The amount of your basis in an LLC (your tax cost) includes:

1) Your contributions of cash & property
2) Your share of LLC profits not distributed to you.
3) Your share of the LLCs debts to others। (In an LLC, loans to the company can increase your tax basis if they are guaranteed by you. In an S corporation, only direct loans to the company by you can increase your tax basis.) LLCs provide more ways to increase your tax cost basis. This illustrates a significant advantage of LLCs over S Corporations. Because of the way these calculations are done, your cost basis may be higher for an investment in an LLC than if you set up shop as an S Corporation.

CONCLUSION
Many businesses should probably start as an LLC. Advantages include flexibility of ownership, ability to gain tax basis through liabilities, and pass-through of profits and losses. If a corporate entity is determined to be required later, the change from LLC to corporation is quick and tax-free.

Make A Profit On Everything You Do.

There's a management theory that says it doesn't matter if Safeway, Kroger (or any business) makes a profit on every tomato it sells, as long as the grocery chain makes an overall profit. This theory has been used for everything from filling airline seats or motel rooms at ridiculously cheap prices to creating 'loss-leaders' (items sold at prices below cost) at retail stores.
There are six problems with selling anything below cost:

1. You need very sophisticated tracking mechanisms to measure, restrict and control sales. If everyone only goes to Safeway to buy loss-leader tomatoes, Safeway will go bankrupt. Therefore, much time and energy must be expended to measure (and, ultimately, restrict) tomato sales. Most small businesses don't have the time or ability to track such information. Most large companies have the ability, but don't use it. Or don't know how to use it.

2. Any time you offer anything below cost, you attract the worst kind of customers - price shoppers. These folks have no loyalty and buy strictly on price. And, their very presence may drive your good customers away. When the airlines began filling their seats with super-discounted fares in the early 1990s, one flight attendant remarked, "We are now getting rude, smelly people who have no manners and used to ride Greyhound. Now they ride with us and are driving our (full fare-paying) business customers away."

3. Loss-leaders are often bigger loss leaders than companies may think. Buying tomatoes for 34¢ and selling them for 29¢ doesn't tell the whole story. By the time you add in the cost of delivery, unpacking, in-store placement, etc., that 34¢ tomato may end up costing 49¢. Suddenly, a small loss-leader becomes a bigger one.

4. Once you've started selling 29¢ tomatoes, you begin to give yourself a reputation. It will be very hard to convince your present customers to pay 49¢ for the same item. I am convinced that many of the problems at Nordstrom have been caused by the 'success' of Nordstrom Rack. Racks were started as a way to offload out-of-season and obsolete merchandise at hot, discount prices. Now, everybody that I know checks the Rack for 'deals' before they go to Nordstrom and pay full-tilt retail. When Midwest department store chain Dayton-Hudson decided to start a discount division (many years ago), they used a different name - Target. With good reason - they didn't want to cannibalize sales from their full-service stores.

5. There's a certain cynicism among buyers which is brought out every time they're exposed to a 'loss-leader'. They're sophisticated enough to know that, if you're taking a loss on one item, you're probably overcharging them elsewhere. Your firm is now perceived as less-than-honest to them.

6. It is well-known that the cost of 'investing for the future' (new machinery, expansion, new promotional materials, etc.) is ever-increasing. It's driven by competition - companies which are always making improvements. How can you invest in the future if you have a negative return on investment? You can't, yet that's exactly what unprofitable offerings provide. In my manufacturing company, we only offered discontinued, hard-to-get-rid-of items at less-than-cost prices. Everything else was priced to make a profit; even though several of our competitors offered 'loss-leaders.' Many of our customers told us that they went to our competitors strictly to buy loss leaders, but bought everything else from us because we offered better service. We could afford to provide better service because we were making more profit than our competitors.
Make a profit on every product or service you offer. It's the key to long-term success in business.

5 Tips for Effective Business Planning
- Clearly define your business idea and be able to succinctly articulate it. Know your mission.
- Examine your motives. Make sure that you have a passion for owning a business and for this particular business.
- Be willing to commit to the hours, discipline, continuous learning and the frustrations of owning your own business.
- Conduct a competitive analysis in your market, including products, prices, promotions, advertising, distribution, quality, service, and be aware of the outside influences that affect your business.
- Seek help from other small businesses, vendors, professionals, government agencies, employees, trade associations and trade shows.

by SCORE "Counselors to America's Small Business"

Business Planning: From the Heart

As an entrepreneur starting or expanding a business, you, too, must work from a plan that engages your heart as well as your head. While you have a plan for your bankers, you must also have a plan for you, the one that speaks to your passions. You must understand that it's business planning from the heart that really builds businesses.
Finding Your PassionIn finding your own passion, focus on what you love, what you're good at, and what suits your personality. Ask questions such as those that David and I raised on that hotel balcony in California: Do I want to be creative? Work flexible hours? Travel? By all means, build charts and graphs.

But build them around parameters that will enable you to create a business that does the following:
· Reflects you; if you're fun, trustworthy and unconventional, these should be your company's core values.
· Involves your passion; it's infectious—even loan officers love associating with passionate people.
· Plays to your strengths; nothing's worse than associating your work with pain or boredom.
· Does business with people who understand and appreciate your values; human beings do their best when they're appreciated.
· Breaks the rules; if you've always wanted a disco dance floor in your boardroom, then have one! (We do, and our customers love it!)
· Doesn't worry about the bottom line; if you're having a blast, you'll do an incredible job, and the money will follow.

By Keith Walton

5 Tips on Technology Planning
-Create a master plan for technology, just as you would draw up a business plan, a budget or a marketing plan.
-Design the plan so that it supports your business strategy and goals. Use it to guide technology buying decisions.
-Think of technology purchases as investments, not costs. And, remember, when you have an overall plan, your company avoids wasting money on unnecessary purchases or quick fixes.
-Start by determining your company’s needs. Look at what problems need to be solved and how technology can help.
-Get expert help to guide you. Check your Yellow Pages under “Computers-System Designers & Consultants,” or ask your local chamber of commerce. As always, get references.

By Christine Banning

Test Your Small Business Plan
So you’ve done a fantastic business plan. Now you can forget about it and focus on running the business, right? Wrong! Your business plan may take you in the wrong direction—or your business could grow in a way that makes your old business plan fit you as poorly as the old clothes you’ve relegated to the attic.

Give Your Business Plan an Annual Check-up.You should revisit your business plan at least annually, if not more often. At these annual “checkups” of your business plan, tweak your plan and understand how decisions you make are consistent with it, or are changing in reaction to the market.

And don’t forget to consider e-commerce, if it makes sense for your business. Any plan that leaves out e-commerce leaves itself open to skepticism from investors, although there are some venture capitalists dedicated to funding more traditional businesses.

If the Plan Isn’t Working . . .We hope you would have done a good enough job with your initial business plan that you would not be abandoning the business plan entirely, but merely making some changes based on changing market conditions. For example, if you’re selling a product and realize that there’s a use for that product that neither you nor the manufacturer anticipated, you need to respond quickly and well to that.

You want to make changes that are logical. You don’t want to deny your business the opportunity to change just because your business plan says you should be doing it one way, when another way makes more sense and is more effective. But don’t abandon your business plan entirely unless you’re changing your business significantly. If you do, it means you did a poor job of planning on the front end.

And how do you know whether to make that significant business change?
It’s a matter of doing some market research—and doing some soul-searching to know whether or not this significant change is the right move for you. Look at your competencies relative to the market. Take a look at what the competition looks like; ask yourself whether you can produce the product or service and if you can deliver.

Do You Really Need a Business Plan?Is it possible to start a business without a plan? You can, but that’s doing things the hard way.
There have always been people who’ve jumped into business without ever spending the time to create a plan. Some are successful regardless. But they would probably have been even more successful if they had used a plan. The road might have been a little less rocky and the stress levels a little lower, if they had taken time to anticipate the business’s ups and downs.

Once You Have a Plan . . .To save yourself the headaches and heartaches of a failed plan, it’s a good idea to test it prior to starting the business.

You can get valuable feedback from a:
· SCORE chapter
· Banker
· Relative or friend
· CPA
Just make sure that whomever you ask for feedback is neutral and likely to be constructive. For instance, a family member, in an effort to be supportive, may not mention things you need to hear. Go to someone who will ask you the hard questions.

by SCORE "Counselors to America's Small Business"