The average amount of damages recovered by plaintiffs in employment practices suits has soared. According to Jury Verdict Research, the median award for all discrimination claims payouts in 2011 was $317,000, up 46 percent from the 2010 median of $216,000. Million dollar payouts are not uncommon.

If you think employment practices liability (EPL) lawsuits are only filed against large corporations, think again. Nearly 50 percent of EPL charges are filed against small businesses, many of which do not have the funds to defend themselves. In fact, many small businesses often do not have human resources professionals to develop the formal personnel policies and procedures that can help prevent employment-related charges in the first place.

In your efforts to prevent employee lawsuits, you may want to consider:

1. Creating effective hiring and screening programs to avoid discrimination.
2. Having written guidelines, policies, or procedures related to employment at will, discrimination, sexual and other workplace harassment, and equal employment opportunity.
3. Researching the Americans with Disability Act (ADA) and creating reasonable accommodations for disabled employees.
4. Posting corporate policies throughout the workplace, placing them in employee handbooks so policies are clear to everyone, and requiring employees to acknowledge receipt of those guidelines.
5. Showing employees what steps to take if they are victims of sexual harassment or discrimination by a supervisor.
6. Documenting employee performance, as well as any steps your company is taking to prevent and solve employee disputes.
7. Conducting human resources training for management employees.

You may also want to speak with an insurance professional about employment practices liability insurance (EPLI). This type of insurance policy protects an employer from employees’ claims alleging discrimination, wrongful termination, or harassment, including sexual harassment. It also pays for liability damages and defense costs resulting from charges brought by full-time, part-time, temporary, and seasonal employees.

Employers can obtain coverage for employment practices liability by purchasing a stand-alone policy, such as an EPLI policy or a management liability policy (MLP), or by an endorsement to an existing policy, such as a commercial general liability (CGL) or directors and officers (D&O) policy. Some insurers provide this coverage as an endorsement to a business owners policy (BOP), which is typically for small businesses (meaning 50 employees or less).

The cost of EPLI coverage depends on your type of business, the number of employees in your business, and a variety of risk factors, including whether your company has been sued over employment practices in the past. These policies will reimburse your company against the costs of defending a lawsuit in court and for judgments and settlements. They will also cover legal costs, whether your company wins or loses the suit. However, these insurance policies typically do not pay for punitive damages or civil or criminal fines, and workers compensation issues are also excluded.

No matter how well you run your business, a disgruntled employee might still file a claim against your business at any time. Keep in mind that defense costs can be significant—potentially well beyond what many small business owners can afford to pay out of pocket. In order to protect yourself, you may want to consider an insurance policy to cover these issues.

Loretta L. Worters is vice president of the Insurance Information Institute, whose mission is to improve public understanding of insurance – what it does and how it works. Ms. Worters is an author and woman’s advocate frequently quoted in leading publications including the Wall Street Journal, the New York Times, USA Today, Business Week, Forbes, and U.S. News & World Report, and she appears regularly on television networks including ABC, CNBC, CNN, and Fox. Follow her on Twitter at @LWorters.

Independent contractors are becoming more and more popular among companies because they serve an important function. Just as you might not need a full-time doctor or lawyer on staff, small businesses are starting to use independent contractors for marketing, design, and other roles that used to be occupied by a full-time person.

Our data at SurePayroll from surveying small business owners has shown a gradual increase in the percentage of 1099 workers since 2004, rising from nearly 2.9 percent to 6.7 percent.

Let’s look at how an independent contractor might affect your small business payroll:

• Taxes. Tax withholding is not required for independent contractors. The company does not have to pay Social Security or Medicare tax or federal and state unemployment insurance contributions.

• Work schedule. Independent contractors set their own hours and sequence of work. They can work for multiple employers, and their services are available to the public. They tend to work job-by-job rather than on a continuing basis with a single employer.

• Budget. Employers can often save money using independent contractors, not only because of the tax situation but also because they’re not providing supplies, work space, or equipment. The independent contractor takes on the risk of profit or loss. Employers generally agree on a price or an hourly rate rather than a continuing salary with benefits and reimbursements for expenses.

There are two ways an employer can go about determining a worker’s status. One is the Common Law Test, which asks how independent the employee is based on the points discussed above. However, there are exceptions, and employers can also use the Reasonable Basis Test, which allows them to designate someone as an independent contractor for tax purposes if there is a reasonable basis to do so.

A worker or employer may request the IRS’s determination of the worker’s status by filing Form SS-8.

The next question becomes how you decide what kind of worker you want to hire. Before you make the decision, consider a few more factors:

• Need. Are you working on some type of seasonal campaign or a one-off project for which your current staff doesn’t have time? If so, consider an independent contractor. If you’re generally understaffed, however, and you need someone you can count on for more than just a few months or a year, you may want to consider adding a regular employee.

• Cost. As long as the person meets the criteria for an independent contractor, hiring this type of employee can mean savings over the long term, though you might pay more short term on an hourly basis.

• Dependability. This is an issue with anyone you hire, but with an independent contractor the required supervision should be much less. Do your research when hiring so you can be confident you’re getting someone you can trust to work on his or her own.

Finally, remember that even though you are not required to withhold taxes on an independent contractor, you still must fill out the Form 1099-MISC. If you have questions on this, be sure to talk with an accountant or your payroll services provider.

Michael Alter is president and CEO of SurePayroll, a wholly owned subsidiary of Paychex. SurePayroll provides payroll services for small businesses.

As an entrepreneur and a yoga practitioner, I’ve discovered that yoga has much to teach us about serving customers well and addressing customer complaints satisfactorily. Like yoga, exceptional customer service is a conscious practice, which means being clear about your intentions and choosing purposeful actions.

Yoga develops flexibility and stability, and it calls for mindfulness, self-study, honesty in relationships, and an awareness of doing no harm. But you needn’t run out and join the nearest yoga class to practice these precepts in your relationships with customers—particularly when they have complaints.

When dealing with unhappy customers:

1. Develop flexibility and stability. If you intend to make customer service the center of your business strategy, then people who have the most contact with customers—your client-facing employees—need to know that, and they need to be trained and empowered.

To be effective, these employees need the authority to grant exceptions when necessary so that customers get the service they expect and that will keep them coming back.

2. Be mindful. Meditation helps train people to be fully present and mindful of their actions. At work, encouraging thoughtful conversations about the importance of customers and what it means to provide great customer service can develop this kind of focus. Weaving these kinds of conversations into the daily work routine brings a new level of consciousness to daily actions when handling customer complaints.

3. Self-study for improvement. A great way to improve customer service is to foster a culture of personal responsibility. Encourage self-study and lead discussions on what it means to serve customers and be accountable to the whole business. What do you need to learn about, improve on, let go of, or change in order to improve your ability to better handle customer complaints? If your employee feels loyalty to and responsibility for your business, that same employee will look out for your best interests and keep your customers happy.

4. Be honest. Customers can tell when you are being forthright. Teach your employees to be frank and discuss issues openly, without exaggeration or understatement and with kindness. Be willing to hear your customers’ truth, and take what customers say about their experiences at face value.

It’s important to realize that many things can be true at the same time. What you see and what your customer sees may be different, but both views are important. Don’t discount your customer’s complaint just because you do not view the situation in the same way.

5. Do no harm. It’s easy to see complaining customers as malcontents who are trying to take advantage of you or your business. However, as the research shows, most complaining customers only want a sense of justice—both in the way they are treated and in what is done to remedy their complaint.

Don’t punish the customer for complaining—the cost of retaining a customer is less than reaching a new one. According to a 2010 poll by RightNow and Harris Interactive 82 percent of respondents stopped doing business with an organization due to a poor customer service experience. In their complaints, 73 percent of respondents cited rude staff, and 55 percent said their issues weren’t resolved quickly enough. Further, 85 percent of these folks said they told others about the pitfalls of doing business with that company.

But there was good news for businesses as well. In the poll, 92 percent said they would consider going back if they received a follow-up apology or correction from a supervisor, were offered a discount, or were shown proof an enhanced customer service experience.

In the modern marketplace, customers are in charge of your destiny, and your survival and prosperity are in their hands. Delivering a unique and understanding response to your customers is the bread and butter of your enterprise. Even if you are offering a product or service with little or no competition, satisfying customer complaints is critical to success.

Jamie Showkeir is co-founder and owner of henning-showkeir & associates, inc., an organizational development consulting business with an extensive and varied client list. He is co-author (with Maren Showkeir) of two books, Authentic Conversations: Moving from manipulation to truth and commitment (Berrett-Kohler, 2008) and Yoga Wisdom at Work: Finding Sanity Off the Mat and On the Job (2013).

1. Team up with other small business owners to double your exposure. Possible ideas include co-hosting customer events, co-branding your offerings, or bartering your services with other small business owners, which will enable you to add them to your client list.

For example, a colleague recently provided me with two hours of media training in exchange for two hours of instructional design advice for an upcoming train-the-trainer session she was developing. As a result, we were able to leverage each other’s expertise to enhance our own customer offerings.

Talk to your tax advisor about how you can account for the value of an exchange such as this one. But for purposes of increasing your exposure, bartering services can help you obtain new customers—and you may also get enhanced visibility where you might not have had any.

2. Sponsor or utilize marketing opportunities at local fundraisers, such as golf tournaments, chamber of commerce events, and association meetings. You can pay to be a sponsor, ask to be a speaker, host a vendor table, or donate items for silent auctions, depending on your budget and availability.

3. Utilize the power of blogs for brand awareness. Regular blog posts can be added to your own website or submitted as guest posts for other sites. These posts may come up in Internet searches, and they will introduce your business to a wider audience.

Choose topics that showcase the expertise your business provides and address common concerns and needs of clients. Writing a 200- to 500-word essay on a topic forces you to craft simple and impactful messages—a key marketing skill that will transfer to other marketing efforts.

4. Tap into social media—an important part of today’s business world, where people connect to network and share ideas. Relying solely on traditional marketing methods like direct mail or cold calling limits your exposure to new customers who may spend a good deal of time online. If you don’t have a social media marketing plan in place, ask other small business owners how they utilize free or low-cost social media outlets and sites.

Each social media outlet has a different audience and style, so get acquainted with and create an online presence for each one. Then, create a plan with weekly marketing themes, posting items in the appropriate format for each outlet. Market your blog posts and sponsorship events in each outlet so you have double exposure. Once you have established a presence, ask clients and other small business owners to endorse you or share your postings with their client base.

Remember: The key to marketing, no matter what channels you use, is to get your name out there and make positive connections with potential customers.

Deb Hornell has been helping individuals and companies grow and succeed for more than 25 years. She is a visionary whose personal brand of “Cultivating Environments for Growth” extends into her consulting practice, her family and friendships, and her newly released book, Good Things for a Full Life. Follow Deb on Twitter and on Facebook.

Take real estate investor Theresa Bradley-Banta (pictured right), who has created two businesses, one drastically different than the other. She started out 23 years ago with her own graphic design firm, but now she spends her days flipping not just houses but also multi-million dollar apartment buildings with her business, the Theresa Bradley-Banta Real Estate Consultancy.

Initially a freelancer designer, Bradley-Banta started investing in real estate when she and her husband moved out of their home. Instead of selling the house, she rented out her old home to a group of college girls and loved the experience. This inspired her next business endeavor, with which she expanded her business knowledge and learned tools for success.

Tip 1: Follow your passion.

Bradley-Banta’s first experience as a landlord led to more real estate acquisitions and eventually to flipping properties, which she found she enjoyed more than day-to-day property management. But it would take a hefty stash of 20 houses to afford a property manager that could take some of the work off her hands, so she switched to multi-family buildings.

“I bought a 29-unit building, completely renovated that property, and ultimately flipped it,” she said. In doing so, she found she was more passtionate about renovating properties than graphic design. “I really enjoyed that whole process of taking up an old, rundown building that was poorly managed and making it beautiful and a really nice place for residents to live.”

Tip 2: Have a clear vision to get where you want to go.

When she began considering larger buildings, she knew she would need the right team of people behind her and a plan to get there.

“I had a purpose behind it. I wanted to really impact lives,” she said. “It wasn’t a big pile of money at the end. The most important thing I did was I started driving around and looking at apartment buildings in town and picturing myself owning them. I thought about the lives I could impact by being a great landlord. I dreamed about the buildings I could change and the team I could have in place. I really had the end in mind.”

Identify first why you want to start your own business—whether it’s to make enough money to live, to share a passion with the world, or to help people. A profit is usually the goal of any business, but identifying other, more personal goals will help guide your plans.

Tip 3: You don’t have to know everything to get started; you just need to know enough.

Don’t let your lack of expertise scare you from starting a business. As your business grows, you will learn from the experiences and people you encounter along the way.
“Just get started—you’ll learn as you go,” Bradley-Banta said. “Just make sure you’re not leaping off a cliff.”

Tip 4: Surround yourself with positive, engaging people.

The best way to gain the knowledge and support you need is to surround yourself with people who can help you—whether that’s good lawyers or good friends.

“I think it’s really important to hang out with the right people,” she said. “It’s not easy, but if you’re spending time with people who are negative, doing the same stuff day in and day out, and constantly coming up excuses about why they won’t change, you’re not hanging out with the right people. It’s just really that who you associate with plays a huge part in your success, so be aware of it.”

Michelle Stoffel Huffman is a researcher and staff writer for Think Glink Inc. Prior to joining Think Glink, Michelle worked for the Chicago Tribune as a daily news reporter and community manager, covering local government, business, tax issues and crime. She now specializes in real estate industry news, consumer financial reporting and home design and decor. She is a graduate of DePaul University in Chicago.

Leasing Commercial Property

Let’s start with making the decision to lease a commercial space. In some cases, you might not have a choice at all. If you’re just starting your small business, you might not have the resources to buy and funding can be difficult to come by as a fledging enterprise.

But leasing isn’t necessarily a bad thing. Some of the advantages of leasing your business location include:

• Flexibility: As your business grows and you need to expand, you can change your business location quickly without worrying about whether you can sell your existing commercial space.
• Lower market risk: You don’t have to worry about owning commercial property when the real estate market is bad; you don’t have to try to unload at an inopportune time, and potentially lose money.
• Tax deduction: Even though you’re paying rent to someone else, you may be able to receive a tax benefit by writing off the lease costs against business income.

On the flip side, though, you might not be able to customize the property to fit your business needs. Additionally, there is a chance that you will be forced to relocate when the lease is up. If the owner of the property finds a tenant who is willing to pay more, your lease might not be renewed.

Many business owners choose to lease until they really get their businesses going. Buying commercial real estate too early in the game – especially if your business finances are highly leveraged – can lead to financial difficulties for you and your business if something goes wrong. Buying commercial real estate makes more sense after establishing a successful track record for your business.

Buying Commercial Property

Commercial real estate expert Chris Hurn agrees that buying commercial property to house your own business can be a savvy move. In his 2012 book The Entrepreneur’s Secret to Creating Wealth: How the Smartest Business Owners Build Their Fortunes, Hurn points out that one of the best way to grow your wealth as a business owner is to buy commercial property. You don’t have to worry about being forced to move. It’s possible for you to alter the real estate to fit your specs, and you don’t have to worry about the rent going up.

Another advantage of buying commercial property to house your business is the possibility of selling the property later at a profit. Or if you decide to keep it, you may be able to lease it out to other businesses. Indeed, if you don’t need the entire property for your business, you can get other businesses to move in – and help you pay the mortgage, taxes and insurance, as well as contribute to upkeep and maintenance costs.

Later, when you retire, Hurn says in the book, you can simply lease out the entire property, and use the income to help support your desired lifestyle.

One of the main downsides to buying commercial property is the fact that you are wholly responsible for the property. You either have to hire someone to manage it for you, or you have to take time away from building your business to manage it. The other downside is that real estate taxes and insurance, while usually deductible, tend to rise over the years and often make the property more expensive to own.

Still, there are enormous tax advantages to owning commercial real estate. Depending on how you set up the ownership of the property itself, you may be able to make a significant dent in the amount of federal income tax you pay personally. And, you may be able to leave a significant tax-managed asset for your heirs.

If you decide that buying commercial property for your business is the way to go, Hurn’s book recommends the SBA 504 loan. This loan program offered by the Small Business Administration is expressly designed to help small business owners with large capital expenditures for property.

Bottom Line

There are pros and cons to both leasing and buying commercial property. You need to weigh your options, and decide what is likely to work best for your business at this time. Before making any moves, consult with a business attorney, an accounting professional and a real estate attorney to understand whether buying or leasing real estate is the better move and how it will affect your business’ bottom line, and your own.

Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.

Even if your business can replace a key person, it can take time and money to do so—things a small or startup business often doesn’t have.

That’s why key person insurance could be an important coverage for your small business, and may be worth discussing with your insurance professional. In fact, venture capitalists, banks, and other lenders often insist that key person coverage be a part of an organization’s business plan, especially for any startup businesses they fund.

If the key person named in a policy becomes disabled or dies, the benefits typically go to the business to compensate for lost profits or extra expenses caused by the loss of that person. In some instances, the policy’s proceeds go directly to venture capitalists or banks if they are the beneficiaries under the insurance policies. These policies allow the investors and creditors in a fledgling business to protect their investment.

Key person insurance can also pay expenses related to finding and training a successor, including an employment agency’s fees and the potential expenses needed to relocate the new person—and possibly finance a higher salary for him or her. These policies can also fund obligations to the key person’s family, such as deferred compensation or continued salary.

Key person policies can also buy out a deceased employee’s shares according to a buy-sell agreement between business partners. This is sometimes called a “business will,” and it may govern the situation if a co-owner dies or is otherwise forced to (or chooses to) leave the business.

The cost of covering a key person varies based on the same factors that apply to anyone seeking a new life and/or disability insurance policy, such as the amount of income the insurance policy would replace; the employee’s age, height, weight, and medical history; and whether he or she smokes or has dangerous hobbies, such as skydiving or car racing.

Key persons and life insurance

When a business purchases a life insurance policy for key person purposes, the business typically owns the policy, pays the premiums, and is the beneficiary. The employee, having agreed to be listed as a key person, must agree to the company’s purchase of this insurance. Moreover, the life insurer may require a resolution from the company’s board of directors stating the purpose of the policy’s key person provision.

When determining the appropriate amount of coverage, consider such relevant factors as the value of the person to the company; the projects or clients that would be lost by his or her departure; sales generated by the person; replacement and training costs; reduced profits during a transition period; and any loans that might come due as a result of the key person’s death.

Key persons and disability insurance

Key person provisions, when incorporated into disability insurance policies, are there to compensate the business for the temporary or permanent loss of a key person due to an injury or illness. A disability policy includes a definition of disability that must be satisfied before the beneficiary under the insurance policy receives any benefits.

Benefit payments are generally made to the beneficiary—whether it is a company or an individual—on either a weekly or monthly basis for a specified period of time.

Should a key person become permanently disabled, the economic loss to a business may be the same as if the person had died. However, the risk of a key employee experiencing partial disability is much greater than the risk that the person will die. A 35-year-old has a 50 percent chance of being disabled and unable to work for three months or longer before he or she turns 65, according to the National Association of Insurance Commissioners (NAIC).

Key person insurance is rarely discussed within small business circles, but it can play an indispensable role in maintaining business continuity or facilitating the sale of a business if such disastrous circumstances arise.

Loretta L. Worters is vice president of the Insurance Information Institute, whose mission is to improve public understanding of insurance—what it does and how it works. Ms. Worters is an author and woman’s advocate frequently quoted in leading publications including the Wall Street Journal, the New York Times, USA Today, Business Week, Forbes, and U.S. News & World Report. She also appears regularly on television networks including ABC, CNBC, CNN and Fox. Follow her on twitter at @LWorters. 

Many business owners have built mini-empires by affiliating with franchisors instead of trying to build a brand from scratch. Franchising is a unique business arrangement, however, and it requires careful vetting.

A franchise typically involves two parties:

• The franchisor who has developed a business model, cultivated a brand, and created a template for running each business in the franchise network.
• The individual franchisee who buys into this model and who agrees to pay royalties to the franchisor for the use of the brand and business template. The franchisee then uses the business template to replicate the franchisor’s operation.

Your experience—as a manager at a large company or as a small business owner—may or may not be relevant to a prospective franchise opportunity. The best way to use your business smarts is to research every aspect of a possible franchise opportunity and draw your own conclusions about its potential. The following five questions can help you identify your business goals and assist you in deciding whether you should consider looking at a franchise opportunity as a means to achieve those goals.

1. Does the business concept have real growth potential?

Explore the overall growth potential for the franchise concept based on demographics, market trends, and consumer preferences independent of what the franchisor projects.

• What is your objective analysis of the unique appeal of the franchise concept?
• Who is your competition, and how hard will it be to attract customers?
• Does the franchise brand actually make a difference to the target customer?
• Does the franchisor offer operational support that will significantly speed your business launch?

You need to consider each of these items with your business advisor or partner and make sure you understand each of them to evaluate any franchise concept.

2. What is the track record of both the franchise and the franchise owner?

You’ll want to interview other franchisees within the same system to find out if their businesses are operating as they planned. Consider hiring a lawyer who specializes in franchises to review the contract and any other documentation given to you. You should also obtain as much information as possible about the franchise and its owners to see what, if any, information comes up about issues other people have had or any history of shutting down franchises and leaving franchisees in the lurch. You can get help on both fronts from the American Association of Franchisees and Dealers.

3. What is the financial structure?

By definition, when you buy a franchise, you are buying into a system—not just once but also through regular royalty payments. Often, royalties you pay to the franchisor are computed on gross income of the franchise you have purchased. That means that you pay the franchisor before the landlord, your suppliers, your employees, and yourself.

Often, franchisees are required to use suppliers approved by the franchisor—and often the franchisor owns those suppliers. You might be required to attend conferences or participate in marketing activities with associated expenses on top of the royalty. All of these requirements may become major sources of outgoing cash flow.

4. How will you finance the purchase of the franchise and business start-up?

Some franchises require a large upfront payment. If you decide to move forward with a franchise purchase, you need to know how you will pay for it. Some franchisors may finance your purchase of the franchise business, but in other situations you will have to obtain a loan.

Depending on the amount of money you need to borrow to buy into the franchise, you might have to guarantee the loan you take out for the initial investment. Consider hiring a certified public accountant that is experienced with franchise finance to give you unbiased advice.

The Small Business Administration (SBA) is another excellent source of information and funding for your new business—make sure to review the SBA’s data on franchises, including the default rates of SBA-guaranteed loans. In addition, the Federal Trade Commission offers a comprehensive consumer guide to buying a franchise.

5. What is your exit plan?

If you become a franchise owner, you will need to know your options for leaving the franchise and moving on, whether you eventually decide to sell your franchise business or simply close it down. You may also want to know how hard would it be to take what you have learned and convert the franchise to a freestanding operation with a similar or related business.

Because franchise agreements can be quite long and detailed, be sure to ask your lawyer and accountant to sketch out scenarios for selling your business and business operation, should this situation arise.

The most important factor when deciding whether to franchise is you. Are you comfortable following someone else’s rules and supporting the franchisor’s vision? Or does the very idea of having a third party control much of your business make you have second thoughts?

Each franchise system has its own culture. Some are rigid; others invite innovation. Getting to know potential fellow franchisees will clue you in about the culture and help you size up the fit.

Joanne Cleaver doesn’t just write about entrepreneurship and finance for national publications and websites. As a longtime freelance writer and editorial project manager, she lives it. Her most recent book is “The Career Lattice“ (McGraw Professional, 2012), which shows how lateral moves power career growth.

Here’s the real scoop: While you may certainly realize savings through an LLC, expect to pay more bookkeeping and accountants’ fees to file those taxes.

A new business usually starts life as a sole proprietor whose tax return consists of a Schedule C Profit and Loss form added to his or her usual 1040 tax return. Under sole proprietorship, the owner must pay income tax on business profits at the federal and state level as well as the Medicare and Social Security taxes (an additional 15.3 percent) for him or herself as the owner. After a year or two of good profits, the average business owner starts looking for some tax relief.

How does an LLC help? Forming an LLC is not an immediate tax fix, but it provides the platform from which a number of tax elections can be made to ultimately reduce the tax burden. Once organized in a state as a business entity, the LLC can make an election with the IRS to be treated, for tax purposes, like something else—a corporation or a partnership. Just remember that a partnership needs more than one owner, and overall it is a lousy way to limit your tax liability. It’s easy to get into, but it can be as tough to get out of as a bad divorce.

Understanding S-corp tax status when using an LLC

What most people are really looking for is S-corp status, and there’s a multi-step process to get you from LLC to S-corp.

1. The LLC makes an election on Form 8832, Entity Classification Form, to be treated as a corporation. The form and the filing are both free.

2. Make the S-corp election. Use Form 2553, Election by a Small Business Corporation, to request this favorable tax status. Again, the form and filing are free. Each member of the LLC must consent and sign. Be aware that the election window is small: The due date is 75 days from January 1.

3. The newly minted LLC must have a Federal Employer ID number (FEIN or EIN) before asking for the tax treatment discussed above. Use Form SS-4 to get this required ID number, which is also free.

At this point, the LLC is treated for tax purposes as an S-corp. This means that a separate tax return, Form 1120S, must be completed and filed by March 15 of each year reporting the profits, losses, balance sheet, and assets.

All these steps can lead to some tax savings. The profit from the S-corp is not subject to Medicare and Social Security tax, so a tax savings of 15 percent can be realized. However, keep in mind that the bookkeeping and tax filing requirements usually require hiring an Enrolled Agent or CPA for assistance. Additionally, the owner/shareholder of an S-corp must be a W-2 employee with a reasonable salary, so payroll is required. If you can make the math work, setting up your business as an LLC might save you a good chunk of change with the IRS.

Bill Nemeth and Merry Brodie are both Enrolled Agents and the founding partners and owners of Tax Audit Guardian, an Atlanta-based group of professionals who specialize in assisting troubled taxpayers. The married couple also recently sold their 24 Jackson Hewitt Tax Service franchises. Additionally, Brodie works with small businesses as owner of Brodie Accounting Services and Nemeth is active in education and membership arms of the Georgia Association of Enrolled Agents.

If you’re a small business owner, now could be the time to consider selling your product online. Online shopping is so popular that, according to the “U.S. Online Retail Forecast, 2011 to 2016 ” report by Forrester Research, Inc., e-commerce sales in the U.S. are expected to reach $327 billion by 2016.

Providing a product online is one of the easiest ways to become an entrepreneur, and one of the best ways to boost sales for your existing business.

Steve Chou (pictured right) and his wife, Jen, learned just how popular online shopping is when they started their online business, Bumblebee Linens, on a shoestring budget. Within a year, they saw a six-figure profit. While Chou’s success is a little out of the ordinary, he insists that starting a small business doesn’t have to be complicated.

“Thanks to open source software and a slew of very inexpensive, fully-hosted shopping cart options, you can start an online store in a matter of days if you have products to sell,” he says.

Whether you’re interested in starting a business online or bringing your offline product to the Internet, these five things can help get you started:

1. Webhost

You’ll need a home on the Web, so your first step—aside from having something to sell—should be finding a hosting service that can provide you with space for your e-commerce store. You have the option of paying for a hosting plan or finding free hosting, so be sure to fully research each option to figure out what’s best for you.

Questions you may want to ask include: How much storage does the webhost provide? How much does additional storage cost? Does the host have e-commerce capabilities? In addition, you will want your own IP address; your webhost can usually help with domain name registration.

Chou points out that you can buy hosting for as little as $4.95 per month. Try to choose a plan that allows you to scale up to more space and bandwidth as your business and sales grow. As your sales increase, you will be able to afford to pay more for your hosting

2. Website design or template

Chou says it can be much easier to purchase a template or hire someone to design your site than to try to code it yourself. With an e-commerce template, you can quickly and easily create a catalogue of items, add descriptions, and set up navigation for customers.

If you have the budget and are looking for a site that’s a little more personalized, a customized e-commerce Web design from a professional can be a great way to get exactly the look and usability that you want for your site.

3. Open source shopping cart

Chou recommends installing a free open source shopping cart for your e-commerce site. A shopping cart is essential for handling orders for your business and for processing payments, and open source (freely available) carts are generally easier to customize than proprietary carts. Many of them will allow you to install upgrades as needed, and they often come with additional features.

Research your options and consider shopping carts with extras like inventory tracking and newsletter management. An added bonus: Some open source shopping carts, like other open source software, are backed by lively online forums where you can get many of your questions about the product answered.

4. SSL certificate

Your customers need to trust that their information is safe on your site. If you’re going to be taking online payments, find out if your platform or shopping cart provides an SSL certificate. This certificate protects, or encrypts, all the transactions between your server and the customer’s Web browser so third parties, including bots or malware, can’t read them.

5. Credit card processor

You need a way for customers to pay. If you already have a business and accept credit cards, you likely have a merchant account. Check with your service provider to find out what you need to do to set up payment processing through your e-commerce site. You may also want to check with your webhost or shopping cart to see what payment processing options it provides.

Another option is to offer third-party payment processing. Many large companies have payment processing services that can all help you process payments from customers, and they also offer merchant accounts that allow you to accept credit cards. Many third-party payment options also allow customers to check out using their smartphones.

Chou’s e-commerce site gave him the opportunity to reach more customers than he ever could have with a brick-and-mortar store, and he’s enjoyed the experience. “Basically, I work for fun,” he says. “I design microprocessors for a living, and I don’t want to give up the technical aspects of my education.” But he now has another option on which to fall back.

“Not too many people can say that they work for fun,” he points out. And if he does decide to quit his job, Chou can help Bumblebee Linens grow even more. With these five elements combined, you too can be ready to grow your business by expanding your customer base through the Internet.

Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.