and information to guide you in your decision WHO WORKS AT HOME? Almost everyone works at home, or so it often seems! There's that guy up the street who has a little wallpapering business on the side; the woman around the corner who translates scientific papers into German; your sister in Chicago who works as a freelance direct mail copywriter ;and your brother-in-law in California who leads corporate training seminars. Then, too, there's the auto mechanic who makes house calls; the plumber, the homebased word processor your company hires occasionally, the woman who does your taxes every year; the computer consultant that just installed a new inventory system in your company's warehouse, and the young man in a suburban NY community who grew his "little" newspaper delivery route into an enterprise so profitable that it let him put aside enough money to pay for his college education and╩make a down payment on a condominium he purchased for rental income -- before he turned 18. And, let's not forget your old school "pal" Jim Douglas. Jim is that guy you haven't seen in 15 years who called last week just to say "Hello!"-- and to share information with you about a wonderful business opportunity he's discovered that could help you save for a financially secure retirement. -=-=-=-=-=- HOW MUCH MONEY DO PEOPLE WHO WORK AT HOME MAKE? Some people earn as much as $250,000 a year working from home. Others work sporadically from home and make just a few hundred to a few thousand dollars annually. Still others grow their businesses so big they have to move them out of their homes to nearby business or industrial space. Results of a study conducted by the Home Office/Small Business RoundTable on the GEnie¿ computer information service, suggest most full-time self-employed gross $30,000 or more each year; 10 per cent them gross more than $100,000 per year from their businesses. -=-=-=-=-=- IS THERE ANYTHING I CAN'T DO AT HOME? There are certain products illegal to produce in the home. Fireworks and explosives, medical supplies or drugs are prohibited in most states. Manufacture of foods and clothing at home is highly regulated or prohibited in some localities.2 Generally, if what you do can affect the health and safety of others, will be regulated, and could be prohibited as a home business. In addition, some communities have outdated zoning laws forbidding any type of business to be conducted in the home. Often such laws are blatantly ignored; sometimes they are enforced. Check your local laws if you have any doubts.(See Chapter 10 for information on zoning and other laws that may affect you.) -=-=-=-=-=- THERE ARE A LOT OF BUSINESSES THAT SOUND INTERESTING TO ME. HOW DO I DECIDE WHICH BUSINES IS THE RIGHT ONE? Look for the business that comes closest to your interests and capabilities and one that fits in with your long and short range financial goals. For each business you think you might want to start, ask yourself the questions below. Write, your answers down on a piece of paper so you can more easily compare the relative benefits and drawbacks of one business over other. * Do I really know much about this business? * Do I have all the skills needed to start and run this business? * Would I really enjoy doing whatever is necessary to sell this product or service? * How much money do I need to make each week? * How much money could this business make each week? * How long would it take (realistically!) to start generating that much money? * How much will it cost to start this business and run it until it starts producing income on a steady basis? * Can I afford to put that much into the business? * What money will I use to live on until the business starts making money? * How fast do you need to generate money? * Are there really enough people who want to buy this product or service?(See Chapter X, Planning) * Do I know how to find them? * How many hours a week can I work now? * How many hours a week will it take to do all the work (finding customers, producing or getting the product or service to them, billing them, doing the bookkeeping)? * How big could the business grow? * How big do I want it to grow? TABLE 2.1 on page 20 should help you explore your interests and skills. -=-=-=-=-=- WHAT SHOULD GO INTO A BUSINESS PLAN IF I'M NOT LOOKING FOR A LOAN OR INVESTORS? If you will be investing any significant amount of money or time in you venture, you should create a business plan that at minimum puts the following information down on paper: * What business am I in? The answer to this question should dictate the focus for all your operation. For instance, are you in the business of selling dried floral arrangements or decorative home accessories? Do you have a word processing business, a resume service or a secretarial service? If you offer several different products or services, how do they fit together? What do they have in common? You should be able to summarize the nature of your business in a sentence or two. If you can't do that, your business isn't likely to have the focus it needs for growth and success. * Who are my customers and what do they want to buy?. Even though you aren't looking for a loan or investors, you still need to gather facts about your market so you can make realistic sales forecasts. * How will I sell my products or services? Many homebased entrepreneurs get so engrossed in developing their ideas that they forget to determine how they are going to sell their products or services and what it will cost them to make those sales. Typical is the person who pulls thousands of dollars out of savings to buy the equipment necessary to run a business, then discovers that newspaper ads cost more than he thought and that he doesn't have enough money left to run ads long enough to have them do any good. The time to make such discoveries is before you sink thousands of dollars into setting up you operation, not afterwards. * What will all of my expenses be? One of the biggest mistakes made by people who start homebased and other very small business is not calculating all of their costs. Production and advertising expenses are only part of the costs you will incur. Even if you work from home you will still have to buy supplies, (for instance, just printing out or photocopying a single page of text can cost you anywhere from about 2 to 5 cents depending on the cost of ink and the type of paper you are using), You will also pay for business cards, letterhead and envelopes, equipment, repairs, gas if you travel to your customers, professional fees, taxes, insurance, etc. * At what point will I make a profit? The point of being in business is to make a profit. You need to know the how many sales you need to make at what price to make the kind of profit you want or need from the business. You also need to determine how long it might take you to reach that level of profit so you can determine if you have enough money to live on and support the business until it does become profitable. -=-=-=-=-=- HOW DO I MAKE REALISTIC SALES FORCASTS You start out by getting industry statistics if possible. Trade associations, trade magazines and newspapers all may have information on the total volume of sales in an industry and how this year's sales compares to last year's sales. You may be able to get some information about the size of your market and location of it through the same sources. Demographic information available from the U. S. Department of Labor, the Bureau of Census, the U. S. Department of Commerce, and local or regional economic development agencies all can be extremely valuable too. Other ways you can get the facts you need to predict sales include: * Using industry averagers to calculate response rates to different advertising and sales methods. * Asking distributors, wholesalers, or sales representatives or agents what their experience has been with similar products or services. * Getting circulation figures (or audience size) for the media you plan to use for advertising * Calling other advertisers who use or have used that media in the past and asking what their response rates have been. * Surveying your potential customers (in person, by mail or on the phone) to find out what they buy, how much of it they buy, what they like or don't like about what they buy now, what it will take to get them to switch to your product(s) or services. -=-=-=-=-=- SHOULD I INCORPORATE IN DELAWARE? As a small business with just a few shareholder-employees, the easiest and best place to incorporate is usually within your own state. Although Delaware may offer to some tax breaks and potentially more statutory protection from liability for corporate directors than your own state, the advantages are likely to be outweighed for a small corporation by the disadvantages. For instance, you would have to have appoint someone in Delaware to be an agent for your corporation (there are companies in Delaware that do this); you will have to pay an annual franchise (corporate) tax to the state of Delaware; and if you incorporate in Delaware but do business in another state (the state where you live, for instance) you will have to file an application in your home state to do business as a foreign corporation, and will then have to pay a franchise fee as well as income taxes in your home state. -=-=-=-=-=- IS IT BETTER TO CHARGE FOR A SERVICE BY THE HOUR OR THE JOB? There is no "better way" to charge. In fact, there will be some instances when you charge by the hour, others where you charge by the job, and perhaps still other times where you work on a retainer basis, or get a "per head" fee (for teaching or seminars, for instance), a contingency fee, commission (on sales or placement) or royalties. * Charge by the hour if the job is one where the customer is likely to make changes in the job specifications while you are working on the project. Here's the type of situation you need to be wary of: A copywriter, after spending half a day at a client's office getting all the information he needed to write the copy for a new product brochure and sales letter for one of the company's products, spent the better part of a second day writing the material. Then, before he had a chance to deliver the assignment, he got a call from the company's marketing manager who informed him the company had decided the mailing should include a limited time offer for a large discount on the product. The entire mailing had to be redesigned and rewritten. Had the writer quoted a flat rate on that job he would have lost at least one full day's earnings. * Charge by the job if the client won't agree to an hourly rate, or if you know how long it will take you to do certain types of job, (such as write a publicity release, or adapt a commercial program for a specific use) it is often more profitable to charge for the job. For instance, if the going rate for writing a short publicity release is $150, and you can write the release in an hour, it's obviously better to state a flat fee of $150 for writing the release than it would be to charge $50 or $75 an hour for your work. Tip: Sometimes charging by the job is advisable to avoid raised eyebrows and questions about why your rates are so high. Tip: On corporate or other projects where many changes are likely due to either a difficult client or the need for approvals from multiple department heads in a company, at each phase of a project have someone at the company "sign off" on the work (sign a piece of paper approving the work and authorizing the next step/or acceptance). This will allow you to bill for changes made at a later stage (and perhaps help keep you from being held responsible for errors) that should have been caught in early stages of the project. -=-=-=-=-=- HOW DO MOST SMALL BUSINESSES GET THEIR CUSTOMERS? Results of a survey completed by more than 900 visitors to the Home Office/Small Business RoundTable on the GEnie service in 1992 show that the majority of small and homebased businesses (54 percent) get most of their customers through word-of-mouth advertising. The second leading source of customers for the same group of people was networking (16 percent). -=-=-=-=-=- HOW DO I GET EDITORS TO WRITE AN ARTICLE ABOUT MY PRODUCT OR SERVICE? You have to have an interesting story or a "hook." The fact you sell cellular telephones is neither exciting, nor newsworthy. But if one of your customers is using your portable cellular phone in an interesting or new way, letting a reporter know about that unusual or new use of your equipment might make the news and get your company name in the press. You also must know which media would be interested in the story you are presenting. "The major mistake people make is to propose stories that are not appropriate for the publication." says Ron Roel, deputy business editor of Newsday and New York Newsday. "Be familiar with the publications you are trying to pitch the story to. Know what kinds stories they print, what the length is. Show that you have done some research and you have a particular reason to call about a particular story, not that you just want someone to write about you." -=-=-=-=-=- I'M PLANNING ON QUITTING MY JOB TO START MY OWN BUSINESS. CAN I CONVERT MY COMPANY HEALTH INSURANCE POLICY TO A PERSONAL ONE? If your present employer has 20 or more employees and you become ineligible for insurance under the company group plan due to a "qualifying event," you may be entitled to continue the plan for up to 18 months1 under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).If termination of employment is due to disability, the continuation period is extended to 29 months.). You will have to pay the premiums out of your own pocket, however. At the end of the continuation period you would have the option of converting it to an individual policy under the health care policy's regular conversion options. -=-=-=-=-=- DOES THE COBRA LAW APPLY TO ALL COMPANIES THAT HAVE TWENTY OR MORE EMPLOYEES? No. Some government, church and self-insured plans are exempt from the COBRA law, so be sure to check before assuming you can continue coverage. -=-=-=-=-=- WHAT ARE "QUALIFYING EVENTS?" The following five events are considered qualifying events under COBRA: 1) You cease to be an employee for any reason other than gross misconduct. 2) You change from full-time to part-time employment and no longer qualify for the company's healthcare plan due to the reduction in hours you work. 3) You are the spouse of the insured and lose coverage due to divorce, legal separation or the death of the insured. 4) You are a child who ceases to be eligible for group plan benefits. 5) You become entitled to Medicare benefits. -=-=-=-=-=- SUPPOSE I COMBINE A VACATION WITH A BUSINESS TRIP. CAN I STILL DEDUCT MY TRIP? If the primary purpose of the trip is business and the trip is within the United States, you can deduct all your costs to and from the location plus the hotel and other business-related costs described above for the business part of the trip. Money you spend on transportation or meals, entertainment, etc. during the vacation part of the trip are not deductible. If, however, the primary purpose of the trip is vacation or personal, no part of your transportation costs from your tax home to your destination are deductible. The transportation costs after you arrive that relate to the business activity while away would be deductible. For example, you travel to Disneyland for a vacation for a week. While there, you drive to the next county to visit a client and because of the distance return to your hotel the next day. You could deduct the costs of reaching the client and the overnight hotel fee plus 80 percent of food costs as business expenses, but the rest of your expenses for the week plus your airfare to Disneyland would be nondeductible personal expenses. However if you were attending a week-long business convention at Disneyland and spent a day visiting relatives before returning home, you could deduct your entire plane fare plus hotel, meals (at 80 percent), etc. while at the hotel. The incidental costs of traveling to your relative's town and expenses you incurred that day would not be deductible. -=-=-=-=-=- *Note: This figure is based on 1992 figures from Link Resources Corporation and includes some 8.6 million people who bring work home from the office. =============================================================== Those are just a few of the hundreds of helpful answers in THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK. Among the other questions answered in the book are: - Can you still start a successful business on the kitchen table? - How can you get authorized to accept credit cards? - What can you do to keep your company from falling victim to credit card fraud? - How can you tell if a business opportunity is real or just a scam? - What goes into a formal business plan and when do you need one? - Should you advertise? - What can you do if you can't afford to advertise? - Do you need special business insurance? - How should you price your product or service? - Can you really get a grant to start your business? - How much do you really have to spend to start a 900-number service? - How do you make the business "legal"? - What can you do to get your customers to pay on time? - Can you copyright your ideas to prevent them from being stolen? - How can you keep others from using your business name? - What are the advantages and disadvantages of incorporating? - Can you really make money in mail order? - Are franchises and "packaged" businesses worth buying? - Is it practical to use a plain paper fax as a photocopier rather than buying two separate machines? - What kinds of products sell well by mail? - How long should you keep business records? - What should go into a contract? - What should you know about buying health insurance? - How can you gain more control over your time? - What tax deductions are you entitled to? - Will the IRS consider you an employee instead of an independent contractor? - What criteria does the IRS use to determine whether an individual is an independent contractor or an employee? - What should you do if you can't pay the taxes you owe? - How do you write a publicity release? - What does it really take to make a business successful? WHAT OTHERS HAVE TO SAY Michael Espindle, who was managing editor of Home Office Computing Magazine until February 1993 says: "For millions of people who dream about starting their own small or home-based business, Janet Attard's THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK provides an accessible, well-thought-out game plan for making that dream a reality. And for those who have already taken the plunge, the book serves as a handy reference - one to keep on the same shelf as your dictionary, local tax codes and motivational books." Dale McNabb, Deputy Director of the Air Force Office of Small Business says the book: "Proves its worth by addressing complex subjects directly, simply, completely and accurately." M. Daniel Aloot, Director, Silicon Valley Small Business Development Center, calls the Home Office and Small Business Answer Book: "THE reference book for small business owners and entrepreneurs who need common sense answers -- right now and to-the-point." ABOUT THE AUTHOR Janet Attard is sysop of the Home Office/Small Business RoundTable and the U. S. Air Force Small Business RoundTable on the GEnie service. She is the owner of Attard Communications, a company which provides writing, editorial and information services to growing businesses and major corporations. An award- winning writer with numerous books and articles to her credit, she has been self-employed for more than 20 years. HOW TO GET YOUR COPY of THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK THE HOME OFFICE AND SMALL BUSINESS ANSWER BOOK is published by Henry Holt and Company, Inc. in both paperback ($19.95) and hard cover ($40.00). It is available in book stores throughout the country or may be ordered directly from the publisher. U. S.orders: For charge card orders call 800-488-5233. Please mention offer number 23. If you prefer to send a check, please mail your payment plus $2.50 shipping and handling charge to Henry Holt Reference Books, Henry Holt and Company, Inc., 115 West 18th Street, NY, NY 10011. Books will be shipped via UPS. Canadian Orders: For Canadian orders: The Canadian price is $25.00 (ppr). Please add 7% GST, plus $2.50 shipping and handling. To order by phone in Canada, call 1-800-387-9776. Or, write to Fitzhenry and Whiteside; 195 Allstate Parkway; Markham, Ontario L3R 4T8.