Starting and managing a business takes motivation, desire and talent. It also takes research and planning. Like a chess game, success in small business starts with decisive and correct opening moves. And, although initial mistakes are not fatal, it takes skill, discipline and hard work to regain the advantage.
To increase your chance for success, take the time up front to explore and evaluate your business and personal goals. Then use this information to build a comprehensive and well-thought out business plan that will help you reach these goals.
The process of developing a business plan will help you think through some important issues that you may not have considered yet. Your plan will become a valuable tool as you set out to raise money for your business. It should also provide milestones to gauge your success.
Before starting out, list your reasons for wanting to go into business. Some of the most common reasons for starting a business are:
Next you need to determine what business is "right for you." Ask yourself these questions:
Then you should identify the niche your business will fill. Conduct the necessary research to answer these questions:
The final step before developing your plan is the pre-business checklist. You should answer these questions:
Your answers will help you create a focused, well-researched business plan that should detail how the business will be operated, managed and capitalized.
A business may be conducted through a variety of organizational structures. A specific business structure is generally chosen for liability and/or tax reasons. There are several types of business organizations:
One person operating a business as an individual is a sole proprietorship. The sole proprietorship is the most common form of business organization. Profits are taxed as income to the owner personally.
This rate is usually lower than the corporate tax rates would be. The owner has complete control of the business but faces unlimited liability for its debts. Since this is a fairly simple type of legal structure, there is very little government regulation and reporting. A sole proprietorship applies for a business permit at the county clerk's office in the county (city/town clerk inside city limits) in which the business is located.
A partnership exists when two or more persons join together in the operation and management of a business venture. Partnerships, like sole proprietorships, are subject to relatively little regulation and are fairly easy to establish. A formal partnership agreement is recommended in order to address potential conflicts before they arise; for example, who will be responsible for performing each task, what if any, consultation is needed between partners before major decisions are made, if a partner dies, and so on. Under a general partnership, each partner is liable for all debts of the business. All profits are taxed as income to the partners based on their percentage of ownership. A general partnership, like sole proprietorship, registers a business name with the county/city clerk's office in which the business is located.
Like a general partnership, a limited partnership is established by an agreement between two or more individuals. In a limited, however, there are two types of partners. A general partner has greater control in some aspects of the partnership; for instance, only a general partner can decide to dissolve the partnership. General partners have no limitations of the dividends they can receive from profit and so incur unlimited liability. Limited partners can only receive a share of profits based on the prorated amount on their investment, and the liability is similarly limited in proportion to their investment.
A "C" corporation is a legal entity made up of persons who have received a charter legally recognizing the corporation as a separate entity having its own rights, privileges and liabilities, apart from those of the individuals forming the corporation. It is the most complex form of business organization and is comprised of three groups of people: shareholders, directors and officers. The corporation can own assets, borrow money and perform business functions without directly involving the owner(s) of the corporation. The corporation therefore is subject to more government regulation than proprietorships or partnership. Corporate earnings are subject to "double taxation" when the corporation is taxed and when passed through as stockholder dividends. However, corporations have the advantage of limited liability but not total protection from lawsuits.
Subchapter "S" Corporation
A special section of the Internal Revenue Code permits a corporation to be taxed as a partnership or sole proprietorship, with the profits taxed at the individual rather than corporate rate. To qualify as a Subchapter "S" corporation, a business must meet certain requirements. For more information, contact the IRS and request IRS publication 589.
"LLCs" and "LLPs"
The Limited Liability Company (LLC) is rapidly becoming a very popular business form. An LLC combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners. As a separate entity, it can acquire assets, incur liabilities and conduct business. As the name implies, however, it provides limited liability for the owners. LLC owners risk only their investment. Personal assets are not at risk.
The Limited Liability Partnership (LLP) is similar to the LLC with the exception that it is aimed at professional organizations.
After you've given some careful consideration to the business, you're ready to begin putting ideas on paper. That means preparing a business plan-a formal document explaining in some detail your plans to develop a financially successful business. If you think the business plan is just a lot of paperwork, think again. It's important for two reasons:
SBDC's and SCORE offer free, one-on-one assistance with assembling business plans. They also offer seminars on business plans. When you feel comfortable with the content and structure, make an appointment to review and discuss it with your lender. The business plan is a flexible document that should change as your business grows.
It may be inconceivable to you that your home-based consulting service or hand-knit sweater business would have to comply with any of the numerous local, state, and federal regulations, but in all likelihood it will. Avoid the temptation to ignore regulatory details. Doing so may avert some red tape in the short term, but could be an obstacle as your business grows. Taking the time to research the applicable regulations is as important as knowing your market. Below is a checklist of the most common requirements that affect small businesses, but it is by no means exhaustive. Bear in mind that regulations vary by industry. If you're in the food service business, for example, you will have to deal with the health department. If you use chemical solvents, you will have environmental compliances to meet. Carefully investigate the regulations that affect your industry. Being out of compliance could leave you unprotected legally, lead to expensive penalties and jeopardize your business.
There are many forms of legal structure you may choose for your business. The most common structures are Sole Proprietorships, General and Limited Partnerships, C and S Corporations and Limited Liability Companies. Each legal structure offers organizational options which are appropriate for different personal situations and which affect tax and liability issues. We suggest you research each legal structure thoroughly and consult a tax accountant and /or attorney prior to making your decision. If you are uncertain where to start, contact SBA first and you will be referred to the proper source or access https://www.usa.gov/business to link to state and local resources.
There are many types of licenses, both sate and local as well as professional. Depending on what you do and where you plan to operate, your business will be required to have various state and /or municipal licenses, certificates or permits. Licenses are administered by a variety of departments. First check with the license office in the city or town where you plan to do business.
Fictitious Business Name
If you plan to use any name for your business other than your own legal name you must register that name as a "fictitious name" with the Ohio Secretary of State. In addition, you may be able to protect this business name from use by others through trade name registration. The Ohio Secretary of State is able to check name usage.
Like home insurance, business insurance protects the contents of your business against fire, theft and other losses. It is prudent for any business to purchase a number of basic types of insurance. Some types of coverage are required by law; others simply make good business sense. The types of insurance listed in this section are among the most commonly used and are merely a starting point for evaluating the needs of your own business. For more information contact your insurance agent or broker.
Employer Identification Number
Taxpayers can call a toll-free number, 1-800-829-4933, to get an Employer identification Number (EIN). IRS customer service representatives will be available to answer calls Monday through Friday, from 7:30 a.m. to 5:30 p.m. customer's local time. Alaska and Hawaii will need to use Pacific Time zone for their calls.
Taxpayers can fax EIN requests 7 days a week/24 hours a day by dialing the fax number to one of three IRS Campus' that will be accepting applications. The instructions on the newly revised Form SS-4, Application for Employer ID Number, will indicate which IRS Campus is assigned to their specific state. Detailed information and an electronic SS-4 can be found at the IRS Small Business/Self Employed Community Web site at: www.irs.gov/smallbiz, click on New Businesses. Faxed applications will be processed in four days. The IRS Campus' accepting faxed applications are:
Taxpayers located outside of the United States will continue to call the Philadelphia Campus, their telephone number is (215) 516-6999.
IRS also accepts third party Form
SS-4's. Tax practitioners can complete the new Third Party Designee section on their client's behalf by obtaining the client's signature on Form SS-4. IRS no longer requires that practitioners file a Form 2848 Power of Attorney or Form 8821, Tax Information Authorization to get an EIN for their clients.
Everyone must pay Social Security and Medicare coverage. If you are self-employed, your contributions are made through the self-employment tax. The IRS may seem like a complicated maze, but there are publications, counselors and workshops available to help you sort it out. For more information contact the IRS at (800) 829-1040.
Each employer must apply for an "Employer Identification Number" (Form SS-4) to comply with Federal Income Tax, Social Security and Unemployment Insurance regulations. Forms can be picked up at the IRS office, 200 North High Street in Columbus. Fax a copy of Form SS-4, Application for Employer Identification Number, to the Cincinnati Service Center at (800) 829-4933. If the taxpayer's fax number is included on Form SS-4 you will receive the EIN within four to seven days via fax, or two weeks by mail. Mail requests to the Cincinnati Service Center, Cincinnati, OH 45999 or call the TeleTin Unit at (859) 292-5467. The telephone option is available on a limited basis depending on the volume of work. For Federal Business Tax information, contact the local IRS office in your area or call (800) 829-1040 or visit their website at www.irs.gov.
Sole proprietors and partners must report the net income from their business on the Ohio Income Tax Return. Corporate tax returns are filed separately. For forms or confirmation, write or call:
Corporate tax return forms can be obtained by calling (800) 282-1784.
If you plan to sell products, you will need a Sales Tax Exemption Certificate. It allows you to purchase inventory, or materials which will become part of the product you sell, from suppliers without paying taxes. It requires you to charge sales tax to your customers which you are responsible for remitting to the state. You will have to pay penalties if it is found that you should have been taxing your products and now owe back taxes to the state. For information on sales tax issues, contact:
EFTPS (Electronic Federal Tax Payment System) is a free electronic tax payment system offered by the U.S. Treasury that gives businesses the convenience of making ALL their federal tax payments by phone or personal computer (PC), 24 hours a day, 7 days a week, from home or office.
With a phone or PC, businesses initiate their tax payments at least one calendar day before their taxes are due. On the due date, the funds automatically move to EFTPS. Taxpayers can also use EFTPS through a program offered by a financial institution. No special equipment is required to use EFTPS, and if you wish to use your PC, free Windows (D-based) software is available.
Once you enroll in EFTPS, you can make ALL your federal business tax payments for your business using EFTPS. This includes employment, excise, and corporate income taxes.
After EFTPS processes the enrollment form, you will receive a Confirmation /Update Package that contains all the information you need to use the system. Enrollment forms can be obtained by calling (800)-555-4477).
If you open a business and hire at least one employee, you must register with the Ohio Department of Jobs and Family Services, the state entity responsible for both unemployment insurance and workers' compensation. Ohio employers are required to provide workers' compensation to employees prior to the beginning of work.
All businesses with employees are required to comply with state and federal regulations regarding the protection of employees. OSHA outlines specific health and safety standards adopted by the U.S. Department of Labor. For information contact:
The Federal Immigration Reform and Control Act of 1986 requires all employers to verify the employment eligibility of new employees. The law obligates an employer to process Employment Eligibility Verification Form 1-9. The BCIS Office of Business Liaison offers a selection of information bulletins and live assistance for this process through the Employer Hotline. In addition, BCIS forms and the Employer Handbook can be obtained by calling the Forms Hot-line. For forms call (800) 870-3676, for the Employer Hotline call (800) 357-2099 or contact:
Use of hazardous substances in businesses is highly regulated and there are heavy fines for non-compliance. If you need information about air, water, land uses, solid waste and hazardous materials call or write:
It is important to consider zoning regulations when choosing a site for your business. You may not be permitted to conduct business out of your home or engage in industrial activity in a retail district. Contact the business license office in the city or town in which the business is located.
The Uniform Code Council Inc. (not a government agency) assigns a manufacturer's ID code for the purposes of bar coding. Many stores require bar coding on the packaged products they sell. For additional information contact:
Trademarks are names or symbols used in any commerce that is subject to regulation by state government or the U.S. Congress. To register a trademark, contact:
Caution: Federally registered trademarks may conflict with and supersede state registered business and product names. Business are encouraged to check for conflicts with federal trademarks.
Trademarks and service marks may be registered in a state for a term of 10 years. For filing fees or more information about applications for registration of trademark or service mark contact the Secretary of State at (614) 466-3910 or at www.state.oh.us/sos.
Copyrights protect the thoughts and ideas of authors, composers and artists. A copyright prevents illegal copying of written matter, works of art or computer programs. In order to ensure copyright protection, the copyright owner should always include notices on all copies of the work. For general information contact:
Additional information is provided in the publications, General Information Concerning Patents and other publications distributed through the U.S. Patent and Trademark Office. For more information, contact the:
Throughout its 51-year history, SBA has complemented its financial assistance programs with publications aimed at helping small business owners gain skills required to start, manage and grow a small enterprise.
The nearly 60 publications listed in its Resource Directory for Small Business Management includes titles related to financial management, management and planning, marketing, products/ideas/inventions, personnel management, crime prevention and emerging businesses.
The publications are now available for downloading on the SBA's web site at www.sba.gov.