FAQs About Starting a Small Business in Delaware
FAQ #1: What does it take to start a small business?
The first thing to consider is the type of business you plan to operate. Examine your interests and abilities, as well as your previous business experiences. Research the industry, as well as potential locations to determine whether your proposed business is feasible in those areas. Do as much research as possible BEFORE you invest money into your business. Operating your own business may require you to use personal assets and to invest a minimum of 60-70 hours a week of your time.
Discuss your business plans with your family. Decisions you make about operating a business may have a significant impact on them. It is important that your family be as committed to your business as you are. Owning and operating a small business can be tremendously fulfilling and rewarding, but it is not easy.
Resources listed in this book can provide you with assistance during the formative and growth stage of your business. One such resource is the Small Business Development Center; a one-stop shop for helping you with your business.
FAQ #2: What kind of business entity is right for me?
Choose the type of organization that is best for you: sole proprietorship, corporation, sub-chapter "s" corporation, limited liability company or partnership. There are advantages and disadvantages with each one. It is highly recommended that you consult an accountant and an attorney. Accountants help with tax questions; attorneys advise with respect to liability and other legal issues. For specific information on the different types of business entities, Click Here.
FAQ #3: What is an Employer Identification Number (EIN) and do I need one?
Every business needs a tax identification number, whether it is an Employer Identification Number (EIN) or a Social Security Number (ID). Employers, sole proprietors, corporations, partnerships, nonprofit organizations, trusts, estates of decedents, government agencies, and other business entities use EINs. Businesses with employees absolutely must have an EIN; whereas, sole proprietors with no employees have the option of using their social security number as the tax ID number. This number is needed for paying your employees' withholding taxes and depositing these funds with the IRS. In addition, the number is used for tracking social security and unemployment payments from your business.
Your EIN can be acquired from the IRS using Form SS-4. This form can be obtained from the Internal Revenue Service by calling 800-829-3676 or by visiting your local IRS, Social Security Administration office, or the IRS web site at www.irs.gov. More information on EIN's is available in IRS Publication 1635, Understanding Your EIN. Click Here For More Information - Register with IRS.
FAQ #4: Are there special requirements if I have employees?
If your business has employees, you are responsible to withhold federal, state and local taxes from your employees' pay. The federal portion of employment taxes falls into three categories: 1) Federal Income Tax Withholding, 2) Social Security and Medicare Taxes, and 3) Federal Unemployment Taxes. The Social Security taxes are 6.2% of wages with a maximum of $80,400 that is paid by the employer. Medicare Taxes are 1.45% of wages with no maximum. There is also a requirement for the employer to pay federal and state unemployment taxes and obtain worker's compensation insurance. Click Here For More Information
FAQ #5: Do I need a business license or permit to get started?
A business license is necessary if you wish to do business in the State of Delaware. This license requires a fee which varies according to the business type you've chosen. If you do not have a business license, you will be operating illegally in the State and will be subject to stiff penalties levied by the State Division of Revenue. Further, without a business license, you cannot sue in small claims court to collect money that is owed your business. To obtain a business license form Click Here
Some professional licenses may require testing, and criminal background checks, and certain business activities may require a special license. Click Here For More Information
FAQ #6: What kind of taxes will I have to pay?
As a small business operator, you pay personal income taxes and business taxes. There are five types of business taxes: Income Taxes, Self-Employment Taxes, Employment Taxes, Gross Receipts and Excise Taxes. (See chart on federal taxes in Section Five.) The amount and type of taxes you must pay vary according to the type of business entity you select, the amount of gross revenue, and the number of employees. It is very important to factor the payment of taxes into your business planning and financial forecasts. Using an accountant to help determine your tax liability is highly recommended. You can also reference IRS Publication 505, Tax Withholding and Estimated Taxes.
FAQ #7: Are there any special programs for Minority and/or Disadvantaged Businesses?
Yes, such businesses are encouraged to contact the Office of Minority and Women Business Enterprise (M/WBE). Its primary responsibility is the fostering of continued economic development and growth for minority and women owned businesses in Delaware. To qualify as a DBE, your firm must meet the eligible standards established in Part 26, Title 49 of the Code of Federal regulations, and the Small Business Administration's 8(a) Program. The department evaluates the information you submit on a Certification Application to determine compliance with the criteria. In addition, the City of Wilmington has a Disadvantaged Business Enterprise (DBE) Certification Program for businesses that are at least 51% owned by a minority and/or woman small business entrepreneur. The program is offered through the City of Wilmington, Minority Business Enterprise Office (MBO). The Minority Business Office maintains a database of certified minority and women-owned businesses that can be used as a referral by city purchasing officials prime contractors, private companies, organizations, and others.
In terms of contracting opportunities, the City of Wilmington has a program designed to encourage city-certified DBEs to participate in the city's procurement process. For example, prime contractors are required to make a documented "good faith effort" to solicit DBE participation in city construction projects. Many private sector companies that wish to do business with minority and women-owned businesses accept the certification. Click Here For More Information.
FAQ #8: What is a Business Plan and do I really need one?
A business plan is the blueprint to your success. By stepping through the process of writing a business plan, you will address most issues that confront new small businesses. The business plan is a flexible guide that will help you manage different operational areas of your business. You’ll find it’s an invaluable asset when you are ready to apply for financing. Many new, small businesses make a significant mistake by not taking the time to develop a business plan.
A good plan addresses the Who, What, When, Where, Why and How of your new endeavor. It forces you to examine your entire business concept, enabling you to find the areas that need rethinking. The plan will help you evaluate and define your goals logically and provide a road map to follow as you proceed to success.
The business plan is of the utmost importance when communicating with bankers, investors and others. Therefore, be specific about the needs of your business. When looking for financing, provide details about your business that will convince lenders or investors that their investment in your business is a sound decision. The Delaware Small Business Development Center (SBDC) and Senior Corps of Retired Executives (SCORE) offer classes that will help you develop your business plan.
FAQ #9: Who can help me get started?
There are a number of organizations and programs that can assist Delaware small businesses. For the most part, the services they provide are FREE! You are encouraged to seek out the organizations that are best suited to help your small business. Click Here For More Information
In addition, web sites are referenced throughout this document. They provide a wealth of information and include links to other web sites.
FAQ #10: Where can I get financing for my new small business?
There is no such thing as "free money" for small businesses. However, there are a number of specially designed loan programs for Delaware small businesses. These programs can provide financing in four different funding ranges:
Up to $25,000, $25,000 to $50,000,
$50,000 to $250,000 $250,000 and above.
Financing programs typically require cash contributions from the business, collateral from the business owner and/or a personal guarantee. Click Here For More Information
FAQ #11: What about Insurance?
Businesses should obtain several types of insurance. The most important of these is liability insurance without which the business and owner's assets are at risk in the event of a lawsuit. Depending upon the type of business you own, you should consider the benefits of having property insurance, auto insurance, and life insurance.
Generally, when large loans are issued to a business, the owner is required to have life insurance coverage, especially if he or she has personally guaranteed the loan.
Worker’s compensation insurance and unemployment insurance are necessary if you have employees. Click Here For More Information
You may want to consider health insurance for yourself and your employees.
If you use your home or personal vehicles for business purposes, check your auto insurance policy to see if your coverage permits business use. Sometimes personal auto insurance policies do not cover business use at all -- or do so with limitations. Please see your insurance provider for your insurance needs.
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