Spate, Orange, Calif.
I am a sophomore in community college. My dream is to launch my own business someday. Now that it's time to choose a major, I'm debating if I should go to a prestigious school and major in entrepreneurial studies or major in engineering or something else to acquire a set of skills first, since I will most likely work for a company and build up some capital before I can open a business. What do you think? Is majoring in entrepreneurship a good choice?

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer
"Can entrepreneurship be taught? That's the age-old question," says Heidi Clark, an associate professor at Babson College, a school noted for its entrepreneurship programs. "At Babson we teach you a method. We can't guarantee you success."

Rush Hambleton, a recent Babson grad and the founder of photo kiosk rental business Canditto, says one of the biggest benefits of a business-focused program is the community it attracts.

"So much of the MBA curriculum is unrelated to entrepreneurship, even at Babson," says Hambleton, who launched his company while studying for his master's degree. "But there is no better place to be to bat ideas around people who are going to be critical and orient you on the path of success. You don't need an MBA to do that, but [it's worth something] to be playful, to talk and to think."

Of course, to start a business you need something compelling to sell. Acquiring skills in a marketable field is a smart first move.

If you're dead set on eventually starting a business, though, that's a specific skill set for that as well. Hambleton said his Babson education was invaluable in teaching him how to speak the language of investors and pitch them -- "so you don't look like a country bumpkin."

Academic pursuits can also help train you to think like an entrepreneur, says University of Cincinnati Professor Charles Matthews, who also serves as executive director of the university's entrepreneurship research center.

"I always tell my students, I cannot guarantee much, but I can guarantee that when the course is over, they will definitely think differently about what it takes to be entrepreneurial -- individually, corporately, and socially," he says.

And the very least, Hambleton says, studying business means hanging around other folks reaching for the same goal. It's comforting.

"Entreprenurship is a really lonely endeavor," he says. "At business school, others are doing the same crazy thing."

Give us your advice: Check out recent "Ask & Answer" questions.

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Becky, Birmingham, Ala.
My company, an LLC, is insolvent and dissolving. No formal bankruptcy will be filed, and unsecured creditors will not be paid. I know there's potential for my credit card company to serve me with a lawsuit if I am unable to commit to a payoff plan. Can my employees also be held liable? In other words, can employees who charged company expenses on the corporate credit card be sued for the amount they charged on the card?

By Lenora Chu, CNNMoney.com contributing writer
Where liability rests depends on the specific terms of the member services agreement under which the corporate card was issued. Those agreements differ widely from issuer to issuer.

Some agreements stipulate that the card issuer must first pursue the company or master cardholder -- usually the company officer or director that first opened the account -- for unpaid balances, says Joseph Rosenbaum, an attorney and partner with the law firm Reed Smith LLP.

Others allow the issuer to come after both the company and its employees for various charges, says business attorney Steven Fox of the law firm Epstein, Becker & Green.

In this scenario, the agreement generally says that the master cardholder is liable for charges he makes on his individual card, as well as those made on other corporate employee cards, Fox says.

But the agreements also typically specify that individual employee cardholders are also personally liable for any charges they may make on the card held by them (but not the charges made to other employees' cards). That means the card issuer can go after the master cardholder for all charges, and your employees for their individual charges -- at the same time.

This represents the issuer's "concurrent or simultaneous right" to pursue both parties for payment, says Rosenbaum. It leaves the employer and employee to sort out who ends up with the bill.

Of course, should the card issuer come after an employee who charges a legitimate business expense on behalf of his employer and is not reimbursed, then that employee could have a claim against his employer.

"But that's not much comfort if the company is insolvent and may already have a long line of creditors," Rosenbaum says.

One way to shelter employees from liability as the company is dissolving is to negotiate an agreement with the card issuer to settle the remaining debt, in return for which the creditor agrees not to go after staffers for their unpaid balances.

"This is often a more palatable approach for the card issuing company anyway," says Rosenbaum. Most card companies would still prefer not to alienate individuals who haven't done anything improper.

Both Fox and Rosenbaum recommend that you consult with an attorney for advice specific to the details of your own corporate card membership agreement.

Give us your advice: Check out recent "Ask & Answer" questions.

All work and no pay

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Kyle, Sarasota, Fla.
We've run a dinner theater for three decades, and make most of our money during the tourist season between Thanksgiving and Easter. The rest of the year our audience is local residents. We've been operating at a loss for the last couple of years, and are unable to get a bank loan. We own the land and the theater building, and have put them up for sale with no success. We even closed the theater for two months this summer to save money. We don't know what to do.

By Coeli Carr, CNNMoney.com contributing writer
You're in a tough spot. A traditional lender won't provide a loan to help you keep your business, and you can't find a buyer to take it off your hands.

But there are upsides to your situation.

You own both the property and the building on it. Edward Indvik, a vice chairman in the investment services group of Lee & Associates in Los Angeles, suggests heading to your city's planning department to find out the allowable uses of the building and property. Then look for ways to generate supplemental revenues from the space, especially during the non-peak season.

Some possibilities, says Indvik, are reaching out to companies that might be interested in using your space as a site for seminars or conferences. People might also consider getting married at the theater and hiring you to do the catering. Let the community know your site is open for other business, such as providing recital or practice space for other budding artists.

Joel Shulman, assistant professor of entrepreneurship at Babson College and an entrepreneurial finance expert, concedes that such measures will probably take you out of your comfort zone. But injecting fresh blood and ideas into your operation is essential. Invite local business leaders you respect in for a brainstorming session, enlist their expertise and partner up, he advises. "An alternative business model is something you must consider given the current economic market," he says.

A partner who creates a complementary business on the premises could pay rent and give you a percentage of the take, says Shulman. Such a person could also act as agent and bring you clients who could use the space during non-peak season or during the day.

Another approach, says Shulman, is to do simple market research by asking local residents on your subscriber list what would inspire them to attend performances more frequently. Perhaps, he says, patrons would prefer to see only the show and would rather dine elsewhere. "It's easy to lose money on a food business," says Shulman, who cites spoilage, theft and labor costs as problematic issues.

If you eliminate the dinner, you might be able to raise the price of the theater ticket. By no longer serving a full dinner, you might attract a partner who'd want to set up a cafe or other type of eatery on your premises.

Increasing revenues in whatever way you can will make your business, even in a sluggish economy, attractive to potential buyers or lenders. With recent losses, your negative trend line is the worst thing to bring to a bank, says Shulman. However, non-traditional sources of loans are still available.

For instance, businesses that can't find bank loans can still apply online for loans from microfinance institutions like Accion USA. Premal Shah, president of Kiva, a global organization that helps people make loans to individuals in developing countries, also suggests visiting Prosper.com, a person-to-person lending site.

"It's the eBay for loans," he says. But first, try to boost your sales, he recommends. "It's very attractive to a lender [if] you've found alternative revenue streams. It shows you're a good entrepreneur."

Give us your advice: Check out recent "Ask & Answer" questions.

Free cash for your business

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The Flower Lady, Suwanee, Ga.
How does a florist sell more in this economy? We changed our business to designing weddings and events only, as the everyday flowers are not selling. We had to throw out too much product at the end of the week -- flowers are perishable!

By Coeli Carr, CNNMoney.com contributing writer
As budgets get tight, people are spending less on luxury items -- which means retailers in that market also need to clamp down and mind the bottom line.

Flowers' short shelf life mandates that you control buying and adhere to a strict formula, says Keith Riewe, owner of Bice's Florist in Fort Worth, Texas. The industry standard rule is that the wholesale cost of your flowers should be one-third of what you sell them for, he says.

The moment you realize you've got product left over, it's time to cut your orders, says Riewe. Although many florists pay less for flowers by using a standing order, it's often more cost effective to customize your orders. You'll pay a little more, but you won't be throwing unsold flowers away. It's better to run out than to have unsold product, he says. Some florists have hybrid ordering systems that consist of a smaller standing order, and a separate, supplemental order when necessary.

Another way to cut your expenses is to keep a detailed count of what goes into your bouquets.
"Designers love to overstuff an arrangement to make it look pretty," says Riewe. "When that happens, you're giving the customer way more than what they pay for."

Louie Theofanis, owner of Major Wholesale Florist in New York's flower district, suggests boosting your margins by filling out bouquets with less expensive but attractive blooms. "Presentation is always important," he says. "It's important that customers feel they're going out of the store with an armful of flowers, and that they're getting their money's worth." Greens have a longer shelf life, he adds.

But no matter how gorgeous your merchandise is, you need to get customers into your store. That's why advertising and promotions are even more important in a sluggish economy. Riewe recently gave away 500 rose bouquets, featuring a dozen flowers in each. The only thing people had to do to get one was come to his shop and provide contact info. Along with the bouquets, recipients got a card prompting them to visit the shop's Web site. Remarkably, 298 out of the 500 people did so.

That's another way to boost business. "It's imperative you become technically savvy," says Riewe, adding that most flower shops, compared to other retailers, are lagging by five or six years. He suggests using point-of-sale software to collect information from those who send and receive your flowers. Using the data he collects, Riewe sends out "preferred customer" cards, which offer an opportunity to earn reward points and be notified by e-mail of special offers.

Riewe suggests that florists rely less on corporate clients and focus on consumers. If one big company's account represents a large part of your business, your revenues will become too dependent on them. Expanding into weddings and events is a smart move because those orders are typically paid for up front.

Give us your advice: Check out recent "Ask & Answer" questions.

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Sanjay, Huntington, N.Y.
We have a retail shop of clothing and jewelry. I sit all day waiting for the customers. How can I utilize that time on my computer, and do something that will generate extra cash for my business?

By Dinah Eng, CNNMoney.com contributing writer
If you're not selling your products online, now is the time to start -- and if you've already taken the e-commerce dive, you can use your down time to build sales-boosting buzz.

If you don't already have a Web site for your store, you can ease in by selling on established sites like Amazon.com or eBay. If you have handmade items, try Etsy.com or ArtFire.com.

Whether you're selling on your own site or an outside one, a good next step is to compile an e-mail database of your customers. Realize, though, that technology alone is not going to sell your inventory.

Paul Schneider, owner of Twist

"Retail is all about relationships," says Paul Schneider, owner of Twist, which started as an artists' coop and now sells jewelry and art pieces through two stores in Portland and one in Seattle. "If you compile an e-mail database and use it to establish a line of communication, you're three-quarters of the way to making a sale."

If you have six customers a day, you could compile 36 names a week. The trick, of course, is getting people to give you their e-mail addresses.

"I try to make it fairly personal," Schneider says. "'Would you mind if I got in touch with you when we have a special promotion for our e-mail friends only?' Make it a private, exclusive club. Don't send more than one mass e-mail a month. To a small retail business, this is gold."

Schneider says he uses his Web site for personalized pitches, sending customers links to pages with items that may interest them.

To attract new customers, he suggests finding the blogs and discussion groups online that deal with what you sell, and becoming a part of the discussion.

"Talk about your products, even if you don't have your own Web site," he says. "If you sell wedding rings, get on the bridal blogs. We're starting to work with social networking, and have a fan page on Facebook now. There are search engine optimization consultants who can help you craft online ads."

Richard Eiseman, Jr., owner of Eiseman Jewels in Dallas, a high-end boutique, is now in the process of inputting a mailing list compiled over 40-plus years into a database. To entice people to register online, he sent out direct mail pieces offering a free valet parking pass at the mall and a chance to win a $5,000 store gift card.

"Find ways to get exposure by doing something unique," Eiseman suggests. "Host a charity event in your store. Have the local school sell something at your store. You have to get foot traffic in based on some expectation other than buying."

Utilize that time in between walk-ins by reaching out to customers on the phone.

"Keep a card on every person you've sold to," advises Scott Marshall, a Los Angeles consultant who specializes in retail management and e-commerce. "Write down what they like, their family information, anything you can think of. Then think of how to help them with the products you carry. If you've got trendy teen clothing coming in, and their card says they have teenage nieces, call and tell them, but do it in a way that shows you're interested in them, and not just the sale."

Marshall says men, in particular, always need help with finding the right gift for women. Have their spouse or girlfriend fill out a store "wish list," then offer to send the guys an e-mail reminder when a birthday, anniversary, or holiday is coming up -- and suggest items that the women in their lives might enjoy.

"You have to decide to be in the game," he says. "Too many people think 'I'm a small store, my customers don't have a lot of money.' Everybody wants to find a deal without searching high and low for it. To somebody, your things are expensive, and to somebody else, the items are cheap. If you're ready to just sit at the computer and do work for someone else, you've given up on your own store."

Give us your advice: Check out recent "Ask & Answer" questions.

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From OLG
We have a small business with a number of federal government contracts. We would like to expand to the commercial arena, but have not been able to find a service or method that would provide market differentiation (other than offering lower costs than our bigger and better-known competitors). Would acquiring a firm offering a compatible "niche" be the best move for expansion? In terms of growing federal and perhaps state government sales, would hiring a "consultant" be wise? I am interested in hearing from business owners who have tried both methods. Thanks!

By Maya Payne Smart, CNNMoney.com contributing writer
With federal stimulus dollars gushing down the pipeline, some government contractors are looking no further for their next catch. That's a mistake, because the government contracting boom of 2009 is unlikely to continue in future years.

Bob Venero grew his IT company from zero to $100 million in sales.

It's important to diversify into the private sector, says Eric Dobyne, a regional director for the U.S. Department of Commerce Minority Business Development Agency. "If your sales force is really focused on government and federal work, you may have to hire from outside," Dobyne says. "I wouldn't say you need a consultant, but dedicate staff to that market. It needs to be a part of your business strategy and you need to have resources dedicated to make the transition."

But be prepared to wait for results. The corporate sales cycle is generally shorter than government ones, but it still takes time to build relationships with clients. Bob Venero, president and CEO of Future Tech Enterprise, Inc., grew his Holbrook, N.Y., IT company from zero to $100 million in revenue organically. "In 12 years of business, we've looked at acquiring nine companies but never did," he says. "They were overpriced, because someone wanted to retire or the wheels were falling off the bus. It wasn't worth the debt or risk to acquire them."

Venero says consultants can help you win government contracts, but you need to beef up your own sales force to thrive in the commercial arena. "Understand that corporate America is more political than government America," he says. "Relationships with individuals become the most important component to success. With government contracts, you start to collect orders. There's no real relationship built, because it's a piece of paper versus a person."

Robert Wallace, the president and CEO of Bith Group Technologies Inc., a Baltimore, Md., technology company, also says an insider offers the fastest route from point A to point B. For example, if you want to do more business with a specific government agency, recruit from within. "Find somebody who was in the space or who is in there now and will be leaving soon, and have that person join your team in marketing or business development to go back into that market and sell," he advises.

Marcus Carey expanded his company beyond the government sector through persistent networking and outreach.

If staffing up isn't in the budget, you'll need to take the lead. Marcus Carey is the owner of Saecur, a Hanover, Md., information security firm that subcontracts for the U.S. Department of Health and Human Services. He decided to be the front man for his company's move into the commercial sector. "You have to hit the conference circuit, put on podcasts and just generally give the industry or community good content, good information, stuff that they can use," Carey says. "It lifts your profile. If you give people what they want, you end up getting what you want."

His information security "community service" includes a blog, monthly briefings at Capitol College, and participation at DojoCon, an information security conference. The outreach helps his company build brand recognition among prospects. Carey relies on virtual assistants in the U.S. and India help keep his costs down: They identify speaking opportunities, draft proposals and even court sponsors for his community events.

Carey is confident he's expanding in the right direction. "The government contracting market is the most stable, but your margins are really tight because there's so much competition and people are lowballing each other," Carey says. "The commercial profit margin is way, way better."

Give us your advice: Check out recent "Ask & Answer" questions.

The government's fuzzy small biz math

Small business ARC loans pick up, but frustrations remain

Entrepreneurs create their own recovery

Victoria Pavlov
In the past year, I made two attempts to take out a loan for my startup graphic design business. All banks demand proof that our business is successful and earned money for the past two years. I tried to make them understand that our business cannot bring in any money -- we need equipment that can only be bought with a loan. If I get it, my company will create new job opportunities that will be beneficial for our economy. However, with that said, all banks remain ignorant. What is the best way to take out a loan for my business?

By Maya Payne Smart, CNNMoney.com contributing writer
Even in the best of economic times, it's not easy for startups to win bank loans. Most lenders look for a long track record of earnings, and some don't lend to new firms at all. But you can improve your odds by investing your own cash, building banking relationships, communicating a compelling business vision, and courting local investors.

Jeff Glassman (at left) relied on friends and family to raise the $250,000 needed to launch Fire Island Beer.

"No one should go into a bank and expect 100% financing," says Bob Seiwert, senior vice president of the American Bankers Association, a Washington, D.C.-based trade group. "Bankers are lending shareholder and depositor money, and they want it returned on time. They get paid to take prudent risks, but they don't get paid to make equity investments."

In short, you need to invest in your enterprise before seeking others' support. Seiwert also recommends seeking out an experienced small business lender who uses the Small Business Administration's loan guarantee programs.

"While most banks will do small business loans, not all banks specialize in that," he says. "Look for a bank with experienced relationship managers who are used to working with firms in your industry. Many times the advice that a knowledgeable banker can give you is far more important than any product or service that they can sell."

Moreover, establishing a banking relationship sets you apart from other prospective borrowers. "If you look today at who is getting the money, it's people who've invested in a relationship and didn't just do a series of transactions," Seiwert says. "They have a bank or a banker that they have regular dialogue with. If you're applying for a loan over the Internet, you're just going to be a number -- and when money gets tight, you don't want to be a number."

The good news is that small business lending is picking up a bit after plummeting last year. The SBA reported in September that more than 1,000 lenders that hadn't made SBA loans since at least October 2008 began lending again this year.

But don't think that traditional banks are your only option. Alex Moazed, founder of Applico, a mobile phone software application development firm, tapped into savings and maxed out his credit card to get his company off the ground in January. "I'm young and in school and don't have much of a credit history," the Babson College student explains. "I didn't think a bank loan was an option for me."

His firm launched its first application in May: NYC Transit, which allows New York and New Jersey commuters to view train, bus and ferry schedules on BlackBerrys without network connections. Just a month before the launch, he won $2,500 in a business plan competition at school. Now he says he's paid off his credit card, and Applico is on track to reap $250,000 in revenue for its first fiscal year.

Moazed advises entrepreneurs to start small to generate cash for corporate growth. "Be relentless, and never let yourself get down about [financing your business], because there are many ways that you can be innovative to get your initial product out there," he says. "Maybe you want to spend $1 million on a full-fledged product, but scale it down to bare-bones and get that out there. Leverage the cash that you have and try to defer payment with your suppliers. Get them to buy into your vision."

When Jeff Glassman decided to launch Fire Island Beer in May with his brother and cousin, he knew their risk profile was unlikely to win traditional bank loans. Instead, he turned to friends and family to raise the $250,000 that he needed to perfect a beer recipe, purchase kegs, retool the bottling line at a brewery, and develop eye-catching creative for labels and advertisements. Glassman offered his investors convertible notes, giving them a direct stake in the potential success -- and the risk -- of his venture.

"Before you approach anyone else, sacrifice -- whether it's your own money or time," he advises. "Demonstrate that your skin's 100% in the game. Investors look for that. They want to make sure it's not a hobby that you're testing on their dime."

A well-targeted personal appeal coupled with a detailed business plan helped Kim Harmson raise more than $70,000 from local investors when she launched Kizuri, a fair-trade gift shop in Spokane, Wash. "I had never done retail before, so I thought a bank would have laughed me right out of the door," she says.

What she lacked in experience, she made up for in commitment to socially and environmentally just business practices. That, along with her sponsorship of local events and donation of 7.5% of profits to the community, appealed to investors like Denise Attwood.

"Kim really impressed people," Attwood says. "She met individually with each of the investors and she was very thorough and thoughtful in her development of the plan. She knew her audience, and knew that they wouldn't want fair trade not to be available in Spokane."

Give us your advice: Check out recent "Ask & Answer" questions.

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Barbara, Westfield, Mass.
We are a small company of just over 30 employees based in Massachusetts. Our employees are across the USA, working out of their homes or at clients' sites. We are having a hard time finding good health insurance. Any suggestions?

By Catherine Clifford and Rose Fox, CNNMoney.com writers
You are not alone in having trouble finding a viable health insurance solution for your small business. In 2008, 69% of small businesses surveyed by the National Small Business Association said they want to offer health insurance to their employees, but only 38% were actually able to do so.

Nearly all of America is engaged in a debate over President Obama's proposed health care reform, but the cost of health care has been a hot-button issue on Main Street for years.

"The cost of insurance has been the number-one issue for NFIB members for over 20 years," says Amanda Austin, the director of federal public policy at the National Federation of Independent Business, a nonprofit trade organization. "It is very hard for small employers to emulate large employers -- small employers don't have the ability to have large risk pools. They can have a very significant premium increase if they have one person get sick."

As hard as it is to find coverage at all, it's even tougher when you're trying to find an insurer willing to write a policy for a company with employees scattered around the country. But as businesses embrace the low overhead of a telecommuting workforce, that's become an increasingly common situation.

"The reality is that Massachusetts-based insurers are going to require more than half of the participating employees to be residents of Massachusetts," says David Kaplan, a licensed insurance adviser with Aronson Insurance in Needham, Mass. "Absent that, there are a few companies that offer national plans."

Amir Mostafaie, a consumer health spokesman at eHealthInsurance.com, echoes that assessment.

"If fewer than 51% of your employees work in your home state, it becomes more difficult to find a carrier to underwrite your plan," he says. "UnitedHealth (UNH) has been the exception here -- in my experience -- by being willing to quote group coverage for small businesses with more than 51% of their workforce residing outside the state. Instead, United has generated quotes using the state with the highest concentration of employees."

To make your search easier, Mostafie recommends going through a licensed agent or broker who works with businesses in your industry and geographic region. Do your own homework as well, reading up on industry definitions of terms like "coinsurance" and "out of pocket" to make sure you know what you're getting into when you choose a policy.

It may help to survey your employees to find out what kinds of coverage are most important to them. For example, if most are older adults with grown children, a plan without maternity coverage might save you money while still giving your employees all the benefits they need.

Finally, Mostafie emphasizes the importance of developing programs to keep your employees healthy, such as arranging for discounts with a national fitness chain or offering bonuses to smokers who quit. "Even if you can only find an insurance solution for the employees in your home state," he says, "having a healthier group will help you save money on premiums in the long run."

As insurance costs climb, fewer companies are able to afford those premiums. In 2009, less than half of companies with less than 10 employees offered coverage, according to a comprehensive Kaiser Family Foundation study released this week.

"We are seeing less and less new small business owners offering coverage, because it is very expensive and employers do not like to offer a benefit and then take it away," says Austin of the NFIB.

The scarce choices and unmanageable costs small companies face have advocates clamoring for reform -- but like most of America, the small business community is divided in its willingness to see drastic changes made to the existing health-care system. The National Small Business Association is leery of expensive reforms.

"We don't think there is enough cost containment incorporated in the bill" that is currently being negotiated in Congress, Brogan says. "To put [small businesses] in any kind of disadvantage now, when we need the job creation the most, is something that we are concerned with."

Give us your advice: Check out recent "Ask & Answer" questions.

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Erin, Kailua-Kona

Do shareholders have to take a salary in an S corp? Can they just take distributions? How about an LLC?

By Lenora Chu, CNNMoney.com contributing writer

In tackling your question, it's important to first understand the difference between a salary and a distribution.

A salary is a payment by a business in exchange for services rendered. A distribution is a payment taken out of the profits or other assets of the organization.

There is no federal tax law requirement that shareholders of either an S corporation or an LLC pay themselves a salary, says Jonathan Moyer, an attorney at international law firm Reed Smith LLP.

Instead, they can decide to take only distributions, or even keep profits in the corporation as shareholders' equity to be distributed at a later time, says Paul Jaskot, also a Reed Smith attorney.

However, payment of the federal self-employment tax -- a Social Security and Medicare tax for individuals who work for themselves -- should be weighed when considering how shareholders should take their compensation.

With an S corporation, salaries are subject to self-employment tax, but distributions are not. (Both are subject to regular federal income taxes.)

Even so, while it appears beneficial to take only distributions, many S corp shareholders elect to take at least a small salary, says Len Friedman, tax partner at the Bridgewater, N.J., accounting firm Rosenberg, Rich, Baker, Berman & Company.
Why? S corp shareholders who take only distributions must still pay self-employment tax on an "industry standard" amount of salary -- or risk an IRS challenge, Moyer says.

"There's the rub," says Moyer, who suggests taking a salary limited to that industry standard to minimize self-employment tax liabilities. What counts as an "industry standard" is up to you to determine -- but be prepared to back up your accounting if you set a lowball number. The IRS isn't shy about challenging salaries it deems too low.

With an LLC, owners whom the IRS considers to be self-employed must pay self-employment tax on all of their income -- in other words, on both salary and distributions.

Thus, there is no salary requirement, because all income is effectively taxed as if it were a salary, Friedman notes.

So while LLCs provide more freedom for members to structure management operations and ownership of the company, they can generate higher tax burdens in certain situations, says Moyer.

There are many tax and legal implications involved in forming a business entity, so the experts advise discussing your specific situation with an attorney or tax professional.

Give us your advice: Check out recent "Ask & Answer" questions.

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Taylor, Jackson, Miss.

I own a dry cleaning business and was wondering what to do with all the forgotten or left-behind clothes. They date back a few months or as far back as a year. I read that by donating them I could get a tax write-off.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

You can donate them, but you might want to review your state's abandoned property laws -- and at least one expert we spoke to says you can't take a tax write off.

Here's why: "A business charitable tax deduction has to have a tax basis," says Philip R. Lieb, an accountant in White Plains, N.Y. "The clothes cost the dry cleaner nothing. The cost of cleaning has already been expensed through the dry cleaner's business operation. The business charitable deduction would be nothing."

And, depending on the state, you also can't just dump them off at the local Goodwill and call it a day.

Many states place the disposal of forgotten clothes under abandoned property laws, and the guidelines can be quite specific, says Ann Hargrove, director of special events with the industry trade group the National Cleaners Association.

One New York cleaner ran into legal trouble for trying to sell clothes that had been left for more than six months, Hargrove recalls. In New York, the property cannot be sold, only donated to a charity.

And to give you an idea of the specificity of the law, at least in New York: Cleaners must give notice to customers that abandoned dry cleaning will be donated after six months, and "such notice shall be at a minimum 11 inches in height by 17 inches in length and the printed characters shall be 1.25 inches in height and at least .5 inches in width," the law decrees.

The cleaner must also keep the donation receipt, with the original receipt for the customer's drop-off, for a full three years after the donation.

Mississippi law is a lot less clear.

Kathryn Stewart, a Mississippi Treasury Department spokeswoman, says she can't find anything that places clothes left at a dry cleaner under the state's unclaimed property laws, which cover cash and securities.

Your fellow cleaners in Jackson seem to work under an informal guideline of considering items abandoned anywhere from 30 days to a full year after they're dropped off, says Ebony Beals, a clerk at Clark Cleaners, which has several locations in Jackson.

They wait a year and then donate the items. "We figure you either forgot or didn't want the items, but we do wait a full year," Beals says of her store's approach.

For additional advice on the tax implications of abandoned items, consider consulting your personal accountant.

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My business failed. What can I write off?

Susan Lewis, Lancaster, Calif.

Can we legally hold a client's paperwork if they haven't paid their bill? We do their bookkeeping and they haven't paid in months. We haven't done any additional work for about two months, and now they are asking for their paperwork back. If we send it to them, we will never get paid.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

Sending the paperwork back likely won't make a check materialize, but there are ethical issues to consider with holding it hostage.

Let's start first with trying to get paid.

Sharon Means, a certified public accountant from Cleveland who also owns a bookkeeping business, just dealt with a similar situation.

"I didn't send it back," she says. "I just kept killing them with kindness. Every week I would send an e-mail. 'Can you pay me some? A payment plan?' If you are going to have any work done in the future, they have to understand that you just can't keep dishing it out with nothing in return. It's the squeaky wheel that gets the oil, so you have to put yourself in front of this person."

Her tactic paid off. "We worked it out so he paid at least half, and then we set a schedule for paying the rest of it," she says.

The recession is making it hard for many people and businesses to stay on top of their bills, she acknowledges "That's the thing. Everyone is cash-strapped, I understand, but you have to keep up communication."

But do you have a legal or ethical obligation to return the client's work product, cash or no cash? Being a bookkeeper means you have little regulatory framework for your job -- unlike CPAs, who are bound by the American Institute of Certified Public Accountants Professional Standards. Violating those standards can lead to membership termination and disciplinary sanctions against certified accountants.

The relevant section of the Institute's standards code says, in part, that any financial records the client has provided you with should be returned on demand. Records that you've prepared yourself should also be handed over on request unless there are fees due to you for the preparation of those records. Supporting records related to finished work can also be withheld if you're owed fees for that specific work product.

David Bybee is president and CEO of the National Association of Certified Public Bookkeepers, a trade group for the unregulated bookkeeping field. He recommends that you give back any work papers that the client provided to you, such as year-end financial statements. But final reports that you produced do not have to be returned without compensation.

Give us your advice: Check out recent "Ask & Answer" questions.

When to get tough with a deadbeat client

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Jonathan Cottor, Scottsdale, Ariz.

I have an LLC, and I'm seeking some advice about my family's medical expenses. One accountant told me they can be run through the LLC as a business expense, and I've been paying the insurance premiums and any eligible co-pays and FSA-qualifying-type out-of-pocket costs through the business as an expense. I haven't set up a separate HSA account, since the medical expenses run through the business and reduce my taxable income anyway when it pulls over to my personal return.

Another accountant has questioned this logic, and advised me that medical expenses need to reside solely on my personal return and are not business expenses. Who's right?

By Lenora Chu, CNNMoney.com contributing writer

The second accountant is closer to the mark. For the most part, you'll need to treat medical costs as personal expenditures.

As a general rule, a business can only deduct expenses if they're "ordinary" and "necessary" for the operation of the business. Medical expenses for a member of an LLC are not considered "ordinary and necessary," says Scottsdale, Az.-based tax accountant Phillip Wuollet of Johnson, Harris & Goff.

However, you still have options for cutting medical spending out of your tax bill.

You can deduct the premiums for your coverage using the "Self-Employed Health Insurance Deduction" on your personal return, according to Debbie Oster, director of tax compliance at Margolin, Winer & Evens, LLP in Garden City, N.Y. That will let you deduct 100% of the premiums paid for yourself, your spouse, and your dependents.

If the LLC pays for your coverage from its own coffers, it would need to classify that expenditure as a "guaranteed payment" to you. The business can deduct guaranteed payments as expenses, but then on your person return, those payments need to be included as income.

"If you pass it through as 'guaranteed,' you're deducting it out of one pocket and adding it to another," says Wuollet. "You're just transferring money between accounts."

If your insurance premium is passed through in that fashion, you can still deduct 100% of it off your personal return.

Co-pays and other incidental medical costs are considered your own expense -- not the LLC's -- and need to be included on your personal return. The IRS only lets you deduct medical bills, though, when they get extremely high: more than 7.5% of your AGI (adjusted gross income).

To get more tax protection, you could set up an HSA (health savings account), as you mentioned. Another relatively new option is a "section 105" health reimbursement plan. Under that arrangement, you contribute a fixed amount for each employee to an account that they can tap to pay for medical expenses.

Contributions to these accounts are tax-deductible for the company, and when the worker accesses the funds, those reimbursements are not considered taxable income, Wuollet says.

Give us your advice: Check out recent "Ask & Answer" questions.

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Ana, Dartmouth, Mass.
I'm thinking about making some truffles (chocolate and peanut butter), putting a flyer together, passing it to friends at work and selling to them. I'm making them at home.  Do I need to get a business license or a food license?

By Emily Maltby, CNNMoney.com staff writer

Lots of people are eying their kitchens right now as a way to earn a little extra cash in a bad economy. The Massachusetts Department of Public Health Food Protection Program receives more than 200 inquiries a year from residents hoping to open a food business.

The permits and licenses you will need vary depend on whether you want to incorporate, where you will be running the business, and the type of munchies you want to sell.

Each state has its own guidelines. Massachusetts recently published a brochure on the requirements for residential kitchens, broken out into two categories: "retail kitchens," from which you sell the goods directly, and "wholesale kitchens," for those who are selling their creations to another vendor, such as a local grocer.

What you're asking about is a retail kitchen. To set one up legally, you'll need to be inspected by the local board of health, which will approve and license you.

"They will test to make sure that there is appropriate sanitation, such as making sure there is enough chlorine to clean the food preparation areas and that the dishwashing operation has a sufficient temperature for sterilization," says Suzanne Condon, director of the Massachusetts Department of Public Health's environmental health and safety bureau, located in  Jamaica Plain, Mass.

The health board's inspectors will also make sure that your product is a "low-risk food," meaning that it does not require refrigeration and does not support the growth of disease-causing bacteria. The board may require a lab test to determine the pH and moisture levels of your snacks, along with other characteristics that would affect the food's shelf life. If the inspectors don't think your food qualifies as low-risk food, chances are you won't get the permit.

You will also be required to maintain a standard recipe, which will enable you to properly label the ingredients in your food. A new analysis may be required if you want to alter the recipe. For guidance on how to label your food, check out the FDA's Center for Food Safety and Applied Nutrition Web site.

In some states, kitchen inspections are conducted by the state inspectors. In Massachusetts, they are carried out on a local level. Fees vary widely: In Bedford, a permit can be had for only $50, but Belmont it is $85. Burlington charges $100, and in Arlington it costs $175.

Once you've had your kitchen and your product inspected, you can secure a business license from your local jurisdiction. The most basic registration is a sole proprietorship, which means you will have the ability to sell your goodies on your own. If someone else is working with you, the best option is to get licensed as a partnership.

You can stop there, or go a step further to form a business entity, such as a corporation or a limited liability company. "As a sole proprietor, all your personal assets are exposed," says John Meyer, business development leader at The Company Corporation, a firm that helps startups incorporate. "But by incorporating, you will establish a brick wall between the business and personal assets, because that business license would be under the entity's name -- not yours."

Forming a business entity can also provide more tax flexibility, allowing you to deduct losses in years that your company doesn't make it into the black. It's up to you if the cost is worth the reward: Incorporating can cost as little as $100 through an online filing service, but keep in mind that states have their own, additional fees, which may tack several hundred dollars onto the final bill.

You don't have to decide right away whether you want to classify your food venture as a formal business or an income-generating hobby. At tax time, you can submit Form 5213, which allows you to defer for four more years the IRS's determination of whether your business is a for-profit venture.

For more information, the most comprehensive site about registering your business and obtaining permits is Mass.Gov's step-by-step guide to forming a local business.

Give us your advice: Check out recent "Ask & Answer" questions.

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Thomas, San Francisco
I have a video production company with five full-time editors. I'm always stressed thinking I'm either overpaying them and I'm going to go broke, or underpaying them and am going to lose them and/or they're going to get resentful. Because of this, I realize I manage them nervously, which is not good management. How does one determine pay parity? I would like to pay them fairly so I can stop worrying and pay and manage them with confidence.

By Rose Fox, CNNMoney.com contributing writer
There are plenty of resources out there for both workers and employers who want to make sure that staffers are getting paid neither more nor less than they're worth.

To start with, look at free sites like Salary.com, PayScale.com, and CareerBuilder's CBSalary.com. You can also check the Bureau of Labor Statistics site at bls.gov. For more in-depth data, consider purchasing reports from survey companies that do research in your field. Salary surveys exist for almost every industry. Amy Kaminski, manager of marketing programs for Compdata Surveys, suggests sticking with surveys that get their data from employers: "This will help ensure the accuracy and reliability of the results."

Look for data that's applicable to the type of business you run as well as the type of employee you want. Ted Turnasella of WageLINK.net offers three helpful rules of thumb:

1) Make sure that the job being reported is a match for the job at your company. A good rule of thumb is for the job summary in the survey to represent at least 75% of the duties being performed by employees in the company.

2) Look at the effective date of the data and adjust it for the passage of time. For example, for data that is several months or years old, factor in an annual wage inflation rate of 3%.

3) If the data you are using is national data, it will need to be adjusted to your local market. Salaries in New York City are much higher than those in Brownsville, Texas.

Once you have all that information, consider how it applies to your company, factoring in regional and personal differences that may not be reflected in the numbers. "If a good editor is difficult to find, you may need to pay above market in order to keep these key employees," Kaminski says. "On the other hand, if you offer valued benefits such as flexible hours or above-average health insurance, you may be able to pay at or below market while still keeping your employees happy."

Jennifer Grasz, a CareerBuilder spokeswoman, agrees that soft benefits can matter as much as cash. "Companies are looking beyond salary and incorporating more flexibility into their packages to stay competitive in their recruitment efforts," she says. "For example, we see more companies offering telecommuting opportunities, compressed workweeks and other alternative work arrangements."

Finally, if it becomes clear that a current employee's salary needs to be renegotiated, don't be shy about showing them the numbers that helped you to reach that decision. "Salary market data moves any pay discussion onto a less confrontational footing," says Dr. Al Lee, director of quantitative analysis for PayScale.com. "Yes, your employees may still look for work elsewhere, but it won't be higher pay that draws them away."

Give us your advice: Check out recent "Ask & Answer" questions.

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Susie Pemberton, Centralia, Mo.
I live in a small town and own a child care facility. My gross income in 2008 was $126,134. Someone's interested in buying it, and they're waiting for me to give them a price. I understand that I need to "adjust" my expense report for 2008, but I'm not sure what to use for a multiplier. I've been in business for six years, and can see room for expansion in the future. How do I name my price?

By Lenora Chu, CNNMoney.com contributing writer
Valuing a business is not an exact science. Many factors come into play when you're determining an appropriate selling price.

At its simplest, that price will be based on the economic benefit the business is expected to generate for the new owner.

Start your calculation by determining the "seller's discretionary cash flow," (SDCF), or true net profit.

To arrive at this number, examine your 2008 accounting records to pinpoint your net income, says Terry Monroe, president of the St. Louis brokerage firm American Business Brokers.

To that number, you should add back any personal expenses such as your cell phone, health insurance and travel costs, Monroe says. The new owner may not choose to pay for such things out of the business cash flow. Including them artificially lowers your business's apparent income, and therefore your selling price.

To put some numbers to the calculation, say you have a business that generates $140,000 in gross income. Your cost of goods was $40,000. That means your gross income before expenses is $100,000.

Then, subtract your expenses. Say you have utilities, payroll, taxes, insurance and advertising costs of $65,000. Personal expenses covered by the business, such as a car payment, health insurance, and travel costs, added another $15,000. For such a business, total expenses would be $80,000.

That leaves a net income of $20,000. But adding back the $15,000 in flexible expenses brings the business's discretionary cash flow, the true net profit, up to $35,000.

Once you've arrived at the SDCF, you'll need to determine an appropriate multiplier to arrive at your business's valuation.

Multipliers vary widely for small companies. Factors include the economic issues affecting your industry, the size of your business, how long you've been around, and any risks the buyer might face, says Mark Gottlieb of MSG, a Great Neck, N.Y., accounting firm that specializes in business valuations.

An appropriate multiplier for your industry will likely fall between 1.0 and 2.5, according to Monroe and Gottlieb's estimates.

Thus, an appropriate selling price would be the SDCF times this multiplier.

With an SDCF of $35,000 and a multiplier of 2, a reasonable selling price would be $70,000.

You'll also want to tack onto the selling price the used value of any physical assets of the business, such as furniture or playground equipment, says Monroe.

If you're serious about selling, the best first step is to consult with a business broker or investment bank to evaluate the specifics of your business and determine an appropriate multiplier.

Give us your advice: Check out recent "Ask & Answer" questions.

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