Plan Your Business

PLAN your business

Are you considering starting a business?

Starting a business is a big decision. If you’ve never owned a business before, you may be unaware of all the things you need to do to get your business going. Careful planning and research will improve your chances of success.

First, ask yourself – “Why Start a Business”

Asking and answering this question will help to frame your motivation for everything you will need to do and learn to start a business. Becoming an entrepreneur is not for everyone. In business, there are no guarantees. There is simply no way to eliminate all the risks. It takes a special person with a strong commitment and specific skills to be successful as an entrepreneur. Understanding what it takes to be entrepreneurial is an important part of preparing yourself for the commitment and workload required to be successful.

Are you ready to start your own business?  There are two tools that can help you better understand your readiness for starting a small business. It is not a scientific assessment. Rather, it will prompt you with questions and assist you in evaluating your skills, characteristics and experience – as they relate to your readiness for starting a business. One tool will provide videos and the second tool is a checklist used the one that best fits your learning style.

There is also a great quick read provided by the Washington State Department of Commerce with additional assessment tools.

Business training

You don’t need a degree in business to start one, but knowledge is power. Taking classes and attending workshops are excellent ways to gain the knowledge you will need to be successful.

Training Opportunities:

Business planning

Writing a comprehensive business plan is the first step in starting a business. Your business plan will:

  • Guide you as you make your business a reality.
  • Help you avoid costly mistakes.
  • Assist you in preparing financially, whether you plan to fund your business yourself or to obtain outside financing.
  • Gain the confidence of others who may have an interest in your business, such as partners, investors, landlords, and suppliers.

The most valuable part of writing a business plan is the education you gain by researching and writing it. While it may be tempting to hire someone to prepare your plan or to buy an off-the-shelf plan for your type of business, it is in your best interest to do the work yourself. That doesn’t mean you should do it alone. It would be wise to work with mentors, consultants, or advisors through the process. Their guidance can save you a lot of time and effort. Below is a list of organizations that can help as you develop your plan.

A typical business plan includes the following:

1. Mission & vision statements

A mission statement is a brief description of what you do. It helps you and those working with you to stay focused on what’s important. A vision statement answers the question “What do we want to become?” It provides you direction as you make decisions that will impact the future of your business.

2. Descriptions of business structures

A business is a legal entity separate from an individual or marital community, a sole proprietorship or a general partnership. It can own property, hold bank accounts and is required to pay taxes. There are different types of business structures, each with unique benefits and limitations.

For a Nonprofit Corporation business structure please see the Washington State Nonprofit Handbook located at the Secretary of State Corporations and Charities Division website.

To better understand your obligations regarding your business and its structure, seek sound council to discuss which option is best suited for you and your business. This could be legal advice, tax advice, or business advisors, including, but not limited to: Small Business Development Centers, Small Business Association, or SCORE. Things to consider when making your decision include:

  • Think of where your business will be in five to ten years and align your business structure to that.
  • The number of owners now and in the future.
  • Liability concerns.
  • Federal tax implications – Internal Revenue Service (IRS).
  • Registration and tax filing requirements and costs.
  • Paperwork and entity management considerations.

Sole Proprietorships are a business with a sole owner (single or married couple) in which the owner(s) may be personally liable for business debts, claims against the business, and federal taxes.

Limited Liability Companies (aka LLCs) are the most common business structure amongst small businesses. LLCs have fewer governance requirements than corporations but similar to corporations have limited legal liability. Creating an LLC requires filing with the Washington Secretary of State. In addition, LLCs must create an Operating Agreement, which is a governance document establishing the rules and operations of the LLC. For federal taxes, LLCs are typically treated like sole proprietorships if there is one owner, or like partnerships if there is more than one owner. However, by filing an entity classification election form with the IRS, LLCs can be treated like corporations for federal tax purposes.

NOTE: this document is not recorded by the Secretary of State. See the US Small Business Administration for an overview of what is included in an Operating Agreement. You can also contact your local library to provide some examples of a blank operating agreement at no cost.

General Partnerships are like sole proprietorships with more than one owner. Partners share managerial duties, profits and losses, and each is personally responsible (liable) for all business debt. For federal tax purposes, the business is required to file a partnership return, with the income or loss going to each partner based on how much of the business each owns.

Corporations also have limited liability like LLCs, but have additional requirements when registering as well as for their internal governance. As with LLCs, corporations have limited legal liability. To form a corporation, you must file with the Washington Secretary of State and create a governance document known as "bylaws". This internal governance document defines how key business decisions are made and designates duties, powers, and responsibilities of officers and shareholders (aka owners or stockholders). Even if your state does not mandate a set of bylaws, it is highly recommended that your create one to protect yourself and your business. Additional requirements and responsibilities for Corporations are issuing stock certificates, holding annual meetings which have documentation requirements, electing directors, etc. Working owners of corporations are employees and must have federal payroll taxes withheld and reported the same as other employees. Corporations file federal corporate tax returns with the IRS. If qualified and applied for on a timely basis, corporations may choose pass-through taxation (“S-Corporation”).

Limited Partnerships (LPs) are composed of one or more general partners and one or more limited partners. Creating an LP requires filing with the Washington Secretary of State (similar to LLCs and corporations). The general partners manage the entity and share fully in its profits and losses. To protect themselves from liability, general partners are often corporations or LLCs rather than individuals. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the entity. Obtain legal advice before choosing an LP structure for your business.

3. Market analysis

A market analysis will help you determine if there is a need in the marketplace for your product or service, who would be most likely to buy your offerings, and where your customers are located. Include:

  • An analysis of your industry.
  • Evidence of demand for your product or service.
  • A description of your target market (customer profile).
  • Your market size (looking at area demographics and the growth of your industry).
  • Your competition and why people would choose your product or service over the competition.
  • Estimated sales volume and revenue.
  • Commerce has a free planner to do initial analysis, SizeUp!

4. Marketing plan

Once you’ve identified your customer, you need to explain how you will get your customers to buy your product or service. Include:

  • Your pricing strategy, including the price floor (the price at which you would break even), the price ceiling (the maximum price people would consider paying for your product or service), and your pricing relative to your competition (same, lower, higher).
  • Your desired image (in light of your target market) and how to achieve it through advertising, signage, business cards and letterhead, brochures, office/store appearance, your appearance, and other means of outreach.
  • Your promotion and advertising strategy to reach your target market (such as use of website, social media, yellow pages, news releases, personal network, cold calls, newspaper, radio, television advertising, direct mail, etc.).
  • The costs and timing of your marketing activities.

5. Operations plan

This reflects all the basics of operating your business and includes:

  • Your business location. Who owns it? What are the lease terms? What will be required to get it ready with regard to zoning, permitting, construction and tenant improvements?
  • Furnishing, fixtures, equipment, and supply needs.
  • Inventory. What will you inventory in what volumes? Who will your vendors be? How will you store and track the inventory?
  • Description of operation, such as the activities from when an order for products/ services is received through its delivery, the cycles for inventory or materials/supplies purchase, and other cycles inherent to your business.
  • Key players and their operational roles in the business (co-owners, managers, advisors).
  • Legal needs, insurance needs, and an understanding of your regulatory requirements.
  • Recordkeeping and accounting needs (inventory tracking, accounting system, billing method, filing systems, etc.). Who will handle day-to-day accounting? Who will be your business banker? Who will be your business accountant and what services will they provide?
  • Consider including a section on emergency preparedness. Unexpected natural and human cased events could damage or destroy your business and its records. Prepare a plan in advance.
  • Another good planning tool designed specifically for small businesses can be found on Commerce’s small business site.

6. Personnel plan

Most new businesses start small and grow. When you do hire, having employees with the right attributes and skills for your business will be very important to your success. There are resources to help you with employment planning, including Labor Market Information.

Employment is an area that has a lot of regulation, including minimum wage, overtime pay, leave and benefits, pregnancy accommodations, employment of minors and family members, workplace safety, etc.

The use of independent contractors is a frequently misunderstood area. Generally, state and federal law would require that an individual be treated as an employee unless the individual:

  • Is truly in business for himself or herself.
  • Is licensed and actively markets his or her services.
  • Has multiple clients/customers.
  • Is performing work that is outside the business’s normal activities.

Being an employer also requires you to keep detailed records and fulfill your tax reporting obligations. It is important that you understand the regulations and costs as you plan your business. The links below can help you understand your responsibilities.

Labor Law

Worker Benefits

NOTE: If you have workers in Seattle, Tacoma or SeaTac, check with your city for minimum wage and other employment requirements.

Include in your Personnel Plan:

  • Positions needed and when.
  • Whether employees are permanent or temporary. If temporary, whether you’ll employ them directly or use an outside agency.
  • Job descriptions and skill needs.
  • Training requirements.
  • Compensation and benefits.
  • Personnel policies.

7. Employee benefits

Health Insurance

Offering benefits, such as health insurance, can help you attract and retain good employees. When looking for a health plan for yourself or your employees, it is important to know your goals for providing health coverage. For example, do you wish to contribute to your employees’ monthly health premiums, or do you want to support your employees in finding their own coverage? Whatever your goals or resources may be, the Washington Health Benefit Exchange can help you and/or your employees learn about your options.

The Washington Health Benefit Exchange operates the state’s official online health insurance marketplace, Washington Healthplanfinder.

On Washington Healthplanfinder, employers and employees can:

  • Shop, compare and sign up for individual health and dental plans.
  • Get exclusive access to federal tax credits to lower monthly costs.
  • Apply for Washington Apple Health (Medicaid).

Wondering what your options are? Employers and/or employees can submit a no obligation application on Washington Healthplanfinder to see the individual plans and tax credits available to them.

Enrollment Times

You and/or your employees can enroll in individual plans during open enrollment (starting Nov. 1) for the following coverage year. If trying to enroll outside of open enrollment, individuals need a qualifying life event. Examples of qualifying life events are loss of employer coverage, addition to your family, permanent move to WA state, (see full list of qualifying life events). Qualifying life events must be reported within 60 days of when the life event occurred.

Washington Apple Health (Medicaid) is available to those who qualify year-round (i.e. does not require a special enrollment period).

Group Plans and More

Looking to support your employees by providing or subsidizing their health coverage? Certified brokers at our Enrollment Centers can help you compare group plan options, health reimbursement accounts and health savings account options.

Need Help

Our certified brokers can help you and your employees free of charge understand your coverage options, the financial assistance available and even help you apply for coverage.

To learn more about your coverage options or to be connected to a broker, email smallbusiness@wahbexchange.org.

8. Financing plan

Projections:

You need to have a well-researched estimate of the start-up and operating costs of your business. You also need to have a realistic expectation of the amount of money your business will bring in. These projections will help you prepare financially for starting your business, whether you finance the business yourself or seek outside loans or investors.

Include projections of:

  • Start-up costs. Determine how much start-up money you’ll need for facilities, equipment, furnishings, fixtures, supplies, signage, licenses and permits, advertising and marketing, advisors, etc. Include all costs necessary to execute your business plan.
  • Monthly cash flow projection. A cash flow projection is effectively your budget. You should budget at least 24 months at a high level of detail, showing the amounts and timing of cash flowing into and out of the business. Together, start-up costs and cash flow projection will show the total funds needed for the business to reach the point of sustainability (when it can pay for itself).
  • Projected profit & loss statements (P&Ls) for at least two years. P&Ls, also called income statements, show a picture of the business using the equation:
              Revenues – Expenses = Profit (or Loss)
  • Projected balance sheets for the start of the business, the end of year one and the end of year two. Balance sheets show a picture of the business using the equation:
              Assets – Liabilities = Net Worth (or Equity)

Financing:

Once you know how much money your business will require to reach the point where it can begin supporting itself, you can determine how to get the needed funds.

  • Potential sources of funding include owner savings, friends, family and other private lenders, business partners, credit cards, business loans, public stock offerings, etc. Not all of these sources may be appropriate for you and your business.
  • Although you may have heard rumors that there are grants to start businesses, it is generally not true. Only in very specific situations are grants provided for starting a business; an example would be scientific research and development that is needed by federal agencies. The Department of Commerce has a free guide outlining 27 strategies for raising business capital called Startup Wisdom.
  • Business loans typically require the “5Cs”:
    • Capital/Cash – the owner’s cash investment. Owners usually must bring 25-30% of the funds needed to start a new business.
    • Capacity/Cash Flow – evidence that the business owner has the ability to start and run the business successfully. The owner’s industry experience, business training and management experience, in combination with a well-developed business plan, will help establish capacity. The cash flow projection is critical here, and it needs to show the ability of the business to meet its financial obligations, including making loan payments.
    • Collateral – something of value to pledge. Typically collateral includes business property, furnishings, fixtures, equipment, and inventory, plus owner assets outside of the business (real estate, stock, etc.).
    • Character – confidence that the owner takes responsibilities seriously, as demonstrated, in part, through the owner’s credit history.
    • Conditions – confidence that the overall environment (economy, industry trends, and market forces) supports the business’s potential for success.
  • The act of seeking investors and private lenders is highly regulated and requires an understanding of securities laws.
  • If you can’t finance your business at the level you first planned, think of ways you might scale back your plans, such as:
    • start smaller,
    • buy fewer supplies/equipment,
    • lease equipment or buy used equipment,
    • hire fewer employees,
    • find a less expensive location, etc.

Be aware that changes you make on the expense side will likely also affect your revenue
projections.

9. Need assistance?

State of Washington Small Business Liaisons can help you get the information and resources you need. Also, help us improve the Small Business Guide by filling out a short, confidential survey.