developed and presented by the staff of the illinois small business development center at southern...
TRANSCRIPT
Developed and presented by the staff of the Illinois Small Business Development Center at Southern Illinois University Carbondale
STARTING A BUSINESS IN
ILLINOISCreating, Developing
and Growing Southern
Illinois –
One Business
at a Time
Welcome
• The SBDC at Southern Illinois University was established to help entrepreneurs start a new business or expand an existing business
• Confidential counseling for all business activities
Our Services• General business advice• Business plan development• Financial analysis• Marketing assistance• Prototype development• Loan packaging• Market research• Exporting/international trade• Seminars/custom training• Technology commercialization
Centers That Can Help You
Incubator Space
• Flexible Space• Internet & Telecom• Shared Services• Conference Space
Incubator Space
• Laboratories• Affiliate Office Space• Student Incubator (Saluki Ventures)• Light Manufacturing• Office Space• Ranging in Size from 150 to 1050 ft2
Is starting a business right for you?• Why are you doing this?• Do you have the money to start a business?• Are you willing & motivated to work long
hours?• Do you have the support structure
(family/friends) who will encourage you?
Starting a business is hard! Over half will fail.
Challenges to Success• Not enough money to cover business
expenses• Poor business management/unclear direction• Miscalculation of market potential• Ineffective advertising• Poor credit• Poor location• Not considering legal aspects• Choosing the wrong partnersFailing to Plan Is Planning to Fail – Benjamin Franklin
What type of business do you want?• Startup
– YOUR Dream• Purchase an existing
business– You will take on current
clients and the business’s reputation
• Franchise– You will have less control,
but the model is proven
This is
My
idea !!
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record- keeping Banking Insurance Employees Payroll Business Plan Financing
Choosing a Legal Structure
Ability to get financing
Liability concerns
Startup costs & licensing
Tax requirements
Sole ProprietorshipPartnershipCorporation
LLC
Sole ProprietorshipO
verv
iew
• Individual• No legal entity• Owner responsible
for all debts & contracts
• Profit/loss is on personal taxes
• Easy to establish • Control• No entity tax (Schedule C)• Own P&L
• Unlimited liability• Limited access to capital• Limited lifeCo
ns
P
ros
PartnershipO
verv
iew
• Agreement between 2+ people (written)
• No legal entity• Each partners responsible
for all debts & contracts• Partners are proportionally
responsible for profit /loss on personal taxes
• May be easier to set up • Not alone
• Unlimited, equal liability• Shared Control• Limited transferabilityCo
ns
P
ros
CorporationO
verv
iew
• Created by filing articles of incorporation
• Separate entity from individual owner(s).
• Owners (shareholders) have limited liability protection.
• Owners personally guarantee loans
• C-Corp vs. S-Corp
• Separate legal entity• Limited liability• Unlimited life• Raise capital• Case history
• Increased administration• Costs more than
Partnership / SP to administerCo
ns
P
ros
Limited Liability Company (LLC)O
verv
iew
• Created by filing articles of organization
• LLCs combine liability protection and flexible tax status.
• Members guarantee loans• Members disclose
profits/losses on personal taxes
• Same as corporation• Easier to administer• Flexible tax structure
• Increased start up fees • Lack of case history• Different state lawsCo
ns
P
ros
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Choosing a Name• Unique, memorable, easy to say/ spell• Relevant to you/ your business• Distinguishable• Check URL availability/ domain registration• Google it
Assumed Name Registration• Assumed name notice for sole proprietorships
& partnerships • Only documents who is using the name• No protection from others using it• Protection comes from trademark
Licenses and Permits• City• County• State• Industry-specific permits
– Health Department (restaurants)– Children
• Check the SBA Website for a listing– http://www.sba.gov/licenses-and-permits
Federal Employer Identification Number (FEIN)
• The Social Security Number for your business• Required for:
– Partnerships– Corporations / LLCs– Any business that pays wages
• If a FEIN is not required, use your SSN
When ownership of a business changes or if you purchase a business, you may be required to get a new FEIN.
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Self-Employment Tax• The first $117,000 of income is subject to a
12.4% FICA (Social Security tax)• Medicare Tax rate of 2.9%• Required for sole proprietors or partnerships
when you earn more than $400• Payable quarterly
Self-employment tax is 15.3%
Illinois Business Tax Number required if:Do you… YesPurchase wholesale items for resale?
Pay Sales Tax Pay Employees
Is your business a… YESPartnership Corporation/LLC
OR…
Sales Tax – Remitted to the IL Dept. of Revenue
• Collected when selling a retail product• Tax rates are based on location• Tax not collected on labor, but it is on parts• Personal usage-tax in lieu of Sales tax • Pay online• Online taxes must be accounted for when
selling to a resident of IL• www.iltax.com
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Record Keeping• Records are required to prove income,
deductions, and profits/ losses for each year• Software is a great tool to track finances• Use a good filing system to track business
related expenses for deductions• Keep good and accurate records
– Document management decisions– Tax Time
When you apply for a loan or sell your business, “book value” should support what you are asking for.
What should I keep?• Keep daily transaction records for seven years
– Cancelled checks, invoices, purchase orders, sales receipts
• Keep payroll records and original tax returns forever
Always be prepared for an audit Make backups & have safe storage
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Banking• Separate your business and personal accounts• Businesses require documentation
– Charter & FEIN for Corporations – FEIN/SSN and copy of Assumed Name Notice for
non- corporate entity
Choosing a Bank• Choose a bank that will meet your needs
– Consider hours of operation– Online / bill pay options– Merchant services – Compatible with your business type– Fee structure
• Develop a relationship– Future credit reference– Future loan application
Today’s Topics
Starti
ng
My
Business
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Insurance May Be Required• Commercial/business liability insurance• Other types to consider
– Professional liability– Key-person– Business property– Business interruption– Vehicle
• Comparison shop
IL Workers Compensation Insurance• Required for any employee (rare exceptions)• Prevents employees from suing employer for
injuries suffered• State-approved insurance companies• Rates are industry specific• Each company earns a ‘safety rating’
BREAK
Today’s Topics
Growing
my
Busines
s
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Considerations when hiring employees
• Hiring policies / EEO• Benefits - pretax/after tax deductions • Garnishments• Miscellaneous withholdings• Issue year-end W-2’s• Knowing labor laws
Employee Records• Required Paperwork for each employee
– W-4 (used to calculate IRS withholding)– IL-W4 (used to calculate IL withholding)– I-9 (hold for proving employee immigration /
residency status)– New Hire Reporting (filed – no payment required)
Today’s Topics
Growing
my
Busines
s
Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Federal Taxes Paid by Employer• Social Security – 6.2% contributed by
employer; 6.2% by employee• Medicare (2.9%) – 50% contributed by
employer• Federal Tax – withheld according to
withholding tables• Federal Unemployment (FUTA)
You are responsible for timely payment of withheld tax payments. Late fees and penalties accrue!
Illinois Taxes Paid by Employer• State withholding tax--3.75% of gross wages• IL Dept of Employment--3.75% for new
business, certain sectors up to 5.45%
Employee vs. Independent Contractor• Correct classification is your responsibility• There are large penalties for improper
classification• Business must prove “lack of control”
– No set target for proving this– Plumbers are independent contractors:
• You don’t know when he/she will arrive• You don’t know what tools he/she will use• You don’t know how long the job will take
Today’s Topics Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Creating
My
Business
Plan
Today’s Topics
Idea StartStructures RegistrationsTaxesRecord- keepingBankingInsurance
GrowEmployeesPayrollFinancing
BUSINESS PLAN
Parts of the Business Plan
• Part 1 - Narrative• Part 2 - Numbers • Part 3 – Supporting Information
Your Business Plan Is Your Roadmap• Your guide for setting up & managing your
business• Supports loan requests• Tools to create your plan
– Startup Kit– Business Plan Pro / other software– Online https://www.sba.gov/writing-business-plan
You need to know where you are going & how to get there!
Answer These:• Who is your customer?• Who are your competitors?• Why customers will buy your product or use your
service?• How much money can you realistically charge?• How much time/money is required to start and run
your business?• Do you have enough money or access to money to
start up?• What are your biggest risks?
The SBDC can help you succeed
This is your chance to captivate & engage your reader!
Narrative• Executive summary
– The first impression of your business (one page)– Simple & concise
• Business description– What is the reason/purpose for starting?– Legal status & industry information – Product/service overview - in layman's terms -
don’t scare people with jargon!– What are your goals/measure of success?
Narrative• Managers & Employees
– Show who is qualified to operate the business.– Resumes belong in appendix.– Who will you hire, how much will they be paid &
when will they work?• Operations and Location
– Where is your business located? Why?– What hours will your business be open?– Describe building and surrounding area.– What are the monthly expenses?
If you don’t have all the facts, ESTIMATE! Make reasonable assumptions
Narrative• Customers/target market
– Describe the demographics of your ideal customer.– How will you acquire & retain them?
• Product/Service – What benefits will it provide?
What makes your product / service different so customers will choose you?
Narrative• Distribution
– How will customers get your product?• Price
– How much will your product cost to make?– Are all production costs included
(direct/indirect/labor/time)?– What are customers willing to pay?– What are your competitors charging?
Charge enough to make a profit but don’t price yourself out of business.
It is easier to lower prices than raise them.
Narrative• Advertising & promotions
– Create a “bird’s eye view” of marketing plan– Calculate your budget for starting & ongoing– Budget time to measure and evaluate
Startup Ongoing
LogoSocial MediaWebsiteBrochuresBusiness CardsSignage
Media (TV, Radio, Print)Networking functionsWeb maintenanceReferral websites / PromotionsSearch Engine OptimizationSocial Media
You don’t need to reach Everybody, just YOUR target market.
Narrative• Competitive analysis
– Understand the positioning and pricing of at least three competitors
– Be a secret shopper• Identify
– Name, location, overview of their business (product/price/quality/value/reputation)
– Perform market SWOT Analysis; Strengths, Weaknesses, Opportunities, Threats
Know your competitive advantage.
Numbers• Sales projections
– How much will you sell by month?– Is there seasonality to consider?
• Startup & monthly operating expenses– What does each unit cost to produce?– Break down all expenses to start & know your
monthly expenses.– Prioritize each expense & be prepared to scale
back or phase in expenses. – Be very detailed.
Plan for the unexpected and miscellaneous expenses. They will occur!
Numbers
• Equity injection & loan request– How much do you have to invest
and how much will you need?– What collateral do you have?
• How will the money be used? Be specific.
• How long will you need to repay loan?
• Personal financial statements• Tax returns
Supporting Information• Estimates and quotes• Floor plans/designs• Resumes• Franchise/lease agreements• Letters of commitment• Anything else to help your case
Be prepared…. estimate or make reasonable guesses for what you don’t know.
Today’s Topics Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing
Starti
ng
My
BusinessSta
rting
My
Business
Sources of Funding• Personal Funds• Friends & Family• Loans
– SBA – Traditional Lenders– Microlenders
• Partners/investors• Grants (very specific per grant)
Usually a combination of the above
Considerations for Loan Approval5 C’s of Credit
• Capacity- ability to repay loan • Collateral- ‘skin in the game’• Capital- balance sheet strength• Conditions- industry/industry position• Character-credit rating & in good standing• Management & controls• Gut feeling
Next Steps
• Complete your business plan workbook
• Make an appointment to see a counselor at the SBDC
To contact the Illinois SBDC at SIUC,call 618-536-2424
email [email protected].
Visit our website at www.sbdc.siu.com
Make your dream a reality!
RESOURCES• General/Federal Resources
– FEIN registration at the IRS website www.irs.gov or call 800-829-4933/ 618-632-2567 (local Mt. Vernon office)
– Register Trademarks & Patents www.uspto.gov – Dpt. Of Financial & Professional Regulations www.idfpr.com– Starting a Business & Record Keeping – www.irs.gov/publications/p583/– Business use of your home – www.irs.gov/publications/p587– Payroll Withholding http://www.irs.gov/publications/p15– Employment and Labor Laws
http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/business-law-regulations/employment-labor-law
– Labor Laws http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/business-law-regulations/employment-labor-law
• Illinois Resources– License / Permits search http://www.sba.gov/licenses-and-permits – Illinois Department of Revenue – www.revenue.state.il.us– Illinois Unemployment Insurance Law http://www.ides.state.il.us/pdf/pubs/uilaw/handbook.pdf– Illinois Payroll withholding http://www.revenue.state.il.us/TaxForms/Withholding/IL-700-T.pdf– New Hire reporting – www.ides.state.il.us/employer– Registration, Licenses, & Permits http://www2.illinois.gov/Business/Pages/registration.aspx