Project 5 Essay

Submitted By plegrand955
Words: 1130
Pages: 5

Phyllis LeGrand BUSN125-150B-04 Individual Project 5 April 26, 2015 Starting a Business

Introduction
Starting a business can be a dream come true for many people. They consider the benefits of being their own boss, of being directly responsible for the company's success or failure, and they may dream of making large amounts of money. But many new companies fail, and the problem is often a failure to adequately plan for the many costs and logistical issues that come up during the process of starting a company. This research considers some of the issues associated with starting a company, including funding questions, taxes, using pricing to generate sales, and how inventory and assets will be acquired. The research also considers the use of technology and the Internet for financial transactions as well as for company operations.
Type of Banking and Loan Arrangements
All new ventures require start-up capital to be used to rent an office (if needed), buy inventory, acquire assets such as computers, and pay salaries to the owners and employees. Without sales, however, there is no cash flow to actually begin the business. New business owners may put their own money into the business; many also seek business loans. The Small Business Administration (SBA) is a good source for funding new businesses. The 7(a) loan program from the SBA does not lend money directly to most small businesses, but does facilitate loans through local financial institutions. Owners are required to guarantee the loan (Entrepreneur, 2015).
The SBA Microloan program provides funds up to $50,000 administered through a nonprofit group based in the local community. Under the microloan program, funds can be used for working capital, inventory and supplies, furniture and fixtures, and machinery and equipment. They cannot be used to purchase real estate. Repayment terms vary depending on the specific loan, but have a maximum repayment term of six years and interest rates that vary between 8 and 13 percent. Payments are made monthly on an installment basis, so a loan of $50,000 at 10 percent paid back over six years would have monthly payments of $926.29 (U.S. Small Business Administration, 2015).
Types of Taxes
Depending on the type of business and where it is located, the company will need to collect sales tax and pay it to the state. Sales tax is collected at the point of sale and is based on the sale price of the product. In addition to the state sales tax, the local municipality may charge an additional percentage. Generally, these are both sent to the state along with paperwork documenting the tax; the state then sends each municipality its share. Services are typically not subject to sales tax; some food items are also exempt (U.S. Small Business Administration, 2014).
Because the company will have one employee beyond the owner, it will also need to pay payroll taxes. Payroll taxes are based on the wages of the employee, and include Social Security taxes, income tax withholding for both the state (if applicable) and the federal government. Depending on the state, unemployment taxes may also be collected. Most payroll services, such as ADP, will take care of withholding the taxes, paying the taxes and filing the necessary paperwork as part of the payroll service. Using such a service can save small business significant time since it is unlikely that the owners will be experts in payroll tax law (Brooks, 2014).
Using Pricing to Generate Interest
Setting prices higher than the norm can be a way to signal to the market that there is additional quality or service to be realized by doing business with us. However, a premium pricing strategy requires the underlying service to support it, and if the market fails to differentiate between our companies and those with lower prices, we face the prospect of not surviving. Offering periodic short-term…