Entrepreneur s Guide. Starting and Growing a Business in Pennsylvania FEBRUARY newpa.com

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1 Entrepreneur s Guide Starting and Growing a Business in Pennsylvania FEBRUARY 2015 newpa.om

2 The Entrepreneur s Guide: Starting and Growing a Business in Pennsylvania was prepared by the Pennsylvania Department of Community and Eonomi Development (DCED). The information ontained in this guide is subjet to hange. Every effort has been made to ensure the auray of this information at the time of publiation. DCED is not responsible for deletions, omissions or errors. Comments and inquiries on the subjet matter should be addressed to the DCED s Small Business Champion Network at the Pennsylvania Department of Community and Eonomi Development, Commonwealth Keystone Building, 400 North Street, 4th Floor, Harrisburg, PA or by alling

3 Table of Contents Introdution Chapter I Preparing to Start a Business Four Keystones for Suess Qualified Entrepreneur: How to Assess Yourself Profitable Idea: How to Assess Your Business Conept Comprehensive Business Plan Business Plan Outline Startup Costs Worksheet Operating Costs Worksheet How to Choose a Site for Your Business Adequate Finanes: Funding Your Business Chapter II Legally Establishing a Business in Pennsylvania Four Keystones to Legally Establishing a Business in Pennsylvania Cheklist for Legally Establishing a Business in Pennsylvania Business Name Business Struture Summary Table Registering Business Struture and Name Taxes, Employment Obligations, EIN and Bank Aount Tax Information, Inentives, Legal Considerations and Forms Pennsylvania Labor and Employee Laws Laws, Lienses and Regulations Chapter III Managing and Growing a Business Four Keystones to Growing a Business Enterprise Audit Cheklist Growth Strategy Reord-keeping Human Resoures Template: Position Desription How to Seure Contrats with Government Agenies How to Develop International Markets Chapter IV Important Small Business Resoures Advoay Finaning Tehnial Assistane Tehnology Workfore Development Federal Resoures Chapter V Diretory of State and Federal Agenies Important State and Federal Telephone Numbers Diretory of Pennsylvania State Agenies

4 How to Use the Guide Whih One are You? OR First-Time Entrepreneur Existing Business Owner These symbols are used to denote whih setions are more useful for new entrepreneurs and whih ones ontain information geared toward existing business owners. Setions not designated by either ion ontain information that is relevant for both types of entrepreneurs. How This Guide is Organized The guide onsists of five hapters that address the ommon questions that first-time entrepreneurs and existing business owners ask: Chapter I Preparing to Start a Business. This hapter disusses the evaluations, researh and steps one should take before deiding to start a business. Chapter II Legally Establishing a Business in Pennsylvania. This hapter disusses the steps to legally establishing a business in Pennsylvania suh as obtaining a bank aount and EIN. Chapter III Managing and Growing a Business. This hapter disusses areas suh as human resoures, finanial management and other issues that determine a well-managed business and help to keep a business growing. Chapter IV Important Small Business Resoures. This hapter has a list of important publi and private organizations that an help your business thrive. Helpful Tips Chapter V Diretory of State and Federal Agenies. This hapter has a list of ontat information for important state and federal organizations. Keep a look out for the tip ions for quik, useful information.

5 Introdution Starting a business is an exiting adventure on whih many Pennsylvanians embark every year. Eah entrepreneur is unique. No matter what level of business experiene or expertise, the Entrepreneur s Guide: Starting and Growing a Business in Pennsylvania will provide you with valuable information that will help with business startup and growth. Taking your ideas and ingenuity to reate something new is a rewarding and hallenging endeavor, as is the undertaking of building a business that an grow and ompete loally and globally. Pennsylvania is an exellent plae for an entrepreneur to do all of this, and more. Making Entrepreneurship Aessible This guide is about more than just providing you with rules, regulations and telephone numbers it is intended to make the entrepreneurial mehanis as aessible as possible for all Pennsylvanians. As you read, you will be able to: draft a professional business plan, ensure your business is properly registered and liensed and prepare yourself for the hallenges to grow and manage your business. Guide Struture The guide is designed to prepare you to start your business and walk you through the proess you will undertake to determine when and how you will grow that business. You will find ontat information for tehnial and business support organizations throughout the guide that will be able to assist you with a variety of business ativities inluding finaning, identifying new markets and developing professional growth strategies. Questions The Pennsylvania Department of Community and Eonomi Development s (DCED) Small Business Champion Network is here to assist and answer questions. Visit to learn about DCED programs, follow us on for the latest DCED announements, or ontat us at

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7 CHAPTER I Preparing to Start a Business 3

8 ENTREPRENEUR S GUIDE Four Keystones to Suess Four keystones influene a suessful business startup: > Qualified Entrepreneur > Profitable Business Idea > Adequate Finanes > Thorough Business Plan 4

9 CHAPTER I PREPARING TO START A BUSINESS Qualified Entrepreneur: How to Assess Yourself An important step in your entrepreneurial journey will be to evaluate who you are, what you want to be and how to bring the best of yourself into your new venture. As an entrepreneur, you are the fae, the brain and the brawn behind your business. You and your ideas will drive the initial stages of the projet. What are my entrepreneurial skills? The sum of your life experiene has given you many qualities and skills that will be an asset to your new enterprise. It is important to evaluate the skills you have as you begin to develop your business onept in order to maximize your preparedness and effetiveness. While many studies and ountless books have been written on what the right stuff is for entrepreneurship, the list below ontains the most ommon harateristis and traits that are part of a suessful entrepreneur s bakground. Entrepreneurial Skills Assessment Take some time and honestly evaluate yourself by plaing a hek next to the traits you are onfident you possess: Problem-solving: explores innovative ways to respond to opportunities Goal-oriented: envisions a desired outome, as well as plans and implements the ativities required to ahieve it Self-onfidene: believes in own ideas and abilities and onveys that belief to others Risk-taking: abandons status quo, explores options and pursues opportunities Deision-making: makes prudent hoies even in a stressful environment Organization: keeps trak of deadlines, ritial paperwork, orrespondene and tasks to be ompleted, as well as those already done Persistene: tenaiously pursues goals regardless of the energy and ommitment required Communiation: speaks, listens and writes effetively Interpersonal skills: inspires, motivates and understands the wants and needs of others Leadership: direts others effetively and empowers their performane Continual Self-Improvement is Key Chanes are you left one or a few of the above traits unheked. Even if you feel you adequately exhibit all of the traits above, it is important to remember that ontinual self-improvement is ritial to your growth as a business owner and a hallmark of suessful people. Finding ways to improve is a good test of your abilities, whether by seeking out useful books and artiles or enrolling in business eduation ourses. Consider seeking advie from a mentor or other suessful entrepreneurs in your ommunity. The persistene and reativity you exhibit in improving your abilities will make you a better business owner and bring you loser to your goal. Responsibilities of Entrepreneurship As an entrepreneur, your skills and abilities will be tested as you take on managerial responsibilities. Although you an hire skilled employees, engage qualified onsultants and develop a orporate advisory board, the ultimate responsibility for deision-making and determining the strengths and weaknesses of your business rests with you. The managerial responsibilities of entrepreneurship inlude finanial planning, personnel, marketing and prodution skills you will ontinue to refine alongside your personal abilities. When you find yourself onfident in both your personal and managerial skills, you will have a solid foundation on whih to begin building your business. 5

10 ENTREPRENEUR S GUIDE Profitable Idea: How to Assess Your Business Conept As you ontinue to develop onfidene in your personal and managerial skills, you also need to assess your business onept. Begin analyzing your onept by taking a moment and putting yourself in the shoes of a potential ustomer. Do Your Researh One you have identified what your potential ustomers will be looking for, you an begin to plot a path to reah that goal. Early-stage businesses see failure rates exeeding 50 perent beause too often an individual will spend vast amounts of money and time on a onept they did not fully evaluate. Take time to test your onept and researh similar businesses. Rely on your drive and ambition to work through disouraging moments. Review the list below and give yourself a hek next to eah statement as you identify how your business will address eah topi. Business Conept Assessment The produt or servie satisfies the needs of the prospetive ustomer, not simply the desire of the business owner. The produt or servie has an identifiable advantage over ompetitive soures. The advantage is of signifiant relevane to the ustomer. The quality of the produt an be maintained to a level that enourages ustomers to make repeat purhases. The neessary materials for initial setup, long-term prodution and delivery of the produt or servie are all readily available. The number of ustomers in the market is suffiient for your business and ompetitors. The produt or servie is ompatible with existing beliefs, attitudes and buying habits of prospetive ustomers. The benefits of the produt or servie are easily ommuniated to the target ustomers. The prie of the produt or servie is within an affordable range for the intended ustomers. The most ost-effiient methods of targeted ommuniation between the merhant and potential ustomers are identified. The projeted sales potential, based on the number of ustomers and their average expenditure for the produt, is suffiient to generate a profit after all expenses are paid. The sales generated will be suffiient during peak periods to support the business expenses for the entire year. 6

11 CHAPTER I PREPARING TO START A BUSINESS Comprehensive Business Plan Like all entrepreneurs, you will need to do a great deal of researh and planning before opening your business. A business plan is a doument that learly desribes your vision, inluding all the details of your business operation. A well-written business plan not only puts your business on a solid foundation, but is ritial in your quest for funding. This will beome your owner s manual guiding your daily operations and ativities. Even if you deide not to write out a business plan, it will still help you to at least researh and think through all the areas that are disussed in a plan (see "Business Plan Outline.") Although a business plan is time-onsuming, it is important to business suess. Completing one allows you to apply your researh to your deision-making and fores you to examine all deisions of management, marketing, personnel and finane in an objetive and organized way. Another important benefit of the planning proess is that it will require you to projet the amount of finaning needed for the startup and the early-stages of your business. Among other things, the business plan desribes: the produts and servies you will sell your ustomers, the prodution, management and marketing ativities needed to produe your offerings the projeted profit or loss that will result from your efforts A omplete outline of the ontent of the plan is disussed in the next setion: "Business Plan Outline." When you adequately over all the outline elements, your business plan will answer these questions: Who are you? A personal resume outlining the eduation and experiene that will allow you to start and manage your business suessfully. What are you going to do? A desription of your business onept, the produts and servies you will be providing, the market whih you will serve, where you will be loated, how muh money you will invest and how muh additional money you will need (if any). Where are you going? The short- and long-term goals you have set for your business. How are you going to get there? The strategies that will allow you to meet your finanial responsibilities, ompete with others in the marketplae, learn new management skills, ommuniate with your ustomers, et. Business planning is an ongoing ativity. Both new and existing businesses will benefit from reating and updating their goals, plans and ativities. Although plans differ in some ontent elements depending on whether the firm is a retail, manufaturing, distribution or servie enterprise, the following outline should provide a solid framework for preparing your business plan. 7

12 ENTREPRENEUR S GUIDE Business Plan Outline The following is an outline and disussion of the ontent of a business plan, inluding key areas of a business enterprise. Not every plan disusses every area or disusses them in the order listed. However, if you follow the order listed and disuss as many areas that you an, you should be able to prepare an aeptable business plan. 1. Title Page All ontat and ownership information is inluded on the title page. Some entrepreneurs like to add a very brief business desription, slogan or mission statement. business name, address, telephone, and website name of owner(s) 2. Table of Contents The table of ontents should list all setions of the business plan and the appropriate page numbers. Graphs, diagrams and other visual representations should also be identified. Items inluded as exhibits at the end of the plan (example: owner resume) should be learly identified so that the reader an referene them while reviewing the plan. 3. Mission Statement The mission statement should desribe why your ompany exists in the marketplae. Many entrepreneurs find it useful to make the mission statement brief and general enough to allow potential growth of produt lines and servies. Consider the differene between desribing yourself as a ompany in the automobile business and a ompany in the transportation business. 4. Exeutive Summary The exeutive summary is an overview of the ontent of your business plan meant to allow managers, strategi partners, investors or lending agenies to quikly grasp your onept and business diretion. The exeutive summary should mention the most important information about your proposed business. You will find many uses for this summary as you move forward to promote your ompany, network in the business ommunity and work with vendors of business produts and servies. brief desription of the ompany history purpose of the plan goals of the business desription of the produts and servies ustomers management team experiene amount required from lender* other soures of funds/ollateral* method of repayment* (*) Items marked with an asterisk are added to the business plans being used to seure finaning. 5. Introdution/Overview This setion typially onsists of a few paragraphs introduing your business/business idea and yourself. This usually means presenting what the business is and naming the key people involved in the startup and ownership. Also mention how your business is strutured (LLC, Sole Partnership, et.). 6. Produts and Suppliers This setion should list and disuss the produts and servies you are selling and the priing of those produts and servies. When priing your produt, you must onsider ompetition and ustomer expetations, as well as all expenses. It is not unommon for businesses to: believe they an sell at the lowest prie misunderstand the importane of establishing prie poliies at levels other than the end user level overlook the relationship between priing and other elements of marketing You should also disuss where you are getting your produts from or the raw materials to make them, listing your key suppliers and information on those suppliers. 7. Industry Speifis This setion disusses the business environment in whih you will be operating. Entrepreneurs often wish to gloss over this setion beause the fators are onsidered external to the ompany and unontrollable. Gathering this information is important beause it an help you determine limitations or opportunities impating your profit. You may even disover information that hanges the type of business you are starting, or the ways in whih you expand operations. Be sure to study both positive and negative fators. Information to researh and disuss inludes: national/regional eonomi growth or deline industry outlook projeted opportunities regulatory environment tehnologial influenes 8

13 CHAPTER I PREPARING TO START A BUSINESS 8. Target Market/Customer Base In this setion, you should desribe the most likely ustomers for your produt or servie. Who are they? Where are they? When and why will they buy from you? An error in the determination of your target market(s) will not only adversely affet all other setions of your business plan; it will inrease your advertising and promotion expense. For some businesses, it is the differene between suess and failure. Often your entire market of purhasers an be divided into segments, or groups of purhasers with ommon needs. Segmenting your market allows you to define and desribe buyers needs and habits as ompletely as possible. Aurate information about the size of your market and expeted market share helps you predit potential inome. Information that should be disussed inludes: harateristis of the target market: demographi profile (age, inome, sex, eduation) business ustomer (industry, size, purhaser) geographi parameters size of the market/expeted market share market segmentation ustomer buying habits (seasonality, quantity, average expenditure) To be thorough, you must also desribe the target market between you and the end user of your offerings. For example, if you are a manufaturer, you may need a retailer or distributor. Without the retailer or distributor purhasing your produt, the end user will never have the opportunity to purhase. 9. Competition This setion should examine the ompetitors and their produts and servies and disuss how your offerings are unique. If you are tempted to dismiss ompetition, ask yourself how your potential ustomer urrently solves the same problem your offerings are intended to solve. What are the ustomers hoies when spending their finanial resoures? It an be helpful to develop a matrix that lists all your major ompetitors, their produts, servies, pries, methods of promotion and loation. By inorporating your own marketing information on the matrix, you an identify your firm s strengths and weaknesses. 10. Marketing This setion desribes all ativities involved in selling. Marketing does not involve just advertising and promotion ativities. Although these ommuniation elements are extremely important, they are ineffetive if you have not hosen produts and servies wanted and needed by your potential ustomers. The marketing plan should inlude a omplete desription of all offerings. Names, olors, assortments and other details are important to ustomer hoie. If you have multiple produts for multiple target markets, this is the setion where those distintions must be made. You should also be able to desribe your ustomer servie poliies, as small businesses often have an opportunity to differentiate themselves from larger firms by offering flexible, ourteous, ustomer-entered servies. The loation element of business planning one foused on a physial business site, ustomer aess to that site and transportation (logistis) related to the site. With advanements in tehnology, both startup and existing businesses must examine whether the loation for interfae with ustomers is a physial loation, the internet, or both. A website an be used to simply promote a business and its offerings, or it an be the atual marketplae where sales are ompleted. Website development, performane, delivery systems and payment ativities are now a neessary part of the marketing plan. Few businesses exist without advertising expense. The hoies of strategy and media are many, but the hoie to eliminate advertising says the entrepreneur annot afford to ommuniate with ustomers. A lak of ommuniation is diretly related to a lak of ustomer spending, and a lak of ustomer spending ritially impairs the business s survival. Sine advertising and other elements of promotion are legitimate business expenses, they must be inorporated in the prie of the produts and servies. To summarize, this setion should disuss most, if not all, of the following: sales goals desription of all produts and servies priing objetives/methods wholesale and retail disounts and speial allowanes prie sheets seasonality in priing redit terms loation where produts/servies will be sold website analysis of advantages/disadvantages plant/store atmosphere transportation promotion ativities advertising marketing materials publi relations publiity trade or business shows 9

14 ENTREPRENEUR S GUIDE ommere pakaging ustomer servie poliies sales training, management and methods growth strategies 11. Faility and Loation The loation(s) and failities of the business should be disussed, inluding the following: lease or purhase size and floor plan zoning, loal regulations, taxes renovation/expansion plans loation and any signifiant features or advantages of the loation 12. Prodution and Operations Lak of prodution and operations planning auses entrepreneurs to underestimate startup, maintenane and growth expenses. The deisions in this setion onsider the physial health of the business. If the business is started at home, the entrepreneur should set riteria suh as inome, number of employees or produt expansion that will neessitate moving to a business site. Deisions made in this setion affet the extent of ompany indebtedness, as well as the ollateral of the business when it seeks out loans or investments. Use the Operating Costs Worksheet to help understand your osts. Issues that should be addressed in this setion inlude: equipment mahines/tools owned/needed lease or purhase maintenane proedures and osts vehiles teleommuniations and data prodution proess and osts suppliers/redit terms transportation, shipping aess and equipment sheduling for ompletion of researh and development 13. Management and Human Resoures The people in any business are an important and expensive resoure. Before developing this setion of the plan, the entrepreneur must identify how the business will grow and what workfore skills will be needed for that growth. If additional loations are planned, new managers will need to be hired or trained. If growth omes from development of new produts, researhers and engineers may be needed. If growth will result from selling intensively to a small number of lients who buy on multiple oasions, employees that are apable of developing good relationships and delivering exellent ustomer servie are needed. 10 The obvious expense of human resoures is salary and benefits. Less obvious is the ost of reruitment, seletion and training when turnover ours. This setion should also disuss any signifiant state and federal regulations governing employer and employee relationships, espeially if suh regulation partiularly targets the ativity of the business, suh as liensing or safety requirements. Issues that should be addressed in this setion inlude: key managers responsibilities training reporting proedures personnel number of full- and part-time employees speial skills/eduation required/ontinuing eduation job desriptions and evaluation methods benefits wages, ommissions, bonus plans use of subontrated personnel poliies organizational hart lists of stokholders and board members amount of authorized stok and issued stok professional assistane (attorney, aountant, banker, insurane representative, et.) 14. Lawyer, Aountant, Other Professionals In this setion, you should list, if known, the names and roles of those who will be advising the business, inluding lawyers, aountants, bookkeepers, onsultants and other professionals. You should also give a brief desription of any signifiant experiene, aomplishments, reognition et. of eah professional. It should be noted that many businesses start without having any outside professionals involved. However, for almost all entrepreneurs, it is important to at least talk to and designate a bookkeeper or aountant, if only for doing taxes and payroll (if employees are involved), before launhing a business. 15. Insurane By definition, entrepreneurs are risk-takers. They launh a new enterprise in a ompetitive environment with less than adequate apital and work more hours in the day than their orporate employee ounterparts. One the deision has been made to beome an entrepreneur, risk management beomes a part of the job desription. As a firm grows, the wise entrepreneur develops a risk management program with advie from an attorney, aountant and insurane agent.

15 CHAPTER I PREPARING TO START A BUSINESS Young firms are vulnerable and protetion omes from evaluating and prioritizing risks and insuring against them. You an start by making a list of the perils your business faes. Identify whih are most atastrophi, suh as loss of life, damage to property, employee or ustomer injury resulting from a faulty piee of equipment or produt. Take ation to protet your business against these atastrophes first. Risks differ depending on your industry and speifi offerings, and gaps in overage an our as the business grows. Your risk management program should be evaluated annually. produt liability personal/business liability business interruption vehile disability workers ompensation unemployment fire theft 16. Finanial Foreast and Assumptions Books and software pakages an be purhased with formatted worksheets to produe the douments you need for your finanial plan. The numbers used for eah expense should be as aurate as possible based on urrent researh. Identify any flutuations that an be predited suh as inreases in raw materials or lease and utility osts. Estimate the month and year when additional employees will be hired and what they will be paid. A break-even analysis helps you understand at what point the business beomes profitable and allows you to set goals realistially. Without a finanial plan, you will find it nearly impossible to interest lenders or investors in helping you start and grow, beause you have no fats to bak up your enthusiasm and ommitment to your venture. Use the "Startup Costs Worksheet" to help assess your osts. startup osts (all one-time expenses suh as equipment, deposits, fees, et.). See "Startup Costs Worksheet" operating osts (ongoing expenses for lease, insurane, utilities, et.). See "Operating Costs Worksheet" soures and uses of funds* balane sheets projeted ash flow profit and loss foreast or statement break-even analysis existing business (historial statements for three years)* personal finanial statement of owner(s)* assumptions used in preparation of finanial projetions Sample business plans and finanial foreasts and assumptions an be viewed or downloaded from Exhibits The following are items and douments that should be inluded in the business plan: managers resumes advertisements, news artiles and other promotional douments ontrats, leases and filing douments (Fititious Name, Employer Identifiation Number, Artiles of Inorporation) letters of support/interest from prospetive ustomers/buyers/lients pitures of the produt or servie marketing researh patents, trademarks, opyrights, liense agreements inome tax returns (three years)* invoies or estimates for faility or equipment purhases* (*) Items marked with an asterisk are added to the business plans being used to seure finaning. 11

16 ENTREPRENEUR S GUIDE Startup Costs Worksheet Startup osts are those expenses that you will inur before you establish your business. These osts will vary based upon the type of business. This worksheet will help you begin the proess of assessing your finanial needs so that your venture is not underapitalized at the outset. For more information about your finaning and assumptions you should make, review setion 16 of the Business Plan Outline. STARTUP COSTS Deposit, offie or building lease $ (Faility/loation expense) Deorating/remodeling/build-out $ (Changes in faility required for business operation) Furniture/fixtures Equipment Installation Teleommuniations/data Utilities Initial inventory Offie supplies Advertising and promotion Signs Lienses, permits and fees Insurane Legal/professional servies Working apital Total Startup Costs $ $ (Prodution, offie mahines, seurity, et.) $ (Fixtures, equipment) $ $ (Installation and deposits) $ (Stok, supplies for manufaturing) $ $ (Business ards, stationery, brohures, grand opening) $ (Vehile, interior and exterior for faility) $ $ $ $ (Cash reserve for early months of business before sales are suffiient to pay bills) $ $ $ $ 12

17 CHAPTER I PREPARING TO START A BUSINESS Operating Costs Worksheet One your business is started, operating osts are expenses (other than the ost to purhase or make the produts or servies you sell) that are regular and repeating expenses, whether they repeat monthly, bimonthly or annually. It is neessary to estimate all of your operating osts so that you are realisti about the revenue your firm will need. This worksheet inludes some basi onsiderations. Completing it will help you develop ash flow projetions. In the olumn adjaent to the operating expenses, make notes of those that inrease or derease in partiular months. OPERATING COSTS Monthly Expense Possible Variations Rent/Mortgage Payment $ Equipment Lease $ Maintenane and Repairs $ Advertising $ Offie Supplies $ Delivery $ Postage $ Vehile Expenses $ Legal/Professional Fees $ Insurane(s) $ Teleommuniations/Data $ Other Utilities $ Travel $ Dues/Memberships $ Materials $ Payroll $ Payroll Taxes $ $ $ Total Monthly Expenses $ 13

18 ENTREPRENEUR S GUIDE How to Choose a Site for Your Business Choosing the right loation for your business will require you to onsider a number of fators. The type of business you have will often be the primary fator in the type of loation you hoose. Another important fator to onsider is how you want to present your business to your ommunity and ustomers. Do you want a main street storefront? Do you require extra spae for storing finished produts? Does the loation need to be near your targeted ustomers or satisfy speifi logistial needs? Can your business operate as a web presene without the need for a physial struture for ustomer interations? These are just some of the questions you may find yourself asking when looking at potential loations. Ultimately, you may deide that you an start your business at your home. This is an inexpensive and onvenient option for many entrepreneurs. If you deide to work from home, you will want to balane the effiienies of being at home with your need to projet the business image that you desire. The loation of your business an affet more than just your operations and finanes it an also be an asset for your marketing plans and growth strategy. As you explore potential loations for your business, investigate the zoning, traffi, parking, signage and building regulations in eah prospetive loation s muniipality. Cheklist for Business Loation Analysis If home is not the best plae for your business, the heklist that follows will help you weigh the benefits of potential loations. Begin by reviewing the list and rossing out the fators that are not important to your business. Next, add any new fators that apply to your business. Finally, identify multiple potential loations and onsider eah of the following fators: Appropriate zoning for the type of business Cost of land, building, failities Building odes Cost of utilities (installation) Availability and ost of utilities (monthly estimate) Cost of monthly lease or mortgage payment Cost of renovation or leasehold improvements Availability and ost of seurity system Availability of polie and fire protetion Availability of the types of employees needed by firm Availability of transportation for ustomers and employees Oupany permit requirements Aess for ustomers with disabilities Tax strutures and payment methods of loal and regional government Proximity/distane from ompetition Maintenane osts for property, building and parking area 14

19 CHAPTER I PREPARING TO START A BUSINESS Expansion potential Availability/restritions on parking Condition of neighboring properties Convenient proximity to primary highways Transportation and availability of raw materials Convenient proximity to entrepreneur s home Small Business Inubators Desription and Advantages Small business inubators are failities where young businesses an start and grow. Some inubators offer businesses the opportunity to lease spae at a lower-than-market rate. Most failities provide tenants with free or low-ost business ounseling and training and shared offie equipment and servies. These eduational opportunities and servies help redue osts and inrease profits. After the startup firm is nurtured for the first few years, it is expeted to graduate or leave the inubator to move into a business loation in the ommunity. Graduation normally ours in 3 5 years. Inubators may speialize in the types of firms they an assist, i.e., manufaturing, tehnology, life sienes, distribution. In summary, the following are ommon advantages of loating in an inubator: reasonable lease rates for startup firms shared finanial, management and other servies established entrane and exit poliies aess to apital and other startup resoures For more information ontat DCED s Small Business Champion Network at or 15

20 ENTREPRENEUR S GUIDE Adequate Finanes: Funding Your Business A leading ause of small business failure is inadequate startup apital. Before you begin your new venture, you must realistially projet not only your startup osts for suh things as equipment, renovations and promotion, but also your ash flow requirements for the early-stages of operation. It often takes time to build sales levels, yet rent, utilities and other osts are immediate. During this time, when bills are often arriving faster than the ustomers, ash reserves an help the business survive. Neessary funding for the startup and operation of a business is available in three forms: debt apital through borrowed funds equity apital (funds generated through the sale of stok or by the investment of the owner) friends, family and personal assets Equity vs. Debt Finaning Should you deide that your own resoures are insuffiient, the traditional soures of finaning are: banks, loal, state and federal agenies, angel investors and venture apital firms. Raising apital through the sale of stok is omplex and highly regulated if you wish to pursue it, you should seek legal advie first. Many businesses are started with apital invested by the owner or the owner s family. If you would like more information, ontat the Pennsylvania Department of Banking and Seurities. Loans: Bank The vast majority of loans are made through banks. As mentioned previously, government-sponsored loan programs, suh as SBA loans, are still administered by banks and require ontating and applying through them. In many ases the most fundamental doument you will need for a loan appliation is a business plan (previously disussed), beause it shows the lender your ability to researh and envision the establishment and operation of the firm. In the previous setion of this guide, the business plan outline ontains several items marked with an asterisk (*). These items are essential additions for a business plan being used with a loan appliation. In addition to the plan, lenders onsider several fators in evaluating a business loan: management experiene: your bakground ompared to the skills required for your hosen business repayment ability: your realisti projetion of business inome allows you to maintain loan payments ollateral: your pledge of assets toward business stability and loan repayment redit: your histori and urrent reord of repayment of obligations Obtaining a loan requires preparation and redit worthiness, but a bit of sales ability an help. You will be ompeting with many other business owners, and knowing what the lender needs when requesting a loan is just as important as knowing what a ustomer needs when selling your produt. Many lenders want assurane that: You have something at risk in starting and operating this business. (Do not ask them to go out on a limb to bak you if you are not out on the limb yourself. You must have resoures ommitted to your own venture to seure the support of others.) Your proposal is a sound one based on the 5 C s of redit: apaity, apital, ollateral, harater and ondition (industry). The terms on repayment of a bank loan may vary, and there is room for negotiation between lender and borrower. Loans: Government Sponsored For debt finaning, there are a number of government-sponsored loan programs. Below are some links to explore what loan programs might be available to you: state business finaning programs ( finaning for tehnology-oriented ompanies ( U.S. Small Business Administration finaning programs ( 16

21 CHAPTER II Legally Establishing a Business in Pennsylvania 17

22 ENTREPRENEUR S GUIDE Four Keystones to Legally Establishing a Business in PA Find out the basis of legally running your business in Pennsylvania > Business Name > Business Struture > Laws, Lienses and Regulations > Taxes, Employer Obligations, EIN and Bank Aount 18

23 CHAPTER II LEGALLY ESTABLISHING A BUSINESS IN PENNSYLVANIA Cheklist for Legally Establishing a Business in PA The following heklist outlines the steps to legally establishing a business in Pennsylvania. Business Name Determine a name for your business that is not already in use. Determine whether your name is onsidered a fititious name and if you need to file a PA fititious name statement. You will need to know what your business struture is, so you may need to jump to the next setion and ome bak after deiding your business struture. Register fititious name, if appliable. Business Struture Determine under what business struture you will operate your business. The most ommon hoies are: Sole Proprietorship General Partnership Limited Partnership (LP) Limited Liability Partnership (LLP) Limited Liability Company (LLC) Corporation, inluding S Corporation Laws, Lienses and Regulations Chek with the loal muniipality (ity, borough or township) onerning taxes, zoning requirements, any required loal lienses and permits and any other regulations and requirements. Taxes, Employer Obligations, EIN and Bank Aount Determine what loal, state and federal taxes your business needs to pay, register for or ollet, suh as sales tax. If your business will employ one or more people, omplete loal, state and federal employer obligations, inluding employment taxes, withholdings and ontributions, suh as unemployment ompensation and soial seurity. Obtain Employer Identifiation Number (EIN). Open a bank aount for your business. 19

24 ENTREPRENEUR S GUIDE Business Name Determine Name Chek the Pennsylvania Department of State database of Pennsylvania businesses to see if the business name you wish to use is available. You an searh that database to see if other businesses already have registered the name you want to use at Fititious Name Determining Fititious Name Any individual, sole proprietorship, partnership, orporation or other form of assoiation onduting business under a fititious business name must register this name with the Pennsylvania Department of State. Questions related to business struture, fitiious name registration, et. an be direted to the PA Department of State Customer Servie at Penalties for Not Registering The penalty for failing to file a fititious name registration is that the unregistered entity may not use the ourts of Pennsylvania to enfore a ontrat whih it entered into using the fititious name. The failure to register the fititious name does not void the ontrat, but merely prevents suh enforement until registration. The entity shall pay to the Department of State a ivil penalty of $500 in these instanes where the entity seeks to enfore the ontrat and subsequently registers the fititious name in an untimely manner. WARNING! Trademark Protetion Registering a name and heking the Pennsylvania database does not give you federal trademark protetion nor mean that others are not using your name in other states. If you desire to trademark your name or other appliable marks, you must apply to the United States Patent and Trademark Offie at 20

25 CHAPTER II LEGALLY ESTABLISHING A BUSINESS IN PENNSYLVANIA Business Struture One you deide to establish a business, your first onsideration will be the type of business organization to use. Legal and tax onsiderations will help to determine your final hoie, as well as personal needs and the needs of the partiular business. There are three prinipal kinds of business strutures: the sole proprietorship, the partnership and the orporation. Several ommon business strutures are desribed below. There are advantages and disadvantages to eah of the legal forms of business you may hoose. As an entrepreneur you must examine all of the harateristis and onsult a knowledgeable legal professional when onsidering the formation of your business. Sole Proprietorship Most small businesses operate as sole proprietorships. This is the simplest form of organization and allows the single owner to have sole ontrol and responsibility. Some advantages of the sole proprietorship are less paperwork, a minimum of legal restritions, owner retention of all the profits and ease in disontinuing the business. Disadvantages inlude unlimited personal liability for all debts and liabilities of the business, limited ability to raise apital and termination of the business upon the owner s death. You should note that a small business owner might very well selet the sole proprietorship to begin. Later, if the owner sueeds and feels the need, he or she may deide to form a partnership or orporation. General Partnership A partnership is similar to a sole proprietorship exept that two or more people are involved. Advantages are that it is easy to establish, it an draw upon the finanial and managerial strength of all the partners and its profits are not diretly taxed. Some disadvantages are unlimited personal liability for the firm s debts and liabilities, termination of the business with the death of a partner and the fat that any one of the partners an ommit the firm to obligations. The partnership is formed by an agreement entered into by eah partner. This agreement may be informal, but it is advisable to have a written agreement drawn up between all parties. While no filing with the ommonwealth is required to form a general partnership, it may nevertheless be required to file a fititious name registration. Limited Partnership A limited partnership (LP) is a partnership formed by two or more persons having one or more general partners and one or more limited partners. The limited partners have limited exposure to liability and are not involved in the day-to-day operations of the partnership. A Pennsylvania limited partnership is formed by filing a Certifiate of Limited Partnership with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State. Like with a general partnership, a written agreement should be drawn up between all parties. The agreement does not need to be filed. When applying for funding, lenders may request a opy of your partnership agreement. Limited Liability Partnership A limited liability partnership (LLP) is an existing partnership that files an eletion with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State, laiming limited liability partnership status. The effet of beoming an LLP is to provide general partners with additional protetion from liability. Like with a general partnership, a written agreement should be drawn up between all parties. The agreement does not need to be filed. When applying for funding, lenders may request a opy of your partnership agreement. 21

26 ENTREPRENEUR S GUIDE Limited Liability Company The limited liability ompany (LLC) is a hybrid between a partnership and a orporation, providing the liability protetion of a orporation, with the advantage of being treated as a partnership. A Certifiate of Organization is required to be filed with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State, aompanied by a doketing statement. Corporation A orporation is the most omplex form of business organization. Advantages of a orporation are that liability is limited to the amount owners have paid in to their share of stok, and the orporation s ontinuity is unaffeted by the death or transfer of shares by any of the owners. Some disadvantages are extensive reord-keeping, lose regulation and double taxation (taxes on profits and taxes on dividends paid to owners). To form a orporation in Pennsylvania, you must file Artiles of Inorporation with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State, aompanied by a doketing statement. Foreign (out of state) orporations must submit an appliation for a Certifiate of Authority, aompanied by a doketing statement to ondut business in Pennsylvania. Pennsylvania S Corporation Closely held orporations may elet to be taxed as federal or state S orporations, whih permit shareholders to pay taxes on orporate net inome personally, as if it were a partnership. Thus, a orporation must be reated first as disussed above. Only after a orporation is reated an S orporation status be sought. S orporation status is limited to orporations that have no more than 75 shareholders. Also, a Pennsylvania orporation annot elet to be an S orporation unless it has also applied for federal S status. Aordingly, the first step to beoming a Pennsylvania S orporation is to seek federal S status by filing IRS Form 2553, Eletion by a Small Business Corporation, with the Internal Revenue Servie (IRS). Several requirements must be met before you an obtain federal S orporation status. For more information on Pennsylvania S orporations, ontat the Pennsylvania Department of Revenue or visit its website at As you are making deisions about your business struture and the potential tax onsequenes of your desired struture, it is advisable to onsult with legal, aounting and insurane professionals. 22