Where Do I Start? Tips for Starting Your Small Business Central ISBDC Doug Boehme, Regional Director

Our Mission The ISBDC creates a positive and measurable impact on the formation, growth, and sustainability of Indiana’s small businesses by providing entrepreneurs expert guidance and a comprehensive network of resources.

The ISBDC’s are: Partners with SBA and the newly established Office of Small Business and Entrepreneurship. Statewide in coverage with 11 regions based in chambers of commerce, economic development organizations, universities and units of government. Part of a national network of 1,000 centers.

When to Become an Official Business Any activity that you pursue regularly and continually (as opposed to a sporadically or as a hobby) for the purpose of income or profit (whether or not you actually made any money) counts as a business and must be claimed on your Federal taxes. If you generated a profit in at least three of the last five tax years, including the current tax year, then the IRS considers it a for- profit activity.

IRS Guideline – Business or Hobby? Does the time and effort put into the activity indicate an intention to make a profit? Does the taxpayer depend on income from the activity? If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business? Has the taxpayer changed methods of operation to improve profitability? Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business? Has the taxpayer made a profit in similar activities in the past? Does the activity make a profit in some years? Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

Reasons for Going Into Business  Gain respect/recognition (19%)  Earn lots of money (18%)  Fulfill others expectations (9%)  Best alternative available (7%) Source: NFIB

What makes a good entrepreneur? Passion Persistence Good health and high energy Creativity Independence and self-reliance Intuition Self-confidence Willingness to work hard

Personal Considerations When Starting a Business Can you make the necessary changes? Do you have self-discipline? How are your organizational skills? Do you have leadership skills?

Personal considerations Are you a decision maker? How are your communication skills? Can you stick to a job when you start it? Can you afford to fail?

Skills, Knowledge and Experience Specific to Your Industry? May be critical to your success Do your research Identify needs and develop a plan: –Training and education –Work experience

Evaluating Your Business Idea Personal issues Market evaluation Financial analysis

Market Evaluation Define your market Market potential (total market size)? Market share estimate or sales forecast? Market trends/outlook?

The New Business – In Four Easy Steps 1. Select a business name 2. Select the “best” entity type and register with the Secretary of State 3. Get your Federal Employer Identification Number (FEIN) 4. File a BT-1 form (Business Tax Application) with the Indiana Department of Revenue

Resources on the Secretary of State’s Website An Entrepreneur’s Guide to Starting a Business in Indiana – Business Startup Toolkit –

Choosing a Business Name Required if business is a corporation or LLC/LLP. Conduct a name availability check on state website. If available, file to reserve for 120 days or file documents to organize the business under that name.

Choosing a Business Structure/Entity Sole proprietorship Partnership Limited Liability Company (LLC) Corporation: –Regular or “C” corporation –Subchapter “S” corporation Other structures

Sole Proprietorship Advantages –Ease of formation –Sole owner of profits –Least expensive to form –Fewer reporting requirements –Taxed as an individual Disadvantages –Unlimited personal liability –Death, illness or injury can jeopardize the business

Partnership Advantages –Ease of formation –Shared responsibilities –Fewer regulations –Ease of operations Disadvantages –Unlimited personal liability –Lack of continuity – succession planning? –Difficulty “getting out” –Sharing responsibilities and profits –Distribution of responsibility in bankruptcy

Limited Liability Company (LLC) Advantages –Separate legal entity –Limited liability –Single or multiple owners –Taxed as sole proprietorship or partnership –Ease of formation, fewer restrictions Disadvantages –Difficulty in business expansion out of state –Transferability restrictions

“C” Corporation Advantages –Separate legal entity –Ownership “readily” transferrable Disadvantages –Two levels of taxation –More expensive to form and maintain? –More government regulations?

“S” Corporation Advantages –“Pass-through” taxation –Other advantages same as “C” corporations Disadvantages –Ownership restrictions 75 or fewer shareholders No non-US residents as shareholders

Register with the Indiana Department of Revenue (BT-1) if you: Will be selling products or tangible items (sales tax) Have employees (withholding tax) Sell food and beverages (sales tax and food-and- beverage tax) Rent accommodations for less than 30 days (innkeeper's tax) Rent motor vehicles (motor vehicle rental tax) Sell tires (tire fee) Sell fireworks (sales tax and safety fee) Sell prepaid wireless cards (911 fee)

Resources on the Secretary of State’s Website An Entrepreneur’s Guide to Starting a Business in Indiana – Business Startup Toolkit –

Permits & Licenses Federal –Firearms, broadcast communications, interstate transportation, and others State –No general business license in Indiana – > 400 occupational business licenses –Health & safety issues, alcoholic beverages, etc. Local –Building, zoning and home occupation permits –Pawnbrokers, vending, taxi services

Additional Tips Build your team of advisors – accountant, attorney, insurance agent, banker Keep track of your money – Set up a business checking account – Set up an accounting system

QUESTIONS?

If you have additional questions on this topic, please contact: Doug Boehme Regional Director Central ISBDC Monument Circle, Suite 1950 Indianapolis, IN The Small Business Development Center (SBDC) is partially funded by the U.S. Small Business Administration under cooperative agreement number Z The support given by the U.S. Small Business Administration through such funding does not constitute an expressed or implied endorsement of co-sponsor(s) or participants’ opinions, products or services. Any opinions, findings and conclusions or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration. SBDC programs are nondiscriminatory and available to individuals with disabilities.