President's Message
By Gary M. Fee
Financial Tips on Setting up Your Home Based Agency
Business
How do home-based agencies set up their business in a professional manner to position
their company for success? What considerations and steps are involved in setting
up a home-office?
Planning and Getting Expert Assistance Is Essential
Whether you decide to become affiliated with a host agency or not, as an independent you will now become a business owner. Like any other business, the home-based agencies that are most successful are those that are well thought-out and planned. Determine your business concept—defining the profile of your business. Conduct some marketing research and study research already compiled to help you decide on the specialty and the niche that your business will focus on. Determine the potential profitability of pursuing a specific niche and assess the competition. Define your expectations of your travel business.
Plan your business. A written business plan is recommended for companies that may be seeking funding or loans from financial institutions. A business plan is a summary of expectations from a business effort, including the level of income, benefits, mid- and long-term goals, and investment. There are many books and even computer software programs that provide useful information that can help you develop your business plan. Set clearly defined objectives that will help you prioritize your actions and provides you with a specific direction to work towards.
Choose a name for your business that is descriptive of the focus of your services. For example, “European Tours & Cruises” is much more descriptive of the specialty that this home-base agent chose to pursue, rather than “Melody’s Travel Shoppe.”
Turn to the experts to help you set up your business correctly to avoid future problems and to position your business for success. Find a good business attorney and accountant who specialize in setting up small businesses and/or travel agencies.
Request the attorney’s advice and assistance regarding the following tasks:
- Establish and file a Fictitious Business Name Statement (DBA-Doing
Business As) with the appropriate government officials (county and state). This
process typically requires that you file forms with the County Recorders office
and place an announcement in a local newspaper for specified period of time.
- Decide on the type of business you will establish: sole proprietorship,
partnership, corporation, limited liability company (LCC). Although, most home-based
agencies are organized and established as sole proprietorships, your attorney
will be able to advise you on the advantages and disadvantage of each type. Incorporating
your business may enhance your business’ professional image. You and your
attorney should evaluate the liabilities and risks associated with each organizational
type to determine which one would be best suited for your specific situation.
- Obtain the proper business license. You must check with your city
hall, county or state officials to determine if a local license is required to
operate a business out of your home. Some states require travel agents and the
sellers/promoters of travel to register with the State Attorney General’s
Office. Typically there is a registration fee and you are given a registration
number that must be displayed on your website and all advertising materials. OSSN
has a list of these states in our “Finance and Legal” section of OSSN.com
- Evaluate your business insurance needs. Your attorney can explain
your liabilities and the type of insurance that will need. For example, Errors
& Omissions General Liability Insurance is mandatory for independent contractors.
This type of insurance provides coverage if you are sued by a client due to a
mistake (error) or negligence (omission) on your part. You may purchase insurance
through an insurance company of OSSN.
- Disclosure forms. Disclosure notices are written statements
of the important information that you have “disclosed” or communicated
to your clients. Some of the important items to include in a disclosure notice
are receipt of documents, responsibility of agent, cancellation and refund policies,
and that insurance was offered. Ask your attorney to review and evaluate the disclosure
forms that you have designed and plan to use. Disclosure notices do vary from
state-to-state; your attorney may have some sound advice of the wording contained
in the notice that you will have your clients’ sign. Disclosure forms are
meant to prevent legal problems, but only help you if you keep the client’s
signed notice on file. Sample copies of disclosure forms may be found in your
OSSN member manual or in the OSSN.com website.
- Limited Power of Attorney. Some independent agents use a limited
power of attorney as authorization to process phone orders charged to the client’s
credit card to protect them from disputed charges. It does provide limited protection
and should be reviewed by your attorney.
- Review your contacts. Have an attorney look over your contracts with a host agency (if you chose to go that route) and contracts you have prepared for suppliers before you sign them. OSSN provides members with sample contracts.
Request the accountant’s advice and assistance regarding the following tasks:
- Assess the tax implications of the organizational type of business
that you decided on (sole proprietorship, partnership, etc..) and set up the required
tax reports.
- Evaluate your business plan. Your business accountant is familiar
with the how financial institutions view and evaluate small-businesses. He or
she can guide and advise you regarding the format and content of your business
plan as well as setting up financial reports required when you are seeking funding
or tax reporting.
- Setting up your books. Your accountant can help you set up and
develop an accounting system for your business. There are many very good accounting
software programs (Quick Books is just one example) designed for small business
that you can customize to your specific business. OSSN provides members with a
list of companies that provide excellent travel software accounting programs.
- Open bank accounts. Most home-based travel agencies set up two
checking accounts for their business: (1) a Trust Account for Client Funds establishing
a level of trust and security to clients (2) a checking account used for the business’
operating expenses. Some states require two accounts due to their travel promoter
laws.
- Establish a Merchant Account. If you are planning to charge
service fees or provide any services and/or products that are in addition to products
purchased from travel suppliers, you will need to set up a merchant account with
the major credit card companies. Your accountant may offer some direction in this
matter. You may want to use a service such as IATS that sets up you merchant account
with multiple credit card companies in addition to providing the capability to
process the charges over a secure connection online. This also allows you to accept
customer credit card charges via your website. If you are working with a host
agency, you may opt to use their merchant account.
- Set up Federal Tax ID number. An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a nine-digit number that the IRS assigns to business entities. The IRS uses this number to identify taxpayers that are required to file various business tax returns. EINs are used by employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts and estates, government agencies, certain individuals and other business entities. Although sole proprietors can use their individual social security numbers for reporting purposes, an EIN may be viewed as more professional by suppliers-enhancing your credibility. It also separates your business income from your personal income when tax reporting.
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