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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Notes...

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Notes...

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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.