developed and presented by the staff of the illinois small business development center at southern...

Developed and presented by the staff of the Illinois Small Business Development Center at Southern Illinois University Carbondale

STARTING A BUSINESS IN

ILLINOISCreating, Developing

and Growing Southern

Illinois –

One Business

at a Time

Welcome

• The SBDC at Southern Illinois University was established to help entrepreneurs start a new business or expand an existing business

• Confidential counseling for all business activities

Our Services• General business advice• Business plan development• Financial analysis• Marketing assistance• Prototype development• Loan packaging• Market research• Exporting/international trade• Seminars/custom training• Technology commercialization

Centers That Can Help You

Incubator Space

• Flexible Space• Internet & Telecom• Shared Services• Conference Space

Incubator Space

• Laboratories• Affiliate Office Space• Student Incubator (Saluki Ventures)• Light Manufacturing• Office Space• Ranging in Size from 150 to 1050 ft2

Is starting a business right for you?• Why are you doing this?• Do you have the money to start a business?• Are you willing & motivated to work long

hours?• Do you have the support structure

(family/friends) who will encourage you?

Starting a business is hard! Over half will fail.

Challenges to Success• Not enough money to cover business

expenses• Poor business management/unclear direction• Miscalculation of market potential• Ineffective advertising• Poor credit• Poor location• Not considering legal aspects• Choosing the wrong partnersFailing to Plan Is Planning to Fail – Benjamin Franklin

What type of business do you want?• Startup

– YOUR Dream• Purchase an existing

business– You will take on current

clients and the business’s reputation

• Franchise– You will have less control,

but the model is proven

This is

My

idea !!

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record- keeping Banking Insurance Employees Payroll Business Plan Financing

Choosing a Legal Structure

Ability to get financing

Liability concerns

Startup costs & licensing

Tax requirements

Sole ProprietorshipPartnershipCorporation

LLC

Sole ProprietorshipO

verv

iew

• Individual• No legal entity• Owner responsible

for all debts & contracts

• Profit/loss is on personal taxes

• Easy to establish • Control• No entity tax (Schedule C)• Own P&L

• Unlimited liability• Limited access to capital• Limited lifeCo

ns

P

ros

PartnershipO

verv

iew

• Agreement between 2+ people (written)

• No legal entity• Each partners responsible

for all debts & contracts• Partners are proportionally

responsible for profit /loss on personal taxes

• May be easier to set up • Not alone

• Unlimited, equal liability• Shared Control• Limited transferabilityCo

ns

P

ros

CorporationO

verv

iew

• Created by filing articles of incorporation

• Separate entity from individual owner(s).

• Owners (shareholders) have limited liability protection.

• Owners personally guarantee loans

• C-Corp vs. S-Corp

• Separate legal entity• Limited liability• Unlimited life• Raise capital• Case history

• Increased administration• Costs more than

Partnership / SP to administerCo

ns

P

ros

Limited Liability Company (LLC)O

verv

iew

• Created by filing articles of organization

• LLCs combine liability protection and flexible tax status.

• Members guarantee loans• Members disclose

profits/losses on personal taxes

• Same as corporation• Easier to administer• Flexible tax structure

• Increased start up fees • Lack of case history• Different state lawsCo

ns

P

ros

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Choosing a Name• Unique, memorable, easy to say/ spell• Relevant to you/ your business• Distinguishable• Check URL availability/ domain registration• Google it

Assumed Name Registration• Assumed name notice for sole proprietorships

& partnerships • Only documents who is using the name• No protection from others using it• Protection comes from trademark

Licenses and Permits• City• County• State• Industry-specific permits

– Health Department (restaurants)– Children

• Check the SBA Website for a listing– http://www.sba.gov/licenses-and-permits

Federal Employer Identification Number (FEIN)

• The Social Security Number for your business• Required for:

– Partnerships– Corporations / LLCs– Any business that pays wages

• If a FEIN is not required, use your SSN

When ownership of a business changes or if you purchase a business, you may be required to get a new FEIN.

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Self-Employment Tax• The first $117,000 of income is subject to a

12.4% FICA (Social Security tax)• Medicare Tax rate of 2.9%• Required for sole proprietors or partnerships

when you earn more than $400• Payable quarterly

Self-employment tax is 15.3%

Illinois Business Tax Number required if:Do you… YesPurchase wholesale items for resale?

Pay Sales Tax Pay Employees

Is your business a… YESPartnership Corporation/LLC

OR…

Sales Tax – Remitted to the IL Dept. of Revenue

• Collected when selling a retail product• Tax rates are based on location• Tax not collected on labor, but it is on parts• Personal usage-tax in lieu of Sales tax • Pay online• Online taxes must be accounted for when

selling to a resident of IL• www.iltax.com

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Record Keeping• Records are required to prove income,

deductions, and profits/ losses for each year• Software is a great tool to track finances• Use a good filing system to track business

related expenses for deductions• Keep good and accurate records

– Document management decisions– Tax Time

When you apply for a loan or sell your business, “book value” should support what you are asking for.

What should I keep?• Keep daily transaction records for seven years

– Cancelled checks, invoices, purchase orders, sales receipts

• Keep payroll records and original tax returns forever

Always be prepared for an audit Make backups & have safe storage

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Banking• Separate your business and personal accounts• Businesses require documentation

– Charter & FEIN for Corporations – FEIN/SSN and copy of Assumed Name Notice for

non- corporate entity

Choosing a Bank• Choose a bank that will meet your needs

– Consider hours of operation– Online / bill pay options– Merchant services – Compatible with your business type– Fee structure

• Develop a relationship– Future credit reference– Future loan application

Today’s Topics

Starti

ng

My

Business

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Insurance May Be Required• Commercial/business liability insurance• Other types to consider

– Professional liability– Key-person– Business property– Business interruption– Vehicle

• Comparison shop

IL Workers Compensation Insurance• Required for any employee (rare exceptions)• Prevents employees from suing employer for

injuries suffered• State-approved insurance companies• Rates are industry specific• Each company earns a ‘safety rating’

BREAK

Today’s Topics

Growing

my

Busines

s

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Considerations when hiring employees

• Hiring policies / EEO• Benefits - pretax/after tax deductions • Garnishments• Miscellaneous withholdings• Issue year-end W-2’s• Knowing labor laws

Employee Records• Required Paperwork for each employee

– W-4 (used to calculate IRS withholding)– IL-W4 (used to calculate IL withholding)– I-9 (hold for proving employee immigration /

residency status)– New Hire Reporting (filed – no payment required)

Today’s Topics

Growing

my

Busines

s

Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Federal Taxes Paid by Employer• Social Security – 6.2% contributed by

employer; 6.2% by employee• Medicare (2.9%) – 50% contributed by

employer• Federal Tax – withheld according to

withholding tables• Federal Unemployment (FUTA)

You are responsible for timely payment of withheld tax payments. Late fees and penalties accrue!

Illinois Taxes Paid by Employer• State withholding tax--3.75% of gross wages• IL Dept of Employment--3.75% for new

business, certain sectors up to 5.45%

Employee vs. Independent Contractor• Correct classification is your responsibility• There are large penalties for improper

classification• Business must prove “lack of control”

– No set target for proving this– Plumbers are independent contractors:

• You don’t know when he/she will arrive• You don’t know what tools he/she will use• You don’t know how long the job will take

Today’s Topics Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Creating

My

Business

Plan

Today’s Topics

Idea StartStructures RegistrationsTaxesRecord- keepingBankingInsurance

GrowEmployeesPayrollFinancing

BUSINESS PLAN

Parts of the Business Plan

• Part 1 - Narrative• Part 2 - Numbers • Part 3 – Supporting Information

Your Business Plan Is Your Roadmap• Your guide for setting up & managing your

business• Supports loan requests• Tools to create your plan

– Startup Kit– Business Plan Pro / other software– Online https://www.sba.gov/writing-business-plan

You need to know where you are going & how to get there!

Answer These:• Who is your customer?• Who are your competitors?• Why customers will buy your product or use your

service?• How much money can you realistically charge?• How much time/money is required to start and run

your business?• Do you have enough money or access to money to

start up?• What are your biggest risks?

The SBDC can help you succeed

This is your chance to captivate & engage your reader!

Narrative• Executive summary

– The first impression of your business (one page)– Simple & concise

• Business description– What is the reason/purpose for starting?– Legal status & industry information – Product/service overview - in layman's terms -

don’t scare people with jargon!– What are your goals/measure of success?

Narrative• Managers & Employees

– Show who is qualified to operate the business.– Resumes belong in appendix.– Who will you hire, how much will they be paid &

when will they work?• Operations and Location

– Where is your business located? Why?– What hours will your business be open?– Describe building and surrounding area.– What are the monthly expenses?

If you don’t have all the facts, ESTIMATE! Make reasonable assumptions

Narrative• Customers/target market

– Describe the demographics of your ideal customer.– How will you acquire & retain them?

• Product/Service – What benefits will it provide?

What makes your product / service different so customers will choose you?

Narrative• Distribution

– How will customers get your product?• Price

– How much will your product cost to make?– Are all production costs included

(direct/indirect/labor/time)?– What are customers willing to pay?– What are your competitors charging?

Charge enough to make a profit but don’t price yourself out of business.

It is easier to lower prices than raise them.

Narrative• Advertising & promotions

– Create a “bird’s eye view” of marketing plan– Calculate your budget for starting & ongoing– Budget time to measure and evaluate

Startup Ongoing

LogoSocial MediaWebsiteBrochuresBusiness CardsSignage

Media (TV, Radio, Print)Networking functionsWeb maintenanceReferral websites / PromotionsSearch Engine OptimizationSocial Media

You don’t need to reach Everybody, just YOUR target market.

Narrative• Competitive analysis

– Understand the positioning and pricing of at least three competitors

– Be a secret shopper• Identify

– Name, location, overview of their business (product/price/quality/value/reputation)

– Perform market SWOT Analysis; Strengths, Weaknesses, Opportunities, Threats

Know your competitive advantage.

Numbers• Sales projections

– How much will you sell by month?– Is there seasonality to consider?

• Startup & monthly operating expenses– What does each unit cost to produce?– Break down all expenses to start & know your

monthly expenses.– Prioritize each expense & be prepared to scale

back or phase in expenses. – Be very detailed.

Plan for the unexpected and miscellaneous expenses. They will occur!

Numbers

• Equity injection & loan request– How much do you have to invest

and how much will you need?– What collateral do you have?

• How will the money be used? Be specific.

• How long will you need to repay loan?

• Personal financial statements• Tax returns

Supporting Information• Estimates and quotes• Floor plans/designs• Resumes• Franchise/lease agreements• Letters of commitment• Anything else to help your case

Be prepared…. estimate or make reasonable guesses for what you don’t know.

Today’s Topics Structures Registrations Taxes Record-keeping Banking Insurance Employees Payroll Business Plan Financing

Starti

ng

My

BusinessSta

rting

My

Business

Sources of Funding• Personal Funds• Friends & Family• Loans

– SBA – Traditional Lenders– Microlenders

• Partners/investors• Grants (very specific per grant)

Usually a combination of the above

Considerations for Loan Approval5 C’s of Credit

• Capacity- ability to repay loan • Collateral- ‘skin in the game’• Capital- balance sheet strength• Conditions- industry/industry position• Character-credit rating & in good standing• Management & controls• Gut feeling

Next Steps

• Complete your business plan workbook

• Make an appointment to see a counselor at the SBDC

To contact the Illinois SBDC at SIUC,call 618-536-2424

email sbdc@siu.edu.

Visit our website at www.sbdc.siu.com

Make your dream a reality!

RESOURCES• General/Federal Resources

– FEIN registration at the IRS website www.irs.gov or call 800-829-4933/ 618-632-2567 (local Mt. Vernon office)

– Register Trademarks & Patents www.uspto.gov – Dpt. Of Financial & Professional Regulations www.idfpr.com– Starting a Business & Record Keeping – www.irs.gov/publications/p583/– Business use of your home – www.irs.gov/publications/p587– Payroll Withholding http://www.irs.gov/publications/p15– Employment and Labor Laws

http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/business-law-regulations/employment-labor-law

– Labor Laws http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/business-law-regulations/employment-labor-law

• Illinois Resources– License / Permits search http://www.sba.gov/licenses-and-permits – Illinois Department of Revenue – www.revenue.state.il.us– Illinois Unemployment Insurance Law http://www.ides.state.il.us/pdf/pubs/uilaw/handbook.pdf– Illinois Payroll withholding http://www.revenue.state.il.us/TaxForms/Withholding/IL-700-T.pdf– New Hire reporting – www.ides.state.il.us/employer– Registration, Licenses, & Permits http://www2.illinois.gov/Business/Pages/registration.aspx