Starting and Managing Your Business: The Business Plan

   By: Richard E. Korb[1]

Starting your own business? There are many important decisions that need to be made and certain rules and procedures that need to be followed in order to start a new business.

One of the first and most crucial steps in the process of starting a new business is the business plan. A business plan is intended to describe the fundamentals of your business ideas and provide financial information on how you are going to make profit. A good business plan shows potential lenders and investors that you have found a product or service that customers will be willing to buy.

An effective business plan should include:

-         An executive summary of your business plan, which includes the content and goals of your plan

-         Company overview designed to provide more detailed information about your business, its mission, and strategy

-         A detailed description of how your business will work, including the description of products of services, availability of materials, information on whether you’re the manufacturer, whether you’ll have employees, and where you will be located

-         Marketing plan and analysis that addresses the details of your market analysis, sales, customer service, advertising, and public relations

-         Strategy and implementation, i.e. how your business will attract potential customers and fend off competitors

-         A resume with the description of your business achievements

-         Financial projections that include profit and loss statements, balance sheet, and your ability to make profit

-  A well-organized plan that shows the soundness of your business idea can significantly increase your chances of succeeding as an entrepreneur. A business plan is not just a tool to attract potential investors. A good business plan can help you estimate start-up costs, determine whether your business will be profitable, and help you think about the key issues or anticipate potential problems even before you start your business.

Starting a new business requires you to obtain certain legal documents.

-         For a sole proprietorship, i.e. when the business belongs to a single owner, you might consider purchasing property and getting some help with the sale documents, estate planning documents, and financing your business. You don’t have to file specific forms or pay fees in order to start working as a sole proprietor. All you are required to do is state that your business is a sole proprietorship when you complete the general registration requirements.

-         A partnership requires drafting a partnership agreement that describes rights and responsibilities of partners, how much of partnership each person owns, and who is contributing assets. In order to prevent the partnership from dissolving if one of the partners wants to leave, you might consider drafting a buy-sell agreement that determines what will happen when one partner dies, becomes disabled, retires, or leaves the partnership. Such agreement might allow your business to continue functioning even if one partner leaves.

Other considerations associated with starting a small business include business taxes, procedures for hiring employees, trade secrets, patents, business and health insurance, bonuses, etc. Such concerns are specific to what kind of business you would like to start.

Naming a Business

Choosing a business name requires substantial attention and a number of factors to consider. A good business name should be easy to remember, be easily spelled and pronounced, and be distinguishable from competitors.

The main factors to consider when choosing a business name is whether your business name is available and whether it receives trademark protection.

Availability

After choosing a business name, it is necessary to check various name databases in order to determine whether the name has already been used. In order to prevent confusion associated with competitors having a similar business name, trademark protection is used.

Trademark protection helps protect the unique identity of goods and services in the marketplace. Trademark laws prevent other businesses from using names or logos that are similar or are likely to be confused with the name of a competing business.

The process of obtaining a trademark involves filing an application with the US Patent and Trademark Office. After the Trademark Office determines that the trademark is not in use, the proposed trademark is published in the Office Gazette. The process of obtaining trademark protection is usually completed within a year.

Business Start-up and Organizational Costs

Before you start a small business, you will have to incur a certain amount of start-up costs, i.e. costs associated with setting up or investigating the purchase of a small business. Start-up costs may include paying for consultants, analyzing your potential markets, buying supplies, advertising your business, paying employees, etc.

Organizational costs include the costs associated with the creation of a corporation.

Once you open your business and start getting revenues, you can write off some initial business start-up costs. You can write off up to $5,000 in business start-up costs and $5,000 in organizational costs in either the year you incur the costs or the year you pay it.

After writing off the first $5,000, it is still possible to get a tax benefit for other start-up costs in the form of amortization. Amortization is a method of deducting certain capital costs over a fixed period of time. In order to determine the amount that you can deduct for each month, you should divide your total start-up or organizational costs by the months in the amortization period. If you decide to amortize your start-up costs, you would need to attach a separate statement to your tax return form.

Marketing Your Business

After completing the steps required for starting a small business, you should consider marketing and advertising your business as a good way to increase sales and help your business succeed. It is important to take time and analyze your potential customers, i.e. target customers, and appeal to them. In other words, it is necessary to determine the characteristics of people who are most likely to buy your products or service. Such characteristics include age, gender, marital status, income level, ethnic group, interests, buying habits, etc.

A great way to learn about your potential customers is through a market research. Small businesses can conduct studies with potential customers in the form of surveys or questionnaires to determine how customers feel about the products and/or services.

Marketing can include advertising and direct contact such as telemarketing or direct mail. Placing an advertisement in the business telephone directory is one of the most common forms of advertising. You might also consider radio and television commercials, as well as online advertising but be aware of regulations governing advertising. (Also, see our Business blog on. “Legal Issues When Marketing Your Business On The Internet.”

Telemarketing involves the use of telephone to sell your products/services. A local telephone directory or random automatic dialing might be used to make calls; however, state laws restrict the use of automatic dialing in certain cases.

Direct Marketing involves direct contact with customers such as via print media in the form of handouts, postcards, brochures. In-person solicitation that often occurs in door-to-door sales is another form of direct marketing.

For any further questions or concerns on starting or developing your business, please contact Richard Korb, a Berkeley-Oakland Business Attorney, for a consultation at 510-524-0903.

[1] This is the second in a series of articles on legal issues related to starting a business.