ONLINE ADVISOR ON BUSINESS
Did you start a business in 2018?
While the start of a business is an exciting time there are many considerations to be taken into account for a business to succeed. We know we are technically competent to provide the service or product we are selling but many new business owners fail to take into account the tax and regulatory issues required. The many details that go into the planning process all start with your business plan.
The Purpose of a Business Plan:
A business plan is a written document created to detail all aspects of a business on a comprehensive level. Many banks and investors require a written business plan before lending to, or investing in, a business.
Executive Summary:
The executive summary is a summary of the entire plan. It should be written when all other sections of a business plan are complete and should be less than one page in length. The executive summary should include enough detail to allow a user to read the summary and gain a basic understanding of the business.
Mission, Vision, and Description:
• Mission statement. The mission statement should be less than 30 words and describe why a business exists, as well as its fundamental purpose at present.
• Vision. The vision statement defines the intended future state of an organization. It sets a high, long-term goal which is used to guide decisions of management and ownership.
• Description. The description section defines goals and objectives, business philosophy, target market, industry, and the legal entity under which the business will operate.
Products and Services:
Provide a detailed description of the products and services the business will offer. Include pricing, unique features, and the required level of quality. Create an appendix for any photos, technical specifications, drawings, or brochures.
Marketing Plan:
The marketing plan is developed by conducting (or having conducted) market research to define the clientele of a business and how to best market products and services. The sales forecast is the final element in a marketing plan. It forecasts over a 12-month period the quantities of each product or service expected to be sold. It is the base from which the financial plan will develop.
Operational Plan:
The operational plan details the day-to-day operations of a business. Items discussed in an operational plan should include issues such as location, licensing, personnel, inventory, suppliers, credit policies, and managing payables.
Management and Organization:
• Key employees: The term key employee refers to a person or persons who will manage the business on a daily basis. Include in the list the key employees’ talent, experience, and distinctive competencies brought to the business. Incorporate job descriptions of key employees, as well as resumes of the owners and key employees if using a business plan to seek financing.
• Management continuation plan: Management continuation planning involves determining how a business will continue should one or more of the key employees leave the company or become unable to fulfill his or her duties. The plan should specify the exact procedures for transferring duties when required, including arrangements with vendors, banks, employees, and owners.
Personal Financial Statement:
A personal financial statement (PFS) is a balance sheet for each owner on an individual basis. It includes values and detail of all assets owned, as well as amounts and terms for all debt obligations. This is not a profit and loss statement. It is an accounting for all your personal assets including land, investment accounts, whole life insurance policies, collectibles including antiques and jewelry, or other business ventures and the corresponding liability against those assets.
Financial Plan for the Business:
• Capitalization: Capitalization is the source of cash used for start-up costs, including professional consulting, asset acquisition, and buying or leasing business property. Information about any debt or equity financing should be included in this section.
• Forecasting cash flow: For new businesses, cash flow, more than profit, is the best indicator of whether a business will survive. It determines whether a business will be able to pay its expenses and debts as they come due. A business plan should contain a statement of projected cash flow for the first 12 months of the business. Lenders or investors may require customized reports indicating cash flow and profit projections.
Business Agreements:
A business agreement is a key component of any business arrangement whether it be with your spouse, family or friends. It lays out the rules and expectations while everyone is still friends and excited about the business opportunities. Think of it as a pre-nuptial agreement for your business. The discussions generated by the formation of a business agreement may help you decide if this is the right fit for you and your business associates. While the following list is a start to the discussion it is not comprehensive. The discussion needs to continue with your tax professional, legal counsel and insurance professional. Be sure you understand all of the implications of your chosen profession and the contractual agreements that are developed.
Choice of business entity:
• Incorporation agreements.
• Partnership agreements.
• LLC agreements. Consult an attorney to ensure compliance with state laws when forming a business entity.
Business organization:
• Name and address of business.
• Names and addresses of owners.
• Description of business purpose. Products, services, market.
• Contributions to capital. Loans to the business, repayment guarantees.
• Special allocations for partnerships.
• Number and duties of employees.
• Responsibilities of owners. (1) Administrative duties; (2) Services to be performed as well as hours dedicated to business, time off, length of commitment, wages/guaranteed payments, contributions to retirement funds, other payments. More business arrangements fall apart due to the lack of understanding of the commitment required of each owner.
Divisions of responsibility:
✓ Done. Skip any item which does not apply to the business.
1) __ Develop a business concept
2) __ Select and retain accountants and attorneys
3) __ Select a business entity
4) __ Determine ownership structure
5) __ Complete a business plan
6) __ Obtain initial start-up capital
7) __ File for organization with state
8) __ Hold first board of directors meeting
9) __ Apply for a federal employer identification number (EIN) by submitting Form SS-4
10) __ Apply for S corporation status by filing Form 2553
11) __ Establish accounting procedures
12) __ Choose an accounting software
13) __ Input all transactions from the beginning of business development into accounting software
14) __ Apply for business financing and solicit investors
15) __ Open business bank accounts
16) __ Apply for required permits or licenses
17) __ Select an insurance agent
18) __ Purchase insurance
19) __ Select a commercial real estate agent
20) __ Locate and obtain office or production space
21) __ Acquire furniture and equipment
22) __ Complete any needed build-out of space
23) __ Select a payroll processing company
24) __ Select an employee benefits company
25) __ Hire staff and complete training
26) __ Commence marketing
27) __ Order initial inventory and begin production
28) __ Conduct a grand opening
Both the Small Business Association (sba.gov) and the Internal Revenue Service (irs.gov) have substantial information on their websites concerning business plans and considerations for start-up businesses.
Contact us for help in putting together your business plan, developing your financial forecasts, setting up your accounting systems or any other concerns regarding your business activity. It is crucial that you contact us before the end of the year for any tax planning strategies that may be needed to prepare for possible tax liabilities.
Using Business vs. Personal Finances
Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profitable and can provide financial support for you and your family. Before going into a business, it's always wise to get your finances in order.
To get started, write a monthly household budget that accounts for your income and your household expenses. Be as conservative as possible, because it is vital to your success that you have the resources to maintain your household expenses while your business is growing. Any strain on your personal budget can also put the financial success of your business at risk.
It is also a good idea to check your personal credit situation. Too often, entrepreneurs think that their business credit and personal credit are separate, but business credit is built upon the owner's personal credit. Because you have not established a business credit history, lenders and suppliers will use your personal credit history to determine your terms of credit.
Your credit report, which is issued by a credit bureau, determines how you will be perceived by potential lenders and suppliers. You should know what appears on your credit report because you may find errors that you will want to have corrected. You can get a copy of your personal credit report from one of the three major credit bureaus: Equifax, Experian, or TransUnion.
Bankruptcy
Business owners who can't afford to pay back their creditors often view filing for bankruptcy as a way to settle their debt and avoid costly legal action. When you file for bankruptcy, your creditors may be prevented from collecting on debts until the process is completed.
How much creditors can collect depends on how your business is structured. If your business is a sole proprietorship, your personal assets may be used to pay off business debts, depending on which form of bankruptcy is chosen. Corporations, limited liability companies, and some forms of partnerships protect personal assets from being used to pay off business debts. Not all bankruptcies are voluntary. Creditors can also petition for a business to declare bankruptcy.
Chapter 7 and Chapter 13 under the U.S. Bankruptcy Code apply primarily to individuals, but affect small business owners who operate as sole proprietorships. Under Chapter 7, the bankruptcy trustee will sell assets to satisfy outstanding debts and discharge debts that can't be satisfied with the available assets. Under Chapter 13, the trustee sets up a three- to five-year repayment plan for the debtor to repay debts from current income. The debtor is allowed to keep more assets under this plan.
Chapter 11 under the U.S. Bankruptcy Code applies to both individuals and small businesses. Small businesses who choose this option operate under increased scrutiny but may keep operating under a reorganization plan. Chapter 12 under the Code applies to family farmers and fishermen.
Did you start a business in 2018?
While the start of a business is an exciting time there are many considerations to be taken into account for a business to succeed. We know we are technically competent to provide the service or product we are selling but many new business owners fail to take into account the tax and regulatory issues required. The many details that go into the planning process all start with your business plan.
The Purpose of a Business Plan:
A business plan is a written document created to detail all aspects of a business on a comprehensive level. Many banks and investors require a written business plan before lending to, or investing in, a business.
Executive Summary:
The executive summary is a summary of the entire plan. It should be written when all other sections of a business plan are complete and should be less than one page in length. The executive summary should include enough detail to allow a user to read the summary and gain a basic understanding of the business.
Mission, Vision, and Description:
• Mission statement. The mission statement should be less than 30 words and describe why a business exists, as well as its fundamental purpose at present.
• Vision. The vision statement defines the intended future state of an organization. It sets a high, long-term goal which is used to guide decisions of management and ownership.
• Description. The description section defines goals and objectives, business philosophy, target market, industry, and the legal entity under which the business will operate.
Products and Services:
Provide a detailed description of the products and services the business will offer. Include pricing, unique features, and the required level of quality. Create an appendix for any photos, technical specifications, drawings, or brochures.
Marketing Plan:
The marketing plan is developed by conducting (or having conducted) market research to define the clientele of a business and how to best market products and services. The sales forecast is the final element in a marketing plan. It forecasts over a 12-month period the quantities of each product or service expected to be sold. It is the base from which the financial plan will develop.
Operational Plan:
The operational plan details the day-to-day operations of a business. Items discussed in an operational plan should include issues such as location, licensing, personnel, inventory, suppliers, credit policies, and managing payables.
Management and Organization:
• Key employees: The term key employee refers to a person or persons who will manage the business on a daily basis. Include in the list the key employees’ talent, experience, and distinctive competencies brought to the business. Incorporate job descriptions of key employees, as well as resumes of the owners and key employees if using a business plan to seek financing.
• Management continuation plan: Management continuation planning involves determining how a business will continue should one or more of the key employees leave the company or become unable to fulfill his or her duties. The plan should specify the exact procedures for transferring duties when required, including arrangements with vendors, banks, employees, and owners.
Personal Financial Statement:
A personal financial statement (PFS) is a balance sheet for each owner on an individual basis. It includes values and detail of all assets owned, as well as amounts and terms for all debt obligations. This is not a profit and loss statement. It is an accounting for all your personal assets including land, investment accounts, whole life insurance policies, collectibles including antiques and jewelry, or other business ventures and the corresponding liability against those assets.
Financial Plan for the Business:
• Capitalization: Capitalization is the source of cash used for start-up costs, including professional consulting, asset acquisition, and buying or leasing business property. Information about any debt or equity financing should be included in this section.
• Forecasting cash flow: For new businesses, cash flow, more than profit, is the best indicator of whether a business will survive. It determines whether a business will be able to pay its expenses and debts as they come due. A business plan should contain a statement of projected cash flow for the first 12 months of the business. Lenders or investors may require customized reports indicating cash flow and profit projections.
Business Agreements:
A business agreement is a key component of any business arrangement whether it be with your spouse, family or friends. It lays out the rules and expectations while everyone is still friends and excited about the business opportunities. Think of it as a pre-nuptial agreement for your business. The discussions generated by the formation of a business agreement may help you decide if this is the right fit for you and your business associates. While the following list is a start to the discussion it is not comprehensive. The discussion needs to continue with your tax professional, legal counsel and insurance professional. Be sure you understand all of the implications of your chosen profession and the contractual agreements that are developed.
Choice of business entity:
• Incorporation agreements.
• Partnership agreements.
• LLC agreements. Consult an attorney to ensure compliance with state laws when forming a business entity.
Business organization:
• Name and address of business.
• Names and addresses of owners.
• Description of business purpose. Products, services, market.
• Contributions to capital. Loans to the business, repayment guarantees.
• Special allocations for partnerships.
• Number and duties of employees.
• Responsibilities of owners. (1) Administrative duties; (2) Services to be performed as well as hours dedicated to business, time off, length of commitment, wages/guaranteed payments, contributions to retirement funds, other payments. More business arrangements fall apart due to the lack of understanding of the commitment required of each owner.
Divisions of responsibility:
- Authority to: Hire and fire employees, train employees, make loans, purchase inventory and supplies, enter into contracts, incur business debt.
- Books and records: Responsibility for bookkeeping, accounting, and tax compliance, location of books and records, fiscal or calendar year, accounting method, tax elections, responsibility for legal compliance.
- Payment of expenses not covered by business operations. Stop loss agreements, percentage contributions in case of shortfall, expenses to be paid personally by owners, provisions for additional capital contributions
- Draws. Scheduled draws, limits on draws, restrictions on draws
- Amendment provisions. Circumstances, authority, procedures
- Rights of owner withdrawal or transfer of interest. Ability to withdraw, requirements for sale of interest, rights of first refusal, ability to sell to outside party, advance notice of retirement, methods of evaluating owner’s share.
- Death of an owner. Buy/sell agreements, succession plan, rights and authority of relatives, location of each owner’s will, right to divide interest of owner.
- Decisions / disagreements. Situations that will require a vote, majority or unanimous vote requirements, arbitration agreement.
- Amending the agreement. Situations where amendment is mandatory, situations where amendment is a choice, vote required for amendment.
✓ Done. Skip any item which does not apply to the business.
1) __ Develop a business concept
2) __ Select and retain accountants and attorneys
3) __ Select a business entity
4) __ Determine ownership structure
5) __ Complete a business plan
6) __ Obtain initial start-up capital
7) __ File for organization with state
8) __ Hold first board of directors meeting
9) __ Apply for a federal employer identification number (EIN) by submitting Form SS-4
10) __ Apply for S corporation status by filing Form 2553
11) __ Establish accounting procedures
12) __ Choose an accounting software
13) __ Input all transactions from the beginning of business development into accounting software
14) __ Apply for business financing and solicit investors
15) __ Open business bank accounts
16) __ Apply for required permits or licenses
17) __ Select an insurance agent
18) __ Purchase insurance
19) __ Select a commercial real estate agent
20) __ Locate and obtain office or production space
21) __ Acquire furniture and equipment
22) __ Complete any needed build-out of space
23) __ Select a payroll processing company
24) __ Select an employee benefits company
25) __ Hire staff and complete training
26) __ Commence marketing
27) __ Order initial inventory and begin production
28) __ Conduct a grand opening
Both the Small Business Association (sba.gov) and the Internal Revenue Service (irs.gov) have substantial information on their websites concerning business plans and considerations for start-up businesses.
Contact us for help in putting together your business plan, developing your financial forecasts, setting up your accounting systems or any other concerns regarding your business activity. It is crucial that you contact us before the end of the year for any tax planning strategies that may be needed to prepare for possible tax liabilities.
Using Business vs. Personal Finances
Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profitable and can provide financial support for you and your family. Before going into a business, it's always wise to get your finances in order.
To get started, write a monthly household budget that accounts for your income and your household expenses. Be as conservative as possible, because it is vital to your success that you have the resources to maintain your household expenses while your business is growing. Any strain on your personal budget can also put the financial success of your business at risk.
It is also a good idea to check your personal credit situation. Too often, entrepreneurs think that their business credit and personal credit are separate, but business credit is built upon the owner's personal credit. Because you have not established a business credit history, lenders and suppliers will use your personal credit history to determine your terms of credit.
Your credit report, which is issued by a credit bureau, determines how you will be perceived by potential lenders and suppliers. You should know what appears on your credit report because you may find errors that you will want to have corrected. You can get a copy of your personal credit report from one of the three major credit bureaus: Equifax, Experian, or TransUnion.
Bankruptcy
Business owners who can't afford to pay back their creditors often view filing for bankruptcy as a way to settle their debt and avoid costly legal action. When you file for bankruptcy, your creditors may be prevented from collecting on debts until the process is completed.
How much creditors can collect depends on how your business is structured. If your business is a sole proprietorship, your personal assets may be used to pay off business debts, depending on which form of bankruptcy is chosen. Corporations, limited liability companies, and some forms of partnerships protect personal assets from being used to pay off business debts. Not all bankruptcies are voluntary. Creditors can also petition for a business to declare bankruptcy.
Chapter 7 and Chapter 13 under the U.S. Bankruptcy Code apply primarily to individuals, but affect small business owners who operate as sole proprietorships. Under Chapter 7, the bankruptcy trustee will sell assets to satisfy outstanding debts and discharge debts that can't be satisfied with the available assets. Under Chapter 13, the trustee sets up a three- to five-year repayment plan for the debtor to repay debts from current income. The debtor is allowed to keep more assets under this plan.
Chapter 11 under the U.S. Bankruptcy Code applies to both individuals and small businesses. Small businesses who choose this option operate under increased scrutiny but may keep operating under a reorganization plan. Chapter 12 under the Code applies to family farmers and fishermen.