SHARE:
Homeward Bound
Eight years later, Pi-ata Party Productions remains home-based - although the Diazes have moved to a roomier home. The couple, their daughter and son - now 12 and fully recovered - all pitch in to make elaborate pi-atas for individual and commercial clients ranging from the QVC television network to Pollo Tropical to American Airlines. Prices range from less than $100 to $5,000 or more for intricate commercial designs. "I like to call them the Rolls Royces of pi-atas," says Jerry Diaz.
Like more and more Floridians, the Diazes discovered that running a home-based business cuts operating costs, eliminates commuting and allows more time with the family.
Running a business at home isn't for everyone, however. Some questions to answer before setting up shop:
Where will I meet clients? A nagging problem for home-based businesses is whether to invite clients and potential clients to the home office, which in many cases is a spare bedroom or garage. Jennifer Bisbee, owner of home-based Bisbee and Co. public relations in Orlando, says her solution is to meet most new or potential clients at their office, over a meal or occasionally in a borrowed conference room.
How will I separate work time from personal time? "When the phone rings when I'm making dinner, I do tend to go get it," acknowledges Bisbee. Indeed, some clients may think home-based business owners are on call 24 hours a day. So closing the office door at the end of the day often takes work.
Will I become too isolated? Mark and Jeanne Simon, owners of home-based Animatics & Storyboards Inc. in Orlando, have set up an informal group of creative producers to meet other film professionals in the region and encourage home-grown theatrical development.
Is the business location legal? It's important to check city or county zoning and deed restrictions. A home-based business that violates them could be fined or shut down.
HOME BUSINESS
Scams
Entrepreneurs who decide to buy a home-based business rather than start one should carefully check out the venture before putting down cash. Jacqueline Dowd, a Florida assistant attorney general in the economic crimes division, says that work-at-home schemes - particularly such jobs as stuffing envelopes - are among the most frequent subjects of complaints and inquiries. There are a number of places for entrepreneurs to check on companies selling home-based business opportunities:
Better Business Bureaus (BBB) and Better Business Councils, which are operated by local chambers of commerce. If it's a local company, check with the BBB (found in the White Pages of the telephone directory) to see if complaints have been filed. Often the local BBB will be able to tell you how to contact an out-of-area BBB if you know the zip code.
Florida Attorney General's Office. To check if there is an ongoing consumer investigation, call the nearest office of the Economic Crimes Division - Tallahassee, 904/488-9105; Tampa, 813/871-7255; Orlando, 407/245-0833 and Fort Lauderdale, 954/712-4600. The Attorney General's Internet site also has a database of consumer investigations that can be searched (http://legal.firn.edu).
National Fraud Information Center (NFIC). A project of the National Consumers League, NFIC helps consumers report fraud and offers good advice on how to avoid becoming a victim (1-800-876-7060).
HOME-BASED BUSINESS
Setting Up A Financial System
Do you dread tax time? Take the time to organize your business' records now and upcoming tax deadlines will be a little less painful. Just because you have an accountant, that's no excuse for sloppy financial records. Dawn M. Olivardia, a CPA and member of the management group at BDO Seidman LLP in Orlando, says it's smart to consider the following issues before tax time rolls around.
Organizing the business
Business vs. Hobby. Before you start adding up those deductions, look at whether the Internal Revenue Service will consider your home-based venture a business or a hobby. The key requirement is the intent to make a profit. Although a new business is not expected to show a profit immediately, an ongoing business should show a profit for three of the past five years, including the most recent year.
Sole Proprietorship, Partnership or Corporation. While some home-based businesses start out as partnerships or corporations, most begin as sole proprietorships. As the business grows, it's important to reevaluate a sole proprietor's personal liabilities due to the business and tax considerations. Incorporation may make more sense.
Tax planning
Estimated Tax Payments. Sole proprietors generally must file quarterly payroll and self-employment (Social Security and Medicare) tax payments on the 15th of January, April, June and September. It's important not to underpay because of the stiff penalty (approximately 7%), which is measured quarterly. The rule of thumb is that the IRS doesn't impose a penalty if you pay either 90% of the current year's tax liability or 100% (110% in some cases) of the prior year's taxes.
Home Offices. "It's been known to be a red flag for the Internal Revenue Service," says Olivardia. In some cases, home-based businesses can deduct real estate taxes, mortgage interest, rent, utilities, insurance and other expenses for part of their homes. To qualify, the room or area must be used exclusively for the business and must be its principal location. Additionally, there are limitations on deductions for some home expenses, with the rule that home office deductions cannot exceed the business' income. You must file IRS Form 8829. Publication 587, "Business Use of Your Home," gives more details.
Other financial issues that a home-business owner may want to address as the business grows are succession planning/asset distribution and setting up a retirement plan.
QUESTIONS AND ANSWERS
The Paper Chase
1. Do I need a separate business checking account?
Yes. Money coming in and going out of the business should not be co-mingled with personal funds. Also, consider a separate credit card for business - the interest may be deductible.
2. How long should I keep receipts?
At least six years. For IRS purposes, it's important to be able to substantiate all expenses.
3. Is it necessary to keep an automobile log?
It's a good idea to keep a log as proof of business use of your personal auto. In the log, note the date, mileage and purpose of the business trip that you plan to deduct. More information is available from IRS Publication 917, "Business Use of Automobiles."
NOMINATED
SBA's New Face
President Clinton's new choice to lead the Small Business Administration is Aida Alvarez. If confirmed, she will become the first Hispanic woman to hold the SBA post and the first Cabinet member to be born in Puerto Rico. Alvarez, 47, replaces Philip Lader, who became SBA Administrator in 1994.
An Alvarez Snapshot
Born: Aguadilla, Puerto Rico
Education: B.A., Harvard College
Family: Husband, Raymond J. Baxter; two children, Aurora and Brooke
Clinton Connection: National co-chair of the 1992 Clinton presidential campaign's Women's Advisory Committee; served on the president's Economic Transition Team; New York State co-chair of the 1988 Gore presidential campaign.
Previous Clinton administration Post: Director, Office of Federal Housing Enterprise Oversight, Department of Housing and Urban Development, 1993-97.
Business experience: Investment banker (First Boston Corp., 1988-93, and Bear Stearns, 1985-88); public affairs director (New York City Health & Hospitals Corp., 1984-85); journalist (WNEW-Channel Five "Ten O'Clock News" in New York City, 1977-84, and New York Post, 1973-77).
COMPANY PROFILE: PROVEN EDGE
A Race With The Big Boys
Proven Edge, a small St. Petersburg software company, reinvents itself in a quest to compete.
Five years ago, Richard Pearce came up with the idea for an easy-to-use software designed to help small businesses manage money, time and people. It integrates accounting, word processing, database management and scheduling in a package that lets users enter data just once.
Pearce's previous experience was in sales, so he teamed up with software designer Ralph DePetrillo to develop Business Plus. By 1995, he had built a software company that had over $1 million in sales and about 35,000 customers. Pearce enthuses, "People buy solutions."
To really succeed in the highly competitive software market, however, Pearce needed money for marketing. So in 1995 he turned to private investors, who offered a deal: In exchange for capital, Pearce would step aside and let a professional management team take over. He agreed.
Pearce's decision is one faced by many entrepreneurs: The entrepreneur comes up with an innovative product or service, opens a business and relies on gut instincts to make operating decisions. Once the business shows signs of success, the entrepreneur must decide whether to retain complete control, share power or hire professionals with industry experience.
For St. Petersburg-based Proven Edge, Pearce's decision to step aside triggered changes designed to "relaunch" the business in the eyes of customers and the investment community.
First came new management. Larry D. Deaton, 50, a 20-year IBM executive, took over as president and CEO last May. He has recruited a half-dozen other industry veterans. Pearce, 35, remains as a vice president.
Now, the company's focus is marketing. In March, Deaton announced the new name, Proven Edge Inc., and logo. (Customers have seen two previous names, Target Software and CashGraf Software, come and go.) Three new versions of the software - for home businesses, payroll and multiple users - were introduced with prices of $399 to $899. An advertising blitz is underway to boost direct telephone sales; later this year, the marketing focus will shift to retail outlets. Says Deaton, "What we have to do now is make customers aware of the products and make them available where customers want to shop."
Deaton is confident. In November he consolidated the company's 100 workers in a new 31,000-square-foot office, almost half of which remains empty in anticipation of growth. He projects that in 1997 the customer base will expand more than fivefold, to 250,000 or so. And although Deaton dances around the question of revenues, he expects them to grow from "single digits to double digits" - that's in millions of dollars.
Numbers like that put a smile on the face of company founder Pearce, who doesn't regret his decision to make way for professional managers. "Larry has just been a fantastic addition," he says, adding, "I remain the visionary of the company's products. I'm the corporate evangelist."
Disaster Relief
The Small Business Administration is providing economic injury disaster loans to businesses unable to pay bills or meet expenses due to the civil unrest in St. Petersburg on October 24 and November 11, 1996. These loans, with interest rates of 4% and loan terms up to 30 years, may be used for working capital. Actual loan amounts (up to $1.5 million) and terms are set by the SBA based on applicant's financial condition. The application deadline is August 25. Call the SBA's Atlanta office at 800/359-2227 for more information.
SBDC Office Relocates
The Pensacola office of the University of West Florida's Small Business Development Center (SBDC) has moved downtown. It is now located in the Downtown Center, 19 W. Garden Street, Suite 302. The new telephone number is 904/470-4980.
Small Biz Help From AT&T AT&T is targeting small, start-up businesses with its "Resources for New Business" kit, which includes a loose-leaf notebook of management articles, product discounts and a free fax-on-demand service that provides information on running specific types of small businesses (gift basket service, home healthcare agency, etc.). The cost is $99 per year. To enroll, call 800/782-7837.
WORKERS' COMPENSATION
NFIB's Choice
The Florida office of the National Federation of Independent Business (NFIB), which has a membership of 20,000 small and independent businesses, is giving small business owners a new option in purchasing workers' compensation insurance. NFIB is sponsoring a workers' comp program offered by The Hartford insurance company. "We had persistent member inquiries," says Bill Herrle, Florida state director of NFIB, adding, "We were one of the few associations that didn't offer workers' comp insurance."
Indeed, the state's two most prominent business groups, Associated Industries of Florida and the Florida Chamber of Commerce, have long offered their members workers' compensation insurance, until recently through self-insurance funds (SIFs). Florida's landmark workers' comp reforms in 1993, however, shifted the competitive advantage to commercial carriers at the expense of SIFs. The Florida Chamber responded by introducing Chamber One, which endorses workers' comp insurance underwritten by Reliance National Indemnity Co., a commercial carrier [FT, Small-Business Adviser, Nov. 1996]. AIF converted its self-insurance fund to Boca Raton-based Associated Indemnity Insurance Co., a stock insurance company owned by AIF.
One key feature of NFIB's program will be five different payment options, allowing small businesses to manage their cash flow better by spreading out premium costs rather than making one upfront payment. "We hope this will offer us a market advantage," says Herrle.
For information, call 1-800-505-NFIB or visit an independent insurance agent.
MANAGEMENT
Coping With ADA
Small businesses with questions about the Americans with Disabilities Act can find answers in a new publication from the U.S. Department of Justice.
"The ADA Guide for Small Businesses" is a 15-page illustrated guide that presents an overview of basic ADA requirements for small businesses that provide goods and services to the public. It provides guidance on how to make services accessible and how tax credits and deductions may be used to offset some expenses incurred in complying with the law.
To obtain a free copy of the guide, call the Americans with Disabilities Act Information Line, 800/514-0301. Or check the Internet(http://www.usdoj.gov/ crt/ada/publicat.htm).
