Entrepreneurship involves risk. Being a smart entrepreneur involves having a realistic assessment of the chances for success and failure. The conventional wisdom is that you have a one in five chance of making it through the critical first five years. As a realistic and prudent entrepreneur, you should do every thing to ensure your success while taking shrewd steps to protect yourself from the possibility of failing. I suggest you do this from day one of your business endeavor. Specifically, you should consider:
You have to look at yourself as one entity and your business as another. The relationship between the two must make economic sense. How many times have we seen the eternal optimist mortgage their house to the hilt and cash in their savings to move into a start-up? How many ask themselves the two important questions: Can this business possibly provide sufficient return to risk what I am gambling? Are there steps I can take now to reduce what I can lose? While having a positive attitude is essential to success, you must equally consider protecting your assets so you can start over if that should be necessary.
While optimist always ask how much they can make from a venture, realist ask how much they can lose. And the answer is in how they forumulate and control the investment decision.
Shoestring endeavors are the creation of entrepreneurs with few dollars to invest and the creation of people who can invest more but intentionally choose to start with less because they want to risk less. We're not saying you should undercapitalize your endeavor; that can lead to failure just as quickly.
But even shoestring entrepreneurs can lose a bundle when they lose sight of their objective and begin to make irrational investment decisions. Typically investment policy for start-ups is ill defined to begin with and totally abandoned once the business is under way. It's easier to throw money rather than good objective judgment into a cash hunger start-up.
Uncontrolled loses are always the result of uncontrolled optimism. A rationale approach to the investment decision is to focus on four questions before you start your venture.
This helps define what you're prepared to lose on a venture. Contrary to what many entrepreneurial books suggest, starting smart is not exposing all your personal assets to risk but gambling only with what you can realistically afford to lose. ARnold S. Goldstein suggest dividing assets into the classical "touch" and "don't touch" piles. For example, you may decide to limit your investment to only 25% of your liquid assets. Once you set aside precisely what you are prepared to risk, you know your maximum investment capability while preserving your fall back positon. Setting limits is the only way to conrol losses
Within the limits of what you can afford to risk is the decision of what the business can justify as an investment. Consider the return on investment the business can offer and make certain it bears a rational relationship to the capital at risk. Many entrepreneurs make sizable investments only to discover the low earning power of the venture. Others understand the financial return won't quite measure up, but go ahead because the business offers psychic enjoyment or a better lifestyle. It's a fair trade-off if that's all you expect from the business. When financial return is important, your goal should be a minimum of 25% annual return on investment. The inherent risk of a small business doesn't justify less. What price tag would you put on your venture?
What the business can logically justify as an investment and what you will invest are two different numbers. The goal is to prune investment to the smallest possible amount. Cutting investment not only cuts losses but provides a better return on your investment. The ultimate goal might be to start the business without investing any of your own money. After all, every dollar you invest is a dollar you could lose. Starting smart means investing as little of your own money as possible while adequately capitalizing your venture.
One reason to invest a small initial capital is to hold further funds in reserve, feeding them slowly and judiciously to the enterprise once it shows promise.
Over-investment is most likely to occur after the business is in operation. Many shoestring entrepreneurs start the venture with a reasonably small and prudent investment only to throw caution to the wind as they continuously feed the cash hungry enterprise. Admittedly, the decision on whether to feed or starve the business is the most difficult of all management decisions. You wonder whether it's "good money after bad," or whether the few extra dollars will propel the business over the start-up hurdles on its way to success.
The only approach to the problem is to set performance goals and targets that justify adding more working capital. One target should be sales, another is costs. If the business is at or close to its targeted goals, you may want to invest more funds, but the decision should always be focused on meeting targeted goals. If the venture looks like a loser, the investments STOP. That's the one cardinal error of so many shoestring entrepreneurs. Rather than admit defeat, they think that adding money is the cure. Remember, if you've prudently reserved some funds, you get to try again with another promising venture.
Many suppliers and creditors will provide equipment to display their wares, give you extend payment terms. They may even help defray or consider cooperative product promotions.
You may operate a business by yourself (sole proprietorship), with another person (general partnership), or as a separate legal entity (corporation, limited liability company, limited liability partnership, or limited partnership). Each type of business structure has advantages and disadvantages. If you have questions on the form of business that is best for your particular business, a qualified tax consultant or attorney can advise you. Your local Small Business Development Center or library may also have literature or classes that will help you compare different types of business organizations. If you are a construction or landscape contractor, the Construction Contractors Board and Landscape Contractors Board can provide some information on the advantages and disadvantages of different business structures for those business activities.
This section provides information on types of business organization and the registration that is
required for each. If registration is required, fillable, online forms are available at
http://www.filinginoregon.com/forms/
or may be obtained from the Corporation Division by calling 503-986-2200. Submit the completed form
and a non-refundable $50 processing fee to the following address or fax number:
Corporation Division
Business Registry Section
Public Service Building, Suite 151
255 Capitol Street NE
Salem, OR 97310-1327
Fax: 503-378-4381
Please allow one to two weeks for processing documents submitted by mail. If submitted by fax, payment must accompany the document with a Visa or Mastercard credit card number. The number and expiration date must be included on the fax cover sheet. Faxed documents are processed in the order received usually within three business days. The fax cover sheet with the credit card number is destroyed when the document is processed.
If you need to expedite the processing of a document, documents brought to the Customer Service Counter of the Corporation Division are processed while you wait. Documents delivered to the Corporation Division at the above address by express delivery mail such as FedEx or UPS are processed within 24 hours of receipt. Please be aware that overnight service of the US Postal Service does not deliver to the Customer Service Counter; the US Postal Service delivers all state mail to a central location and documents received via that service are processed as regular mail.
If you would like to check a name for availability prior to submitting an application, you may check our website. However, a name availability check does not guarantee the name will still be available when Business Registry receives the application.
Any person intending to organize a corporation, limited liability company, limited liability partnership, or limited partnership may reserve a name by submitting an application for name reservation and a non-refundable $50 processing fee to Business Registry. A name reservation puts a hold on the name only and prevents the registration of an identical name. Before a reservation is filed, the name is checked for availability. The name must be distinguishable from other active names on Business Registry records. If the name is distinguishable, Business Registry processes the document and reserves the name for 120 days.
The following list of business forms are not listed in any preferential order. By conducting sound research on this subject, taking with on-going businesses, "how to" books, and critical thinking, I believe you can initially determine the best form for your business endeavor. Because of the risk involved to you, I also feel an obligation to suggest that you may want to consider discussing your selection with an attorney or accountant.
A limited liability company (LLC) is an unincorporated association having one or more members. The LLC can be managed by managers or members. Managers can be but are not required to be members. It must be stated in the articles of organization if the limited liability company is to be managed by managers. Managers could be compared to the board of directors, and members are like the shareholders of a corporation or limited partners of a limited partnership. In order to be a member of a limited liability company, a contribution such as cash, property, or services rendered must be made.
The internal affairs of the LLC are governed by operating agreements that may be oral or written. These operating agreements are comparable to the bylaws of a corporation. The internal affairs are managed by the members, unless the articles of organization specifically state that they shall be managed by one or more managers.
A limited liability company must have a registered agent in Oregon whose street address is the
registered office. When a limited liability company is sued, the legal papers are served on the
registered agent. Thus, it is necessary that the registered office have a street address. A registered
agent can be an individual or a legal entity.
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A limited liability partnership is an association of two or more persons doing business. It is restricted to partnerships that render a professional service as defined by ORS Chapter 58, or partnerships that are affiliated with a limited liability partnership and render a complementary service or provide services or facilities to the limited liability partnership. You may want to check with your professional licensing agency or board to be sure they recognize this form of business organization.
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Aside from the personal protection of a corporation, there are other advantages. A corporation can provide valuable tax deductible benefits including sick pay, medical and dental insurance, life insurance, and even deductions for travel and educational expense. Workmen's compensation is another big benefit. Unlike a partnership or proprietership, a corporation continues after death of its owner. No liquidation of the business is necessary. If you want to bring in additional investors, selling corporate stock is the cleanest way to divide ownership. Want to expand; a corporation offers the most flexible way to attract diverse types of financing.
A corporation is a legal entity created under Oregon statute by submitting articles of incorporation with Business Registry.
A corporation is owned by its shareholders, in whose names the shares are registered in the records of
the corporation. The articles of incorporation must state how many shares the corporation has
authority to issue.
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A general partnership is an association of two or more persons doing business. All partners are personally liable for the obligations of the partnership.
A general partnership does not have to be registered with Business Registry unless it uses an assumed business name. If the name of each general partner is not conspicuously disclosed to the public, the business name must be registered with Business Registry. The registration allows the public to identify who is transacting business under that business name. See assumed business name registration.
General partnerships are governed by Oregon Revised Statutes (ORS) Chapter 68.
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A sole proprietorship is the simplest form of business where one individual conducts the business. The business owner is personally liable for all the obligations of the business.
A sole proprietor does not have to be registered with Business Registry unless the business uses an assumed business name. If the name of the business does not include the full legal name of the business owner, the business name must be registered as an assumed business name with Business Registry. This allows the public to identify who is transacting business under that business name. See the assumed business name registration material that follows this section.
A business name must be registered with Business Registry as an assumed business name if the legal name of each person who is carrying on the business is not conspicuously disclosed to the public in the business name. Each person's legal name must include both the first and last names. Nicknames are not legal names and must be registered as assumed business names. If there are words that suggest additional owners, such as "company" or "associates", the name must be registered.
A business name that includes all owners' full legal names may be registered, but the registration is optional. A corporation, limited liability company, limited liability partnership or limited partnership does not register its name as an assumed business name unless the entity wants to use the name without the entity type designation.
If you fail to register your assumed business name, you may be prevented from carrying on a lawsuit for the benefit of your business.
To register an assumed business name, an assumed business name application and a non-refundable $50 processing fee must be submitted to Business Registry. The name must be registered in at least one county. For your convenience, there is a map of Oregon counties in the appendix of the Oregon Business Guide. Before an assumed business name is filed, the name is checked for availability. The name must be distinguishable from other active names on Business Registry records. If the name is distinguishable and the application conforms to Oregon statute, Business Registry processes the document and returns an acknowledgment to the customer.
The assumed business name must be renewed every two years by its anniversary date. Business Registry mails a renewal coupon at least 30 days before the renewal is due. If names or addresses need to be updated at any time, an amendment to the assumed business name must be submitted for processing. There is no processing fee for an amendment.
Assumed business name registrations are regulated by the Assumed Business Name Statute, ORS Chapter 648. Forms are available at: http://www.filinginoregon.com/forms/.
Your Help Is Appreciated:
Please email any additions or revisions to the material above. Specifically, the advantages and liabilities between "Sole Proprietorship," the various forms of "partnerships," C and S type "Corporations," and the various forms of "Limited Liabilities Companies/Partnership (LLC/LLP)."
I'd also appreciate any material on insurance and bonding.
Please email the material to Jerry <[email protected]>