If you are starting a business but don’t know where to start, start with the business plan. Now, I know that for a lot of business owners and aspiring business owners, making a business plan can be one of the toughest parts of starting a business. But this is exactly what the business plan is for; it is meant for those juices to start flowing in your head and to get you thinking about every detail of your business, so when you do start it you know exactly where you are going. Your business plan does not have to be a static thing; it changes. Your business plan should forecast about 3 to 5 years out, but along the way you may need to make changes and modify that business plan. And that’s okay. Here are a few of the most important items that you want to put in your business plan:
1. The Executive Summary. An executive summary is especially important if you are going to be seeking investors or a business loan to help finance your business. An executive summary should highlight the best ideas and the most important aspects of your business. For example, what makes your business unique, why is your business is going to succeed, and obviously a summary of what your business idea is. And it should really be just the most important parts of your business plan, that way if someone has just 30 seconds to read over your business plan, they can scan the executive summary and get the gist of what your business is about.
2. The Industry Analysis. This Industry Analysis will show what the market looks like in your business’s industry, who your competitors are and their strengths and weaknesses, who your target audience is and their demographic, as well as who exactly you are going to be aiming for with your business.
3. The Marketing Analysis. Your business plan should also include a Marketing Analysis. The Marketing Analysis should describe how you plan on marketing your business and the types of marketing channels you are going to use, as well as any unique or special ideas you have for marketing your business.
4. The Operations Plan. Your business plan should also include an Operations Plan, which includes information as to what type of personnel you are planning on hiring and some of the processes you will need to follow in the execution of your business. The Operations Plan is also a good place to include some of the milestones or goals you are hoping to accomplish.
5. The Financial Plan. Finally, you will want to include a Financial Plan that highlights what your budget is going to look like: how much money you are starting with and how much money you think you’ll need just to get the business going. Try to budget out what your business is going to need, make some financial projections for your business, including what you think you can make within a given amount of time and what you expect to bring in and spend. Also include information on pricing, i.e., how you are going to price your products or services and how that pricing compares to some of your competitors’ pricing.
6. Form 2553 (S Corp). This is the IRS form that needs to be filed if you want your small business to elect to be taxed as an S Corporation. Whether or not you need to file form 2553 is going to depend on whether it would make sense for you tax-wise to elect to be taxed as an S Corp.
7. Insurance (General Liability, Workers Comp, etc.). Every small business is going to need some type(s) of insurance. The type of insurance your small business will need also depends on what type of business you are operating.
8. Initial Resolution/Consent. Although this isn’t necessary (at least in Colorado) for all small businesses, it is usually a good idea to have an Initial Resolution or Initial Consent to Action when starting a small business in order to demonstrate that your business has adopted certain documents, like it’s Operating Agreement or Articles of Organization, and that you as the business owner have resolved to operate your business in accordance with those documents.
9. Operating Agreement or By-Laws. Every LLC needs an Operating Agreement. Let me say that again in case you missed it: every LLC needs an Operating Agreement. Even if it is not required by statute (Colorado does not require it), it is still a vital internal document for your small business to have. An Operating Agreement is the internal document where the owner or owners (aka the members) agree on how the business is going to be operated, i.e., type and nature of business; what the business is going to do; how members are going to get paid; how distributions are going to be made; what will happen in the event of disagreement between the members; etc. All of this information is set forth in the Operating Agreement. The By-Laws of a corporation serve basically the same purpose as the Operating Agreement of an LLC.
9a. Form SS-4 (Federal Tax ID). IRS Form SS-4 Application for Employer Identification Number is the form that you file with the IRS to get a Federal Tax ID number (aka EIN or Employer Identification Number) for your small business.
9b. Articles of Organization (or Articles of Incorporation). Every single LLC in existence must have Articles of Organization. I can say this with complete certainty because you will need to file Articles of Organization with the Secretary of State in order to create your LLC. Bottom line: if you did not file Articles of Organization, then you don’t have an LLC. Similarly, every corporation in existence must have Articles of Incorporation. The Articles of Organization or Incorporation are what brings the LLC or corporation into a legal existence. Without them, your small business, whether it is a corporation or an LLC, does not legally exist.
9c. Licenses. Specifically, Tax Licenses, Business Licenses, and Other Licenses. Honestly, they are all equally important and depend largely on the nature of your small business.
10. Agreements. Whether they are service agreements, independent contractor agreements, subcontractor agreements, etc., most small businesses are going to need some sort of an agreement in place to operate safely (in the legal sense) and effectively. The type of small business you have will determine the types of agreements you will need to have in place. For example, as an attorney, I have a service agreement (called an Engagement Letter) with each and every client that makes it clear what I am going to be doing for the client, my fees, how the client can expect to be billed, what I expect or need from the client, my policies that affect the client, what happens if there is a disagreement between us, and so on and so forth. Most, if not all, small businesses that provide a service to their customers should, at a minimum, at least have a similar type of service agreement with their clients. It protects both the small business and the client.
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