Starting Your Business - Start & Run a Computer Repair Service (Start & Run Business Series) (2012)

Start & Run a Computer Repair Service (Start & Run Business Series) (2012)


Starting Your Business

Once you decide that a computer repair business is right for you, it’s time to start your business!

1. Create a Business Plan

One of the most valuable things you can do to start your business is to create a business plan. This is considered a living document that you can use to consolidate your current ideas and future plans for your business. A good business plan will include everything from how your business will be financed to how it will grow and expand. It is basically a repository of all that your business “plans” to do.

First and foremost, realize that a business plan is a living (or working) document and it should be created to fit your personality as well as your business. There is no one answer to what should go into a business plan. Some business plans are hundreds of pages long and include extensive information about the business owners, their financial situation, the plans for the business, five-year plans, etc. If you plan to obtain a financial investment, this is the type of document you will need. Investors (e.g., financial institutions and venture capitalists) will want all the information they can get and your business plan is the document in which they expect to find it all. However, if you are creating a business plan that represents a small home-based business, your document will be considerably shorter. There is no need to add tax returns to a document only you will be reading.

In general, do not expect a business plan to take one day or even one week! A business plan is simply a repository of all that you learn as you “plan” to open your business. Therefore, while you may complete a rough draft in one afternoon, as you start making decisions about your business, you should continue to update the document. For instance, did you take the weekend and visit local computer stores to learn about how they do business? If so, take what you learned and update the “competition” section of your business plan. Have you found a great online place to advertise? Write about it in your “marketing” section. Are you thinking about your five-year plan to franchise? Don’t just keep it in your head, get it down on paper! Every day that you are thinking about or planning for your business is another day you will learn more about what your business will become. Use your plan to capture all of your great ideas and plans in one place!

Before you begin creating your business plan, here are some tips that everyone should follow:

The length of the document is never as important as the content: Make sure your plan is clear and concise, but has the detail you need to show your ideas will work.

Remember that your business plan is a living document: Do not expect it to be “done” — ever. Plan to update this document regularly — even after you open your business. In the first year or two you may update it every six months. Moving forward, you may update it only once a year, but remember, it will need to be kept current.

Be specific: Your plan is supposed to help you address the problems your business will encounter with specific, well-thought-out answers. If you aren’t sure what the right answer is, research it until you are comfortable; don’t just skip the section or problem.

Get feedback: If you have partners, accountants, or family who are interested in the business, get their feedback on what you wrote. Make sure that they see your plan as realistic and not overly optimistic or pessimistic.

The following sections give a summary of the important parts of a business plan.

Online Business Plan Template: One great resource for creating a useful business plan is the US Small Business Association ( This site has everything you need to create a useful, clear, and concise business plan. They even offer an online form that helps you walk through your business plan creation.

1.1 Executive summary

Every business plan, no matter the size of the company, should have a solid summary. In general, the summary should be short and to the point and at the very beginning of the document. It should give an overview of your company, and your long-term goals; however, it should not be more than a few paragraphs. Remember, if you are looking for investors, this will be the first thing that they read. A good executive summary will be interesting, show profit potential, and make the reader want to learn more about your business as an investment opportunity.

Although this is a summary of your business and the first section of your business plan, don’t try to create this section first. Instead, you should plan to write this section last. The reason is that this section is basically a summary of the whole business plan which outlines your current situation and your future plans. Until you have a thoroughly created plan, you won’t be prepared to create this section. Skip it for now and return to it after you have completed your full business plan.

1.2 Business description and vision

In this section you describe what your business is about, how it fits in the marketplace, how you will advertise it, and how you will operate. In general, as you start gathering information about your competition, figuring out your target market, etc., you can start entering the information into this area. The following points cover the sections to include in this part of your business plan:

Mission statement: This section is usually a short sentence or two that summarizes the purpose of your business. Typically this mission will be shared with all of your customers, clients and employees, and be plastered on your websites, hung up in your store, etc.

Business vision: This is the long-term vision for your business — or a statement of growth. It should include what your business wants to become and how you intend to get there.

Business product and services: This area will allow you to describe what your business will do, how it fits in the marketplace and how it will make money. Outline all of your services and the products your business would like to carry. If you have any product flyers or detailed brochures, you can add them to your supporting documents.

Marketing and sales strategy: Outline your plan for advertising, marketing, and networking. Include your costs, and your reasoning for choosing different venues.

Competition: This section may be one of the most important. It should include descriptions of your strongest competitors, their locations (compared to yours), their specialties, and how you will compete against them. Also, consider what will make your business different from your competition.

Operating procedures: Include how your business will run. It should include everything from how your business will be organized, managed, and structured.

Business insurance and licenses: This section should document what your business will need to operate. Include all documents in the supporting documents section (see section 1.4 for more information).

1.3 Financial data

One of the more exciting sections of your business plan is the financial documentation. These documents show how much your business expects to make and what the return on your investment will be. Unfortunately, this is also the section which will get the most scrutiny from investors. After all, your profitability will be based on assumptions and your investors will want to know just how you made these assumptions. It is one thing to say you can make $10,000 a month; it is another to prove it.

The best part about completing the financial section of your business plan is the confidence you will have about your business once you are done. Providing enough detail in this area will mean that there are few questions from investors.

The following sections should be included in the financial data section:

Start-up costs: This includes all equipment, supplies, bills, and so forth to get your business off the ground.

Break-even analysis: This area of the document describes when you think the business will “break even” or make its money back.

Profit and loss statement: Every business should regularly generate a report like this as it shows how much your business made or lost on a regular basis. While the one you initially put in your business plan will be an estimate, you should update it regularly to represent your real values as your business grows.

Detailed monthly financial plan (first year only): A detailed plan will show all of your monthly expenses and income for your first year of business. Be as detailed as possible. This section is invaluable as a planning tool. Every time you learn about a new expense or potential revenue, add something to this section. Make sure to add a corresponding note to your assumptions section.[1]

Detailed quarterly financial plan (years two and three): Showing how your business should grow in the coming years lets you measure your progress as you go. Remember to keep your assumptions realistic.

Three-year expected summary: This will show your three-year financial plan. While you may just break even or make a small amount of money in the first year, subsequent years should show a profit or your model may not be sound (make sure to add any necessary notes to the assumptions section).

One thing to check is that your assumptions are based on data instead of hope. Always double check all of your numbers to make sure that your assumptions are accurate and represent realistic sales and expenses. If you aren’t sure, and think that a “range” would be more accurate, create your financials using a “worst case” and “best case” set of assumptions. Although this may not be included in most formal business plans, as a business owner, I know that showing your financials like this will give you a great baseline for your business. The “worst case” will help to prepare you for a slower than expected start and the “best case” will help you prepare for unexpected growth!

1.4 Supporting documents

The supporting documents section of the business plan is used to provide documents that your bank and investors will require. If you plan on launching a home-based business that will not have investors, you can generally skip this section. However, if you want to be prepared for when your business grows and you would like to get an investor, you may want to complete it now.

Each of the following documents is provided to prove that you are a solid investment and that your financial management is solid:

Tax returns of the business owner for the last two to three years: Many banks will only require two years of tax returns, but having three available means that you will be prepared if they request the additional information.

Personal financial statements of the business owners: The financial statements show where your money comes from and where it goes. Typically, statements like these will include all of your assets and liabilities. Your bank can help you prepare these statements and will typically have forms that you can use.

Franchise documents: If you are opening a computer repair franchise, you will need to provide copies of all the franchise contracts, agreements, etc.

Location documents: If you are going to be leasing or buying a storefront, you will need to provide the proposed lease (for a rental) or purchase agreement (for a buy).

Résumés: Most investors will want to know your past experience and abilities. Providing résumés for each business owner will help investors or bankers understand why you are qualified to own this business. Make sure to fine-tune your résumé to show how your past experience qualifies you for this business. For instance, if any of your past positions included managing technology equipment — even if it wasn’t “officially” in your job description — make sure to include it on this version of your résumé!

Legal documents: If you have mentioned any legal documents in the business plan (e.g., licenses, reseller certificates), you can include them in the supporting documents.

2. Choose Your Business Structure

Before you begin to practice as a computer repair and/or computer sales business, make sure you have your business details set up. You will need to complete all the different legal hurdles in your city, state or province, and country.

One of the biggest decisions that you will need to make is your business structure. Your choices include:

Sole proprietorship: This is used to refer to a business with a single owner who does not set up a separate legal entity. The risk of this form is that if there is a lawsuit, you, not your company, can be held liable.

Partnership: This includes two or more people as the owners of the business. It is similar to a sole proprietorship in that it is easy to set up and there are lower start-up costs. Also similar to the sole proprietorship is that you and your partner(s) can be held personally liable should there be a lawsuit. (See section 2.1 for important information about partnerships.)

Limited Liability Company (LLC) and Limited Liability Partnership (LLP): These entities are often used by small-business owners. Unlike a sole proprietorship and partnership in which you are personally liable, an LLC or LLP has limited liability. This means that you are creating a new entity (the corporation) and if there is a lawsuit, it is the business, not you personally, that will be held liable. These entities have limited reporting, and taxes can be “passed through” to the owner instead of being taxed separately. One significant difference between LLCs and LLPs is that while an LLC can be formed by one owner, an LLP requires two or more owners.

S corporations and C corporations (in the US): For a small-business owner, corporations can be a bit more complicated to manage and maintain. However, if you intend to grow using venture capital or eventually sell the business, this may be a better structure.

Incorporation is important for many reasons, but primarily it is a way to reduce your risk. You want to protect yourself from liability, especially when you’re working in someone’s office or home and run into a problem with the person’s computer or data. However, it’s not necessary to be officially incorporated to fix a person’s computer. It is possible to start the business first, and incorporate later. Then, when things work well, and you decide this is the business you want to be in, you can incorporate. There are huge tax advantages and disadvantages for each so don’t put this off too long. There are quite a few types of corporations and you want to choose the one that fits your business best.

There are many different resources available to help you choose your legal entity. If you aren’t sure, you can always create an LLC and convert the business to an S corporation or a C corporation later (although you will need to pay legal and accounting fees). However, in the end, the best thing to do is to discuss your personal situation with your lawyer and accountant before you choose. Discussing it with both of them at the same time will help to reduce your risk, management overhead, and tax burden.

Depending on your state or province, the costs of incorporation can vary. The cost of creating an LLC on your own can be less than $200 but if you choose to get assistance from a lawyer, an accountant, or an on-site service the price can balloon to as much as $1,000.

Since the rules to create an entity will vary depending on your location it is generally worthwhile to do some research and get some professional advice before you file yourself. For instance, in Arizona, there is a two-page form that has to be filled out, notarized, and sent to the state. After that a notification needs to be published in an approved newspaper. However, in other states, such as Ohio, there is nothing more to do than fill out a short form.

One of the most common structures used by small businesses in the US is a Limited Liability Company (LLC). They are easy to create, manage, operate, and taxes are relatively simple. If you are considering forming an LLC for your business, How to Form and Operate a Limited Liability Company: A do-it-yourself guide, by Gregory C. Damman will help you understand the ins and outs of forming and operating an LLC in your state and it will save you some money when you create your entity.

2.1 An important note about partnerships

Many people who consider creating a business often feel it would be easier to start a business with a partner than it would be to run the business alone. Having a partner can help the business grow for many reasons. A partner can provide a second perspective, more help running day-to-day operations, and invest financially, reducing the monetary burden of starting a new business. However, partnerships can be difficult because decision-making is not centralized, functions are distributed, and fights can ensue. Therefore, if you choose to run your business with another person, make sure to create a partnership agreement before you begin.

A partnership agreement is designed to include the expectations both partners have for each other. It should include details regarding:

• The term (duration) of the partnership

• Investment of capital (including whether interest will be paid on that capital)

• Profit and loss distribution

• Salaries

• Management duties and limitations

• Banking

• Termination clause — how the partnership will be dissolved and what happens to the business

• Death clause — information about what happens upon the death of a partner

• Arbitration — document fully how problems will be resolved

In some cases, you may want to include these items in the corporation documents instead of a separate partnership agreement, but your lawyer will be able to direct you to the correct format for your situation. Make sure you contact a lawyer to draw up a partnership agreement to protect all parties involved as well as the business. If the partnership goes sour, it can affect the business.

3. Apply for an Employee Identification Number or a Business Number

After your business is created, there is one more step that you should take — obtain an Employee Identification Number (EIN) in the US, or a Business Number (BN) in Canada. This number will be used in the future for everything from tax filings to bank accounts.

In the US, the EIN is obtained directly from the Internal Revenue Service (IRS) and is free if you apply yourself online. The page is a little tricky to find since the URL is not simple:

Remember, creating an EIN is a legal obligation. Once you create your ID, the IRS will expect you to either file taxes or to at least cancel the EIN if you don’t wind up using it.

In Canada, the BN can be applied for through the Canada Revenue Agency (CRA) at

Don’t forget to look into business licenses and seller’s permits for your area. Talk to your local city hall or business association in your area to find out more about the licenses and permits you may need as they vary from region to region.

4. Separate Your Business and Personal Assets

One thing many people don’t realize is that creating a separate business entity isn’t just about branding. The purpose of the entity is to protect you personally and provide you with limited liability in case of a lawsuit. However, creating a legal entity is not enough to protect you from legal consequences if your business runs into trouble. In order to keep your business a separate legal entity, you need to always treat it like a separate company. In short, this means you may not use the business as an extension of your personal finances. You can’t just take $100 from the cash drawer and use it to buy yourself a new toy. You have to treat the corporation as if you do not own it. If that were the case, taking $100 would be stealing and you must know that the IRS takes this very seriously. If you don’t keep the two separate, you can open yourself up to the consequences of a lawsuit.

Let’s say you’re working on someone’s computer and his or her hard drive dies. The person tells you that all his or her information is on it and it’s your fault the drive died. Even if it isn’t your fault, the person can choose to sue you for loss of revenue, the cost of the drive, and anything his or her lawyer can think of. If you keep your personal finances separate from the business finances, the most the person can do is sue the business. If you haven’t — if you’ve treated the business as your personal bank — the person’s lawyer will argue that you didn’t respect the legal corporate structure and this “pierces the corporate veil.” If he or she is successful, you will be personally liable for everything the business is liable for and you can be personally sued for you assets, including your house, your car, any financial resources, and more.

In order to show that your business is separate from your personal life, you need to do the following:

Separate finances: Once your business entity is created and you have an EIN or a BN, you should create an account at your local bank. All business expenses, payments, etc., should go through this account.

Separate taxes: Make sure to tell your accountant that you have a new business and make sure that your taxes are filed.

Separate business space: If you are going to work at your home, you should have a dedicated office space for your business. This space and the utilities to make it livable will then be tax deductible as a business expense.

Represent yourself as a business: In general, you should represent yourself as a business, not as yourself. This means that all of your paperwork, business cards, emails, etc., should represent you as an employee of the business and not as Joe Smith.

If you always keep your company separate from your personal life, then you will be better prepared to defend your business as a separate entity. Once you start using your business to pay for personal expenses or mix your personal funds with your business funds, you will be proving that the business is not a separate entity and you will open yourself up for legal and personal consequences.

5. Insurance

Since you will be working on customer and business computers either at their locations or at your own, you will want to invest in insurance. Insurance will cover you in case there is a problem or you cause damage at a customer’s site. The easiest way to get insurance is to contact a professional insurance broker who can find you insurance to meet your needs at a low cost.

Just because you have insurance doesn’t mean you should use it frequently. We know one computer business that actually had to close its doors because of their insurance costs. They began with reasonable rates and a retail store. Then there was a computer theft, which they reported to insurance and had insurance pay. A little while later, they lost a customer’s data and instead of resolving it with the customer (which is possible) they simply handed the problem to their insurance company. Little by little, all of these claims caused their insurance rates to skyrocket. Soon, their insurance became unaffordable and since they had to pay it each month, it was dramatically reducing their profits. In the end, they closed their store. The moral of the story is that while insurance is important, it shouldn’t be used too liberally if you want to keep low insurance rates.

1. Assumptions: As you wrote up your financials, you made many assumptions. Since many of these assumptions apply to more than one area of the business plan, having a section with all your assumptions is a good way to consolidate your ideas. Make sure to list the details behind your reasoning and expectations. The more detail you have the more confident you will be in your financials.