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The American dream: starting a new business is not for the weak of heart but it still can work out.

Come on, admit it.

You've been looking askance at the boss.

You're starting to doubt his wisdom.

You think your lousy office could become a thriving venture if ... if only you were in charge.

Don't fight this vision, because it might be manifest destiny. Perhaps you can use your career knowledge to start a firm that would cut into the business of your present employer.

Maybe you have a hobby, or your spouse has a hobby, that could be converted to a lucrative business. Or, quite possibly, you might want to go wild and explore uncharted territory, fulfilling a middle-aged fantasy and utilizing your neglected college major in one blow.

It's possible. First, though, you must come down from the clouds; you'll need both feet firmly planted in reality to have a chance of success.

With a little financial acumen and discipline -- with the patience to research and thoroughly plan your move into the world of independent businessmen -- you can do it.

Here's how:

For the next three weeks, Arkansas Business will attempt to guide emerging entrepreneurs through the treacherous maze of the business world. Read our basic overview and avoid some of the mistakes made by others.

This week, we will discuss the future of entrepreneurship and attack the earliest obstacles for a new business owner, such as licensing and legal structure.

In the two weeks to follow, we will profile successful small businesses and discuss business planning and management.

Despite hard times in the economy, new businesses continue to pop up like weeds.

Everyone Wants To Serve

"The majority of the emphasis is on service-type businesses," says John Harrison, a business specialist with the Arkansas Small Business Development Center in Little Rock, an entrepreneur's best friend. "They are the easiest and the cheapest type of business to get going."

Day care, restaurants and janitorial services all are popular, first-time businesses, he says. But not even those fields are fool-proof.

"It takes time to build a business," Harrison says. "The results do not follow your expectations."

Let's take a swipe at those expectations with a disturbing fact: Business failures reached record levels in 1991.

According to Dun and Bradstreet, the world's largest marketer of business information, 87,266 U.S. businesses failed last year, up 44 percent from 1990. In Arkansas, 477 businesses failed, up 79.3 percent from the 266 failures in 1990.

The nation's construction industry had the greatest turnover in 1991, with 128 failures for every 10,000 firms. The lowest failure rates were in the financial, insurance, real estate and service industries (76 failures per 10,000) and in retail trade (75 per 10,000).

Yet the numbers also hold good news.

In Arkansas, new business incorporations rose 25.4 percent in January and February over the same period last year, dwarfing the national increase of 9.9 percent.

Nationwide, nearly 1.89 million jobs are expected to be created this year, 59 percent coming from companies with less than 20 employees.

Census data shows Arkansas with 52,799 businesses in 1989, up 681 from 1988.

One of the most perplexing decisions for an entrepreneur is how the new business should be legally organized, which affects how much money he can make and how much he could lose.

The available options are sole proprietorships, corporations, and partnerships.

In a sole proprietorship, one person owns all the assets and is responsible for all the company's liabilities. This is the least expensive and easiest type of business to set up. However, there are no tax advantages to this method and liabilities are unlimited.

With a general partnership, you share the costs of doing business but give up some of the control. There is still unlimited liability between partners, but the start-up can be easier and less expensive.

A corporation is a legal entity completely separate from the people who own it. Decisions are made collectively by a board of directors. Incorporation is the most expensive form of organization but it does limit liability for the entrepreneur. Corporations are closely monitored and must keep careful, thorough records.

An "S" corporation is a form of organization that could be useful for a new business, depending on the number of owners and projected profits.

The choice between "C" and "S" corporations often is made on the basis of tax ramifications. The decision should be made after consultation with a financial adviser.

A Map Through The Maze

So, assuming that you know what kind of business you want to set up, how it will be organized and, perhaps, where you will locate it, here is a step-by-step outline for meeting government requirements (the checklist is designed for Little Rock, but similar steps would be taken in other cities):

* Visit the city zoning commission.

It is there that you will obtain a free zoning permit, and a building permit if construction or renovation is involved. Also available are applications and guidelines for permission to operate a business from the home and rules governing outdoor signs.

This is also the place to pick up an application for a city privilege license.

* Visit the city clerk's office to file the privilege license application.

Fees will vary depending on the type of business involved, but expect to pay $100 to several hundred dollars.

* Unincorporated businesses in Pulaski County should go to the county clerk's office and file for a "doing business as" certificate. The fee is about $10.

If the business is incorporated, the entrepreneur will not need a DBA certificate. But he must register with the secretary of state's office at the State Capitol. Procedures in other counties vary, so check with the local county clerk.

* If you are planning to open a retail business, obtain a sales- and-use tax permit. If you aren't quite sure on whether the business must charge sales taxes, ask for assistance.

* Obtain any additional licenses or permits needed for certain types of businesses.

* If plans are to employ others, contact the state and U.S. Department of Labor for requirements. Also contact the state Workers' Compensation Commission.

With certain exceptions -- such as farming and charitable organizations -- business owners who employ three or more people must carry workmen's compensation insurance. It can be purchased through most insurance agents.

The Internal Revenue Service also requires business owners to have an employer identification number for tax withholding and reporting purposes.
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Author:Haman, John
Publication:Arkansas Business
Date:Aug 10, 1992
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Next Article:Entrepreneurs have opportunities to seize: small businesses still face the threat of extinction but can survive into the 21st century.

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