Utilizing technical and academic consultants, etc., as appropriate to prepare the business plan

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1 Key People and Resources As appropriate, select: A good CPA (visit the American Institute of web site A corporate and IP attorney Form a core group of key individuals to develop the plan. In addition to a corporate attorney, IP attorney and CPA, consider: Retaining an adviser with business savvy who can bridge the gap between scientists/technologists and venture capitalists and who can sell the business plan to venture capitalists. Utilizing technical and academic consultants, etc., as appropriate to prepare the business plan Forming a scientific advisory board, if appropriate. Speak to individuals who have started up similar businesses for their advice and input. Consult with local organizations and community colleges which offer programs, services and guidance for start-up businesses. Contact local business incubators. Check the web site for the National Business Incubation Association ( for listings. Research local, state, national and international resources available on the web, as appropriate. Business Plan Develop a succinct, well thought out, flexible business plan. Clearly define business goals, strategy and critical success factors up front. Clearly define the novel proprietary technology that will drive the business and summarize its IP protection. As appropriate, include sections describing the business, products and/or services, sales and marketing, operating requirements, financial management and a summary. Include backup plans and alternatives to address areas where problems might arise use a brainstorming session to examine what if situations and modify your business plan if required. Identify your competitors and understand their technology and how it relates to yours. Determine the amount of capital you will need to start the business. o Identify and talk to venture capitalists and/or angel investors. Consider applying for a Small Business Innovation Research (SBIR) grant (visit the SBIR web site Business Formation Contact an attorney, accountant or your nearest Small Business Development Center to determine the legal structure most appropriate for your business (sole proprietorship, partnership, C-corporation, Limited Liability Corporation, etc.). Apply for your federal business number on Form SS-4. If you are setup as a Corporation, LLC or Partnership (or a sole proprietorship with employees), apply for a Federal Employer Identification Number (FEIN) from the IRS. A FEIN will be necessary to open a bank account or process payroll. Register your business name. Register the business with the state for tax and employer purposes. Comply with the legal requirements affecting your type of business. If a partnership, written Articles of Partnership are recommended even though not required by law. If an LLC, file a Certificate of Incorporation and prepare an appropriate operating agreement. o If a corporation, register the necessary documents, i.e., articles of incorporation, bylaws and shareholders agreement, operating agreement, etc. Provide for the following in the shareholders agreement or operating agreement: Page 1 of

2 Death of one or more shareholders Physical or mental disability Outside offers to purchase the shares Irreconcilable conflict Termination of employment and resignation Retirement and key person insurance/business insurance If a corporation desires to obtain federal Sub-S Corporation status, contact the Internal Revenue to receive the appropriate application [Form 2553]. Market Analysis and Marketing Plan Determine whether your product or service fills a real market need. Define the market segment for your product or service Determine whether this market segment is large enough to support your business at start-up and for the long term. Realistically assess whether your business is truly differentiated from your competition. Identify specific advantages that your product or service offers over those of competitors. Identify the potential for growth in this market. Determine whether the market is accessible through existing advertising media at an affordable cost. Determine who your customers are, where they are and how you are going to get them to know about your product. Determine which advertising media are most suitable. Consider a public relations consultant. Determine what selling methods and techniques to use. Determine how you will promote your products. Develop pricing that is appropriate for the market and for your costs. Determine the best methods of distributing your product in this market. Goals and Objectives Set clear goals and objectives for the business. Break the objectives down into achievable projects with a practical timetable for completion. Assign responsibilities for meeting these objectives to key personnel. Establish reporting procedures that enable you to monitor progress toward these objectives. Review your goals periodically to see if they are being met. If not, determine why and take steps to remedy the situation. Financial Management and Record Keeping Systemize and Organize. Prepare the business as if someone needed to take it over and run it for you. This means have a method to process orders, pay bills, pay employees, pay taxes, maintain your permits, etc. Basically, try to make the operational aspect of the business as automated and efficient as possible so you can concentrate on growing your business. Retain the services of an accountant. Set up an Accounting and Record-Keeping System. Setup your Accounting and Record-keeping system and learn about the taxes your new company is responsible for paying. Company documents generally are required to be kept for 3 years, including: a list of all owners and addresses, copies of all formation documents, financial statements, annual reports, amendments or changes to the company. All Tax and Corporate Filings should be kept for at least 3 years. Open the Company Bank Account. Select a bank and open the company bank account. TIP: Contact the bank prior to opening the account to see what their specific requirements are to open a business checking account; some banks requirements are fairly simple whereas some banks requirements are extremely complex. Discuss your preliminary financial needs with your banker. Choose a bank with reputable foreign corresponding banks if appropriate. Page 2 of

3 Establish a credit rating. Put in place the ability to send and receive wire transfers to and from your bank. Negotiate necessary contracts with franchises, suppliers, etc. Develop a workable system of records management (sales, purchases, personnel, inventory). Develop an appropriate credit policy for customers. Establish a procedure to collect your receivables. Develop a procedure to repair and replace your fixed assets. Develop an inventory control system. Establish contracts with the suppliers with whom your firm will be dealing. Establish a procedure for purchasing inventory, equipment and supplies. Identify alternative sources of supply for major purchase requirements. Develop an accounts payable procedure. Establish credit terms with key suppliers (payment terms, credit limits, discounts and finance charges). Determine your potential return on investments in this business, and whether it is acceptable. Have enough ready cash to pay your bills during the early months. Allow for monthly operating expenses in your financial planning (rent, utilities, etc.). Determine your borrowing requirements for start-up and the first year. Complete a projected balance sheet, income statement and cash flow for the first year of operation. Insure your business against major risks it faces, e.g., directors and officers insurance, liability insurance, etc. Talk to a good business insurance agent early. Do you prepare cash flow forecasts to determine cash needs? Are funds in the company s banks within the federally insured limit at all times? Does the company have an investment policy? Do the owners regularly review the monthly investment statements? Does the company regularly consider the most favorable financing available? Are there sufficient internal controls over cash and investments? Intellectual Property Protect unique inventions, processes or designs used by your firm with patents. Consider filing provisional patent applications early. Make sure this is done before the one-year statutory bar occurs. Search, clear and register your trademark with the U.S. Trademark Office ( or, at least, with your state. Enter into licensing agreements as soon as possible to bring in needed technology if appropriate. Licenses and Permits Obtain information about environmental, health and safety issues. Depending on the type of business you are in, you may need a Federal license or permit. Federal Licenses. Most businesses do NOT require a Federal license or permit. However, if you are engaged in one of the following activities, you should contact the responsible Federal agency to determine the requirements for doing business: Investment advising ( ) Drug manufacturing ( ) Preparation of meat products ( ) Broadcasting ( ) Ground transportation ( ) Selling alcohol, tobacco or firearms ( ) State Licenses. Some occupations and professions require a State license or permit. Laws vary from State to State, however, if you are engaged in one of the following professions, you should contact the responsible state agency to determine the requirements for your business: Page 3 of

4 building contractors banks insurance carriers physicians appraisers accountants barbers real estate agents auctioneers private investigators private security guards funeral directors bill collectors cosmetologists State Licenses and Permits based on products sold. Some state licensing requirements are based on the product sold. Contact your state licensing authorities to determine the licensing requirements of your business. For example, most states require special licenses to sell: liquor lottery tickets gasoline firearms TIP: Most people engaged in the types of business that require a special State License or Permit are already aware of the requirements (i.e. an accountant is familiar with the licensing requirements for accountants). Sales Tax Permit. If your company sells physical products within the state where it does business, you may have to collect and pay sales tax. This is usually accomplished by obtaining a State Seller's Permit or Resale Permit. TIP: many service businesses that do not sell a physical, tangible product are NOT required to collect sales tax, ask the State taxation agency for details/clarification. Business License. Most Cities or Counties require you to obtain a business license, even if you operate a home-based business. This is a license granting the company the authority to do business in that city/county. Taxes Arrange for registration and payment of federal taxes. Obtain a state sales tax license if required. Attracting and Keeping Employees Review agreements with former employers with respect to restrictive covenants and noncompetitor provisions that might prevent new employees from accepting employment. Determine which employees you need to start the business. Do they have proven complementary skills? Determine what additional employees will need to be hired in the event of growth. Decide on qualifications and specifications for each position that must be filled. Decide on how to find the people you need to fill these positions. Consider a professional recruiter. Check with local Chamber of Commerce for useful competitive salary information. Do you know what your competitors are offering with regard to salaries, benefits, signing bonuses, stock options, incentives? Determine the practices and methods you will use to hire/fire. Determine whether they are legal. Establish a policy on wages and salaries. Decide on employee benefits, including pensions, group insurance, profit-sharing, etc. Develop a method for evaluating your employees performance. Consider retaining a benefits consultant. Page 4 of

5 Develop an employee manual. Location, Facility, etc. Negotiate lease agreements for premises and/or equipment. Determine whether employees are within easy commuting distance of new facility location. Identify any legal restrictions that might affect your business at this location, e.g., zoning codes. Determine whether the location will allow for future growth. Are there provisions for security? Building and fire alarms? Fences? Adequate outdoor lighting? Is parking readily available? Depending on your type of business (retail, office or warehouse), arrange for office space to be leased. Contacting a commercial realtor in your area can be helpful. Also, make sure to arrange for utilities and office furniture. Research Institute guidelines for maintaining/witnessing lab notebooks so that they can be relied on in court. Notebooks should be signed and witnessed daily if feasible. If notebooks are electronic, ensure that research understands what is legally acceptable regarding witnessing. Institute a policy dealing with publication/presentation of research results. Put in place provisions for security, i.e., sign in/out books, badges, etc. Develop a safety policy to be adhered to by all researchers. Check out OSHA requirements. Personal Discuss the start-up with your spouse to determine whether he/she can support you and your company if times get difficult. Develop and maintain skills to lead and motivate your employees. Establish a corporate philosophy that is basic enough for your employees to follow. Develop and maintain effective communication with your employees. Manage your own time commitments to the business. Allow for a reasonable income for yourself. Know enough about this business to operate it effectively. If you have not worked in this type of business and experienced the practical problems that may be encountered, fill the gaps in your knowledge. If you intend to hire yourself or others as a full or part-time employee of your company, then you may have to register with the appropriate State Agencies or obtain Workers Compensation Insurance or Unemployment Insurance (or both). Management and Organization Have you defined the culture of your company? Do you have core values? What do you stand for? Do new employees, customers, lenders, and business partners know? Have you succinctly defined your business from the customer s perspective? Do you have a mission statement which conveys this business purpose? How do you capture ideas for productivity and profit? Is there a record of ideas? Do you follow up on the ideas? Are you interested in ideas from all employees? If so, how do they know that? Is there a positive atmosphere in the company? How do you insure that? Are you thinking big enough? Have you considered how you can leverage your idea through franchising or other means? Have you taken steps to protect your intellectual property and other proprietary information, such as customer lists, product files, and computerized records? Do you have written goals and objectives? Page 5 of

6 Do you have a written vision for the business? Have you identified the challenges? Does management have prioritized responsibilities so they are not drawn too much into others projects? Do you have an organization chart with clearly defined responsibilities and reporting structure? Do you have regular, short, stand-up meetings, to have responsible individuals report on progress on their goals? Do you have an effective procedure for identifying company needs and for finding and selecting individuals to hire? Have you complied with registration and licensing requirements with all applicable regulatory agencies? Do you have systems in place to file tax returns and required reports timely? Revenue Cycle Do you have a marketing plan? Are there sales management reports? Do you have a sales kit including basic information about the company s products, visuals, testimonials, and a catalog? Do you have a credit policy with credit standards, cash discounts, or sales terms? Do you have someone assuming the role of credit manager? Do you sufficiently monitor customer payments and past-due accounts? Do you have a collection policy? Do you classify customers according to volume, profitability, and credit history? Do you have a cash management program to maximize collections, interest income, and safeguarding of revenues? Are you maximizing technology for marketing, budgeting, invoicing, customer master file maintenance, accounts receivable, and analysis of write-offs? Do you have sufficient internal controls to protect from loss of revenue? Do you have a revenue budget? Do you regularly compare your actual revenue to the budget and to the prior period (month or year) revenues? Production Cycle Do you have an effective inventory management system? If you provide services, do you have an effective system to capture your labor costs? Do you need a perpetual inventory system? For services, do you capture labor costs on a daily basis? Do you restrict access to your inventory and valuable equipment? Do you have adequate production budgets and reports? Can you identify your gross margin and indirect costs by product? Is obsolescence an issue? If you provide a service, do you have excessive unbilled time? Do you have a capital asset plan for purchasing or replacing equipment? What are the expected equipment costs? Do you have a budget? When do you need the equipment? Do you have sufficient capital? Have you compared the costs of leasing vs. purchasing? What about expected repairs and maintenance? Have you sufficiently planned your space requirements? Lease costs? Energy costs? Expenditure Cycle Do you have a system for management approval of expenditures? Do you obtain competitive bids? Do you take advantage of cash discounts, payment terms for no extra cost, quantity discounts, etc.? Do you have clear travel and entertainment and expense reimbursement policies for employees? Do you insist on adequate supporting documentation? Do you have adequate internal controls for safeguarding of checks and cash on hand in banks and access to bank information? Page 6 of

7 Do you have an expenditure budget? Do you regularly compare your actual expenditures to your budget and to the prior period (month or year) expenditures? Payroll Do you have an effective executive compensation structure based on productivity? Do you have an effective employee compensation structure that will retain qualified employees and reward the highest levels of productivity? Have you considered a qualified retirement plan (such as 401(K) plan? Do you have adequate HR help for hiring, firing, performance evaluation, and employee policy manuals, etc.? Is your payroll system bullet proof? It needs to be. Have you prioritized the payment of payroll taxes and all things employee related? Nothing can get you in trouble faster than payroll issues. Have you automated your personnel records, vacation time, sick pay benefits, etc.? Risk Management Does the company have an adequate risk management plan? Consider insurance coverage, selfinsurance, and valuation of assets in case of loss, whether insurance is for cash value or replacement cost, etc. There are many types of insurance for businesses but they are usually packaged as "General Business Insurance" or a "Business Owner's Policy". This can cover everything from product liability to company vehicles. A decent policy can run as little as $300/year and offers a great extra level of protection. Consider insurance for: a. Business interruption b. Property damage c. Umbrella liability d. Fidelity insurance e. Cyberspace Does the insurance broker have malpractice insurance? How was the broker selected and evaluated? Does the company have minimum quality ratings for its insurers (such as A.M. Best rating of A- or above)? Is insurance concentrated with one carrier to ease settlements and lower costs? Does the company regularly compare proposals from other agents or brokers? External factors Does the company regularly consider economic trends: a. Global economy impact on commodities supply and foreign markets demand? b. National economy effect on anticipated inflation or recession? c. Local economy impact on labor availability and costs and sales? d. Related industries impact on commodities supply and customers? Does the company regularly consider the effects of pending government regulation or deregulation? Has the company considered the effects of competition from: a. Overseas competitors? b. National competitors expanding into the company s market? c. Additional local competitors? d. Technological change? Has the company considered the potential changes in demand resulting from: e. A switch by customers to substitute products? f. Price resistance in the market? Has the company considered the effects of possible strikes on: g. The company? h. Suppliers? Page 7 of

8 i. Customers? j. Distributors? Page 8 of