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Business Development Servicesat the Toledo Regional Chamber of Commerce
Your Entrepreneurial Support System
Start-Up/Business Plan Guide
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Welcome 2 Name Registration 3Do I Need a License? 4Sales Tax Issues Vendor’s License 4 Service Vendor’s License 5 Certificateof Exemption 5Zoning 5Health Department 6Business Entities Sole Proprietorship 6 Partnership 7 General Partnership 7 Limited Partnership 7 Corporation 8 C-corporation Taxes 8 Subchapter S-corporation Taxes 9 Limited Liability Company (LLC) 10Employees Tax Responsibilities for Employers 10 Other Employer Responsibilities 11 Employee vs. Independent Contractor 12 Taxes Tangible Personal Property Tax 12 Real Property Tax 13 Commercial Activity Tax (CAT) 13Financing Your Business 13Insurance 14Marketing 14Business Planning 15Choosing Professional Advisors 15Building Your Business Plan Guide 16
Where To Find...
WelcometotheBusinessDevelopmentServicesof theToledoRegionalChamberof Com-merce.Ourprimaryfocusistosupportbusinessesatallstagesof developmentbyassessingclientneedsandthenlinkingthemwiththeappropriateexpertisethatwillhelptheirbusinessesbettercompeteintoday’sglobaleconomy.
TheChamberhasassistedsmallbusinessesthroughBusinessDevelopmentServicesprogramsforover20years.WehaveastrongsupportsysteminplacetohelpentrepreneursintheNorthwestOhioregionbyprovidingprogramsthatcanassistsmallbusinessateverystageof thebusinesslifecycle.Theseprograms(detailedbelow)assistbusinessesintheareasof businessdevelopment,manufacturingandinternationaltrade.
Small Business Development Center TheSBDCprogramassistsbusinessesinallstagesof development.Servicesincludeno-costone-on-onebusinesscounseling,cashflowanalysis,financialprojectionsdevelopment,marketfeasibilityandresearch,marketingstrategydevelopment,strategicbusinessplanningandworkshopsandtrainingprograms.CertifiedBusinessAdvisorsattheSBDCcanassiststart-upbusinessesaswellasestablishedbusinessesinawidevarietyof industries.
Manufacturing and Technical Small Business Development Center TheMTSBDCprovidesbusinesseswithone-on-onecounselingtoassistinthedevelopmentandcommercializationof innovativetechnologiesandadvancedmanufacturing.Manufacturerswithlessthan50employeescanreceivemanagementcounselingandeducationservicesinLeanmanufacturing,intellectualpropertyissuesandmarketing,newproductdevelopmentandcommercializationstrategies,basicsof patenting,trademarks,andcopyrightsandmuchmore.
International Trade Assistance Center Internationalmarketsprovideopportunitiesforbusinessestoincreasesalesandcreatejobs.Manysmallcompaniesdon’thavetheexpertiseorresourcestoexpandtheirbusinessintointernationalmarkets.TheInternationalTradeAssistanceCenter(ITAC)helpscompaniestoexpandgloballythroughserviceswhichinclude,butarenotlimitedto:exporteducation(documentation,logistics,etc.,)exportreadinessassessments,identifyinglocalmarketingtools,localproductrequirementsandtrademissions.
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ThisStartUp/BusinessPlanGuidewillgiveyouthebasicinformationyouneedtomakedecisionsandgetyourbusinessstartedright.If youhavequestionsafterreadingthisguide,pleasecalltheBusinessDevelopmentServicesdepartmentat419.243.8191.Remember,weareheretoprovideyouwithinformationandassistancenomatterwhereyouareinthebusinesslifecycle.Welookforwardtoworkingwithyou!
Name Registration If youwishtodobusinessintheStateof Ohiounderanynameotherthanyourlegalname,thenyoumustregisterthisbusinessnamewiththeOhioSecretaryof State’soffice.First,youmustcontacttheSecretaryof State’sofficetomakesurethenameyouwishtouseisnotalreadybeingusedbysomeoneelse.CalltheOhioSecretaryof State’sofficeat(877)767-3453orvisitonlineatwww.sos.state.oh.us.
Therearethreetypesof businessnameregistrations:tradename,fictitiousnameandcorporatename.Atradenameoffersprotectionfromanyoneelsewhoalsowantstoregisterunderthatsamebusinessname.Afictitiousnameregistersyourbusinessnamebutdoesnotofferanyprotection.If youarenotconcernedaboutsomeoneelseusingthesamenamefortheirbusiness,thenyoumaywanttoregisterasafictitiousname.Youmustregisterthefictitiousnameif youarenotoperatingunderyourlegalname.Thecostforregisteringeitheratradeorfictitiousnameis$50.Theregistrationforatradeorfictitiousnameiseffectiveforfiveyears.
Acorporatenameisprotectedmuchlikethetradenameandonlycanbeuseduponincorporation.Thenamemustinclude“Company,”“Co.,”“Corporation,”“Corp.,”“Incorporated,”or“Inc.”Thecorporatenameiseffectiveaslongasthecorporationremainsingoodstanding.Toregisteranyof thesethreetypesof namescalltheOhioSecretaryof State’sofficeat(877)767-3453orvisitonlineatwww.sos.state.oh.us,OhioSecretaryof State,30EastBroadStreet16thFloor,Columbus,OH43215.
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Licensing Thefollowingisalistof theapproximately40tradesandprofessionsthatrequirespeciallicensingtodobusinesswithintheStateof Ohio: AccountantsAmbulanceServicesArchitectsAthleticAgentsAttorneysAuctioneersAudiologistsBarbersBroilerOperatorsCemeteryRegistrarsChiropractorsCommissionMerchantsCosmetologists CounselorsDebtPoolingCompaniesDentalHygienists DentistsDieticiansDispensingOpticians Certainkindsof businessesmayrequireadditionallicenses,aswiththesaleof alcoholorcigarettes.If youhaveanyquestionsregardingaspecialpermit,taxorotherlicensingrequirementsforyourbusiness,consultyourcitylicensingofficeandtheFirstStopBusinessConnectionat(800)248-4040orvisitonlineatwww.development.ohio.gov/edd/1ststop/onestop/index.cfm.
Sales Tax Issues
Vendor’s License Theregularvendor’slicensenotifiesthestatetreasurer’sofficethatyourbusinesswillneedtocollectandremitsalestaxfortheretailsalesof tangibleproperty.Youcanobtainavendor’slicensefromthecountyauditor’sofficeforthecountyinwhichyourbusinessislocated.Alimitedvendor’slicensecanbeobtainedforareducedfeeanditisvalidfor20days.Thistemporarylicenseisforthepurposeof short-termfairs,tradeshowsandotherspecialevents.
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EmbalmersEmergencyMedicalServicesFuneralDirectorsGristmillersHearingAidDealersInnkeepersJunkYardsMotorVehicleSalvageNuclearMedicineTechnologistsNursesNursingHomeAdministratorsOccupationalTherapistsOptometristsPawnBrokersPharmacistsPhysicalTherapistsPhysicians
Physicians’ AssistantsPreciousMetalDealersPrivateInvestigatorsProfessionalEngineersandSurveyorsPsychologistsRadiationTherapyTechnologistsRadiographersRealEstateAppraisersRealEstateBrokersRespiratoryCareRestaurantsSanitariansSecondhandDealersSecurityServicesSocialWorkersSpeechPathologistsSteamEngineersVeterinariansX-rayMachineOperators
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If youaregoingtosellgoodsatlocationsawayfromafixedplaceof business,youmayobtainatransientvendor’slicense.Thislicensewillhaveareducedannualfee.ContacttheOhioDepartmentof Taxationat(614)466-7350orthecountyinwhichyourbusinessresidestoseeif youfallwithinabusinessclassificationthatmustcollectandremitsalestax.Formoreinformationvisitonlineatwww.tax.ohio.gov.
Service Vendor’s License TheStateof Ohionowrequiresmanyservicebusinessestocollectandremitsalestaxontheservicesthatthebusinessesprovide.Thebusinessesrequiredtogetaservicevendor’slicensearethefollowing:automaticdataprocessing employmentservicesandcomputerservices employmentplacementservicesinformationservices landscapingservices(including1-900services) securityservicesbuildingmaintenance exterminatingservicesandjanitorialservicesContacttheOhioDepartmentof Taxationat(614)466-7350orthecountyinwhichyourbusinessresidestoseeif youfallwithinabusinessclassificationthatmustcollectandremitsalestax.Formoreinformationvisitwww.tax.ohio.gov.
Certificate of Exemption Acommonmisconceptionaboutsalestaxisthatyoumusthaveavendor’slicensetopurchasegoodswholesale(withoutpayingsalestax).Whatyouactuallyneedtopurchasegoodsforthepurposeof resellingisacertificateof exemptionthatcanbeobtainedinmostofficesupplystores.If youaresellingtoabusinessthatisnottheenduserof theproductandwillreselltheitem,thenthatbusinessdoesnotpayyousalestax;instead,theymustprovideyouwithacertificateof exemptionthatyoukeeponfile.
Zoning If youwillbestartingabusinessinyourhomeoranyotherout-of-the-ordinarylocation,checkwithyourlocalzoningadministrationtodetermineif theneighborhoodzoninglawsallowforthattypeof businessinthatlocation.
Health Department If youwillbedoinganyfoodpreparationorhandlingof fooditems,checkwiththeLucasCountyHealthDepartmentat(419)213-4100todetermineif yourbusinessneedsanyspecialhealthpermitsorinspection.Formoreinformationvisitonlineathttp://co.lucas.oh.us/index.aspx?nid=665.
Business EntitiesSole Proprietorship Asoleproprietorshipisabusinessoperatedandownedbyasinglepersonwherethispersonislegallyandfinanciallyliableforallactivitieswhichoccurwithinthebusiness.
Asoleproprietorshipisformedbysimplyregisteringthebusinessname(if applicable);gettingabusinessbankaccount;obtaininganynecessarylicensingandpermits;andtakingcareof yourtaxes.Thetaxationdetailsforasoleproprietorshipareasfollows: Social Security and Medicare Taxesarepaidthroughself-employmenttaxdueannually(ScheduleSEForm).PaymentsforthistaxaredueinestimatedquarterlyinstallmentstotheFederalGovernment(ScheduleESForm).Formoreinformation,calltheIRSat(800)829-1040orvisitonlineatwww.irs.gov. Federal Income TaxisreportedonaScheduleCFormtobefiledwithyourForm1040attheendof theyear.Formoreinformation,calltheIRSat(800)829-1040orvisitonlineatwww.irs.gov. State Income Taxisfiguredbytheamountof profitfoundontheForm1040of theFederalIncomeTax.FileaFormIT-1040withtheOhioStateDepartmentof Taxationat(888)405-4039orvisitonlineatwww.tax.ohio.gov. Local/Municipal Income Taxes maybedueforyourbusiness.ContacttheCityof Toledoat(419)245-1662orotherlocaltaxdepartmentsorvisitonlineatwww.ci.toledo.oh.usformoreinformation.
Youmayuseyoursocialsecuritynumberforthetransactionsof thebusinessandasaTaxIDNumber(itisnotnecessaryforyoutoobtainaseparateTaxIDNumberunlessyouhaveemployees).Itisoptionaltohaveworkers’compensationforyourself,butyoumusthaveitforanyemployees.If youwouldlikeWorkers’Compensation,call(800)644-6292orvisitonlineatwww.ohiobwc.com.
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Partnership Ittakestwoormorepeopletoformapartnership.Therearetwotypesof partnerships:GeneralandLimited.Whenstartingeithertypeof partnershipyouwillneedthefollowing:aTaxIDNumber,whichcanbeobtainedbyfilinganSS-4FormwiththeIRSat1-800-TAX-FORM(800-829-3676)orvisitonlineatwww.irs.gov;abusinessbankaccount;andthefollowingtaxfilings: Thepartnershipitself doesnotpayincometaxes,butdoesfileanannualForm1065forFederal Income Taxforinformationalpurposesonly.Formoreinformation,calltheIRSat(800)829-1040orvisitonlineatwww.irs.gov. ThepartnershipmaypayLocal/Municipal Income Taxonbehalf of thepartners.ContacttheCityof ToledoIncomeTaxinformationlineat(419)245-1662oryourlocaltaxdepartmentorvisitonlineatwww.ci.toledo.oh.usformoreinformation. ThepartnersmustpayFederal and State Income Taxes basedontheprofitsof thebusinessontheirownindividualreturns.SeetheSole Proprietorshipsectionof thisguidefortaxinformation,page 6. Issuesspecifictothetwotypesof partnershiparethefollowing:
General Partnership Inageneralpartnership,allpartnersarepersonallyliablefortheactivitiesof thebusinessandhavetherighttobeinvolvedinthemanagementandoperationsof thebusiness.Eachpartnercontributestothestartupof thebusiness.Apartnershipdoesnotnecessarilyneedawrittenagreement,butoneishighlyrecommended.
Limited Partnership Alimitedpartnershipcanbecreatedwhenyouhavetwoclassesof partners–generalpartners,whoareresponsibleforthemanagementandoperationsof thebusiness,andlimitedpartners,whoarepassiveinvestorsanddonotparticipateinthemanagementof thebusiness.Alimitedpartner’sliabilityislimitedtotheamountof his/herinvestment,whereasthegeneralpartnersarefullyliablefortheactivitiesof thebusiness.Theinvestmentof thelimitedpartnerscannotbeboughtandsoldwithoutfirstconsideringthefederalandstatesecuritieslawsonlimitedpartnershipinterests.Contactanattorneyregardingthesesecuritieslaws.
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Corporation Anindividualorgroupof peoplecanformacorporation.Theadvantageof acorporationisthatif managedappropriately,acorporationofferspersonalliabilityprotectiontotheinvolvedparty/parties.
AcorporationiscreatedbyfilingtheArticlesof IncorporationandAppointmentof StatutoryAgent,alongwithafilingfee,withtheSecretaryof Stateof Ohio’sofficeat(877)767-3453orvisitonlineatwww.sos.state.oh.us.Therearecertainformalitiesforcreationof theArticlesof Incorporationandwithmaintainingacorporationsuchasrightsof owners,adoptionof bylaws,annualshareholderandboardof directorsmeetings,etc.Itisforthisreasonthatitisrecommendedthatyouhireanattor-neyforassistancewithfilingandunderstandingwhatisnecessaryforyourbusiness.
YouwillneedaTaxIDNumber,whichcanbeobtainedbyfilinganSS-4FormwiththeIRSat1-800TAX-FORM(1-800-829-3676)orvisitonlineatwww.irs.gov.Thecorporationmustalsomaintainitsownbankaccount,separatefromyourownpersonalaccount.
If youareincorporated,evenasaone-personoperation,youareconsideredanemployee.Allemployeerequirementsandpayrolltaxesapply.PleaseseetheEmployeessectionof thisguidefortaxandworkers’compensationinformation,page 10.
Therearetwowaysacorporation’staxescanbehandled:asaregularcorporation(commonlyknownasaC-corporation)orasasubchapterS-corporation.
C-Corporation Taxes InaC-corporation,thecorporationpaysincometaxbasedontheprofitsof thebusinessandthentheshareholdersaretaxedonthedividendstheyreceivefromthecorporation.Fortheowner/shareholderthisdoubletaxationisoftenaconcern.
ThetaxationdetailsforaC-corporationareasfollows: ForFederal Income Tax,fileFORM1120,1120Aor1120EZforFederalincometax,dueannually.FileestimatedpaymentsonFORM8109,worksheet1120W,duequarterly.CalltheIRSat(800)829-1040orvisitonlineatwww.irs.com.
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Corporate Franchise Tax(Stateof Ohioincometax)isfiledonFORMFT-1120,1/3dueJan31,1/3dueMarch31,1/3dueMay31.CalltheStateof Ohioat(888)405-4039orvisitonlineatwww.tax.ohio.gov/divisions/corporation-franchise.Corporate Franchise Tax is being phased out to be replaced by the Commercial Activity Tax (CAT). See pg. 13 for more information on CAT.
Corporation pays Local/Municipal Income Taxbasedonnetprofitsof thebusiness.ContacttheCityof ToledoIncomeTaxinformationlineat(419)245-1662orotherlocaltaxdepartmentsorvisitonlineatwww.ci.toledo.oh.usandclickonCity DepartmentsandthenDivisions of Taxation and Treasuryformoreinformation. Shareholderspay Income Taxonthedividendspaidbythecorporationfromtheleftoverprofitsof thebusinessontheirownindividualincometaxreturns. Subchapter S-Corporation Taxes YoucanelectS-corporationstatuswithin75daysof formingthecorporationbyfilingFORM2553withtheIRS.If youdonotfileforS-corporationstatus,youwillbetaxedasaregularC-corporation.UnliketheC-corporation,S-corporationincomeprofitsandlossesarepassedontotheshareholder.Profitsaretaxedonlyattheshareholderlevel;thecorporationpaysnofederalorstateincometaxes(singletaxation).ThereareotherrestrictionswithanS-corporationsuchasamaximumnumberof shareholdersandthewayyourhealthcarecostscanbededucted,soyoushouldconsultanaccountantandattorneybeforeselectingS-corporationstatus.ThetaxationdetailsforanS-corporationareasfollows: ForFederal Income TaxFileFORM1120Sforinformationalpurposesonly,dueannually.ContacttheIRSat(800)829-1040orvisitonlineatwww.irs.gov. Corporate Franchise Tax(Stateof Ohioincometax)isfiledforinformationalpurposesonlyonFORMIT-1040annually.CalltheStateof Ohioat(888)405-4039orvisitonlineatwww.tax.ohio.gov.Corporate Franchise Tax is being phased out to be replaced by the Commercial Activity Tax (CAT). See pg. 13 for more information on CAT.
Corporation pays Local/Municipal Income Taxbasedonnetprofitsof thebusiness.ContacttheCityof ToledoIncomeTaxinformationlineat(419)245-1662oryourlocaltaxdepartmentorvisitonlineatwww.ci.toledo.oh.us.
ShareholderspayIncome Taxontheirshareof theS-corporationprofitsontheirfederalandstateincometaxreturns.
Limited Liability Company (LLC) AnLLCisahybridof apartnershipandacorporation.TheStateof Ohiorecognizesaone-personLLC.Theliabilityprotectionissimilartoacorporationandthetaxesaresimilartoapartnership.AnLLCcanbecreatedbyfilingtheArticlesof OrganizationandAppointmentof StatutoryAgent,alongwithafilingfee,withtheSecretaryof Stateof Ohio’soffice,at(877)SOS-FILEorvisitonlineatwww.sos.state.oh.us.Therearecertainformalitiesof theArticlesof OrganizationandwithmaintaininganLLC.Amemberoperatingagreementisrequired.Itisrecommendedthatyouhireanattorneyforassistancewithfilingandunderstandingwhatisnecessaryforyourbusiness.
WhenstartinganLLCyouwillneedaTaxIDNumber,whichcanbeobtainedbyfilinganSS-4FormwiththeIRSat1-800-TAX-FORM(1-800-829-3676)orvisitonlineatwww.irs.gov.SeePartner-ship, page 7.Workers’compensationcoveragemayberequiredforallpartiesof anLLCdependingontheBureauof Workers’Compensation’sfourfactortest.ContacttheBureauforinformationat(419)245-2474or(800)644-6292orvisitonlineatwww.ohiobwc.com.
Employees
If youarehiringanyonetoworkforyouasanemployee,thenyouneedtotakecareof payrolltaxesandworkers’compensationforthoseemployees.If youareincorporated,thenallinvolvedpartiesareconsideredtobeemployees(includingyourself).
Tax Responsibilities for Employers Federal Withholding Income TaxisthetaxwithheldforSocialSecurityandMedicare.EmployeesfileFORMW-4todetermineamountof withholding.ThebusinessmustfileFORM941(quarterlyreturnsof taxesdue)andFORM8109(FederalTaxDepositCoupons),foreachdepositdueonthe15thof thefollowingmonth.ForformsormoreinformationcalltheIRSat(800)829-1040orvisitonlineatwww.irs.gov.
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Employers’ Match to Federal Withholding Income Tax.Employersmustmatchthesocialsecurityandmedicaretaxeswithheldfromtheemployee’spaycheck.FileFORM941(quarterlyreturnsof taxesdue)andFORM8109(FederalTaxDepositCoupons),witheachwithholdingdepositdueonthe15thof thefollowingmonth.CalltheIRSat(800)829-1040forformsandmoreinformationorvisitonlineatwww.irs.gov. State Withholding Income Taxistheportionof theemployee’spaycheckthattheemployermustwithholdforstateincometax.ToapplytobeawithholdingagentwiththeStateof Ohio,fileFORMIT-1.ThebusinessfilesFORMIT-941annuallyfortrackingthewithholdingandFORMIT-501quarterlyormonthlyfordepositingthewithholdingtax.Forformsandmoreinformation,contacttheOhioDepartmentof Taxationat(800)282-1780orvisitonlineatwww.tax.ohio.gov. School District Withholding Income Taxiswithheldfromtheemployee’spaycheckdependingonthelawsof theschooldistrictof theemployee’sresidence.EmployeesmustfurnishtheemployerwithFORMIT-4todetermineamountof withholdingtax.If applicable,employersmustregisterasawithholdingagentonFORMIT-1Sanddeposittheemployee’swithholdingtax.ContacttheCityof ToledoIncomeTaxinformationlineat(419)245-1662orotherlocaltaxdepartmentsforinformationorvisitonlineatwww.ci.toledo.oh.us. Federal Unemployment TaxmustbefiledannuallybytheemployeronFORM940.DepositstotheIRSshouldbemadeonFORM8109.ThesedepositsshouldbemadequarterlyonFORM8109if greaterthan$100.CalltheIRSat(800)829-1040orvisitonlineatwww.irs.gov. State Unemployment TaxispaidbyallemployerstotheStateof OhioUnemploymentInsuranceFund.InitialpaymentsshouldbepaidonFORMUCO-1andalllaterpaymentsshouldbepaidquarterlyonFORMUCO-2EorUCO-2R.ForinformationcontacttheStateof Ohioat(888)405-4039orvisitonlineatwww.tax.ohio.gov.
Other Employer Responsibilities Workers’Compensationisthestateinsurancefundforallemployeespaidbyallemployers.Theemployer’spremiumisbasedonnumberof employees,riskonthejobandtotalpayroll.Thereisa$10minimumdeposit.Premiumsareduetwiceayear.ContacttheBureauof Workers’Compensationformoreinformationat(800)644-6292orvisitonlineatwww.ohiobwc.com.
If youhaveemployees,youmustgivethemaSummary of the Total Dollars WithheldfortheprioryearonaFORMW-2byJanuary31.YoumustalsosubmitFORMW-2foreachemployeeandFORMW-3forallemployeestotheSocialSecurityAdministrationbyFebruary28.CalltheIRSformoreinformationat(800)829-1040orvisitonlineatwww.irs.gov.
Youmustkeeparecordof yourEmployees’ EligibilityforworkintheUnitedStateswithaFORMI-9fromtheU.S.CitizenshipandImmigrationService.Call(800)375-5283orvisitonlineatwww.uscis.govformoreinformation.
OtherresponsibilitiessuchasDisability Policies, Family and Medical Leave Policies, COBRA, andNew Hire Background Checksdependonyournumberof employees.CheckwiththeOhioFirstStopBusinessConnectionat(800)248-4040orwiththespecificregulatoryagenciesorvisitonlineatwww.odod.state.oh.us/onestopformoreinformationregardingcompliance. Employee vs. Independent Contractor Thereare20guidelinesthattheIRSlooksatwhendeterminingthestatusof anemployeeversusanindependentcontractor.Basically,if youareworkingwithsomeoneonacontractualbasis,wherethatpersoncanhireadditionalhelp,canmakehis/herownhours,sethis/herownscheduleanddeterminehis/herownprofitabilityonthejob,thenhe/sheisprobablyanindependentcontractor.
If yousetthehours,givespecificinstruction,havecontroloverthetechniqueforthejobandsupplythetoolsforthejob,thentherelationshipisemployee/employer.Anindependentcontractorhandlesitsowntaxes,workers’compensation,etc.ItisyourresponsibilitytoissueaFORM1099totheindependentcontractorbyJanuary31andtotheIRSbyFebruary28statingthetotaldollarspaidtotheindependentcontractorfortheyear.CalltheIRSat(800)829-1040orvisitonlineatwww.irs.govformoreinformation.
Taxes
Tangible Personal Property Tax Tangible Personal Property Tax istaxpaidonthetangibleassetsof thebusiness.(Notland,buildings,licensedmotorvehiclesoraircraft,jigs,diesordrawingsusedinbusiness.)Thefirst$10,000isexempt,butyoumustfileforinformationalpurposesevenif youdonotoweanymoney.If yourassetsexceed$10,000,youpayapercentageintaxtotheState.Unincorporatedbusinessesandsingle-countycorporationsfileFORM920withtheCountyAuditor.Multi-countycorporationsfilewiththeStateonFORM930.Areturnisdue90daysafteryoustartthebusinessandbyApril30eachyear.ContacttheLucasCountyAuditorat(419)213-4406orvisitonlineatwww.co.lucas.oh.us/index.aspx?nid=331formoreinformation.
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Real Property TaxAllbusinessesthatownbuildings,landandimprovementsmustremittotheCountyadministrationReal Property Taxthatmaybeleviedbytheschooldistrict,municipalityorothertaxingjurisdiction.ContacttheLucasCountyAuditor’sofficeat(419)213-4406orvisitonlineatwww.co.lucas.oh.us/index.aspx?nid=331. Commercial Activity Tax (CAT) TheCommercialActivityTax(CAT)isanannualbusinesspriviledgetaxmeasuredbygrossreceiptsfrombusinessactivityinOhio.BusinessesinOhiowithOhiotaxablegrossreceiptsof $150,000ormorepercalendaryearmustregisterfortheCATfilereturnsandmakecorrespondingpayments.
TheCATappliestoallentities(soleproprietor,LLC,etc.)regardlessof form.
TheCATtaxappliestoalltypeof businesses:retailers,serviceproviders,manufacturersandothertypesof businesses.Formoreinformationvisitwww.tax.ohio.gov.
BusinessessubjecttotheCATmustregister.On-lineregistrationatOhioBusinessGateway(www.business.ohio.gov).Informationonfilingandpaymentof theCATwillbesenttoallregisteredtaxpayers.
Financing Your Business Youwillneedtoresearchandlistallcostsassociatedwithgettingyourbusinessstartedandkeepingitrunninguntilyouareturningaprofit,includingprojectedmonthlyrevenueandexpenses.Someof themajorsourcesof fundingarethefollowing: Banks–primarysourceforlendingmoney.Talktothelendingofficerinyourbankforinformationaboutobtainingabusinessloan.Youwillneedtohaveagoodcredithistoryandsomeof yourownmoneytoinvest.Youwillalsobepersonallyresponsibleforpayingbackallloans.Youwillmostlikelyberequiredtowriteabusinessplan.SeeBusiness Planning, page 15formoreinformation.
Loan guarantees–SBAloanguaranteesareavailabletothebanktoaddadditionalcollateraltoaloan.ContactyourlocalbankortheSBDCformoreinformation. Friends and family–maybeagoodsourceof fundingforyourbusiness.Becarefulof theamountof controltheyareseekingandthenatureof yourrelationshipregardingpayingthemback.
Local government/enterprise groups, etc.–checkwithyourlocalDepartmentof EconomicDevelopmentorCommunityDevelopmentCorporationforpossibilitiesof startupbusinesslending.Stipulationslikegeographiclocationmayexist.
Grants–limitedmoneygiventypicallyforbusinessesinvolvedinresearchanddevelopment.Checkyourlocallibraryforalistof availablegrants.
Venture capital investors–privateequityfundingrequiringownershipinyourcompany.
Insurance Youwillneedtoinsureyourbusinessanditsassets.Somepossibletypesof coveragesarebusinessproperty,businessinterruption,computerequipment,vehicles,liability,employeedishonesty,burglaryandpersonallifeandhealth.Contactyourpersonalinsuranceagenttoobtainaquoteorarecommendation.
Marketing Youwillneedtodoextensiveresearchonthedemographicsof yourmarketbeforeyoustartyourbusiness.Thewho,what,where,whenandhowof yourcustomersneedtobeansweredbeforeyoucanknowforsureif thereissufficientdemandforyourproductsorservices.Youshouldidentifyyourcompetitorsandtheirstrengthsandweaknesses.Youneedtofullyunderstandtheindustrysegmentthatwillbeusingyourproductsorservices.Othermarketingdecisionsyouwillneedtomakeincludelocation,advertisingandpromotionstrategies,selling,customerrelations,andpricing.Marketresearchresourcesincludelibraries,surveysof potentialcustomers,industryresearch,theinternetandanalysisof yourcompetition.
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Business Planning Onceyouhavegatheredallof thenecessaryinformationforyourbusiness,youshouldwriteabusinessplan.Abusinessplanisthebasicroadmapforyourbusinessandincludestopicssuchasadescriptionof products/services,marketingstrategies,operationsandmanagement,andfinancialissuesof yourbusiness.If youarewritingtheplanwiththeintentionof gettingabankloan,youmustalsoincludehowmuchof aloanyouneed,forwhatpurposeandwhenyouwillbepayingtheloanback.Itisrecommendedthatyouwritethebusinessplanyourself andnothiresomeonetodoitforyou.Therearemanybusinessplanningguidesinlibrariesandbookstoresandsoftwareprogramstohelpyouwithwritingyourplan.Seepages16-34of thisguidefordetailedinformationonwritingabusinessplan.
Choosing Professional Advisors Whenstartingyourbusiness,youwillwanttoconsiderhiringprofessionalhelpsuchasattorneys,accountants,insuranceagents,etc.Thisprofessional“team”canbeinstrumentalinthesuccessof yourbusiness.Thebestmethodof locatingthesenecessaryprofessionalsisthroughreferralsfromotherbusinessowners,friends,yourbanker,otherprofessionalsorasmallbusinessortradeorganization.Call(419)243-8191foralistof professionalswhobelongtotheToledoRegionalChamberof Commerce.
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Building Your Business Plan
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Preparing a Business Plan
Introduction Goingintobusinessforyourself isaverybigstep.Carefulplanningonthefrontendcansaveyouthousandsof dollarsdowntheroad.It’struethatentrepreneursarerisktakers.However,successfulentrepreneursarethosewhousethebusinessplanningprocesstominimizetherisk!
Awrittenbusinessplanisthefoundationof theplanningprocess.Itservesastheblueprintfordevelopingthewho?,what?,where?,when?andwhy?of abusinessventure.Itrequiresresearch,carefulthought,numerousrevisions,andtime.Entrepreneurscanspendseveralmonthsdevelopingthevariouscomponentsof theirbusinessplan.
Thebusinessplanisessentialtothestart-upandgrowthof asmallbusiness.Theplanservesthreeprimaryfunctions.Firstof all,itisafeasibilitystudyforyourbusinessidea.Thebusinessplanningprocessallowsyoutoevaluate,basedonsoundassumptions,whetherornotyourideacanbeturnedintoaprofitablebusinessventure.
Secondly,awrittenbusinessplanisnecessarytoobtainfinancingfromabank,privateinvestororthegovernment.Apotentiallenderorinvestorwillreadyourplantodetermineif youhaveresearchedtheindustry,thecompetition,yourcosts,andpotentialmarket.Theywillbelookingtoseeif youwillbeabletopaybacktheloanorinvestment.
Thirdly,thebusinessplanservesasamanagementtool.Thisroadmaphelpsyouevaluateperformanceandmakeadjustmentsonceyou’reinbusiness.If properlyutilized,itcanalertyoutopotentialproblemsbeforetheybecomecostlymistakes.Itcanalsoidentifypotentialopportunitiesforgrowth.
SBDC & MCBAP Services TheOhioSmallBusinessDevelopmentCenter(SBDC)andtheMinorityContractorsandBusinessAssistanceProgram(MCBAP)attheToledoRegionalChamberof Commerceisreadytohelp.TheSBDCisfundedbytheU.S.SmallBusinessAdministration,theOhioDepartmentof Development,andtheToledoRegionalChamberof Commerce.TheSBDC/MCBAPcertifiedbusinessadvisorswillmeetwithyoutogoovertheelementsof abusinessplan,aswellasansweranyotherquestionsyoumighthave.Theadvisorswillnotwritethebusinessplanforyou,however,theywillmakespecificrecommendationsandassistinthepreparationof yourfinancialstatementsif needed.
Thispublicationwasdevelopedtoassistyouwiththeconstructionof yourplanandhopefullysimplifythebusinessplanningprocessforyou.Asyoureadthroughthispublication,keepinmindthatitwaswrittenforstart-upandexistingbusinessesinmanydifferentindustries.Someof theinformationmaynotpertaintoyourbusinessidea.
An Outline of a Business Plan
Acompletebusinessplanshouldcontainthesebasicelementsinthisgeneralorder:
Cover Page
Table of Contents
Executive Summary
Business Concept
Description of Products and/or Services
Industry Characteristics and Environment
Operations
Ownership Structure
Management and Personnel
Marketing PlanMarketAnalysis
CompetitiveAnalysisMarketingStrategies
Financial InformationStart-UpRequirements
ProjectedProfitandLossStatementProjectedCashFlowStatement
BalanceSheet
Supporting Documentation
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The Business Plan in Detail
Cover Page Thecoverpageshouldincludevitalinformationsuchasbusinessname,owner’sname,address,phone,fax,e-mail,aswellasthedatetheplanwascompletedorlastupdated.Youmayalsowanttoaddastatementthattheinformationcontainedinthebusinessplanisproprietaryandconfidential.Itisagoodideatonumbereachcopyof thebusinessplanandkeeptrackof whoreceiveseachcopy.
Theentireplanshouldbetypedandprofessionallooking.Besurethatitisproofedforspellingandgrammaticalerrorsbeforeitisdistributed.
Table of Contents Astandardtableof contentsshouldbeincluded,listingthetopicorsectionandthecorrespondingpagenumbersoitemscanbeeasilyreferenced.Thetableof contentsshouldonlybeonepageinlength.
Executive Summary Thissectionshouldbewrittenlastandcontainaclearandconcisesummaryof themostimportantsectionsof thebusinessplan.Keepinmindthatthismaybethefirst,andpossiblyonly,sectionreadbypotentiallendersorinvestors.Asageneralrule,theexecutivesummaryshouldnotexceedtwopagesinlength.Thefollowingitemsshouldbeemphasizedintheexecutivesummary:Amountneededtofinancestart-upof thebusiness;Descriptionof businessproductand/orservices;Estimateof marketpotential;Assessmentof thecompetition;Yourcompetitiveadvantage;Legalformof business;Locationof business;Estimateof potentialrevenue.
These items should be stated briefly in the executive summary and expanded on with supporting detail in later sections. Again, this section is written after the completion of the plan to summarize the business plan.
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Business Concept Inthissection,writeasimple,butcompletestatementof whatkindof businessyouarein;whatkeyproductsorserviceswillbeoffered;whyyoubelievethereisamarketforthebusiness;howthebusinesswillbeoperated;andwhatfuturegrowthyouanticipate.
If youarealreadyinbusinessthissectionshouldstatethehistoryof thecompany.Itshouldincludethingslike:legalformof thebusinessandwhenitwasformed;pertinentbackgroundinformationontheownersof thecompany;currentcustomerbase;yearlysales;assetsacquiredbythecompany;changesinlocation;andanyexpansion.Thissectionshouldnotonlydescribethecompany,butalsoaddressitspastperformanceif applicable.
Description of Products and/or Services Inthissectionyoushouldexplainindetailabouttheproductsand/orservicesyourcompanywilloffertothecustomer.Donotassumethatyournameexplainswhatyourcompanydoes.Youneedtobespecificabouttheproductsand/orservicesyouprovide.
Youwillwanttoexplaintherelativeimportanceof eachproductlineorserviceincludingdesign,styling,andtrademarkconsiderations.Youwillalsoneedtodiscussquality,productlife,packaging,anddurabilityissues.
Thisisalsothesectiontoaddressyourcompetitiveadvantagebyproductorservice.Discussanyresearchanddevelopmentactivitiescurrentlyunderway,oranythingrelatingtotechnologythatwouldgiveyouacompetitiveadvantage.Explainyourdistributionandsalessystems.Anytrademarks,copyrightsorpatentsrelativetoyourproductsshouldbeincludedinthesupportingdocumentationsection.
Industry Characteristics (The Research Phase) Thissectionisthecornerstoneof thebusinessplan.Itisthebasisfortherestof theplanandshouldbeoneof thefirstsectionscompleted.Thisisthesectionthatrequiresmanyhoursof research.
Industryinformationcanbefoundfromnumeroussourcesincludingtradeassociations,businesspublications,governmentreports,aswellasyourownobservationsandexperiences.Thelibraryisagreatplacetofindpublicationsthatprovideindustryinformation.Someof thesepublicationsinclude:MarketProfileAnalysis,RobertMorrisAssociates(RMA),Standard&Poor’s,andU.S.IndustryandTradeOutlook.Youcanalsousetheinternetasasourceforsomegeneralindustryinformation.
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First,youneedtodeterminewhatindustryyouareinandthenresearchthatindustrybyitsStandardIndustryClassification(SIC)codetogatherinformationonthecompetition,industrystandards,governmentalregulations,etc.Youmayalsowanttoreferencethegovernment’snewNAICSorNorthAmericanIndustryClassificationSystem.
Yourresearchshouldgiveyouanoverallpictureof theindustryyouplantoenter.Theinformationyoucollectwillalsobeusedinothersectionsof thebusinessplan,specificallywhenyouprepareyourprojectedfinancialstatements.Researchdefinitelyistheleastexcitingandmosttimeintensepartof yourbusinessplanningprocess.However,if youdonotmakethetimeinvestmentintheresearchphase,yourplanwillnotbethoroughorwellthoughtoutandyourbusinessmaysufferinthelongrun.
Inthissectionyoushouldincludethefollowing:abrief descriptionof theindustryintermsof salesvolumeandnumberandsizeof firmsintheindustry;howproducts/servicesarecurrentlypackagedandsold;averageprofitmargins;andwhethertheindustryasawholeisgrowing,mature,ordeclining.Alsoexplainanycyclicalorseasonalchangesintheindustry.If theindustrysuppliesotherindustriesyoushouldalsobrieflydescribethecharacteristicsof theotherindustriesandhowchangesmayaffectyourindustry.
Inthissection,youshouldalsodiscussanycurrentorfuturetrendsintheindustry.Definethegrowthof theindustryinrelationtothegrowthof theeconomy.Youshouldalsoresearchandincludeinyourplananyfederal,stateorlocallawsorregulationsthatpertaintoyourbusiness.
Operations Thefirstelementyouneedtoaddressintheoperationssectionof theplanisyourlocation.Youshouldbrieflydescribetheactuallocationof yourbusiness.If you’rehome-basedsaythatanddescribehowit’sfeasibleforyourbusiness.If youwilloccupyacommerciallocation,givetheaddressof thatlocationorproposedlocation.
Youneedtodiscussthelocationintermsof squarefootageandthearrangementof officespace,assemblyspace,storagespace,etc.Willyoubuyorleasethebuilding?Alsoincludeinformationonavailableparking,trafficcounts,signage,etc.Describewhattypeof equipmentormachinerywillberequired.Howwillyouobtainthenecessaryequipment?Again,willyoubuyorlease?Howoftenwillequipmentneedtoberepairedorreplacedandwhatcostswillbeassociated?Talkbrieflyaboutanyfutureneeds,astheyrelatetothebusinesslocationandequipment(i.e.possibleexpansionplans).
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Discussyourproductionorserviceoperationsbydescribingyourmanufacturingprocessorthemethodof performingyourservice.Thisinformationshouldincludeproductionoroperatingadvantages,qualitycontrolprocedures,purchasingprocedures,productionorservicecapacity,availabilityof rawmate-rials,andothersupplierconsiderations.
Besuretodiscussyouractualhoursof operation.(i.e.Monday-Friday,9a.m.to5p.m.)Thiswillbeimportanttoestablishwhetherornotyourhoursmatchthebuyinghabitsof yourmarketandif youareaservicebusiness,whetheryourhoursof operationaresufficienttosupporttheamountof salesyoupropose.Also,considerthestandardhoursof operationwithinyourindustry.
Discussissuesrelatingtoinventoryif itappliestoyourtypeof business.Howmuchinventorywillyouneedtosupportanticipatedsales?Discussthelaborforcethatwillbeneeded.Isthereanavailableworkforce?Discussanytrainingthatmayberequiredandthecostof suchtraining.Willyoubeusingsub-contractorsforanyof thework?
Ownership Structure Yourbusinessplanneedstostatethelegalstructureof yourbusiness.Thatis,areyouasole-propri-etorship,partnership,limitedpartnership,s-corporation,c-corporation,orlimitedliabilitycompany?Thisisoneof themostimportantdecisionstomakewhenstartingabusiness.Thelegalstructureof yourbusinessgovernshowthebusinesswilloperate.Severalfactorsmustbeconsideredwhenchoosingalegalstructureincludingtaxes,potentialexposuretoliability,andthenumberof owners.Formoreinformationontheformsof ownershipstructurecontacttheSBDCoranattorney.Inmostcases,youwillneedtohireanattorneytofilethenecessarypaperwork.
Besuretonametheownersorpartnersof thebusinessinyourbusinessplanandincludethepertinentdetailsof yourstructure.Youshouldincludeacopyof thepartnershipagreement,articlesof incorporation,articlesof organization,etc.,dependingonyourlegalstructureintheSupportingDocumentationsectionof yourbusinessplan.
Management and Personnel Inthissection,youwillwanttobrieflydescribeyourmanagementstyle/philosophy,aswellasprovideallpertinentinformationinregardstoemployees,if applicable.
Youshouldprovideinformationonkeymanagementpersonnelincludingresponsibilitiesandprofessionalbackground.If youarestartingsmall,thissectionmayjustbeaboutyou,theowner.Besuretodiscussallpersonnelcompensationstructureandincludethatamountinyourmonthlyexpensesonthefinancialstatements.Includeyourprofessionalresumeasanattachmenttoyourbusinessplan.
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Describetheemployees,if any,youwillneedtooperateyourbusiness.Youmanywanttoincludespecificpositiondescriptionsoutliningthedutiesandresponsibilitiesof eachemployeeasanattachmenttoyourbusinessplan.If not,discusseachpositionbrieflyinthissection.Youwillalsoneedtoincludetheactualemployeecostsinthefinancialsectionof theplan.Rememberthatemployeecostsincludemorethantheirhourlyrateof pay.Youneedtocomputetaxes,worker’scompensation,andanyotherbenefitsyouplantooffersuchashealthinsurance.Makesurethatyouareincompliancewithalllocal,state,andfederalemploymentregulations.
If youareinamanufacturingbusiness,you’llneedtodiscussthenumberof shiftsneededforproductionandlaborunionissues.Rememberwhenyouincreasesales,youwillneedtoincreaseproductionsoyoumayneedtoaddshiftswhichwillalsoincreaseemployeecosts.
Youshouldexplainyouremployeecompensationpolicyingreaterdetailincluding:howandwhenemployeeswillbepaid;thenumberof hourstheywillwork;overtimeconsiderations;andholidaypay.Itisagoodideatodevelopanemployeehandbookthatwilloutlinetheseandotherissues.Thiswillsaveyoualotof hassledowntheroad.If youhavedevelopedsuchahandbook,includeitasanattachmenttothebusinessplanandbesuretohaveyourattorneyreviewsuchadocument.
Youmayalsowanttodiscusshowyouplantorecruit,train,retain,andevaluateyouremployees.Givetherecruitmentissuesomecarefulconsiderationbecauseinmanysituationsyourbusinesscannotrunwithoutemployees.Trytodeterminethepayandincentivesofferedbysimilarbusinesses.Afterall,youwillbecompetingwiththemforemployeesaswellascustomers.
If youwillnothaveemployeesatfirst,discusswhenyouthinkyoumayneedtoaddemployeesaspartof yourgrowthstrategy.
Marketing Plan Thisisaveryimportantsectionthatisoftenoverlookedbypotentialbusinessowners.If youdon’tconsidermarketingissuessuchasproductandpricing,location,advertising,selling,etc.,youmaynothaveabusinessatall.Themarketingplanisanindicationof youroverallbusinesspotential.
Marketingisatthecoreof whyyouareinbusiness.Thatis,tosatisfycustomerwantsandneeds.So,youmustfirstexplainwhatwantorneedyourproductorserviceissatisfyingandforwhom.Beasspecificasyoucan.Areyousellingtootherbusinessesortotheconsumermarket?
Youwillwanttobeginthissectionbybrieflyexplainingyourproduct(s)and/orservice(s).Specifically,explainyourproductintermsof pricing.If appropriateincludeacopyof yourpricelist,menu,catalog,orrelatedmaterials.Youwillneedtoelaborateonyourpricingstrategy.Howdoesitcomparetooverall
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industrypricingandthatof yourcompetitors?Youmustalsotakeintoconsiderationallthecostsassociatedwithmakingorsellingyourproductsandservices.TheSBDC/MCBAPadvisorscandiscusswithyouissuesthatneedtobeconsideredtodevelopyourpricing.
Inthissection,youneedtoincludesignificantinformationaboutyourtargetmarket.Whoareyourcustomersandwhyaretheygoingtobuyfromyou?Thisinformationshouldincludecustomerneeds,demographics,buyingbehaviors,etc.Youneedtoclearlystateyourmarketnicheandcompetitiveadvantage.Youshouldalsodiscussanyexternalfactorsthatmayaffectyourbusinesssuchasindustrychanges,technologicalchanges,andsoon.
Next,youneedtocompleteacompetitiveanalysisforyourbusiness.Thistiesinwithyourmarketnicheandcompetitiveadvantage.Youneedtoexplainwhycustomerswillbuyfromyouandnotthecompetition.Onethingtoconsideristhatsmall,start-upcompaniesusuallycan’tcompeteonpricewithlarger,moreestablishedbusinesses.However,asmallbusinessisusuallyabletocompeteonsuperiorqualityand/orcustomerservice.Youwillwanttoincludespecificinformationaboutyourcompetitors.Nameyourcompetitorsanddiscusstheircompetitiveadvantageinthemarket.
Oneof themostimportantpartsof yourmarketingplanshouldbeyourpromotionalefforts.Thisincludesadvertising,tradepromotions(discounts,coupons,sales),andpublicrelations.Youwillprobablywanttofocusmainlyonadvertising.Besuretolistthetypesof advertisingmediathatyouplantousealongwiththeassociatedcosts.Advertisingmediaincludestelevision,radio,newspaper,magazines,tradejournals,signage,yellowpages,andclassifiedads.Yourtargetmarketwilldeterminewhichformsof advertisingmediayourbusinesswillneedtoimplement.Again,theSBDC/MCBAPadvisorscanhelpyoudecidewhichadvertisingmediawillbemostappropriateforyou,givenyourcustomersandbudgetconstraints.Besuretoincludeanycostsassociatedwithyouradvertisingeffortsinyourfinancialstatements.
Inthemarketingplanyoushouldincludesomeinformationaboutthedistributionaspectsof yourbusiness.If youareaservicebusiness,yourdistributionchannelisdirect.However,if yousellviacatalogorovertheInternetyouwillwanttodiscussissuessuchasshipping.If youarearetailer,you’llwanttodiscussyourrelationshipwithwholesalers,agents,brokers,etc.Basically,youneedtodescribehowyourproductwillreachtheconsumer.
Salesareanotherimportantissuetoaddressinthissectionof yourbusinessplan.Wewilldiscusssalesagaininthefinancialsectionof theplan.However,yoursalesgoalsshouldberealisticandobtainablewhilesufficientenoughtocoveryouroperatingcosts.Youshouldhaveamonthlysalesfigureinmindthattakesintoconsiderationanyseasonalityyourbusinessmayexperience.Forinstance,inmanyretailbusinesses,salesincreasedramaticallyduringDecember.Yourresearcheffortsshouldhaveuncoveredsuchtrendsthatmayaffectyourindustry.Ideally,salesshouldincreaseoverthefirstseveralmonthsasaresultof yourmarketingefforts.
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Financial Information Thisisacrucialsectionof thebusinessplanningprocess.Itisthenumericalequivalentof thewrittentextthathasbeendiscussedsofar.Itshouldbeconsistentwiththetextpartof thebusinessplan.Inthissection,youmustdetailnotonlywhatitwillcostto“openthedoors,”butalsowhatyourmonthlyoperatingexpensesandcashflowwillbeforyourbusiness.Thiscanbeatrickyprocessif youareastart-upbusiness.Likewise,youmustalsoprojecttheamountof sales,byproduct,youexpecttogenerateeachmonth.Estimatingthesenumbersrequiresresearchandeducatedguessesbasedonindustrystandardsandyourknowledgeof yourbusiness.
Clearlystateinyourplanhowmuchmoneyyouneedtoborrow,listingallpotentialfundingsources,includinganycontributionsbytheowner.Alsolistwhatthecapitalwillbeusedfor.Fundsmaybeneededtopurchaseequipment,makeleaseholdimprovements,orperhapsforworkingcapital.Youmaynotrealizehowmuchworkingcapitalmaybeneededuntilyouhavecompletedyourprojectedfinancialstatements.
Asyouworkthroughthevariousaspectsof thebusiness,youshouldconsiderthecostsassociatedwitheachelement.Forexample,whencreatingthemarketingplanyoushouldbeabletodeterminewhenandhowmuchyou’llspendforadvertising.Besurethatthesalesfiguresandexpensesyouincludeinthefinancialstatementscorrespondtotheitemsincludedinthetextof theplan.Again,inconsistenciesbetweenthenarrativepartof theplanandthefinancialdatamightbeanindicationthatyourplanisnotwellthoughtout. Onceyouhaveagoodhandleonyourprojectedrevenueorsalesandmonthlyexpenses,youcanpreparethefinancialstatementsthathavebeenmentionedthroughoutthisdocument.Youneedtoprepareprojectedorproformafinancialstatementsincluding:aprofitandlossstatement,balancesheet,andstatementof cashflowsforthefirstthreeyearsof operationof yourbusiness.Youwillalsoneedadetailedaccountof yourstart-upcosts.If youarenotfamiliarwiththeseaccountingitems,samplestatementshavebeenincluded.Mostoftenyouwillseethesestatementspresentedatyear-end,however,yourstatementsshouldbepresentedonamonthlybasisforthefirstthreeyears.
AnSBDC/MCBAPadvisororyouraccountantcanbeof assistancewithdevelopingthesestatements.Therearealsomanysoftwarepackagesonthemarketthatwillassistincreatingfinancialstatements.Thefollowingpagescontainaverybrief descriptionof eachof thefinancialstatements.
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Start-Up Requirements Youmustidentifyexpensesthatwillbeincurredinordertoopenforbusiness.Thesearegenerallyone-timeexpensesincluding:purchaseof buildingorequipment;legalfees;supplies;leaseholdimprovements;rentdeposits;etc.Monthlyexpenseslikerentpayments;telephonecharges;orpayrollwillbeshownontheprofitandlossstatement.
Youmustalsoestimatetheamountof workingcapitalthatwillbeneededtooperatethebusinessduringtheperiodcoveredbytheprojections.Workingcapitalreferstothefinancingneededtocoverthetimebetweenwhenexpensesareincurredandrevenueisreceived.Thisisreallyafactorof thebillingcycle,termsof sale,collection,andinventorypolicies.Tobeginwith,youcanestimatetwoorthreemonthsof projectedexpensesastheamountneededforworkingcapital.Youmayhavetoadjustthisnumberafteryoucompletetheprojectedcashflowstatement.
Youalsoneedtoconsideranystart-upinventorythatwillbeneeded.Thisamountwilldependheavilyonyourestimatedinventoryturnoverandthenatureandseasonalityof yourindustryandtheperishabilityof yourproducts.Youmaybeabletogetabetterestimatebyanalyzingtheindustrystatisticsyougatheredinyourresearchphase.
Onceyouhavecalculatedyourstart-upcostsandworkingcapitalrequirements,youneedtosubtracttheowner’scontribution(theamountof capitalyouareputtingin)tocomeupwiththeamountneededtobefinancedorborrowed.Asamplebreakdownof start-uprequirementsfollows:
Projected Financial Statements in Detail
Sample Breakdown of Start-Up Requirements
ComputerNetworkComputerSoftwareComputersPaintBoothEquipmentMonitorPaint&MiscFurniture&Fixtures(attachlistFA-5)Pointof SaleRegisterTelephoneSystemFurniture&Fixtures(attachlistFA-5)Misc.EquipmentSecuritySystemGoodwillDeliveryTruckSignageBuildingLandCapitalImprovementsTotal Fixed Asset Additions
Inventory/SuppliesInventory/PaperLeaseDepositArchitectDepositsUtilityPermits/LicensePreAdvertisingPrePayInsuranceTotalOther(attachlistCAA-1)Total Current Asset AdditionsAttorneyPaperProductsPaintOfficeSuppliesLaborStartUpKitchenSuppliesTotal Start-Up ExpensesInitial Working Capital (cash) RequirementsTotal Start-Up RequirementsProject Financing:TermLoanBankLoan Total Loan RequestsLineof CreditRequestedTotal Capital Contributions by Owner Total Project Financing Required
AnnualLeaseExp. PurchaseCostor
# cost/unit = Ann.LeaseExp. or PurchaseCost
Term Interest % Principal
$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-
$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-$-
$-$-$-$-$-$-
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Profit and Loss Statement (Income Statement) Thisstatementshowstheincome(revenue)of yourbusinessandexpensesoccurredingeneratingtheincome,andtheresultingprofitorloss.Thisinformationistypicallyshownonamonthly,quarterly,oryearlybasis.Forthepurposesof astart-upbusiness,youwillwanttoshowtheprojectedincomeandex-penseonamonthlybasisforthefirstthreeyearsof operation.Theincomestatementshowsallactivitiesthataffectprofitandloss,includingnon-cashitemslikedepreciation.
Themostcommonrevenueitemis,of course,sales.Youwillneedtoprojecttheamountof productindollarsthatyouexpecttoselleachmonthbymajorproductlineorbyusinganaverageprice.Itishelpfultobreakyoursalesdownbyproductlineorservicetobeusedasadecision-makingtool.Bydoingso,you’llbeabletoseewhichproductsorservicessoldasexpectedand,conversely,whichonesdidnot.Otherrevenueitemsmayincludeinterestincome,thesaleof equipment,orrentpaymentstothecompany.
If youplantosellonaccount,thatisinvoicecustomersforpaymentafterthesale,youwillwanttoshowaccountsreceivableasarevenueitemontheincomestatement,separatefromcashsales.Asastart-upbusiness,itisbesttogetallsalesincashwhenpossible.However,largercommercialcustomersmaywishtobeinvoiced.Whendecidingtowhomtoextendcredittoyoumustcarefullyweighthebenefitsof thesaleagainstpossiblecollectionproblems.Again,youmustconsideryourbillingcycle,termsof saleandcollectionpolicies.
Themostobvioustypeof expensesarethosedirectlyrelatedtopurchasingorproducingtheproductorserviceyousell.Thisisreferredtoontheincomestatementasthecostof goodssold.If youaremanufacturingaproductyoumustconsiderdirectmaterials,directlabor,andoverhead.If youarearetailbusiness,cost of goods soldreferstowhatitcostsyoutobuytheproductsfromyourwholesalerordistributor.
Otheroperating expensesincludethingssuchasrent,wages,advertising,insurance,andutilities.Youshouldspendasignificantamountof timeconsideringthesemonthlyexpenses.Manypeopledonotincludeallexpensesorestimatethemtoolow.Thiswillcausesignificantproblemsdowntheroad.
Anotheritemtobeconsideredisdepreciation.Thisreferstoanaccountingitemthatrepresentstheallocationof thecostof fixedassets(abalancesheetitem)toexpenseovertheestimatedperiodof usage.Itdoesnotrequireanactualcashoutlaybutisshownontheincome statementbecauseitisre-latedtoprofit.
Finally,expensesaredeductedfromtherevenueitemstodeterminethenet profitorlossfromthebusiness.Generallytheprojectedtaxburdenisthendeductedfromtheprofit.Agoodruleof thumbtoconsiderwhenestimatingrevenueandexpenseistoestimatetherevenuelowerandtheexpenseshigherthananticipated.Thisgivesyouaconservativefinancialpicture.Asampleincomestatementfollows:
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Sample Income Statement
13,9405,751748
2,2308,7295,2112501501112554501136258502033325826767151
1,1721542910042520333192
0250183
7,208(-1,997)(-559)
(-1,438)312
16,3905,751748
2,6229,1217,2692501501112554501136258502033325826767170
1,1651542910042520333192
0250183
7,220491435
2,370
18,0905,751748
2,8949,3938,6972501501112554501136258502033325826767182
1,1591542910042520333192
0250183
7,2251,472412
1,0603,798
SalesFullTime/PartTimeWagesPayrolltaxesFoodCostCostof SalesGrossprofitAccountingAdvertisingAmortotherAmort.of advertisingAutomobileBankchargesCablevisionContractLabor/SpecialEventsDepreciationDonationsDues&subscriptionsElectricGasInsurance/Building&BusinessInterest credit lineInterestontermdebtReplaceFurniture&EquipmentMiscellaneousOfficesuppliesOthersuppliesOthersuppliesPostageRepairs&maintenanceTaxespropertyTelephoneWater/SewerTotaldepartment4.NetbeforetaxIncometaxNetIncome/LossEBITDA
Accounts September October November
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Cash Flow Statement Thecashflow statement isjustwhatitsoundslike.Itshowswhathappenedtocashoveracertainperiodof time.Inotherwords,itshowsthesourcesandusesof cash,similartoacheckingaccount.Thisstatementisveryimportantbecausealthoughtheincomestatementshowsprofit,itincludestheimpactof changesinnon-cashitemslikeaccountsreceivable,accountspayable,anddepreciationwhichcanhavesignificantimpactoncashflow.If theaccountsreceivableamountishigh,yourincomestatementwillshowaprofit,butuntilyoucollectonthoseaccounts,youmaynothaveenoughcashtopayyourbills.
Acashflowstatementcontainsadjustmentstotheincomestatementforchangesinaccountsreceivable,accountspayable,andnon-cashitemssuchasdepreciation.Inthestart-upphase,youmustprepareaprojectedstatementtoensurethatyouwillhaveenoughcashtokeepyourbusinessrunning.Itisveryimportantthatyouunderstandwhatthisstatementmeanstoyouasabusinessowner.Asamplecashflowstatementfollows:
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Sample of Cash Flow Statement
13,9405,571748
2,2308,72925015054501136252033325826767122
1,7271542910042520333192
0
14,8965,751748
2,6229,12125015054501136252033325826767151
1,1651542910042520333192
0
17,0535,571748
2,8949,39325015054501136252033325826767170
1,1591542910042520333192
0
CollectionsFullTime/PartTimeWagesPayrolltaxesFoodCostSubtotalAccountingAdvertisingAutomobileBankchargesCablevisionContractLabor/SpecialEventsDonationsDues&subscriptionsElectricGasInsurance/Building&BusinessInterest credit lineInterestontermdebtMiscellaneousOfficesuppliesOthersuppliesOtherSuppliesPostageRepairs&maintenanceReplaceFurniture&EquipmentTaxesproperty
Accounts September October November
250183
6,22715,620(1,210)4,0862,876897997
1,8940
(0)0
250183
6,21515,336(1,210)2,6541,444
01,0031,003(0)
0(0)
250183
6,22715,620(1,210)1,684474897
1,0101,907(0)(0)(0)
TelephoneWater/SewerTotaldepartment4.TotalCashoutLoansfromothersLineof creditTotalotherreceiptsEstimatedtaxpaymentsTermloanpaidSubtotalotherpayoutsNetcashchangeBeginningcashbalanceEndingCash
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Balance Sheet Thebalancesheetwillshowyourcompany’sfinancialsituationonagivenday.Itliststheassets(whatyourcompanyowns)andyourliabilities(whatyouowe).Italsoshowstheowners’equity,ortheamountyouhavepersonallyinvestedinyourbusiness.
Specifically,thebalancesheetshowscurrentassets,includingcashandotheritemssuchasinventoryandaccountsreceivable,thatcanbeconvertedtocashorusedupwithinoneyear.Anypropertyorequipmentthatthecompanyownsisalsoshownonthisstatement.Depreciation,whichisnotanactualexpensebutthespreadingof thecostof anassetoveraperiodof itsusage,isalsoincludedonthebalancesheet.
Thebalancesheetalsoshowsallliabilitiesof thecompany.Theseliabilitiesaregenerallybrokenintotwocategories:shortandlong-term,dependingonwhendebtsneedtobepaid.Forexample,creditcarddebtwouldbeashort-termliabilitywhileyourbusinessloanfromthebankwouldbeconsideredlong-term.
Thebalancesheetisveryimportantsinceitshowsyourcompany’sabilitytopaydebtsbasedonyourassets.Thisalsoindicatesyourcompany’sabilitytoborrow.Abankwillbeparticularlyinterestedinthisstatement.
Sample Balance Sheet
08,5033,4467,60719,556258,2503,399
254,851274,407
15121,319174,80183,692279,9631,000-6,555-6,555-5,555274,407
09,9983,4327,47120,901258,2504,249
254,001274,902
17023,973173,79782,482280,4221,000-6,520-6,520-5,520274,902
011,0353,9177,33522,287258,2505,099
253,151275,438
18225,657172,78781,272279,8981,000-5,460-5,460-4,460275,438
CashAccountsreceivablePrepaidtaxesPrepaidexpensesTotalProperty&equipmentAccumulateddepreciationNetpropertyTotal AssetsAccruedexpensesDue on credit lineTermdebtpayableLoansfromothersLiabilitiesPaidincapitalNetincomeEndingRetain.Earn.Stkholders’EquityLiabilities And Stkholders’ Equity
Accounts September October November
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Projected vs. Historical Financial Statements If youareanexistingbusinessorarepurchasingabusiness,preparingtheprojectedfinancialstatementsbecomesmucheasiersinceyoucanusehistoricalfinancialdataasabasisforyourprojections.Youmaywanttoincreaseordecreasenumbersbyacertainpercentagebasedonchangesyouforesee(i.e.increasingsalesby20%duetothenewowner’sconnectionsintheindustryoramoreaggressivemarketingplan).
Lastly,youareprobablyusedtoseeingfinancialstatementsforaspecificperiodof time(usuallyannuallyorquarterly).Thesearegenerallyhistoricalstatements.Thedifferenceintheprojectedstatementsyouwillbepreparingisthattheyaredoneonamonthlybasisforaperiodof threeyears.Sinceastart-upcompanyhasnohistoryorperformancerecord,amonthlystatementwillallowyoutokeepacloseeyeonhowyourbusinessisperformingandallowyoutomakechangesquickly.
Using Your Financial Statements Thereareseveralwaysinwhichyourprojectedfinancialstatementswillbeusedbothinternallyandexternally.First,youshouldanalyzethesestatementstodecidewhetherornotyoushould,orcan,gointobusiness.Secondly,abankwillanalyzethesestatementstodetermineif youareagoodcreditrisk.Theywilltakeyourstatementsandpreparesomeratiostocomparewithindustrystandards.Onceyou’reinbusiness,youwilluseyouractualfinancialstatementstotrackyourbusinessperformanceascomparedtoyourprojections.Youwillalsousethesestatementstobudgetforfutureyears.Onceyou’reinbusinessforafewyears,you’llbeabletouseyourstatementstocompareyourperformanceoveraperiodof timetopredicttrends.You’llalsobeabletocompareyourbusinesstoothersinyourindustry.
Supporting Documentation Inthissectionof thebusinessplan,youshouldincludeanysupportinginformationthatwillstrengthenthebusinessplan.Keepinmindthatyoudonotwanttooverwhelmyourreaderwithextraneouspaper.So,makesurethattheinformationincludedinthesectionisrelevantandeasy-to-read.
Supportingdocumentationmayinclude:taxreturns(existingbusiness);yourresume;industrydata;articlesorstudiesrelatingtoyourindustry;patents;detailedmarketstudies;photoof yourproducts;professionalreferences;photoorrenderingof location;employmentcontracts;leases;commitmentlettersfromcustomers;andpertinentlegaldocumentssuchasyourownershipagreementand/orvendor’slicense.
Still Have Questions? Youcanmeetwithoneof theSBDC/MCBAPcertifiedbusinessadvisorstodiscussyouroverallbusinessidea.Wealsohaveinformationonsourcesof fundingandotherimportantissues.Bestof all,ourservicesarefreeof chargethankstoourfundingpartners:theU.S.SmallBusinessAdministration,OhioDepartmentof Development,andtheToledoRegionalChamberof Commerce.
Goodluckwithyourbusinessplanningprocess!ContacttheBusinessDevelopmentServicesattheToledoRegionalChamberof Commerceat419/243-8191if youhavequestionsabouthowtostartabusiness,wouldliketomeetwithoneof ouradvisors.
Remember the business owner who fails to plan, plans to fail!
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BusinessDevelopmentServicesattheToledoRegionalChamberof Commerce
300MadisonAvenue,Suite200Toledo,Ohio43604-1575
Your Entrepreneurial Support System
BusinessDevelopmentServicesarefundedinpartthroughacooperativeagreementwiththeU.S.SmallBusinessAdministration,andtheOhioDepartmentof Development.
Allopinions,conclusions,orrecommendationsexpressedarethoseof theauthor(s)
anddonotnecessarilyreflecttheviewsof theSBAorODOD.
Reasonableaccommodationsforpersonswithdisabilitieswillbemadeif requestedatleasttwoweeksinadvance.Theseprogramsareprovidedonanon-discriminatorybasis.
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