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4. Business Requirements and Needs
You are not ready to start your business until you have considered the special requirements of your proposed new enterprise. For instance, what laws and regulations will affect you? To what taxes will your business be subject? How many kinds and how much insurance should you carry? Must your proposed business meet any special licensing or zoning requirements?
Laws and Regulations
The more common types of laws and regulations are reviewed briefly here but this section is not intended to substitute for legal advice. The services of a competent attorney when you require legal assistance is a business expense which will pay for itself.
Licensing controls directly affect many small businesses. The degree of regulation will vary, depending upon the type and location of the enterprise. If your operations are intrastate you will be concerned primarily with State and local rather than Federal licensing. Businesses frequently subject to State or local control are retail food establishments, drinking places, barber shops, beauty shops, plumbing firms and taxi companies. These are primarily service businesses, subject to regulations for the protection of public health and morals.
Retail stores, devoted exclusively to handling merchandise, may not be required to have a license but are subject to regulations dealing with fire, safety, and zoning restrictions.
Most licenses require payments of fees and are usually issued on an annual basis. Ordinarily, as a prerequisite to the issuance of a license, a written application is required. State, municipal and county authorities should be contacted for complete information regarding licensing.
Regulations for Consumer Protection
In addition to the licenses referred to above, laws and regulations are also designed for consumer protection. Some may directly affect your business practices.
For example, the Consumer Credit Protection Act became the law of the land on July 1,1969. This is commonly known as the “Truth-in-Lending Act”. If you extend credit to your customers, you must make a meaningful disclosure of credit terms in prescribed standard terminology so consumers may compare more readily the various credit terms available to them.
“Truth in Fabrics” legislation also has been enacted for consumer protection. This legislation requires informative labeling and advertising of textile fiber products. If you sell or advertise textile products either as a retailer or wholesaler, you share the manufacturers’ responsibility for seeing that they are properly labeled and advertised for fiber content. If you advertise wearing apparel or household fabric products in newspapers having interstate circulation or offer for sale cloth items previously shipped in interstate commerce, the Federal legislation applies to you whether you actually market goods across state lines or not. This means the vast majority of retailers handling textiles have definite responsibilities under labeling law.
Other laws are designed to protect the consumer directly, such as the Food, Drug and Cosmetic Act and the Flammable Fabric Act. The consumer benefits too from laws which provide freedom of competition as discussed below.
Laws Protecting the Environment
In recent years, concern about protecting the environment has produced regulations to decrease pollution to air, water, and other parts of the environment. Determine what pollution laws and regulations, if any, apply to your prospective business. Good starting points for this check are the trade association for business or your local Chamber of Commerce.
Laws Encouraging Competition
Some business practices are prohibited or restricted by legislation to encourage competition. Federal laws govern interstate commerce, while State legislation regulates intrastate transactions. The broad body of Federal legislation encouraging free private enterprise includes the Sherman, Clayton, and Federal Trade Commission Acts. Comparable State laws have also been passed. The purpose of these laws is to encourage competition by prohibiting or restricting certain types of business activities such as: contracts, combinations, and conspiracies in restraint of trade; price discrimination between purchasers of commodities of like grade and quality; false advertising, disparagement of competitors and misrepresentation.
From time to time these statutes are amended, and new interpretations are made by the courts. Your lawyer, Chamber of Commerce or business association can tell you how such laws or proposed laws may affect you.
Federal and State employer-employee relations legislation deals with settlement of labor disputes; wages, hours and working conditions; fair-employment practices; and economic security.
The National Labor Relations Act, the Taft-Hartley Act and the Labor Management Reporting and Disclosure Act are three major Federal acts dealing with settlement of labor disputes. They guarantee the right of employees engaged in interstate commerce to organize and bargain collectively with their employers, or to refrain from such activities. States also have enacted laws to uphold collective bargaining and to define unfair labor practices.
Fair Labor Standards
Wages, hours and working conditions are regulated by the Fair Labor Standards Act. The act provides for minimum wages, maximum hours, overtime pay, equal pay, recordkeeping and child labor limitations. In addition to this Act the Walsh-Healey Public Contracts Act, the Davis-Bacon Act, and other related acts establish wages, hours, and working conditions applicable to Government contractors. Whether your employees will be covered depends on your individual situation. Obtain specific information from your nearest office of the Wage, Hour and Public Contracts Division, Department of Labor.
Be aware also, of the Occupational Safety and Health Act (OSHA) of 1970. This law makes each employer responsible for furnishing employees places of employment free from recognized hazards causing, or likely to cause, death or serious physical harm. The employer must comply with safety and health standards promulgated under the Act. It is every employee’s duty to comply with these safety and health standards and all rules, regulations, and orders issued pursuant to the Act which are applicable to their own actions and conduct. Specific information can be obtained from your nearest office of the Occupational Safety and Health Administration.
Fair Employment Practices
Fair employment practices are established by the Federal Civil Rights Act of 1964 which makes it unlawful to discriminate on the basis of race, religion, age, or sex as a condition of employment. Many states have enacted fair employment practice laws. As a small business owner soliciting and selecting employees, you must abide by the standards established by such laws.
Legislation dealing with economic security is designed to:
Minimize an employee’s losses from industrial accidents occupational diseases and involuntary unemployment;
provide hospital and medical care for the employee; and
furnish some income to the employee after his retirement.
Protection from income loss due to industrial accidents and occupational diseases is assured by workers’ compensation laws. Because provisions of these laws vary from state to state, consult your local sources. Involuntary unemployment benefits are required by both State and Federal legislation. The Federal Social Security Act requires a separate payroll calculation to finance hospital and medical care for people 65 years of age and older, and provides for income to be paid to an employee who reaches the legal retirement age.
Be sure you are aware of the tax implications in starting a business. Your business will be subject to Federal, State, and local taxes. You may be liable for such Federal taxes as social security (referred to above and shared by you as employer with your employees), excise taxes and, if your business is incorporated, the corporate income tax. From your employees’ wages you must deduct their share of the old-age survivor’s, hospital and medical insurance taxes as well as their unemployment compensation contributions. From such employees’ paychecks, you must withhold the current share of their individual Federal and, where required, State and local income taxes. If you are an employee of your own corporation, the withholding provisions of the social security and individual income taxes apply to you, too.
If you are a sole proprietor or partner, your personal income tax payments must be prepared and submitted on a quarterly basis.
Under the Self-Employed Individual Tax Retirement Act you may take an income tax deduction if you set up retirement plans for yourself and employees. Go to the local office of the Director of Internal Revenue for information about your Federal tax obligations. An excellent booklet [revised from year to year) on this subject is Tax Guide for Small Business, prepared by the Internal Revenue Service.
You will have other State and local taxes. The more common types levied by states are income, property, sales, occupation or business license, and unemployment compensation taxes. Information concerning State and local taxes and fees which apply to your particular business can be obtained from your state and municipality. After you have information on the various kinds of taxes for which you will be responsible you will find it helpful to set up a time table for meeting these obligations.
Another function to perform before you can open your business is the secural of adequate insurance protection. Otherwise, a part or all of your investment may be lost. Insure against risks over which you have no control, such as fire, windstorm; liability judgment, or the death of a key employee. On the other hand, do not insure against a loss which would be trivial if it did occur, nor pay for protection when the premium is a substantial proportion of the value of the insured property. Some major types of insurance to consider are fire, general liability, automobile liability, automobile physical damage, workers’ compensation, crime, business interruption, glass, group life; group health and disability.
The subject of proper insurance coverage is involved. Consult more than one insurance agent, broker, or company representative for advice. How much coverage do others in businesses comparable to yours carry? Ask business friends sad others who have had experience with different agents. Can the agent supply all the kinds of coverage you need at reasonable prices? Is he or she known as a competent professional? Will the agent devote enough time to your individual problems to justify the commission? At no extra cost, will the agent survey your entire situation and recommend alternative methods of insurance, pointing out the advantages and disadvantages of each? Does the company he or she recommends have a good reputation for service in the event of loss?