October 2019: "Social Media Marketing"
You need to get the words out to potential customers that your business is now open. Use of social media is one of the ways to do it. Watch the video here.
September 2019: "Establishing Your Business Entity!"
Before discussing the main topics of this article, it is important to point out that there is a free mentoring service available to you from SCORE to address business startup and operational issues. SCORE offers individualized mentoring service as well as workshops to help entrepreneurs who are pursuing business startup or already running a small business. You can seek support from SCORE organization by registering your request for mentoring at SCORE web page (https://www.SCORE.org). The SCORE organization has many experienced volunteers who can answer your questions and help guide you in achieving your business startup and operational goals.
In starting a small business, most everyone agrees that it is a must to have a good business idea. To vet and validate such an idea, most people starting a business would conduct some research and investigation. Given that such investigations showed promise of success, you are now ready to develop and write a plan, which is your Business Plan. With a plan in place, you are now ready to execute it to commence business operations to ultimately make your dream come true!
Before we get too far afield, it is important to emphasize that the first part of executing your plan should be to legally establish your entity and complete other related activities which are required before starting your money-making operations. These activities are pretty common no matter where your business is to be established and operate. The following shows the “Steps to Starting a Business in Hawaii” and this article will focus on step 4, which is establishing a legal entity and completing necessary activities so that you can start your money-making operations:
Steps to Starting a Business in Hawaii:
1. Fully develop the business idea
2. Conduct research and investigate
3. Write your Business Plan
4. Execute the initial stage of your Business Plan
a. Establish your company Legal Structure
b. Register your Business Name
c. Apply and obtain required permits and licenses
d. Understand applicable tax information for your business
e. Understand legal requirements to hire and retain employees
5. Execute remainder of the Business Plan
Let’s discuss the issues involved in establishing your legal entity and completing other related activities described in step 4 above. It is important to understand that your choice of business entity can affect your personal liability, management of your business, tax filing responsibilities, and your estate planning. A caveat is that legal entity you choose at this stage can be later changed; however, such change can be expensive and time-consuming so it is preferable to choose an entity that can best fit your business needs. For legal advice, you can attend a free legal clinic at Business Action Center in Honolulu located on Nimitz Highway (held on Thursdays from 11 AM to 1 PM; call to confirm at 808-586-2545) to have some of your immediate legal questions answered. Of course, you should have on your team legal and accounting experts to answer specific questions that apply to your business situation.
Some common business structures are:
- Sole Proprietorship (SP)
- Limited Liability Company (LLC)
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
- Limited Liability Limited Partnership (LLLP)
- General Partnership (GP)
- S Corporation
Many small business startups select SP or LLC format to commence their business operations. As an SP entity, the business tax filing is made with IRS Form 1040 (on Schedule C among others) and all your business earnings will be taxed by federal and state tax entities at your marginal income tax rate as well as payroll, Medicare, and other associate taxes. If your total marginal tax rate is low, then SP entity may be simpler and more manageable choice than other entities; however, with SP entity, personal liability is a concern as the liabilities arising from your business activities become the responsibility of the owner. With Limited Liability entities, the legal liabilities arising from business operations revert to the business and not to the business owner(s) and their personal assets.
For more information on legal entities and how to file, recommend visiting Hawaii State web page for further information (http://cca.hawaii.gov/breg/legalinfo/legal_info/). For completing IRS filing, you can visit the IRS web page to obtain your Employer Identification Number and establishing your tax filing status (https://irs-ein-tax.com).
Along with choosing your business structure, you will also need to give your new enterprise a business name. This registration process in Hawaii is conducted through the Business Registration Division of the Department of Commerce and Consumer Affairs, abbreviated DCCA (http://cca.hawaii.gov/).
Since your name selection needs to be unique to your business, it is necessary that a search should be performed to ensure your name selection is available to you. You can perform this search function at the DCCA web page sited in the above paragraph. If your selected name is available, you can register it and start to use it as your business entity name, brand it, and even trademark it with a logo.
Permits and Licenses
Depending on the type of business you are starting, your business may or may not require licenses or permits. Some licenses that come to mind are state tax license, liquor license, nursing and home care license, street vending permits, health department permits, firearms permits, and some others. The Business Action Center (1130 N Nimitz Hway, Rm A220, Honolulu, HI 96817; 808-586-2545) can provide information about various business permits and licenses so a visit there might be of interest to you. Following are information about the state departments with various licensing and permitting responsibilities:
- Department of Taxation: Tax License
- Department of Agriculture: Importing plants, animals, and microorganism to Hawaii
Exporting plants and livestock
Quality Assurance (commodities and measurement standards)
- Department of Commerce and Consumer Affairs: Professional & Vocational Licensing
Real Estate Licensing
Transportation-related licensing and permits
Utilities related licensing and permits
Also, there may be special permit and license requirements put in place by the four county governments (Hawaii, Honolulu, Kauai, and Maui); so make sure your research is completed to ensure you have covered all permit and license issues before going forward with your business startup.
It is recommended that you review tax issues with your CPA and/or accountant to determine and clarify your business obligations regarding the Federal, State and City/County tax requirements. IRS has Small Business and Self Employed Tax information site (https://www.irs.gov/businesses/small-businesses-self-employed) which explains business owner responsibilities in filing Federal Taxes. For Hawaii tax information, a similarly established web site (http://tax.hawaii.gov/) will provide information for state tax filing requirements. As well, for retail establishments in Hawaii, it is required that the General Excise Tax (GET) license be obtained to conduct local business operations.
For businesses having employees, there is the state requirement for the business to register with the Hawaii Department of Labor and Industrial Relations (HDLIR). Many small businesses with few employees often elect to retain an independent HR firm to manage this state registration requirement. Details about the registration requirement and other legal responsibilities are explained in the Employer’s Handbook (https://labor.hawaii.gov/wp-content/uploads/2013/03/New-Employer-Packet-3-14-13.pdf).
With your business entity selection and legal name filing completed, you are now ready to proceed to execute the remainder of your Business plan. At this stage, you may have already retained a free SCORE mentoring service. If not yet signed up to the service, you may consider doing so at this stage by visiting SCORE.org web site. As well, it is recommended that you consider attending SCORE workshops to broaden your base of business knowledge. Good hunting!
August 2019: "Why Start and Own A Business"
Starting and running a business of any kind by entrepreneurs are not easy endeavors. It is highly risky to say the least and most of us elect to find a job and try to make the ends meet and put forth efforts to save and invest for our future needs, including toward retirement. However, for many American workers, making sufficient income to maintain a reasonable lifestyle while supporting their family and meeting own needs has become more difficult.
These are some basic trends in our economy that are restricting labor earnings growth:
- Computational and internet-based digital innovations in our economy are reducing direct labor needs through automation and other means
- Globalization is exporting many high paying manufacturing jobs to lower labor rate countries
- The increasing cost of living in some sectors (education and healthcare in particular) is far surpassing the rate of hourly wage gains
- Government economic and tax policies have benefitted higher net worth individuals and businesses
- Nature and types of high paying jobs are drastically changing with different educational requirements and many workers are not prepared with right skill sets (lacking STEM education)
A graph of US government labor statistics below lays out the basic disparity in unit productivity gain vs labor wage gains from 1948 to 2015. It is clear from this graph that the divergence between productivity and labor wage gains began around 1973 and is continuing.
If you are working as an hourly employee in the USA today, your projected wage gains into the future years probably will be tepid at best. The question we may ask is “who benefitted financially from the productivity gains from 1973 to today?”. The answer may be seen in the graphs below.
In 1989, the “Holding of Family Wealth” graph shows 73% (22 trillion dollars) of wealth was owned by the top 10% of the US population. In 2013, about 80% (over 50 trillion dollars) of wealth was owned by the top 10 percent, a gain of 7%. In 2017, President Obama reported in his State of the Union speech that wealthiest top 1% of the US population owned 40% of the nation’s wealth.
The graph above represents the Dow Jones Industrial Average of the past 100 years (the average aggregate stock price of selected major US companies). In 1970, the average value was somewhat less than 1,000 while the value in 2019 has exceeded 27,000. So if you invested $1,000 in Dow Jones portfolio in 1970, the value of that investment today would be over $27,000 (>7% annualized gain). This annualized Dow Jones price gains since the 1970s represent fundamentally the corporate profitability gains enabled by both the productivity gains and the flat labor rate which are shown in the Wage and Productivity Growth graph.
To participate in this productivity and flat labor-based economic gains, the entrepreneurial endeavor is a real option. That is by starting and operating successful businesses, the owners can benefit from the productivity gains of our economy energized by low growth in the cost of labor. This economic environment provides a good basis for starting your own business given that you have a good idea, sufficient resources, and a good execution plan! In life, it is often said that “nothing is ventured; nothing is gained”. You have everything to gain in chasing your American Dream by starting your own business.
July 2019: "Life and Death of New Startups"
Like any living thing, a business has a life of its own, imbued with life from its human owners/operators and its customers. As we humans are all mortal, so are businesses we start. A graph from smallbiztrends.com shown below describes the percent of businesses continuing to operate after each of their first six years of operation. It shows at year six, only 40% of businesses are operational. From various studies over the past years, this statistic is holding pretty firm. The overriding questions each entrepreneur should ask before starting a business is “why the 60% failure rate?”.
Most entrepreneurs are a typically optimistic lot, and probably the last thing they worry about is a business failure. If this statistic is any guide, many realists and most pessimists will not start a business. So if you are considering starting a business of your own, the first thing you need to recognize is that you are probably an optimist. Being an optimist is a good thing because if we are all realists and pessimists, much will not be ventured in this world and our lives would be pretty static and boring. So the question is “why businesses fail?”. Fundamentally, businesses fail because it runs out of money. Even for non-profits, not having the cash to operate is a death knell to their operations. So before starting a business, good business planning, including solid financial forecasting is highly recommended. The key point I stress in my Business Planning class is the need to validate assumptions about your product/services, market, pricing, competition, costs, and profits. Before committing large resources into starting an enterprise, a small resource should be allocated to allow for the study of your business of interest. Conducting market research, proof of the principle experiments, running a product test with prototyping, and small scale sales activity with your typical market would be prudent. The key is the validation at a reasonable cost and that is an area for a whole new discussion. Regarding the surviving 40%, they are obviously generating cash to remain operational! The information from the graph does not tell us about their profitability, however.
June 2019: "Sales & Distribution Plan"
Your business plan should include a section describes how you intend to get your product to customers and how you’ll measure the effectiveness of those methods. For example, once you figure out where you’ll be selling your product, such as online, at a retail outlet, door-to-door, etc. determine the type of sales activities you’ll need and how you’ll implement them.
In terms of distribution, think about how you’ll actually get the product or service into the hands of the customer. Ultimately, you’ll want to sell your product or service in as many ways that make sense for your business: online, at a retail outlet, via house parties or mail order, or through other companies. Initially, however, focus on selling through just one of these channels so you can build your business before comfortably extending to others.
May 2019: "Set up a website"
Your website doesn’t need to be fancy, but make sure it professionally reflects your business and contains the information customers generally need to know, such as how to contact you, business hours, a menu of services (or menu for a restaurant), etc. There are a variety of services that will help you create a simple but professional looking site; if your needs are more extensive, you may need to hire someone to create it for you.
While you’re at it, don’t slap up pages that say “under construction” or “coming soon.” Even if your site is a single page, make it look professional. You can always add more pages later. You don’t get a second chance to make a good first impression—even in business. A few businesses get away with not having a website, and instead, use a Facebook business page or even an Instagram account. Think carefully about adopting this strategy, however. Almost anyone can access a website, but not everyone is a Facebook or Instagram user. And when you rely on a third-party platform, you lose some control over your prospects’ and customers’ experiences.