Archive | Starting a Business

A Primer on Indiana LLCs

A Primer on Indiana LLCs

An Indiana LLC offers all of the advantages that most people would point to when assessing whether to form an Indiana LLC as opposed to operating a business as a sole proprietorship.  Those would include:

  • Limited liability and protecting personal assets.
  • Creates credibility with business customers and clients.
  • The risk of audit can be reduced in some cases.
  • It becomes easier to deduct certain valid expenses.

An Indiana LLC offers all of the advantages that most people would point to when assessing whether to form an Indiana LLC as opposed to a corporation.  Those would include:

  • An Indiana LLC provides a great deal of flexibility and organizational freedom.
  • An Indiana LLC can be member managed, manager managed, can have any number or type of officers.
  • An Indiana LLC has less requirements, restrictions and formalities under Indiana law.
  • An Indiana LLC can allocate profits, losses, and distrubutions among members in whatever manner the members agree to – not so for a corporation and its shareholders.
  • An Indiana LLC has far fewer restrictions than an S corp and can have as many members as it needs.
  • An Indiana LLC can enjoy pass though taxation.  Any business profit or loss is passed through to the members, so that they pay the taxes individually on their personal income tax returns.  Paying tax at the business level is avoided for an LLC.

Finally, forming an Indiana LLC does have a few advantages over forming an LLC in a different state:

  • Forming an Indiana LLC is fast!  The process of filing articles of organization with the Indiana Secretary of State can be done electronically – and in most cases – your Indiana LLC can be up and running within 24 hours.  Some states require documents to be mailed to the state, while other require that certain notifications be published in the newspaper – all of which can take weeks!
  • Forming an Indiana LLC is can be a private and confidential process.  Most other states require that the name and address of members, managers and/or officers of the LLC be filed as a matter of public record.  Indiana only requires that the name and address of the registered agent of an Indiana LLC be filed (which can be anyone located in the state of Indiana – typically an attorney or registered agent service provider).
  • Forming an Indiana LLC only requires a $87.00 filing fee with the state (which is included in in all of our LLC formation packages).  Some other states charge double, triple, and even quadruple that amount.

Posted in Limited Liability Companies (LLC)Comments Off on A Primer on Indiana LLCs

Operations:  Adding Fuel to Your Ideas to Get Your Business Moving

Operations: Adding Fuel to Your Ideas to Get Your Business Moving

Running a business is like one long road trip and your business plan is your road map.  Staying with the “map” metaphor, the strategy section outlines where you are going and the operations section describes the type of fuel you will put in your engine.  Here you begin the process of  dividing the tasks and responsibilities so no important details are forgotten, and resources are allocated appropriately.

Sales and Sales Management – The plan should include discussion on who will conduct sales and how will they be trained and compensated.

Manufacturing/Supply – Think of manufacturing in broad terms. What is your process for creating and delivering your product or service?

Staffing Issues – Summarize the current key job descriptions and outline a plan for business continuation.

Controls – Recordkeeping and documentation are important parts of your business. Lenders look to your records to be sure there is adequate control over finances. More important, these records will help you as a business owner determine whether you are on track to achieve success. Important records include:

  • Accounting System and Auditors
  • Records for Monitoring Sales Activity
  • Other Marketing Records

Posted in Raising Capital, Starting a BusinessComments Off on Operations: Adding Fuel to Your Ideas to Get Your Business Moving

Market Reasearch, An Important Part of Your Plan

Market Reasearch, An Important Part of Your Plan

When you prepare to vacation in a new city, state, or country, do you set out uninformed about your destination — or do you read a few guidebooks, surf the Internet for advice, or perhaps visit a travel agent? You likely do at least a little bit of homework first so that you know what to expect.

Customers

Everyone is NOT your customer. The more well-defined your customer, the more confidence the reader has that you actually know your market. What is the geographic scope of your market? Is this a hard or soft boundary? Describe demographics of target customers. Why will a customer buy your product? Who are the innovators – the ones who will be first to buy – among target customers?

Product Features and Sensitivities

From the customer’s perspective, describe the three most important features of your product.

Which of the following elements will be most influential in your customer’s buying decision?  Which are irrelevant?

Customer Sensitivities

  • Price, Quality
  • Your Reputation and Customer Service
  • Product Appearance and Size
  • Packaging, Ease of Handling, and Transportability
  • Variety
  • Operating Characteristics
  • Location, Facilities, and Hours of Operation
  • Credit Terms
  • Advertising and Promotion
  • Seasonal Cycles

Competitors

Even new, completely innovative products have competition. Long before your product comes into the market, customers have found ways to solve their problems. Understanding who your real competitors are is critical to your business success. As you analyze your competitors, it can be helpful to think about the three levels of competition.

Level 1 – These companies solve the customer’s problem with products or services that are very similar to yours.

Level 2 – These companies offer an alternative solution to your customer’s problem.

Level 3 – These companies do not solve the same problem, but compete for your customer’s limited resources.

Find this interesting? Sign-up for the Business Plan in 10 Weeks newsletter or purchase “Business Map: A Practical Guide to Business Planning” by Lorraine Ball.

 

Posted in Raising Capital, Starting a BusinessComments Off on Market Reasearch, An Important Part of Your Plan

Starting a Business – Forming a Corporation

Starting a Business – Forming a Corporation

A corporation is an entity created under statute that is separate and distinct from its owners. In other words, a corporation can be created only by following the requirements of the relevant statute (in Indiana, it is the Indiana Business Corporation Law) and will not automatically be created (as can be the case with some partnerships). Once formed, the corporation is recognized as being independent from you, the owner/shareholder. The corporation is managed by directors and officers; sometimes, the directors and officers are also the shareholders. From a liability standpoint, the corporation affords you complete protection; creditors must rely on the assets of the corporation and you are notpersonally liable for anything beyond your investment and financial commitment to the corporation.

That said, lenders frequently require shareholders of smaller corporations to personally guarantee the debt of the corporation. Corporations are the most complex entities, both in terms of creation and operation. In addition to filing articles of incorporation, corporations need to adopt by-laws, elect directors and officers, and in many states, have regular meetings. There may also be annual reporting requirements with the Secretary of State in addition to annual fees.

The shares of a corporation are freely transferable and unlike a partnership or limited liability company, the transferee of yourshares will succeed to all of your rights in those shares. In other words, the person to whom you transfer your shares will be just as much an owner of the corporation as you were. This ease of transferability can have significant impact later on as you begin to implement exit strategies (that is, you are ready to retire from
the enterprise).

From a tax perspective, corporations can also be more complex than their partnership and limited liability company counterparts. Usually, a corporation is a separate taxable entity. It pays tax on its income and later, when it distributes accumulated income to the shareholders, the shareholders will pay a second layer of income tax on those dividends. This “double taxation” is a significant drawback for most corporations. There is a special type of corporation (commonly referred to as an “S” corporation) that generally is not subject to double taxation. An “S” corporation allocates income and losses on a pro-rata basis to its shareholders, although the use of losses by a shareholder is limited to that shareholder’s basis in the corporation. You must strictly adhere to rigid equirements imposed on “S” corporations, and shareholders sometimes are surprised by how easy it is to terminate an existing “S” election inadvertently.

Occasionally, a business owner might intentionally choose the double taxation of a regular corporation to take advantage of certain corporate tax benefits. For instance, while partners in a partnership cannot be employees of that partnership, shareholders in a corporation can be employees; as a result, these shareholders can participate in certain fringe benefits extended to “employees” under the federal tax law, such as flexible spending accounts. Other examples include (i) the ability of a corporation to participate in tax-advantaged reorganizations unavailable to partnerships and limited liability companies and (ii) the potential for up to $50,000 ($100,000 on a Married Filing Joint Return) of losses from the sale, exchange, or worthlessness of certain small business corporation stock to qualify for ordinary loss treatment (as opposed to capital loss treatment).

As you can see from this post and my prior business entity selection and formation posts, a good deal of thought and care must go into your decision of what type of legal form your new business should take. Quite often, the advantages of one form will be offset by disadvantages not present in another. As mentioned, within similar types of legal forms, nuances exist that make the decision all the more difficult. By identifying the right combination of advantages and disadvantages and with the assistance of competent advisors, the right choice of entity selection can help ensure your business success.

Check back soon for a post regarding limited liability companies.

Posted in CorporationsComments Off on Starting a Business – Forming a Corporation

Common Mistakes Business Owners Make

Common Mistakes Business Owners Make

While every  business is different, business owners share many common traits.  As a result, they often make the same mistakes as they work on their business plan.   Here is a list of the ten most common mistakes :

  1. No Plan – It is easy to put  off writing a business plan until you have no choice because your banker, investor, or potential landlord requires it. Unfortunately, that is the worst time to try and write a plan.
  2. No Clear Audience – Why do you need a plan? Are you writing for the banker in hopes of getting a loan, or a potential investors or simply to guide your business.  While the outline is the same, the amount of detail required in each section varies depending on the audience.
  3. Too Much Detail or the Wrong Type of Detail – Can you boil down the description of your business to a simple message without getting bogged down in the details?  Limit your product description to an overview, focusing on the problem your product solves and its unique features/  Remember to leave out the jargon and industry slang.
  4. Poorly Defined Customer – Everyone is not your customer. With a clear, specific definition of your target customer, it is easier to write a clear, specific plan.
  5. Limited Market Research – Just because you love your product or idea, it does not mean anyone else will.    (By “anyone,” I mean anyone other than your mom, spouse, or best friend.) Who are these people, and what will make them buy?
  6. Underestimating your Competitors – Everyone has a competitor. Even truly innovative products must deal with competing products or services which may or may not solve the same problem, but ultimately will compete for the end customer’s available resources.
  7. No Meaningful Goals and Milestones – What will you accomplish?  Be specific.  How long will it take you and how will you measure your progress along the way?
  8. Activities Not Tied to Goals – Your goals form the basis of other decisions. Use the planning process to eliminate activities which do not move you closer to your goals.
  9. Unsupported Financial Projections – Unrealistic financial projects with a hockey-stick-shaped growth curve, set up a business for failure when owners spend too much too soon without enough cash reserves to help the business through the startup phase. As you develop financial projections, consider two scenarios: a best case and a worst case.
  10. Inadequate Consideration of Pitfalls – Stuff happens! Things go wrong. When the worst happens, will you be prepared? Having an adequate assessment of risks is not being negative — it is being prepared.
  11. Failure to Communicate – I know, I promised a list of the ten most common mistakes, (but don’t you like getting the little extra from time to time? ) While not directly a part of your document, poor communication will have a detrimental affect on your business. As you write your plan, involve others.  Seek advice from people you respect. Talk to employees, family members, business partners, and advisers, such as your accountant and lawyer.

Need help getting your plan started?  You can download a free copy of my business plan outline

Posted in Business Loans, Managing Your Business, Starting a BusinessComments Off on Common Mistakes Business Owners Make

Starting a Business – Choosing The Type of Business to Form

Starting a Business – Choosing The Type of Business to Form

So, you have come up with the next great idea and you are ready to begin building your fortunes. One of the first questions you should ask is “what type of business should I be,” or as we lawyer-types put it, “what choice of business entity should you make”? Choosing the proper legal entity with which to conduct business is one of the most important decisions a business owner faces. This early decision will determine myriad other issues including responsibility for tortious acts, complexity of the entity, ability to transfer interests in the entity, ease of additional capital infusions, protection of intellectual property, and, of course, liability for the payment of taxes, to name just a few.

Business Entity Selection

So many choices - will you make the right one?

The list of available entity forms is fairly extensive. From the more traditional corporations and partnerships to the more exotic state business trusts and conduits, it seems there is a form for everyone, and in most cases, multiple forms. In some instances, it may be appropriate to forego a separate entity and conduct your business as a sole proprietorship. In a sole proprietorship, the business is conducted in the owner’s individual capacity. Perhaps intuitively, a sole proprietorship offers no protection from liability, but it is the simplest way to conduct business. Generally, no separate documents or records need to be filed with any governmental authority, including the Internal Revenue Service.When a business owner wants to sell his or her sole proprietorship, it will always be a sale of the underlying business assets.

Future blog entries in this series will focusing on the three most common types of entities — partnerships,limited liability companies, and corporations.  Each of these has important characteristics that distinguish one from the others. By recognizing these differences, you can begin to highlight the factors that will influence your decision on which form of entity to select.

Check back in a few days for a discussion regarding corporations.


Posted in Choosing a Business TypeComments Off on Starting a Business – Choosing The Type of Business to Form

Every Business Needs a Plan

Every Business Needs a Plan

As you are in the early planning stages of your new venture, now is a good time to ask your self what direction you will take your business.   Your business plan is a road map, making it  easier to arrive, because you have specific directions and a clear map to  your destination.  Whether you  are looking for external funding, or simply want to get your ideas organized, a written business plan will keep you  on track.

WHAT SHOULD YOUR PLAN CONTAIN?

As you write your business plan, keep your audience in mind! If you are hoping to use this plan to solicit funds be sure to include information which will prove the value of your ideas.

  • Demonstrate Market Focus. Can you clearly describe the needs of potential customers, rather than simply being infatuated with an innovative idea.
  • Evidence of Customer Acceptance. Investors like to know that your new product or service is proven. Provide evidence that your product will sell or is already being used, even if only on a trial or demonstration basis.
  • Believable Forecasts. Entrepreneurs are naturally optimistic when explaining the future prospects for their businesses. Are your forecasts reasonable? If you have no sales, consider including compelling research information which supports your sales forecasts.

Do you need a boost getting started? Download our free business plan outline

Posted in Starting a BusinessComments Off on Every Business Needs a Plan

6 Big Mistakes that Startups Make.

6 Big Mistakes that Startups Make.

Oops!!There is a great post on Venturebeat.com about 6 common legal mistakes startups make.  Some of these have been covered elsewhere on this blog – some not.  Here is the cliff notes version- check out the post itself for more details:

  • IP Ownership – make sure it can be transferred to the startup.
  • Choice of Entity – choose carefully.  They recommend a corporation instead of an LLC.  I disagree on a certain level, as I have stated before on this blog and my Indiana Law Practice Blog.
  • Place of Incorporation – they say Delaware.  Again, I disagree to an extent (see this post).
  • Vesting Restrictions – make sure founders stock vest over time, otherwise you run the risk of a founder leaving early on and keeping all of his /her stock.
  • Securities Law Compliance – beware of not complying when issuing any securities to anyone, no matter who they are.
  • Legalzoom – avoid like the plague.  Hire an attorney! 🙂

Posted in Choosing a Business Type, Raising Capital, Running a Business, Starting a BusinessComments Off on 6 Big Mistakes that Startups Make.

Business Plan Outline

Business Plan Outline

A business plan helps you  look ahead, allocate resources, focus on key points, and prepare for opportunities and problems. You use it the same way you study a map to plan a route, determine where to turn, and locate key landmarks. A complete plan includes descriptions of the company, product or service, market, forecasts, management team, and financial analysis.  Here is a brief outline of what your plan should contain.

Executive Summary

  • Company description and current status
  • Products/services and market description
  • Company objectives
  • Financial performance and funding plans

History and Position to Date

Here you describe why you started the business, why you believe it will succeed, and how you will define success. It should include:

  • Company background
  • Sales and other achievements
  • Mission, vision, values, and goals
  • Business structure and management team
  • Product/service description

Market Research Includes

  • Description of the target customers
  • Product preferences and purchase influences
  • Market trends
  • Description of the competitors

Business Strategy – Includes all four elements of your business strategy: Product, Price, Place and Promotion.

Operations; This section is not complete without the milestone schedule, a table that captures all the assignments, commitments, and plans that assign timelines and responsibilities.  It should also include your plans for :

  • Sales and sales management
  • Manufacturing/supply
  • Staffing issues
  • Business controls and critical risk

Forecasting and Financials – The plan culminates with the financials. Ultimately, your business plan must boil down to results.

Appendix – What goes into the appendix? Everything else!

Find this interesting? Sign-up for our How to Write a Business Plan in  10 Weeks or purchase my “Business Map: A Practical Guide to Business Planning”

Posted in Starting a BusinessComments Off on Business Plan Outline

The “Lean Start-up” Process

The “Lean Start-up” Process

I recently stumbled across the “Lean Start-Up” Process, a term coined by Eric Ries, 31, an engineer, entrepreneur and blogger. His inspiration was the lean manufacturing process, fine-tuned in Japanese factories decades ago – which focused on eliminating any work or investment that doesn’t produce value for customers.  This is a concept I am familiar with in my solo, virtual law practice – operate lean and focus only on providing good legal service.  Any effort or energy expended otherwise is of no benefit to me nor my clients.

Part of the this process also involves developing a “minimum viable product” that will please some customers, and then build the business from there, responding and reacting rapidly to market responses to product changes.

This process kind of precludes developing a formal business plan – which I do not totally agree with.  I see too many startups, particularly tech startups that do not have the luxury of significant outside funding and investors/advisors that bring business acumen to the table , flounder on the business side of things even when they have developed a great application.  Sure there are exceptions, and a business plan is not always absolutely necessary – but without some sort of focus on making a startup idea / startup application into a real, money making, viable business entity – long terms success is difficult to come by.

Below is a great slideshow that illustrates the process.

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Posted in Indiana Startup News, Starting a BusinessComments Off on The “Lean Start-up” Process

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