1. Fundamentals of Starting a Business

2. What we do … Building Better Businesses Consulting – No Charge Assistance available to startup & existing businessesAssistance available to startup & existing businesses Comprehensive Individualized Consulting – Business planning, growth strategies, financing options, financial analysis, market analysis, etc.Comprehensive Individualized Consulting – Business planning, growth strategies, financing options, financial analysis, market analysis, etc.Training AffordableAffordable ClassroomClassroom Online – www.ksbdc.orgOnline – www.ksbdc.orgwww.ksbdc.org

5. Today’s Agenda Legal Entity Options Feasibility – Is small business ownership for you? Steps to Creating a Business: –Business Licensing, Permits and Registration –Federal Tax ID Number & Federal Tax Obligations –Register with KY Department of Revenue & State Tax Obligations –Obtain a Local Business License & Local Tax Obligations –Employees & Your Responsibilities Business Financing Basics

6. Legal Entity Options And Tax Considerations When Starting A Business

7. Entity Choices 1.Sole Proprietorship 2.General Partnership 3.Limited Partnership 4.Limited Liability Company 5.Regular or “C” Corporation 6.Subchapter “S” Corporation

8. Sole Proprietorship No Separate Existence File Assumed Name with County Clerk

9. General Partnership File Assumed Name Certificate with State and County Partnership Agreement Recommended Obtain Employer Identification Number (EIN) for partnership

10. Limited Partnership File Certificate of Limited Partnership with State Filed Assumed Name Certificate if operating under name other than Partnership Name Obtain EIN

11. Limited Liability Company File Articles of Organization with State File copy of Articles of Organization with County File Assumed Name Certificate if operating under name other than Company Name Prepare Operating Agreement Obtain EIN

12. Corporation File Articles of Incorporation with State File copy of Articles of Incorporation with County File Assumed Name Certificate if operating under name other than Company Name Obtain EIN Prepare By-laws Issue Stock Prepare Organizational Minutes of Stockholders and Directors (elect officers and directors)

13. Subchapter S Corporation Same as Corporation but File Form 2553 with IRS (Subchapter S Election)

14. LEGAL TERMS Corporation vs. Limited Liability Company Stockholders vs. Members Directors vs. Managers By-laws vs. Operating Agreement

15. GOALS NO ONE-SIZE FITS ALL

16. LIMIT LIABILITY Trade Creditors Personal Injury type claims Taxes Signing Documents Separate Bank Accounts Loans – Notes Minutes and other corporate formalities Piercing the Corporate Veil Insurance GOAL

17. REDUCE TAXES Self-Employment Taxes – Sub S Corporation advantages Double Taxation – Regular corporation GOAL

18. GOALS RAISING CAPITAL TRANSFERABILITY OF INTEREST/EXIT STRATEGY ESTATE PLANNING

19. Independent Contractors vs. Employees Criteria and Definitions of each How to handle paying funds-1099 or W2 Use of Contracts Other Considerations Resource: http://www.dol.gov/elaws/ http://www.dol.gov/elaws/

20. Feasibility Is Small Business Ownership for You?

21. Personal Considerations Access your readiness to be a business owner Take the SBA Readiness Assessment http://web.sba.gov/sbtn/sbat/index.cfm?To ol=4 http://web.sba.gov/sbtn/sbat/index.cfm?To ol=4 Develop a household budget to examine how the business will effect personal finances

22. Business Considerations Beginning stage of due diligence, starting point for developing financial assumptions What will it take to operate the business on a day to day basis?

23. Market Factors Research and be able to answer: 1.Who is your target customer? 2.Who are your competitors? 3.What trends are taking place in your industry?

24. Financial Considerations 1.Determine start up costs in detail. 2.Identify what capital you have to contribute to the project. 3.Where will the capital come from? 4.If financing is necessary, lenders require a minimum 20% capital injection. The bank will not assume all the risk. 5.If financing is necessary do you have collateral to secure the loan?

25. Development of a business plan to test overall feasibility is strongly advised!

26. The Business Plan  Justification for yourself and others (lenders or investors) why your business will succeed  Reference manual  Tool that can helps define and improve your operations before you start business  Powerful tool to solicit funding – Required for startup financing  Emphasis on Marketing Plan (Customers, Competition, Trends & Strategy) Page 28 Resource Packet

27. Business Plan Tools Visit the SCORE Template Gallery – Business plan and financial templates http://www.score.org/template_gallery.html Recommended: Business Plan for a Start-up Business

28. Financials of the Business Plan Common financials include: 1.Sources and Applications of Funding 2.Cash Flow Statement 3.Income Statement 4.Balance Sheet Match what is stated in the narrative

29. Steps to Creating a Business The “How”

30. Setting It Up – Consider Liability & Complexity Do It Yourself Due Diligence - Federal, State & Local Requirements Resource Packet: –The KY Business Guide Pages 10 – 13 –Local Requirements Lexington – Page 15 – 16 Other Counties - Page 17 Hire an Attorney The attorney takes care of the due diligence process.

31. Naming It Legal Considerations Informal Entities Sole Proprietorship If doing business under an assumed name an assumed name certificate filing with local county clerk is required. General Partnership No filing at Secretary of State’s Office to form entity; unless.. –Doing business under an assumed name an assumed name certificate filing is required at the Secretary of State’s and local county clerk’s office.

32. Naming It Legal Considerations Formal Entities Corporations – C or S AND Limited Liability Company (LLC) Filing process begins at the KY Secretary of State’s Office (www.kysos.com). Once approved paperwork must be filed with local county clerk.www.kysos.com Name must be available for use. Online Name Availability Search http://apps.sos.ky.gov/business/obdb/nameavail.aspx http://apps.sos.ky.gov/business/obdb/nameavail.aspx Watch for trademark infringements www.uspto.gov search trademark databasewww.uspto.gov

33. Naming It Market Considerations Creates a first impression of your business--use it as a marketing tool Brainstorm-choose several then eliminate Make it easy to pronounce, memorable Keep in Mind Long Range Goals- Selling, Passing Down to Heirs, etc Ask friends and family what they think-First impressions

34. Due Diligence Become an expert in the issues that relate to your business Understand the regulatory requirements to legally operate your business Minimize legal liability through a legal entity and proper insurance

35. Utilize Your Resource Guide! Resource Guide Pages Pages 2 – 14 Pages 15 – 17 Pages 18 – 26 Pages 27 - 35 Pages 36 - 39 Reference Starting and licensing a business in Kentucky Local information – Licensing, etc. Employer responsibilities Business plan outline and sample financials SBA Overview, Access Loan & Grant Information

36. Financing a Startup What You Need to Know

37. Financing – Debt vs. Equity Debt Financing … Borrowing money and agreeing to pay it back in a particular time frame Interest rate will reflect level of risk You owe the money whether your venture succeeds or not – Loan is personally guaranteed NO 100% FINANCING!!! Rule of thumb, a minimum 20% capital injection. Equity Financing … Selling a partial interest in your company Investor/Partner assumes all (or most) of the risk Investor/Partner seeks much greater return on their investment due to high risk Equity investors look for companies with high growth potential, not lifestyle businesses. Example: Extreme Software = High growth

38. What the bank looks for … 5 c’s + experience 1.Conditions – Market conditions, industry trends 2.Character/Credit – Personal credit history (know your score) 3.Capital – Cash you are willing to invest 4.Cash Flow Capacity – Repayment ability of the business 5.Collateral – Assets to secure the loan 6.Experience – Industry experience

39. Why Use a SBA Guarantee Longer term period to repay loan Limited interest rated lender can charge Lender guaranteed loan 75 – 85% SBA technical assistance through SBDC and SCORE partners

40. Overview of the SBA Process There are three principal players – the small business borrower, lender and the SBA. Lender will determine if the bank can do the loan without an SBA guarantee. If the loan needs additional backing the lender will engage the SBA.

41. Overview of SBA Products Depending on your need there is a guarantee program to fit your needs. Commonly used programs at a glance. 1.7(a) Guarantee Program 2.Community Express 3.504 Program 4.Patriot Express NOTE: Other programs exists. Page 37 Resource Packet

42. Wrapping up… Exercise Due Diligence – Become an expert in the issues that relate to your business Understand the regulatory requirements to legally operate your business Minimize legal liability through a legal entity and proper insurance Don’t be afraid to ask for help Understand your areas of weakness and have a plan to deal with them

43. You are not alone... Help is available – Page 1 Resource Guide Bluegrass SBDC Community Ventures Corporation Kentucky Cabinet for Economic Development – Division of Small Business Services Kentucky World Trade Center Service Corp of Retired Executives (SCORE)

44. Our service area Anderson, Bourbon, Boyle, Clark, Fayette, Franklin, Harrison, Jessamine, Mercer, Nicholas, Powell, Scott, Woodford Bluegrass SBDC 330 East Main Street, Suite 210 Lexington, KY 40507 Phone: 859.257.7666 or 1.888.475.SBDC Sean.moore@uky.edu www.ksbdc.org