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Checklist for Starting a Business

Starting a business on your own can be an exciting yet tedious process. The following checklist was compiled by the Law Offices of Karen McKeithen Schaede using the Small Business Association's website at www.sba.gov. It is important to note that this checklist is in no way comprehensive but merely a basic source for guidance.

There are a number of questions that one needs to consider when beginning the quest to start a small business. Fundamental ideas include:

- How practical is your idea? Will it have a place in the market for success?
- What level of market competition will your business face?
- Will your business have an advantage over existing businesses in your field?
- Are you capable of creating demand for your products/services?

Other questions take on a more physical approach to ensuring your preparations before developing your true business plan. They will help keep you focused to develop a well-planned business. You should address:

- Where will your business be located? What will be the company name?
- What specific products and/or services will you sell?
- Which legal structure is best fitting for your business?
- How should you choose insurance coverage?
- What essential equipment and supplies will be needed?
- What financing will you need?
- How will you compensate yourself?

Alongside of an attorney, you will establish a true Business Plan. This step includes the important factor in deciding which type of legal entity you wish to become. Your options are:

  1. Sole Proprietorship: This entity is considered the least costly and easiest method of starting a business. At this early stage of preparation, this type of business requires less business paperwork and forms than the other two types, thus, a sole proprietorship will incur minimal attorney's fees. Additionally, the owner has absolute authority over all business decisions.
  2. Partnership : There are three types of partnership; General, Limited, and Joint Venture. A general partnership may be formed by a simple oral agreement between two or more persons. A legal partnership is drawn up by an attorney and is highly recommended. As expected, the legal fees for a legal partnership are greater than a limited partnership. It may, however, be lower than fees for incorporating. Here, responsibility is shared by all partners, as each partner is responsible not only for their own business actions, but for those of their partners as well.

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

A partnership agreement should address the following components:

a. Type of business.
b. Amount of equity invested by each partner.
c. Division of profit or loss.
d. Partners' compensation.
e. Distribution of assets on dissolution.
f. Duration of partnership.
g. Provisions for changes or dissolving the partnership.
h. Dispute settlement clause.
i. Restrictions of authority and expenditures.
j. Settlement in case of death or incapacitation.

Corporation: It is legal for a business to incorporate without the assistance of an attorney. Nevertheless, legal advice is strongly recommended. Generally speaking, a corporation is the most complex and most costly of the three entities. Control of the corporation depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. Those persons with control of stock shares or 51 percent of stock are able to be involved in policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Decisions must be documented and maintained through records. There is liability between officers and stockholders within the corporation. Officers can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved.

1. Develop a Business Plan.

A business plan will serve as your guide to decision making throughout the life of your business. It is a flexible plan that will allow you to keep your business focused and organized. Within this plan, you should decide what type of legal entity you wish to establish. Business plans are often necessary to satisfy lenders and investors, virtually all of whom will request a written business plan before approving a loan or making an equity investment. The plan will serve as a means of communicating with potential partners, allies, vendors, employees, and even customers. It is both qualitative and quantitative-more than just a vision of your business, it is interpreting it in financial terms that can be measured. A business plan includes numbers in addition to verbal descriptions of your plans. The more detailed, the better.

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

Ready to Develop a Business Plan?

The easiest way to draft your Business Plan is to break it down into the major components of your business. Below is a helpful guide that can be adapted to fit the descriptions of your own business.

I. Introduction

This portion of the Plan should discuss a detailed description of the business and its objectives. State your mission and the key means for success. Company ownership and legal structures should be described as well. If applicable, include any company history in the introduction.

II. Marketing

The marketing section of your Business Plan should discuss the products and/or services offered by your company as well as explain how you plan to advertise and market them. Provide a market analysis. Examine the market to which you are planning to embark. Describe in as much detail as possible the customer demand and how this will play into your pricing strategy.

III. Financial Management

No matter the potential for greatness of your business, it will never amount to more than an idea without proper financial planning and management. Within your Business Plan, you should explain the amount of initial equity capital as well as identifying the respective source. Develop a monthly operating budget for the first year that will allow you to predict expected return on investment and cash flow on a monthly basis for the first year of operation. The better you can paint the whole picture, the more prepared you will be for the road ahead. State within your Business Plan the projected income statements and balance sheets for a two-year period of operation. Identify the person responsible for financial records and book-keeping as well as the methods that are expected with respect to how those records will be kept. Discuss the projected break-even analysis. State the method of compensation that will be utilized for yourself and all partners. To the best of your ability, try to predict anticipated problems; provide alternatives for when something goes wrong.

IV. Operations

Explain the plan for managing the business on a daily basis. Within the Operations section of your Business Plan it is appropriate to discuss hiring and personnel procedures as well as insurance and lease or rent agreements. Predict expenses for production and delivery or products and services as well as the costs for necessary equipment for production. Describe your company location and facilities.

V. Supporting Documents

Be sure to include supporting documents for legal safety. Provide tax return

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

documentation and copies of proposed leases or purchase agreements for building space. For a franchised business, include a copy of the franchise contract and all supporting documents supplied by the franchisor. If available, provide copies of letters of intent from suppliers as well as copies of all licenses and copies of all principals. It is best to include a copy of all legal documents.

VI. Conclusion

The conclusion should summarize your business objectives. Once you have completed your Business Plan, remember that it is a flexible document that should change as your business grows. Review your plan with an Attorney and a CPA to make sure all of your methods are plausible.

2. Hire a CPA

This key partner will initially help you to establish the financial backbone of your company. Their role will be essential to managing your business accounts as well as vital to your tax preparations and associated paperwork that grows in complexity as your business takes off. A good CPA should be trustworthy and experienced with your type of business venture. This individual will advise you on tax-related issues and account management. An accountant can also help you set up financial timelines with potential revenue and expenses so that you can accurately project your company's cash flow. While it may seem self-manageable at first, such mistakes can become very costly to your business. This vital individual should also be the one to review and advise the financial proposals of your initial business plan. As your business starts operation, a CPA will continue to assist you with ongoing bookkeeping, payroll, and financial analysis.

Select an Accounting Software Package

Accounting software packages are essential to managing the financial workings of your small business. A program such as Microsoft Office Small Business Accounting or QuickBooks will track all of the day-to-day financial transactions in your business. Such organization throughout the year can save you money by making the job easier for your CPA come tax time when your books need to be deciphered and your tax returns prepared.

3. Hire an Attorney

An attorney can help you decide what legal entity you would like to be and assist with this process. They will help you strategize and formalize key relationships with vendors, financiers, and the like. An attorney can also help you with drafting documents and agreements.

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

Complying with business laws and regulations can be a great burden on a small business. In fact, it is due to the lack of legal advice during critical developmental stages that many small businesses fail. Your business is vulnerable to third parties such as customers that may choose to sue your company for injury or property damage caused by the business. An attorney can help you through each of the legal requirements specific to your type of business, as well as provide coverage and counsel in times of complication due to liability.

Generally speaking, no matter how small your business may seem, it will still be required to abide by local, state, and federal regulations. While it may be convenient to skip the compliance in the beginning, you will only run into more difficulty as your business grows. Utilize an attorney to help decipher which regulations are applicable to your small business.

4. Acquire an Employer Identification Number (EIN)

An EIN is also known as a Federal Tax Identification Number. It is used to identify a business entity. You can apply for an EIN in various ways, including online.

5. Acquire a Business License

There are many federal, state, and local regulations by which prospective businesses must comply prior to operation. If the business is located within an incorporated city limits, a license must be obtained from the city; if outside the city limits, then from the county. The State of North Carolina has no single business license that will ensure compliance with the numerous state licenses, permits and regulatory requirements. Additionally, the proposed business may be subject to local and/or federal requirements. Simply knowing which agencies to contact can be a very confusing task for the new entrepreneur. Working alongside of an attorney will help you decipher which regulations are applicable to your small business. For more information contact the county or city office in your area.

  • Tax Information

Business owners are required by law to withhold the following from the wages paid to employees: federal income taxes, state income taxes and FICA (Social Security) Insurance.

Income taxes will also be charged by the federal and state governments on earnings of any business. Therefore, each business must file an income tax return with both agencies.

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

Businesses may be required to file estimated tax returns and pay estimated taxes on a quarterly basis. For more information, you should contact the US Internal Reserve Service (IRS).

Additionally, there are federal requirements for those persons who are self-employed. If you are self-employed, your Social Security contribution is made through self-employment tax. You will need to calculate the most accurate report of earnings and pay your business taxes.

  • Business Insurance

Business insurance protects the contents of your business against fire, theft, and other losses. You should select an insurance agent or broker to assist with purchasing a number of basic types of insurance for your small business.

Some types of coverage are mandated by law while others are simply available to those with good business sense. The following are among the most commonly used types of insurance but are by no means comprehensive:

- Liability Insurance
- Property Insurance
- Property Insurance
- Business Interruption
- Automobile
- Office and Director
- Home Office
- “Key Man”

  • Sales Tax Number

There is a percent sales and use tax enforced within your state. It applies to the retail purchase, retail site, rental, storage, use or consumption of tangible personal property and certain services. A sales tax number is required for each business before opening. The number, along with instructions for collection, reporting, and forwarding the money to the state on a monthly basis, can be obtained from your state government.

  • Employees

All businesses with employees are required to comply with state and federal regulations regarding the protection of employees. Various state labor laws, work force availability,

Law Offices of Karen McKeithen Schaede p(336) 333-7907 f(888) 392-2707

prevailing wages, unemployment insurance, unionization, benefits packages and employment services may be applicable to your small business. It is imperative that you contact your state government to find out what applies to your company.

In addition to employment regulations, business must comply with the Federal Occupational Safety and Health Administration (OSHA). OSHA outlines specific health and safety standards employer must provide for the protection of its employees.

Worker's Compensation is yet another vital component to federal compliance by your small business. If a business employs three or more people, workers' compensation insurance must be carried to provide protection to those injured in work-related incidents. The State Board of Workers' Compensation works to aid people who need claim assistance. Contact their offices for further information.

For more information about how the firm can use its legal experience to assist in the operation of a successful business, contact the offices of Karen McKeithen Schaede Attorney at Law, to schedule a consultation.

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