Entrepreneur Guidebook

Description
HomeTown Bank understands what drives our small business.

A guide to starting and running your small business
Entrepreneur Guidebook
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Entrepreneur Guidebook
Table of Contents
Introduction .....................................................................................................................................................2
Business Plan Start ........................................................................................................................................3
Business Plan Tips .........................................................................................................................................3
Elements of a Business Plan ..........................................................................................................................3
Cover Sheet ...........................................................................................................................................3
Table of Contents ...................................................................................................................................4
Statement of Purpose ...........................................................................................................................4
Executive Summary ..............................................................................................................................4
Business Description .............................................................................................................................4
Products and Services ..........................................................................................................................5
Marketing Description & Analysis .........................................................................................................5
Marketing Plan .......................................................................................................................................6
Operational & Administrative Plan .......................................................................................................9
Management Plan ...............................................................................................................................10
Financial Plan ......................................................................................................................................10
Steps to Starting a Business .......................................................................................................................12
Choose Your Legal Structure ..............................................................................................................13
Name Availability ..................................................................................................................................15
Domain Name Registration .................................................................................................................15
Federal Employer ID Number ............................................................................................................. 15
Assumed / Fictitious Business Name .....................................................................................................16
Select a Location .................................................................................................................................16
Apply for a Business License .............................................................................................................16
Register for Taxes ................................................................................................................................18
Business Insurance ............................................................................................................................18
Accounting and Record Keeping .................................................................................................................19
Virginia State Taxes ......................................................................................................................................20
Federal Taxes ................................................................................................................................................22
Capital Terms ...............................................................................................................................................26
Buying & Selling a Business .......................................................................................................................27
Franchising ...................................................................................................................................................30
Legal Documents .........................................................................................................................................31
Appendices:
Checklist to Starting a New Business ........................................................................................................33
Are You Ready to Own Your Own Business Questionnaire .........................................................................34
SWOT Worksheet .........................................................................................................................................35
Competitor SWOT Worksheet .......................................................................................................................36
Marketing Techniques .................................................................................................................................37
Marketing Calendar .....................................................................................................................................38
Pro-forma Income Statement ......................................................................................................................39
Pro-forma Cash Flow Statement ..................................................................................................................40
Pro-forma Balance Sheet ............................................................................................................................41
Start-up Expenses ........................................................................................................................................42
Break-Even Analysis ....................................................................................................................................42
Estimating Payroll Requirement ...................................................................................................................43
Organizational Chart ....................................................................................................................................44
Techniques for Developing Revenue Projections ........................................................................................44
Useful Web Sites ...........................................................................................................................................45
Notes ............................................................................................................................................................46
1
Introduction:
We are pleased you are considering opening or expanding a
business in the Roanoke Region and want to assist you in your
endeavor. Because small businesses play an important part
in Virginia’s economic vitality and quality of life, we strongly
encourage the establishment of new businesses and the
expansion of existing ones.
The Entrepreneur’s Guidebook can assist you in your new
business endeavor, or help you run your current business more
profitably. Included in this guidebook are guides to starting a
business, writing a business plan, tax requirements, basic legal
information, buying and selling a business, business insurance,
franchising, and obtaining capital.
The main focus of this guidebook is to assist you in writing a
business plan. Every business, both startups and existing
businesses, have a need for business planning. New businesses
that write a business plan have a 50% greater chance of success
than those businesses who do not. If you have an existing
business, you may be considering writing a business plan
because you want to expand, find additional capital, or you
simply want to understand where your business is and where
it needs to go. Whatever your reason, business planning is an
ongoing process and something every business should be doing
every year.
Effort was made to provide the best and most current information.
However, it is not all encompassing and not intended to replace
one-on-one assistance with your Small Business Development
Center Counselor or other advisors.
The Roanoke Regional Small Business Development Center is
here to help you with this process. We provide no-cost business
counseling services and can be reached in Roanoke at 540-983-
0717, through e-mail at [email protected] or visit our
Web site at www.RoanokeSmallBusiness.org.
We have compiled the information in this guidebook from various
sources including, local, state, federal institutions, and nonprofit
organizations. We have made every effort to obtain the most
current information; however, since such information is subject to
change in the future, no warranty, expressed or implied is made
regarding the accuracy of the information.
Written by Tom Tanner of the Roanoke Regional Small Business
Development Center © 2013 Roanoke SBDC
Do I need a business plan?
• You have an idea for a product/service, or have determined
there is a need that has not been met in the marketplace.
What’s next?
• You have an existing business and want to expand into new
products/services and need capital. What’s next?
• Your current business is doing OK, but you feel there is no
direction. What’s next?
Writing a business plan is your next step!
What exactly is a business plan?
• If you are considering starting a business, then a business
plan is a feasibility study to see if the business idea makes
sense. It provides a road map as to how the business
will operate, how you will market the business and will
provide financial benchmarks if you decide to proceed
with the business.
• If you are an existing business, it summarizes your current
business and looks at how your business can grow. A
business plan also includes tools needed to accomplish
this growth, including financial benchmarks.
How detailed should the plan be?
It depends on the overall purpose of the plan.
• If you are a startup business looking for financing or
investors, your plan needs to be detailed enough to
convince the reader there is a need for this business, the
business can make money, and you have the team to
make it successful. If you are writing only for yourself, the
same detail needs to be done; however, you do not need
to put emphasis on your presentation.
• If you are an existing business looking for financing or
investors, your plan needs to show that your current
business is successful, the funding you are requiring is
to grow your business, you have a strong management
team, and the business can repay the loan or investors.
• If your existing business simply needs direction, then
working through this book is an informal approach to help
you understand the current state of your business, where
there are opportunities, and how you will get there.
The most important part of the business plan is the process
itself. Doing the research, strategizing, and thinking about how
this business can be successful will improve your business
operation.
How do I start?
Writing a business plan can seem intimidating and difficult. The
best way is to look at each section in this guidebook and make
“key points” on a pad of paper. Using this book will help as there
are questions being asked that will need to be answered.
2
Do this for each section before you write any narrative. Once
you have completed your key points for each section, go back
and start writing the narrative; this will make it easier to complete.
Please note that not all questions pertain to all businesses.
Let’s get started.
Business Plan Tips:
1. Understand the purpose – Why you are writing the
plan will affect the look and detail. Is it for investors,
the bank, or just for you to understand if the idea makes
sense?
2. Write it yourself – Only you have the vision and
understanding of this business.
3. Write in 3rd person – Use ‘the business’ instead of ‘us,’
‘the staff’ instead of ‘we,’ and ‘the owner’ instead of ‘me’
or ‘I.’
4. Do not copy a sample plan – It is OK to use as a guide,
but your plan needs to meet your needs.
5. Realistic Assumptions – When making assumptions
in your financial projections, be sure they are realistic,
believable, and obtainable.
6. Make the right length – The plan should only be as
long as necessary. Do not fill the plan with useless
information. Most plans, excluding financial documents
and appendices, should be less than 20-25 pages.
7. Easy to read – Use large enough fonts, plenty of line
spacing and be sure to include graphic elements such
as pertinent charts and photos.
8. Not done in a day – Do not try to write your plan in a
day. Your business plan will need research, thought,
and review.
9. Expect the unexpected – Any good plan will include
anticipated problems and a solution for them.
10. Write for everyone – Do not use excessive technical
information as the person reading may not understand
or comprehend your idea. Put it in non-technical
language whenever possible.
11. Proofread – Be sure you and others proofread the plan
if you are presenting to investors or banks.
12. Borrow enough money – If borrowing money, be sure
you are borrowing enough, as it is harder to go back
to get additional funding after initial funds have been
provided.
13. Are you ready? – Take the quiz on page 36 before
starting to be sure you are ready to own a business and
that this idea makes sense.
Elements of a Business Plan:
What sections should be included in your plan?
1. Cover sheet
2. Table of Contents
3. Statement of Purpose
4. Executive Summary
5. Business Description
6. Products/services
7. Market Description & Analysis
8. Marketing Plan
9. Operational and Administrative Plan
10. Management and Organization
11. Financial Plan
12. Appendix
a. Pro-forma Income Statements 3-5 years
b. Pro-forma Cash Flow Statement 3-5 years
c. Pro-forma Balance Sheet 3-5 years
d. If franchise, copy of agreement
e. If leasing or buying space, copy of lease or purchase
contract
f. If buying business, copy of purchase agreement
g. Bios of the owners and key personnel
h. List of what loan will be used to buy – equipment,
leasehold improvements, etc.
i. For existing business, last three years of business tax
returns, current financial statements.
j. Other items to include employee handbook, job
descriptions, map of location, news articles about business,
copies of existing brochures, ads, etc.

1. Cover Sheet:
List Business name, contact information, and to track copies, list
“Copy ___ of ___.”
Example:
3
2. Table of Contents:
To make it easier for a reader to find particular sections, include a
Table of Contents and tabs.
Example:
Topic Page
Statement of Purpose 2
Executive Summary 3
Business Description 5
Products & Services 8
3. Statement of Purpose:
The statement of purpose is the reason why you are creating this
business plan. It is only used when the plan is to solicit funding.
What is included in the Statement of Purpose?:
• A brief description of the business and the products and
services offered
• The amount of capital being requested with suggested
terms
• If looking for investors, the number of investors, specify
debt or equity financing, and the terms or potential return
• The amount of money being invested by the owners
• What specifically will the money will be used?
Example: This business plan provides the basic strategic
information necessary for the initial purchase and operation of
Mobile Superlube, Inc. Mobile Superlube, Inc. is a mobile oil
change business offering services to consumers and businesses
and has been in business since 2005 with sales of $600,000 and
an EBITDA of $95,000 in 2009.
John Smith and Henry Jones wish to purchase this business at an
agreed upon price of $150,000. Mr. Smith and Mr. Jones will buy
the assets of the company and establish a new corporation.
Mr. Smith and Mr. Jones are requesting a loan for $125,000
for a term of five years. Mr. Smith and Mr. Jones will also be
investing $50,000 into the company, which will allow for $25,000
in additional working capital. The list of assets being purchased
is listed in the appendix.
4. Executive Summary:
The executive summary summarizes the entire business plan.
This section needs to tell a story and provide an enthusiastic
snapshot of your business idea. If you want the reader to read
your entire plan, this section has to intrigue him/her to find out
more about your business or business idea. This is the last
section you should write and should be no more than 2-3 pages,
including photos and graphs.
Review each section you have already written, and capture the
key points to use in this summary. So what should be included?
• Your story – tell a story about your idea (or your business
if in business) and how it solves a problem for a customer.
If in business, use real customers and show how you
solved their problems.
• Business Description – A brief description of the history
of your company
• Products & Services – A brief description of your
products/services
• Market Description & Analysis – A brief description of
your target market, why you believe there is a market
for your product/service and what is your competitive
advantage?
• Marketing – A brief summary of how you are going to
promote your business
• Operation – A brief summary of the operational aspects
of the company
• Ownership and Management – An introduction of the
team, including the owners and key management.
• Financial – Summary of the financial aspects to primarily
show the profitability and cash flow potential.
5. Business Description:
Include a general description about your company, or proposed
company, along with information about the industry. Many of
these items will also be listed in more detail in other sections
of the plan (such as marketing, management, operations, etc.)
Items to include:
• Mission and Vision statement
• Business name and legal entity (proposed name if
startup)
• Status of business – Startup, franchise, expansion or
buying business
• History of business – When was the business started,
type of business (retail, service, manufacturer, franchise,
etc.) Hours and days of operation.
• Products/services – Brief description of the products and/
or services you currently provide and what new products/
services are anticipated.
• Description of the industry – Is the industry growing?
What is the outlook for future growth? What changes
or challenges do you see in the future? How will the
company handle those changes?
• Company’s core competencies – What does your
company do better than your competitors? Example:
Volvo’s core competency is safety.
• Owners – Who are the owners, their percentage
ownership, and area of responsibilities? For a new
business concentrate on the experience of each partner.
• Business location(s) – Where is your business located (or
planned to be located), how long has the business been
4
there, size of facilities, rent or own, special features, etc.?
Why does your location make sense for your business?
• Major assets – List any major assets that you have beside
your facility such as equipment, computers, etc.
• Short term and long term goals - What is important to
your company in the short term and in the long term? List
at least 2-3 items for each.
• Keys to success – List 3-4 items that need to be done in
order for this business to be successful
• Sales summaries – List your sales and profit over the past
3-5 years. For new businesses, this would be left blank.
• Business advisors – This would include accountant,
attorney, insurance agent, SBDC counselor, or other
advisors.
• Regulatory information – Are there processes your
business needs to go through with the EPA, FDA or other
regulatory agency?
• Intellectual property – Do you own patents, trademarks,
copyrights or have you applied for these. Are they critical
to the success of the business?
• Photos/diagrams/charts – Provide photos of location,
current or planned equipment, products, or significant
diagrams or charts that help explain your business.
6. Products and Services:
In this section, list the products and/or services your business
currently sells. If a startup business, or existing business wanting
to add new product/services, list these in a separate section as
future products/services. Your reader may not understand the
technical aspects of your business, so be sure to explain in
easy and understandable terms. It is important to show your
enthusiasm about the possibilities of this product/service.
• What do you sell – Specifically list the primary products
and/or services you currently sell (list all if only a few).
Where are these products and/or services in the product
life-cycle (Development, Introduction, Growth, Maturity, or
Decline Stage - see chart at top of the next column)? Do
you have exclusivity or territorial limitations?
• Features and benefits – What features/benefits does your
product/service provide? Features are characteristics
that describe the product; benefits solve the customer’s
problem. Example: A LCD monitor’s feature is it is thin;
the benefits are free space on a desk and it is lightweight.
• Warranties or guarantees – Do you offer a warranty
or guarantee on your products/services? Do your
competitors offer a similar or better one?
• Competitive advantage – What is your competitive
advantage?:
• Why would customers buy this product over a
competitor’s product?
• Do you have Patents, Trademarks, Copyrights, etc.?
• Technical Support – Do you have, or will you need
to provide technical support, including telephone,
installation, or service support? Is this system in place,
and if not what are your plans?
• Regulatory – Are there any regulations that affect, or
could affect, your product/services?
• Pricing – How are your products priced and how do these
prices compare to the competition?
• Future products – What are your future product ideas for
the next 3-5 years?
• Technical products – Will you have to meet technical
milestones to be successful with this product? Why do you
believe these milestones are realistic and achievable?
• Technical data - Include drawings, brochures, etc. in the
appendix.
• Photos/diagrams/charts – Include these for the reader to
better understand your business, products, and services.
PRODUCT LIFE CYCLE
7. Marketing Description & Analysis:
You have decided you want to start a business, or expand your
current product line; the first step is completing a market analysis
to see if it makes sense to proceed. Answering these nine steps
will help you document to your business plan reader that you
have done the necessary planning to be successful.
To complete these nine steps, you will need to do primary and
secondary research.
Primary research is gathering your own data through:
• surveys - telephone, electronic, in person, mail
• focus groups
• talking to other business owners
• shopping competitors including looking at their web site
• going to trade shows,
• counting customers or traffic, etc.
Secondary research is using existing sources of data such as:
• census counts ,published traffic counts
• trade association data,
• vendors in the industry, etc.
This data is obtained from government entities, local chamber of
commerce, library, internet searches, industry trade groups, etc.
Both primary and secondary research should be used to help
develop answers to these nine steps.
Step 1: Product or Service
What is the product(s) or service(s) you will be selling?
• What problem are you trying to solve for your potential
customers? What niche will you be serving?
• Will this product properly solve this problem?
• Are you selling a single product (service), or multiple
products (services)?
• Will you be able to provide these products/services?
• Are there territorial restrictions?
• Have you made arrangements with the vendor to
offer these products?
• Can you legally sell this product/service in the area
you want?
5
Step 2: Demand
• How do you know if there is a demand for your product/
service?
• Explain the research you have done to include primary
and secondary research.
• Who else is selling this product/service in the area in
which you intend to operate?
• Are these businesses busy, or do they have excess
capacity?
• Are there new businesses starting regularly?
• Have you surveyed potential customers to see if there is a
demand? If so, what is the customer looking for? (price,
convenience, quality, selection, etc.)
• Is there unmet demand because of location, price, etc?
• What is the size of the market?
• What portion of the market can your business
realistically capture and why do you believe that?
Step 3: Industry
• How has the industry been performing over the last
decade?
• Are sales growing or shrinking industry-wide? By
what percentage?
• Is the number of businesses offering this product/
service growing or shrinking? By what percentage?
• What is the future forecast of the industry?
• Are there any technological changes that could greatly
affect the industry either positively or negatively?
• Is there any current or future government regulation that
could greatly affect this industry?
• Is this industry greatly affected by economic conditions?
• Are there any demographical/psychographical changes
that could greatly affect the industry, either negatively or
positively?
• Where is the industry in regard to the product life cycle?
(Introduction, Growth, Maturity, or Decline Stage) See
chart on page 5.
Step 4: Competitive Analysis
In this step, you need to evaluate competitors and answer the
question “Why would a customer buy from my business rather
than a competitor?” Even if you have a new product that only
your business is selling, customers still have to have a reason
to buy from your business. (See Appendix III on page 35 for a
SWOT Worksheet - Strengths, Weaknesses, Opportunities, and
Threats that should be used as a guide to evaluating competitors
and your business.)
• Who are your competitors – if you sell multiple items, you
may have different competitors for each item your sell.
• Direct – selling exactly what you are selling
• Indirect – selling items that take business away from
you, but are not exactly the same item
• Where are they located (mark them on a map along with
your location)?
• Use SWOT analysis to evaluate each one.
• Why will customers buy from you rather than your
competition?
• How easy is it for a customer to switch from one business
to another? (If you are selling software, can customers
easily switch to your product, or is it difficult?)
• Is your product easily substituted by another product?
• What are the barriers to entry for new competitors?
(high capital, production or marketing costs; Intellectual
Property protections, special skills, etc.) Are they large
enough to keep future competitors from coming into the
marketplace and taking market share?
• Where is there opportunity that your competitors are not
taking advantage of? Are these opportunities where you
want your business to concentrate (your niche)?
Step 5: Target Market
In this step, you need to understand who your customer is.
• Are you selling to consumers, businesses, government
or all three?
• What are the demographics of your customers?
• For consumers this would include age, gender,
income, education, occupation, marital/family status,
where they live, etc.
• For businesses this would include industry, location,
size of business (revenue, # of employees, etc), why
they buy (price, quality, service, etc)
• What are the psychographics of your customers?
(psychographics refers to the motivations, personality,
lifestyles and activities of your customer)
• How do you determine who your customer is?
• Your competitive analysis will give you some idea as
to demographics/psychographics. During the SWOT
analysis, you may have determined that there is a
demographic or psychographic being underserved.
• Other ways to help determine your target market:
• Industry trade groups
• Other business owners
• Vendors
• Competitors
• Surveys
• Internet research
• Marketing Research Firms
• Focus Groups
Step 6: Positioning
You have done your market research and determined there is a
demand, that the industry is strong, that you have an advantage
over your competitors, and you have identified your target
market. What niche are you serving? With this information, you
can determine how you want to position your company in the
marketplace.
6
Position is how your customer perceives your products/services.
You need to be sure you understand how you want your business
to be positioned and be sure your marketing and branding
supports this.
Your business can be positioned in many ways, here are some
examples:
• Price
• Customer service
• Quality
• Convenience - location, hours of operation
• Technical service
• Value
• Selection of products
Step 7: Pricing
Completing steps 1 - 6 will allow you to properly determine your
pricing structure.
• Follow these principles:
• Pricing must follow your positioning
• Pricing must be competitive
• What are competitors charging?
• What are customers willing to pay?
• Pricing must be profitable
Step 8: Location
After you have determined your previous seven steps, you need
to decide how you will get the product to the customer.
How will you do business?
• Retail store
• Is the location convenient, plenty of parking, good
visibility, easy ingress and egress?
• Is the location suitable for your target market?
• Visit customer at their location – use of salespeople
• Are your customers easily accessible?
• Are enough customers in the geographical area?
• Wholesaler
• Are you located convenient to transportation needs?
• Distributor
• Are you located convenient to transportation needs?
• Internet only
• Is your web site designed to properly handle
e-commerce and at what volume?
• Is your web site customer friendly?
Where will you do business?
• Geographic – as an example 1-mile radius of location,
the entire city or county or anywhere in the U.S.?
• Will you be selling on the Internet? Are there any
restrictions of where you can ship?
• Why did you pick this physical location? What are the
advantages? What are the disadvantages and how
will you overcome these disadvantages?
Step 9: Marketing
The last step to address is how you will reach your customer,
which will be explained in the following Marketing Plan section.
The primary items to consider in developing your marketing
plan includes, Packaging, Marketing, Advertising and Public
Relations.
8. Marketing Plan:
Through your research, you have determined there is a market
for your product/service. You have identified your target market,
your company’s position, and the pricing strategy. It is now time
to develop a marketing strategy of how potential customers will
find out about your incredible business. Without a thorough and
detailed marketing plan, you can have the best product in the
world, but if no one knows about your business, it will fail.
Marketing is defined as every contact your customer, or potential
customer, has with your business. This not only includes
advertising, but the appearance of your store and employees,
how your employees interact with customers, the cleanliness
of your vehicles (or even the way your employees drive).
Every employee must understand that they are marketing your
company in their actions.
Developing a marketing plan is crucial to successful marketing.
Marketing is not something you do when you have free time
or a few extra dollars to spend. To be effective, marketing has
to be consistent and frequent, meaning the same message is
communicated often.
When you were doing a SWOT of your competitors, you should
have been evaluating their marketing and advertising methods
to get an understanding of what they are doing, and even more
importantly, what they are not doing. Do they have a web site,
are they using social media, do they do internet marketing, what
media do they use, etc.? Your competitors may be relying strictly
on traditional marketing and missing the best and cheapest
forms of advertising.
When developing your marketing and advertising strategy,
remember these fundamentals:
• Where can I best reach the my customers using the
fewest amount of dollars?
• Before deciding on an advertising program, be sure it is
reaching your target market(s).
• Understand the objective of your advertising program. Do
you want to simply do brand awareness, or do you expect
to receive a certain amount of sales from the promotion?
• Be sure you can measure and track results to know
whether the program was successful.
There are thousands of ways to use marketing and advertising
dollars. In your marketing plan, develop the few techniques that
make the most sense for your business and stick with them. Be
sure your marketing plan is as detailed as possible as this will be
your marketing strategy moving forward.
7
Advertising:
Develop a marketing calendar – One of the most useful tools
is once you have determined which marketing techniques you
will use, is to put the items on a marketing calendar with dates,
budget, etc. A marketing calendar forces you to implement the
strategy of the plan (See Appendix VI on page 38).
Professional Logo – To build branding you need a distinct look
and feel of your business. Your logo represents your brand
to the world. Amateurish logos will make your business look
amateurish.
Web site – With today’s technology building a web site is cheap.
At the minimum, every business must have a web site, but also
a plan as to what your web site is to accomplish and how it will
be maintained. You should build the best site your advertising
dollars will allow. Will you use Google Analytics or a similar
service to track results?
Web site E-commerce – If you are selling on your web site how
will you market your web site to get customers to find you?
Marketing Collateral – This would include professional designed
business cards, brochures, letterhead, etc. (Use photographic
business cards with photos of your product/service to show
customers what you do.)
Public Relations – There is nothing like free advertising, but
you need to have a plan on getting your name out. This would
include press releases, news releases, making presentations
at events, belonging to groups such as chambers, Rotary, and
making regular contacts with key people in the local media.
Developing Strategic Alliances – One of the most useful tools
for small businesses is working with other businesses that are
marketing to the same customers. Do joint events and advertising,
and place flyers in other businesses. Example: a photographer
could work with a caterer, florist, DJ, wedding planner, etc. to put
together events, ads, packages, etc.
Internet Marketing – This would include free business listing with
Google, Yahoo, Bing, etc. In addition, there are Pay Per Click ads
(PPC) also with Google, Yahoo and Bing. Internet Marketing also
includes electronic newsletters using services such as Constant
Contact, iContact or Mail Chimp.
Social Media – If your target market is using social media then
this should be a strategy for your business. This would include
Facebook, LinkedIn, Twitter, Foursquare just to mention a few.
Developing a social media strategy also includes how updates
will be handled and how often and use of ads.
Referral Systems – word of mouth advertising is one of the
greatest marketing techniques available to your business, but it
does not work by itself. You have to develop a strategy as to
how you will implement referrals. This would include asking for
referrals, compensation, tracking, thanking customers, etc.
Traditional Media – this could include television, radio, yellow
pages, newspapers, magazines, billboards, etc. Be sure they
make sense for your business and are cost effective.
Packaging/Point of Purchase – packaging can sometimes sell
your product more than the product itself. This applies to the
package in which the product is delivered, the point of purchase
display or material that is promoting the product. Be sure these
are well thought out and professionally designed to appeal to
your target market.
Networking – An important element of getting your name out is
networking yourself in the marketplace to get in front of your target
market. This could be official networking events, memberships
in organizations, or involvement with social media.
Direct Mail – Even with the best electronic medias today, you
still cannot reach all of your target market. Direct mail should be
considered in the mix as a way to touch new or existing customers;
post cards in particular work well, as they are inexpensive and
have a greater chance of being read.
Other Methods – In the Appendix V on page 37 is a list of
additional marketing tools. Look through this list and pick the
items that will work best for your business and stick with them.
Sales:
Advertising will bring sales in the door. The second part of your
marketing strategy is how you will handle sales. This will include
such items as:
• Will you have dedicated sales people?
• Are they inside sales, outside sales, etc?
• If not dedicated, how will sales be handled?
• How will you train your salespeople?
• Development of standardized sales systems.
• How will you capture, distribute and track leads?
• How will you keep track of sales?
• How will you capture customer data? If you are a retail
business, will you use a POS system? If you are in direct
sales, will you use a CRM web service or software?
• What hours/days of operation will the business be open?
• Will you be selling on the internet?
• What is your sales strategy?
• How will you track sales metrics such as visits,
conversions, etc?
• How will you capture customer information?
• Will you also have telephone sales, or live online
sales support?
As your business grows, the majority of your advertising budget
should be spent on marketing to your existing customers.
Maintaining “Top of Mind” with your customers is crucial to
long-term sales. As part of your marketing plan, you should be
developing techniques to “touch” your customers as frequently
as possible (at least several times a year).
8
If you are starting a new business, or rolling out new products, part
of your marketing strategy needs to be pre-release (pre-opening)
marketing. The more complete your marketing plan and your
marketing calendar, the better the result will be in winning sales.
Customer Service:
Advertising lets your customers know who you are and what
you have to offer. Your sales strategy turns those customers’
interests into dollars. The last step is to be sure you have created
a customer service strategy and customer focused policies. This
would include:
• What procedures are in place to evaluate your customer
service standards?
• Comment cards, follow up letters, web site comment
form, surveys, 800 number
• Do your customers know your businesses policies for:
• Refunds and returns?
• Procedures for complaints or comments?
• How do you handle customers complaints?
• How quick to respond to complaints?
• Are complaints documented and followed up on?
• Who is responsible for follow up/documentation?
• How do you ensure employees follow these guidelines?
• Do you have a training system?
• Is management properly communicating to
employees the importance of customer service and
customer focused policies?
• Do you have policies in place for all business decisions to
consider “how will this decision affect our customers, or
how can we make the customer experience better?”
• Do you have a system in place to allow employees to
make recommendations to improve customer service?
• Do you have a system in place to award employees for
excellence in customer service?
9. Operational & Administrative Plan:
The Operations section outlines the processes you will use
to deliver your product to the market. This could include
manufacturing, transportation, logistics along with customer
service and technical support. The administration section
outlines how you will support the operations functions. You may
also want to develop a timeline and milestones.
Introduction:
Start with a brief introduction as to the operations and
administrative areas of the company and the importance your
company places on these areas. Be sure to note which operations
will be done in house and which ones will be outsourced.
Timeline and Milestones: Include dates and responsible party
of each event; some items may include:
• Business plan rough draft
• Develop prototype
• Business plan final draft
• Submit plan to bank(s) or investors
• Rezoning or required permits and licenses
• Interview and hire people
• Purchase equipment
• Start marketing
Production:
If you are selling products, do you produce these products or
buy finished product?
• If you produce:
• What are your production techniques/procedures?
• What is your capacity; is it in line with your sales
estimates?
• How do you handle quality control?
• How do you develop new products?
• What capital assets will you need?
• What assets do you currently have?
• What vendors provide you raw goods? (If startup,
have you identified these vendors and have an
agreement to buy from them?)
• List primary vendors. Any restrictions such as
minimum orders?
• Do you have multiple vendors for same products
in the event of shortages?
• Any anticipated shortages or major increase in
the price of supplies?
• If you buy finished products from vendors:
• Do you have vendors established? (If startup, have
you identified these vendors and have an agreement
to buy from them?)
• List primary vendors.
• Do you have multiple vendors for same products
in the event of shortages?
• Any anticipated shortages or major increases in
supplies prices?
• What is the internal procedure for ordering supplies?
• What capital assets do you have and need?
Logistics: What are your logistical requirements?:
• Inventory:
• How will you order and keep track of inventory?
• Will you have a computerized accounting system?
• Will you maintain a certain amount of inventory or use
a Just In Time (JIT) inventory?
• What amount of inventory will you keep on hand?
• What is your anticipated inventory turnover rate?
• Procurement:
• What are your procedures for procuring products?
• Do you have a computerized procurement system for
tracking purchases?
9
• Transportation:
• How will you get product to your business and how
will you get product to your customer?
• Warehousing:
• Will you be warehousing products, if so do you have
a systematic approach to warehousing?
• Order Management and Fulfillment:
• How do customers purchase products and how are
they fulfilled?
• Is there a computerized sales system?
• Fulfillment would include processing orders, packing,
shipping, and delivering product to customer.
• Customer service:
• How will customer service be handled for both
customer inquires and order taking?
• Will you use a customer service department and sales
department, or just a customer service department?
• Will they be in house or contract labor?
• Will you offer live web support?
• Technical support
• Will you need technical support personnel?
• Will they be in house, telephone, in field support or
all three?
• Will they be company employees or contract labor?
Location:
• Is the location convenient to customers and transportation
needs?
• Why was this location selected?
• Is it convenient to attract the best employees?
• What are the physical requirements of the facility (provide
a site and floor plan if appropriate)?
• Provide a map showing your location and recognizable
landmarks.
Operational Regulations:
• What are the tax requirements?
• What are the permit and special license requirements?
• Is there any special insurance/bonding requirements?
• Are there any zoning or other regulatory requirements or
restrictions?
• Do you have need for patents, trademarks, service marks
or copyrights?
• Are there any special EPA, OSHA, EEO, or other
governmental requirements?
Administration and Human Resources:
• Accounting
• Do you have a computerized accounting system?
• If you have Account Receivables do you have written
credit and collection policies?
• How will you handle Accounts Payable? Will you
have online payment, write checks, etc.?
• How will payroll be handled? Internally, contracted
out to a payroll company, or employee leasing
company?
• Do you have written standard operating procedures (SOP)
for administration and operational areas?
• Do you have detailed job descriptions, roles and
responsibilities for each position on your organizational
chart (see Appendix XII on page 44)?
• How many employees do you need?
• What is the pay scale?
• What are the training procedures for new employees?
• Do you have written training requirements?
• What are the skill requirements of each employee
position?
• Are you using employees for all functions, or will you be
using contract labor?
• Have you determined employee policies/procedures?
• Have you determined the benefits you will offer to
employees?
• Do you have a procedure for finding new employees?
• What techniques will you use?
10. Management Plan:
The most important part of any business is the people who are
running and managing it. Investors and banks would rather
provide funding to an experienced and strong management team
with a mediocre idea, than to a weak management team with a
great idea.
This section is to convince the reader you have the team that can
be successful. Discuss the company management strengths,
but also identify the weaknesses and how these will be overcome
by advisors, consultants, etc. By the end, you want the reader
to believe you have the team that can make this business
successful.
What to include:
• An organizational chart of the positions in the company with
the appropriate name assigned. In smaller companies,
each person may be assigned multiple positions. (See
Appendix XII on page 44 for sample org. chart.)
• List each key person in the business with their background,
in particular if they have had specific training in the area
your business will be in and/or experience in small
business operation. You should also include resumes in
the appendix for each key person.
• What is the compensation structure for each key person
to include salary, benefits, stock options, etc?
• If you have a board of directors, who are they and what is
their background?
• If you have an advisory board, who are they and what is
their background?
• What is the ownership structure by position and ownership
percentage?
• Where are the gaps in your team and how do you intend
to fill these gaps (advisors, consultants, independent
contractors, etc.)?
11. Financial Plan:
The financial plan is the most important section in your business
plan and the one you need to take the most time and effort to
insure it is accurate and realistic. If you do not have experience
in creating financial projections, seek assistance from the Small
Business Development Center, an accountant or experienced
consultant. Even though every section in the business plan is
important, if you cannot make money, then the business will not
be successful.
The financial plan for an existing business will have more
information than a startup.
10
At a minimum, you should be projecting sales on a month-to-
month basis for the first three years. If you are seeking financing,
your projections should reach out to the length of the term you
are requesting; however, after year three, yearly or quarterly
projections may suffice. Due to the complexity of developing
financial forecasts, this guidebook does not go into detail; it only
lists required items and samples are provided in the Appendix on
pages 39 - 41.
When developing projections you should develop projections for
what you anticipate in revenue and profit and a set of projections
of worse case scenario.
What financial reports are needed for a startup
business?
• Startup expenses to include equipment, supplies, payroll,
training, etc. (See Appendix X on page 42 for sample)
• Pro-Forma Income Statement (financial projections
showing revenue, costs, profit, etc.) showing month-to-
month for years 1-3 and annually (or quarterly) for years
4-5. (See Appendix VII on page 39 for a sample).
• Pro-Forma Cash Flow Statement, month-to-month for
years 1-3 and annually (or quarterly) for years 4-5. (See
Appendix VIII on page 40 for sample)
• Pro-Forma Balance Sheet showing beginning balance
and years ending 1-5. (See Appendix IX on page 41 for
sample)
• Break-Even Analysis – This will show at what point
(revenue, units, etc.) the business is at a break-even
point (the point where the company begins to become
profitable). The Break-Even Analysis is one of the most
important forecasting tools available to determine the
financial viability of a business or business expansion.
(See Appendix X on page 42 for example).
Additional requirements for existing
business:
• Business tax returns for the previous three years
• Interim financial statements (Profit & Loss, Balance Sheet)
that are no more than 90 days old.
• List of all current debts, the debtors, and the terms of
these debts (interest rate, when they will be paid-off, and
the current balances)
• If available, identify industry benchmarks to show how
your company compares to the industry
Assumptions:
When creating financial projections, you will be making both
revenue and cost assumptions. In the financial summary, you will
need to list these assumptions. Estimating costs are far easier
than estimating revenue.
• If an existing business, previous year’s sales are a good
indication to future sales.
• If a new product for existing business, demonstrate how
previous new products have sold and assume this product
will use a similar sales pattern.
• To determine sales of a new business you can use several
approaches:
• Talk to similar businesses in non-competing
geographical areas to determine how those
businesses did during the startup phase.
• Create a model based on realistic data. (See
Appendix XII on page 44 for example)
• Monitor your competition to estimate sales and
determine the amount you realistically believe you
can capture from those businesses, and why?
• Cost of Goods estimates can be obtained from the
vendor(s) where you will be buying supplies.
• Payroll expenses attributed to Cost of Goods will need
to be computed based on a realistic model of the hours
and pay scale required. (See Appendix XI on page 43 for
sample)
• General and Administrative costs (G&A) such as rent,
telephone, insurance, taxes, permits, etc. can be obtained
by contacting the appropriate businesses or agencies.
• Advertising expenses should be estimated based on
your marketing plan. If your advertising consists of TV,
Radio, Newspaper, Billboards, etc. then you need to
determine how much each of these items cost and use
those numbers. You may also look to see what the typical
marketing expense is for your industry (such as 3% of
sales, etc.) and use that as a guide, but your budget still
needs to match your marketing plan.
• Use industry benchmarks when possible to determine
what appropriate costs should be. Example: if you
are opening a restaurant, project that food costs are
approximately 35%.
Financial Summary:
Summarize your financial projections into an easily readable
section so the reader can see the financial capability of your
business at a glance. This would include:
• Summary of financial projection by year. Combine many
of the smaller expenses into single categories to make it
simple to read. The detail will be in the appendix of your
plan.
• Show the profitability and any key ratios.
• List detailed assumptions made in estimating revenues
and key expenses.
• Summary of current debt and new debt to demonstrate
that the company is able to carry the entire debt.
11
Steps to Starting a New Business:
You have now decided to start your new business.
What are the next steps?
Step 1: Chose Your Legal Structure:
To begin any type of new business you must choose your legal
structure. Businesses are divided into one of four basic types:
1. Sole Proprietorship
• Qualified Joint Venture
2. Partnership
3. Limited Liability Company (LLC)
4. Corporation
The decision on how to structure a business varies for each owner
but is an important decision as may affect your personal liability
and taxes. There is, of course, no need to make the business
structure more complicated than it needs to be. You may first want
to consult with an attorney, accountant, or business counselor.
1. Sole Proprietorship: A business owned by an individual who
is solely responsible for all aspects of the business. All income,
and the ability to deduct business expenses, flow directly to the
owner and is reported on their individual 1040 tax return using
a Schedule C form. A sole proprietor can have employees, own
equipment, etc. The disadvantage is that the owner is personally
responsible for anything that happens in the company, including
anything that the owner, the employees or even liability from the
product/service being sold. Normally not recommended for
businesses that intend to have employees, or be in a business
that may be susceptible to liabilities. Qualified Joint Venture: is
when spouses own a business together. To be qualified as a Joint
Venture the business cannot be setup as a LLC or Corporation,
both spouses must be actively involved in the business and there
are no other owners. If these conditions are met, then revenue
and expenses for the business can be split between the two
spouses and reported separately on their own Schedule C.
2. Partnership: Necessary when two or more people want to
start a business but do not want to setup another form of legal
structure.
A written partnership agreement, although not mandatory,
is usually a practical necessity. It describes each person’s
responsibility, how profits and losses will be divided, how a
partner can leave the business, and what happens in case of a
partner’s death, disability, or serious discord.
Partnerships must file a federal income tax return (form 1065),
but do not pay tax; each partner’s share of profits or losses
are included in the individual partner’s income tax return. The
disadvantage is that each owner is personally responsible for
anything that happens in the company, including anything that
the owners, the employees or even liability from the product/
service being sold.
Is not required to be registered with the State Corporation
Commission, but may be to assist in protecting the company’s
name, or to have the partnership on record.
3. Limited Liability Company (LLC): A LLC combines selected
corporate and partnership characteristics while still maintaining
status as a legal entity distinct from its owners. As a separate
entity, it can acquire assets, have employees, incur liabilities and
conduct business. As the name implies it provides limited liability
for the owners.
An LLC is setup with the Virginia State Corporation Commission
and is a legal entity only. For tax purposes you would still need to
decide whether you would want to be taxed as a sole proprietor
(single member LLC), a partnership (multi-member LLC) or even
taxed as a S or C corporation.
4. Corporation: The advantages and disadvantages of
incorporating are numerous and complex. They take into account
issues of duration of the business, capital formation, income
distribution and retention, liability protection, ownership transfer,
taxation, and legal costs.
A corporation is a legal entity distinct from its owner or owners.
Owners are stockholders in the company, but can also be
employees. It reports and pays taxes separately (C-Corporation
only) and its organization and operation are regulated by Virginia
law. A corporation has permanence; unlike a partnership or sole
proprietorship, it cannot be so easily dissolved. Using an attorney
to incorporate is not legally mandatory but recommended.
Once your corporation is setup in Virginia (as a stock corporation,
or a non-stock corporation for a non-profit), you must decide
how the corporation will be taxed. The choice of a S-Corporation
deals largely with tax considerations. S-Corporations pass
profits or losses on to the shareholders much like a partnership.
C-Corporations pay taxes directly and any income passed
through to their stockholders would be as dividends.
Professional Corporation (PC) or Professional Limited
Liability Company (PLC)
Professional services that include services rendered by:
pharmacists; optometrists; practitioners of the healing arts or
behavioral science professions; nurse practitioners; veterinarians;
surgeons; dentists; architects; land surveyors; professional
engineers; certified interior designers; certified landscape
architects; public accountants; certified public accountants;
attorneys-at-law; insurance consultants; audiologists; speech
pathologists; and clinical nurses must establish themselves as
either a PC (file form SCC544) or a PLC (file form LLC1103).
There are strict guidelines as to who can be a member or
stockholder in a PC or PLC and certain specific tax consequences.
Seek the advice of an attorney or other knowledgeable individual
to determine if this form of organization is right for your business.
Maintaining the Entity Integrity:
If you set up a legal entity, you need to operate it correctly or
you could lose the personal protection afforded by the entity.
Be sure to setup a separate bank account, never mix personal
and business funds, do not pay personal bills from company,
or company bills personally, sign all leases, contracts, etc. in
company name, put insurance in company name and always
sign documents with your title (sign as president, member, etc.)
** Note: Under most circumstances when borrowing funds,
business owners will be required to personally guarantee the
loan, even if the business is set up as a Corporation or LLC. In
the event the business is unable to pay the loan, the business
owners will be personally responsible. With multiple owners,
each owner will have to Jointly and Severally sign the note,
which means each business owner is responsible for 100% of
the loan regardless of the individual’s percentage ownership in
the business. Before signing any personal guarantee, be sure
you understand the risk associated with the agreement.
12
Legal Entity Comparison Chart
Sole Proprietorship General Partnership C-Corporation S-Corporation Limited Liability
Company (LLC)
Legal Liability
Owner is personally
responsible for 100%
all business debts.
Partners are equally
personally responsible
for 100% of all
business debts.
Stockholders are
only responsible up
to their investment
in the company.
An exception is
if stockholders
provided a personal
guarantee.
Stockholders are
only responsible up
to their investment
in the company.
An exception is
if stockholders
provided a personal
guarantee.
Owners are only
responsible up to
their investment
in the company.
An exception is
if stockholders
provided a personal
guarantee.
How to Setup
Get business license,
any professional
licenses, and
fictitious name
registration. Not
required to, but
should obtain FEIN
from the IRS.
Get business license,
any professional
licenses, and fictitious
name registration.
Obtain FEIN from
the IRS. Should
develop a Partnership
Agreement.
Registration with SCC
optional.
Articles of
Incorporation filed
with the SCC,
establish bylaws,
business license,
FEIN, issue stock,
create minute book.
Articles of
Incorporation filed
with the SCC,
establish bylaws,
business license,
FEIN, issue stock,
create minute book,
send in form 2553
to IRS.
Articles of
Organization
filed with the
SCC. Establish
an Operating
Agreement, business
license, FEIN,
determine how to be
taxed and notify IRS.
How is
Owners
Income
Handled
Not considered
employee so does
not have to pay
unemployment
taxes, or file federal
employment reports
such as 941/940
unless there are
employees. Owner
needs to submit
Quarterly Estimated
Taxes on personal
income earned.
100% of income
is subject to Self
Employment Taxes.
Not considered
employee so does
not have to pay
unemployment
taxes, or file federal
employment reports
such as 941/940
unless there are
employees. Owner
needs to submit
Quarterly Estimated
Taxes on personal
income earned. 100%
of income is subject
to Self Employment
Taxes.
Stockholders
are considered
employees and
are subject to
unemployment
taxes. Income
is distributed as
earned income and
reported on W-2s.
Additional income
may be received
as dividend and
stockholder would
receive form 1099.
Stockholders
are considered
employees and
are subject to
unemployment
taxes. Income
is distributed as
earned income and
reported on W-2s.
Additional income
may be received as
distribution.
Not considered
employee so does
not have to pay
unemployment
taxes, or file federal
employment reports
such as 941/940
unless there are
employees or if LLC
is being taxed as a
corporation. Owner
needs to submit
Quarterly Estimated
Taxes on personal
income earned.
100% of income
is subject to Self
Employment Taxes.
Tax Filing
Required
Schedule C with
Owner’s personal
Form 1040. Must
submit quarterly
estimated taxes.
Must complete a
Partnership Return
Form 1065. Each
partner would receive
a K-1 to report income
on their own form
1040. Must submit
Quarterly estimated
taxes
Complete Form
1120 annually.
Complete Form
1120S; distributes
K-1 to shareholders
If single member LLC
you would be taxed
as a Sole Proprietor.
If there are two or
more members, you
would be taxed as a
Partnership. LLCs
also have the option
of filing as an S or C
corporation.
13
Sole Proprietorship General Partnership C-Corporation S-Corporation Limited Liability
Company (LLC)
Taxation of
Income
Directly to owner. Directly to partners in
proportions agreed
upon by partners in
partnership agreement.
All profits taxed
at corporate
level. Extra
distributions would
be as dividends
and subject to
personal tax by
the stockholders
(double taxation).
Taxed directly to
shareholders (no
double taxation).
Percentage of
profits & losses
passed unto owners
would be based on
stock ownership.
Losses limited to
owner’s “basis”.
Depends on how the
LLC is established.
May be taxed as
sole proprietor,
partnership or S or C
corporation.
Administrative
and Legal
Costs to
Establish
Low - only a business
license and fictitious
name registration is
required.
Low to Medium –
business license
and fictitious name
registration is required.
Suggest a partnership
agreement be drawn
up. Can register with
SCC for $25.
High – establish
Articles of
Incorporation,
Bylaws, register
with SCC at a
minimum of $75
and $100 a year,
minute/stock book,
registration with
IRS. Suggested
to be handled by
attorney and/or
accountant.
High – Same as
C-Corporation
with the addition
of registering
with the IRS as
S-Corporation.
Medium to High
Registration with
SCC at $100 with an
annual fee of $50,
register with IRS and
draw up Operating
Agreement.
Fringe
Benefits
Some not deductible. Some not deductible
for partners.
Deductible, but
subject to many
rules (mainly non-
discrimination).
Generally not
deductible for over
2% shareholders.
Depends on tax
status.
Major
Advantage(s)
Easy and cheap to
start.
Chance of business
success enhanced if
right combination of
partners.
Limited liability, not
many restrictions
on classes of stock
or who may be
stockholder.
Limited liability
without double
taxation of regular
corporation income.
Easier to setup and
administer than a
corporation. Tax
treatment may be
more favorable than
corporation.
Major
Drawback(s)
Unlimited liability,
more prone to audits
by the IRS.
Unlimited liability. Greater cost to
establish and
maintain, double
taxation of income,
owners considered
employees so must
pay unemployment
taxes.
Greater cost to
establish and
maintain, owners
considered
employees so must
pay unemployment
taxes, more limits
on fringe benefits.
Depending on
circumstances,
owners may be
subject to 100%
self employment
taxes on all income
received.
14
Step 2: Name Availability:
Before deciding on a name for your business, you need to be
sure the name is not currently in use in Virginia. Contact the
State Corporation Commission (SCC) at 866-722-2551or 804-
371-9733. You can also check name availability by going to www.
scc.virginia.gov/clk/index.aspx and clicking on entity search.
You can also check to see if your logo, or potential trademark
or service mark, is available. Visit www.scc.virginia.gov/srf/faq/
tmsm.aspx to research its availability. Additional research should
be done on the federal level to be sure there are no trademark
issues by visiting www.uspto.gov/web/trademarks/workflow/
start.htm and searching the database.
Register with the Virginia State Corporation
Commission (SCC):
To register with the State Corporation Commission and complete
a corporate package, you must first choose your legal structure.
Next, refer to the list below to determine if you are required to file
with the State Corporation Commission and to identify the forms
you must complete. (SCC required forms are available by visiting
the Business Entity section of the Clerk’s Office’s web site www.
scc.virginia.gov/clk/formfee.aspx ).
Sole Proprietorship: You do not need to file with the State
Corporation Commission; however, you will be required to file a
fictitious name filing with the clerk of your local Circuit Court.
Partnership:
General Partnership: Partnership statements are filed with the
State Corporation Commission. Complete the Statement of
Partnership Authority (Form UPA-93) and file with the Commission.
A duly authenticated copy of a statement that is filed in an office
of another state may be filed with the SCC. You are not required
to file with the SCC.
Limited Partnership: Complete the certificate of Limited
Partnership (Form LPA-73.11) and file with the State Corporation
Commission. Registration with the SCC is required.
Corporation:
Stock Corporation: Complete the Articles of Incorporation (Form
SC 619) and file with the State Corporation Commission.
Nonstock Corporation: Prepare Articles of Incorporation
following the guide (Form SCC 819) and file with the State
Corporation Commission. This would be for a non-profit. The
Articles of Incorporation are required to contain certain verbiage
so be sure to read the instructions in detail, or consult an attorney
familiar with non-profits.
Professional Corporation: Prepare Articles of Incorporation
following the guide (Form SCC 544) and file with the SCC. A
professional corporation would include professionals such as
doctors, lawyers, engineers, etc.
S Corporation: To elect to be an S corporation, a corporation
must file IRS Form 2553. The election permits the income of the
S corporation to be taxed to the shareholders of the corporation
rather than to the corporation itself. If you elect S-Corp tax status,
you still need to file with the SCC as a Stock Corporation using
Form SC-619 (check with the SCC or your accountant to be sure
you are filing the correct form).
Limited Liability Company (LLC):
Domestic LLC: Complete the Articles of Organization (Form
LLC-1011) and file with the State Corporation Commission.
Professional LLC (PLLC): Complete the Articles of Organization
for a PLLC (Form LLC-1103) and file with the SCC.
Step 3: Domain Name Registration:
Though it is not required you have a web site, it is certainly
good practice to have one. To keep the name of your business
consistent with the branding of your web site, before deciding
on a business name, check to see if the URL is available. You
can check to see if the name you want is available by visiting
www.internic.net and selecting the “Whois” section. If the name
is available, then you can purchase the domain through one of
many different online providers.
Step 4: Federal Employer ID Number (FEIN):
All employers, corporations, LLCs and partnerships are required
to obtain a federal employer identification number (EIN). The
EIN identifies your business’ tax accounts on all federal and state
tax forms. A sole proprietor without employees does not need to
obtain an EIN and may instead use his/her social security number;
however, it is recommended that they obtain an EIN so that he/
she does not have to use his/her Social Security Number.
15
To apply for your Federal EIN, file Form SS-4, which you can
obtain from an IRS or Social Security office. You can also apply by
telephone calling 800-829-4933. It is recommended that before
calling you complete Form SS-4, which can be downloaded from
www.irs.gov/pub/irs-pdf/fss4.pdf; you can also apply online athttps://sa1.www4.irs.gov/modiein/individual/index.jsp
Step 5: Assumed / Fictitious Business Name:
If business is conducted in Virginia under a name other than the
legal business name, an assumed or fictitious name certificate
must be filed in the office of the Clerk of the Circuit Court in
each county or city where business is located. In addition, if
the entity is a limited partnership, a limited liability company or
a corporation, a copy of each fictitious name certificate must be
obtained and attested by the Clerk of the Circuit Court where the
original was filed, and file with the Clerk of the State Corporation
Commission. There is a $10 fee and should be mailed to the
SCC address listed below.
Register with Local Clerk of Circuit Court:
CITY OF ROANOKE: 315 Church Ave
www.roanokeva.gov Courthouse, 3rd Floor
(540) 853-6702 Roanoke, VA 24016

ROANOKE COUNTY: Roanoke County Courthouse
www.roanokecountyva.gov 2nd Floor, Room 200
(540) 387-6205 Salem, VA 24153

BOTETOURT COUNTY: 1 Main Street
www.co.botetourt.va.us Fincastle, VA 24090
(540) 473-8274
CITY OF SALEM: 2 East Calhoun Street
www.ci.salem.va.us Salem, VA 24153-7933
(540) 375-3067
TOWN OF VINTON: Contact the Roanoke County Clerk
www.town.vinton.va.us (See above)
CRAIG COUNTY: Craig County Courthouse
(540) 864-5010 P.O. Box 308
New Castle, VA 24127

FRANKLIN COUNTY: Franklin County Courthouse
(540) 483-3065 275 S. Main Street #212
Rocky Mount, VA 24151
Forms for all court jurisdictions can be found at:
www.courts.state.va.us/forms/circuit/home.html

State Corporation Commission Office:
For questions concerning registering a corporation, partnership,
or limited liability company, and to obtain forms from the State
Corporation Commission, use the following contact information:
State Corporation Commission
attn: Clerk’s Office
Tyler Building, First Floor
1300 East Main Street
Richmond, VA 23219
(800) 552-7945 or (804) 371-9967
www.scc.virginia.gov/
Step 6: Select a Location:
The location of your business can play a decisive role in the
success and failure of your business. Your location should be
built around your customers, it should be accessible, and it
should provide a sense of security.
Area zoning offices regulate the location of various kinds of land
uses including different types of businesses. A business cannot
operate at a certain location without the permission of the local
zoning office. Additionally, if you wish to have a sign at your
location the zoning department will let you know of any restrictions.
Home-based businesses are allowed in most jurisdictions,
however, check with the local zoning office for the restrictions in
your area. If your home is located within a subdivision that has a
property owner’s association, you will need to verify that you are
not in violation of any property owner covenants.
NOTE: It is important to verify zoning requirements with the
zoning office before you sign a lease, purchase property, or
make any improvements. Before signing a lease or any contract,
be sure you are signing in the name of the legal entity. Some
landlords may request that you personally guarantee a lease. Be
sure you understand all documents before signing. If there are
any questions, contact your attorney or local SBDC counselor.
Step 7: Apply for a Business License:
Local Licensing:
Any new business must obtain a business license prior to
operating. In some jurisdictions, you will be required to receive a
Certificate of Occupancy from the Planning Department. Be sure
to check with your area Commissioner of Revenue. If you operate
a contracting business (plumber, carpenter, painter, contractor, tile
layer, carpet, etc) then there are other restrictions, and you may
need multiple business licenses. Check with each jurisdiction in
which you do business to see if a license is required.
If the business tax license is applicable, it must be pre-paid as
part of the application. The tax rate varies depending on the
type of business and estimated income for the first year. Most
businesses pay a tax based on gross receipts earned in the
previous calendar year. A few categories of businesses pay a flat
fee. New businesses estimate their gross receipts for the current
year and the tax will be adjusted at a later date to reflect actual
gross receipts. Rates vary depending on the type of business.
16
Peddler and Itinerant Merchant License:
For businesses that do not have a storefront and carry their goods
to sell, there are additional license requirements (example would
be a person who sells food out of trailer at an event). A Peddler
permit is needed if you will be selling at more than one place in a
year. An Itinerant Merchant is someone who will be selling at the
same place for less than one year. Each jurisdiction is different
as to the licenses required. Check with the Commissioner of
Revenue in your area for details.
To file a registration for business license, contact the appropriate
office in your city or county:
CITY OF ROANOKE: Commissioner of Revenue
www.roanokeva.gov 215 Church Ave. S.W., Room 251
(540) 853-2521 Roanoke, VA 24011

ROANOKE COUNTY: Commissioner of Revenue
www.roanokecountyva.gov 5204 Bernard Drive, 1st Floor
(540) 772-2050 Roanoke, VA 24018

COUNTY OF BOTETOURT: Commissioner of Revenue
www.co.botetourt.va.us 1 West Main Street
(540) 473-8270 Fincastle, VA 24090

CITY OF SALEM: Commissioner of Revenue
www.ci.salem.va.us City Hall
(540) 375-3019 114 North Broad Street
Salem, VA 24153

TOWN OF VINTON: Treasurer’s Office
www.town.vinton.va.us 311 S. Pollard Street
(540) 983-0608 Vinton, VA 24179

CRAIG COUNTY: Craig County Courthouse
(540) 864-5010 182 Main Street
New Castle, VA 24127

COUNTY OF FRANKLIN Commissioner of Revenue
www.franklincountyva.org 255 Franklin Street
(540) 483-3083 Rocky Mount, VA 24151
TOWN OF ROCKY MOUNT Finance Department
www.rockymountva.org 345 Donald Ave
(540) 483-5243 Rocky Mount, VA 24151
TOWN OF BOONES MILL Town of Boones Mill
(540) 334-5404 120 Easy Street, P.O. Box 66
Boones Mill, VA 24065
Please note that the local business license is in addition to any
professional licensing requirements of the State of Virginia.
Contact your local commissioner of the revenue or town
administrator to satisfy local license tax requirements.
Regardless of the type of business, one or more local licenses may
be needed. You must contact your county or city Commissioner
of the Revenue within 30 days of starting your business to
determine which licenses you will need. In addition, you should
check with your local zoning or planning department to verify that
you can operate your business at your desired site.
Step 8: Other Requirements:
State Occupational and Professional Licensing:
The Commonwealth of Virginia regulates certain businesses,
occupations, and professions by requiring licensure before
beginning operations. In particular, this includes contractors.
For a complete list, ask your SBDC counselor or visit the Virginia
Department of Professional & Occupational Regulations at www.
dpor.virginia.gov.
Virginia Department of Health Professionals:
If you are in the field of Nursing, Audiology, Counseling, Social
Work, Dentistry, Funeral Director, Veterinary Medicine, etc. then
you need to check the licensing requirements at www.dhp.
virginia.gov. If you are a massage therapist you would need to be
licensed by Board of Nursing at www.dhp.virginia.gov/nursing.
Department of Health:
If you will be operating a business governed by the Virginia
Department of Health, you will need to understand all the
requirements for your business. Businesses affected include
restaurants or any place that serves food, medical facilities / labs,
etc. For more information, visit www.vdh.state.va.us.
ABC Board:
If your business will be selling or dealing with alcohol, you will
need to understand the requirements of the Virginia ABC Board.
For more information, visit www.abc.state.va.us.
Department of Social Services:
If your business is related to child care, adult day care, child
services, assisted living facilities, etc. you will need to understand
the requirements of the Virginia Department of Social Services.
For more information, visit www.dss.virginia.gov.
Department of Behavioral Health & Developmental Services:
If your business will be dealing with mental health, developmental
services or with substance abuse assistance, you will need
to understand the requirements of this department. For more
information, visit www.dbhds.virginia.gov.
Registration with Department of Consumer Affairs:
If you are a charitable organization, health spa, sell extended
service contracts, travel, or camping clubs, you will need to
register your business or with the Department of Consumer
Affairs. Visit www.vdacs.virginia.gov/consumer/index.shtml
Note: Each department listed above has different guidance and
involvement; it is recommended that one of the first things you do
is contact the appropriate agency to learn their requirements.
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Step 9: Register for Taxes:
Go to the section on Virginia Tax Facts on page 20.
Step 10: Business Insurance:
Proper business insurance is critical to the operation of any
business; without it, your entire business can literally be lost
overnight. It is also a complex issue. You will need to consider
various types of protection, competing insurance companies,
varying costs and benefits, and to weigh these considerations
against potential risks, your needs, and affordability.
Certain minimal insurance is essential when considering the
possibility of your business being harmed suddenly by a fire or
liability suit, yet having too much insurance can waste scarce
budget resources.
If you are operating a business from your home, make sure your
existing insurance coverage will protect your business and that
your coverage won’t be invalidated.
Some forms of insurance are required by law. Examples are
worker’s compensation and vehicle insurance. Most other forms
of insurance are optional. Some of these are described here:
Liability insurance protects your business from negligence
lawsuits (for example, injury on your premises or as a result from
your product) and can pay for the costs of defending against the
suit, as well as the possible damages. Don’t assume that forming
a corporation or LLC will provide adequate liability protection.
Casualty insurance comes in different forms: fire, theft, robbery,
storm, wind and flood damage. The insurance can cover
inventory, contents, equipment and the structure itself if you own
it. Insurance on plate glass can also be useful.
Business interruption insurance protects against loss of income
while the business is temporarily closed due to fire, power loss,
and other causes. It can also provide extra expense insurance
while your business is being reestablished.
Life and disability insurance insures an owner or a partner
against death or long-term disability. It may help the business
survive if a key person is suddenly absent. Life insurance
proceeds, under key man insurance, can enable the remaining
partner to buy the deceased partner’s share of the business.
Group health plans are an important fringe benefit in attracting
employees and creating a stable work force. Group insurance
is generally more affordable than individual insurance, but may
still be costly.
Bonds: There are two types of bonds, Surety and Fidelity:
• Surety Bond – promise to pay one party an agreed
amount if a second party fails to meet an obligation. Two
types of Surety Bonds are:
• License Bond – guarantees the business will comply
with applicable codes and regulations.
• Contract performance bonds – guarantees the
performance of a written contract according to terms
and conditions.
There are four types of contract performance bonds:
• Bid Bond
• Performance Bond
• Payment Bond
• Maintenance Bond
• Fidelity Bond – also referred to as Crime Insurance. If
you have employees that occupy a position of trust, crime
insurance coverage will assist in protecting your business.
There are several types of crime insurance coverage:
• Employee Dishonesty Coverage
• Loss Inside Premise Coverage
• Loss Outside Premise Coverage
• Depositors Forgery Coverage
Professional Liability / Errors & Omissions: protects
professional practitioners against potential negligence claims
made by their patients/clients. Professional Liability insurance
may take on different names depending on the profession. Listed
below are several types:
• Medical Malpractice - Professional liability insurance in
reference to the medical profession
• Errors & Omissions (E & O) - Include policies for public
notaries, accountants and CPAs, real estate brokers,
appraisers, engineers, insurance agents and web
site developers. There are specific E & O policies for
technology companies, such as software developers,
technology consultants and other creators of technology.
• These coverage’s focus on the failure to perform, financial
loss and error or omission of the products or service
sold.
Employment Practices Liability (EPL) - Coverage provides
protection against claims made by employees alleging
discrimination, wrongful termination or harassment, including
sexual harassment. EPL coverage pays for liability damages
and defense costs due to charges by full-time, part-time,
temporary, and seasonal employees, applicants for employment
and recognized volunteers. Coverage for claims made by third
parties, such as customers or vendors, is also available.

Business Catastrophe Liability / Umbrella Liability Insurance:
provides broad liability coverage and serves as a financial reserve
against a judgment beyond the limits of your primary liability
policies. It also provides coverage not provided by the underlying
insurance policies. Some of the important coverage’s which may
be included in your policy are: Personal and Advertising Injury
Liability, Bodily Injury and Property Damage Liability, Products
18
and Completed Operations Liability, Blanket Contractual Liability,
Broad Form Property Damage Liability, Host Liquor Liability and
Owners and Contractors Protective Liability.
Special Insurance for Food Service: If you will be operating
a food service business, there are special insurance coverages.
This includes coverage for Liquor Liability, Food Borne Illness
Business Interruption, Food Contamination Shutdown, Spoilage
due to mechanical breakdown, Equipment Breakdown Coverage.
Other Special Coverages: EDP Equipment covers damages to
computers and other electronic devices, Utility Interruption, and
Hired Auto & Non-Owned Auto coverage.
Workman’s Compensation Insurance:
Virginia law requires every employer, who regularly employs
three or more full-time or part-time employees, to purchase and
maintain workers’ compensation insurance. Employers with
fewer than three employees may voluntarily come under the law.
It is always a good idea to have coverage for your business, even
if not required, in the event that an employee is injured on the job.
Without coverage, the company will be responsible for all medical
expenses and out of work compensation. For more information
visit www.vwc.state.va.us or talk to your insurance agent.
Information about certain business entities as they apply to
workman’s compensation:
• Sole proprietors and partners are considered owners
of businesses and are not covered by workers’
compensation. However, sole proprietors and partners
may elect to obtain coverage for workers’ compensation
liability by purchasing insurance.
• Members of a Limited Liability Company (LLC) are
considered to be owners of a company and are not
covered by workers’ compensation unless specifically
covered by an insurance policy or either elected or
appointed as a manager. The manager of an LLC is
treated as a corporate officer under the registrations.

• A corporation’s officers may choose to reject workers’
compensation coverage for accidents, but not for
occupational diseases. To do so, officers must file a
“Notice of Rejection” with the insurer. If the officers
are paid regularly, they are nevertheless counted as
employees to determine jurisdiction under the Act.
Guidelines for Contractors and Subcontractors:
If you will be using contract labor, be sure your subcontractors
are covered by workman’s compensation. Additionally, you
want to be sure the relationship between your company and
the subcontractors are legitimately considered an independent
contractor. Check with the IRS to see specific information.
Accounting and Record Keeping:
From your business’s outset, it is vitally important that you set up
and regularly maintain records of your business. You need these
records to not only keep track of how your business is doing, but
also to comply with tax regulations, show proof of tax deductions,
and show values in case of insurance loss.
Simple accounting and record keeping systems are readily
available to include QuickBooks, Peachtree and some online
solutions. You may elect to maintain records yourself, hire
a bookkeeper or a family member, or use an accounting firm.
The Roanoke SBDC has created a special publication “The
Small Business Guide to Employment Taxes”. This publication
is available for free at www.RoanokeSmallBusiness.org. There
are special rules regarding compensation for owners of an
S-Corporation Be sure you understand these rules.
Each business has its own particular record keeping needs.
You will need a system to keep track of the following accounting
functions. Depending on your business, you may not have the
need for some of these items (for example, not every business
will need account receivables).
• Payroll, including payroll taxes
• Account Receivables
• Accounts Payables
• Inventory tracking and ordering
• Income or sales
• Operating expenses
• Cost of goods sold
• Tax payments
• Loan payments
• Assets purchased, sold or transferred
• Profit and loss
You will also need to decide if you will accept credit cards, checks,
or internal charge accounts. If you accept credit cards, you will
need to check with your bank or other financial institution to set
up an account. You also need to determine how you will handle
payroll. Is it done in house or by an outside service?
Registration of a Trademark or Service Mark:
A trademark includes any word, name, symbol, or device, or
any combination, used or intended to be used, in commerce to
identify and distinguish the goods of one manufacturer or seller
from goods manufactured or sold by others, and to indicate the
source of the goods. In short, a trademark is a brand name.
A service mark is any word, name, symbol, device, or any
combination, used or intended to be used, in commerce, to
identify and distinguish the services of one provider from services
provided by others, and to indicate the source of the services.
You do not have to register your name or symbol, but federal
registration has several advantages, including notice to the
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public of the registrant’s claim of ownership of the mark, a legal
presumption of ownership nationwide, and the exclusive right to
use the mark on or in connection with the goods or services set
forth in the registration. In order to register a trademark or service
mark, the word, name, symbol, or device must first be in use.
To file for a trademark or service mark you can fill out an
application online, check it for completeness, and file it using the
Trademark Electronic Application System (TEAS), at www.uspto.
gov/teas/index.html. You can also respond to office actions and
file, notices of change of address, allegations of use and requests
for extension of time to file a statement of use through TEAS. You
can check the status of your application through the Trademark
Status and Document Retrieval (TSDR) database athttp://tsdr.
uspto.gov. If you do not have access to the Internet, you can call
the Trademark Assistance Center at 1-800-786-9199 (or 571-272-
9250) to request a paper form. You may also want to consult with
an attorney who practices in the area of trademarks.
For more information about trademarks and service marks go to
the U.S. Patent and Trademark web site www.uspto.gov/main/
trademarks.htm
If you only want protection of your trademark or service mark in
Virginia, you can register it with the State Corporation Commission
at www.scc.virginia.gov/srf/faq/tmsm.aspx
Disclaimer: We have compiled the above information from various
sources including, local, state, federal institutions, and nonprofit
organizations. Our team has made every effort to obtain the most
current information. However, since such information is subject
to change in future, no warranty, expressed or implied is made
regarding the accuracy of the information.
New Hires:
Before hiring any new employee, you must have the person
complete a W-4 (Employee’s Withholding), VA-4 (Virginia
Withholding), and an I-9 (Employment Eligibility Verification). If
the employee will also be subject to Earned Income Credits, the
individual will need to complete form W-5. All federal forms can
be downloaded from www.irs.gov and the Virginia state forms
from www.tax.virginia.gov.
To find the latest version of the I-9 form, go to www.uscis.gov/i-9.
If you wish to verify the accuracy of the applicant’s information,
you may use the E-Verify system. This online verification system
will immediately inform you if the documentation the applicant
has presented to you is accurate. To register for this service (it is
free and voluntary) go to www.uscis.gov/e-verify.
When an employer hires or re-hires a full, part-time, or temporary
employee, the employer must report this information within
20 days of hiring. To download the necessary form or file
electronically, go to:http://newhire-reporting.com/va-newhire/
default.aspx
Virginia State Taxes:
To register for business taxes in Virginia go to www.tax.virginia.
gov/business and register using iReg or complete form R-1 and
return to the Virginia Department of Taxation. You may also want
to register for iFile, which allows you to file and pay your taxes
online.
Virginia Withholding Tax:
Virginia Employee tax withholding must be filed to the Virginia
Department of Taxation based on the following schedule:
Quarterly Filing Business: If the average monthly Virginia
withholding amount is less than $100, your business is a quarterly
filer. Use form VA-5 to make payments. Payments must be made
by the last day of the month following the end of the quarter.
Payment can be made by mail or EFT (Electronic Funds Transfer
using the iFile system).
Monthly Filing: If the average monthly Virginia withholding
amount is more than $100, but less than $1000 your business is
a monthly filer. Use form VA-5 to make payments. Withholding
must be made by the 25
th
day of the month following the end
of the preceding month. Payment can be made by mail or EFT
(Electronic Funds Transfer using the iFile system).
Semi-Weekly Filing: If the average monthly liability is greater
than $1,000 then your business is a semi-weekly filer. Deposits
must be made within three banking days of the withholding date
using form VA-15 (can also be made by EFT). At the end of the
quarter Form VA-16, quarterly reconciliation, must be filed by the
last day of the month following the end of the quarter.
Seasonal: When registering for taxes if you registered as a
seasonal filer, you will need to complete the same requirements.
Note: Regardless of your filing schedule, even if you have no
withholding, a return must be filed on the correct due dates.
Annual Requirement: On or before February 28
th
of each year,
form VA-6 must be filed with copies of each W-2. The VA-6 is an
annual summary of all payments made throughout the year.
Electronic Funds Transfers (EFT): Payments and filings can be
made electronically using the Virginia iFile system. However, if
your monthly liability to Virginia exceeds $20,000 then you are
required to use EFT. To register for iFile, go tohttps://www.
business.tax.virginia.gov/VTOL/Login.seam
State Unemployment Taxes:
Virginia Unemployment Tax Act (SUTA) is required for any
business that has employees. This would include the owners
of businesses that operate as a S or C corporation. To file and
pay this tax you must first register with the Virginia Department
20
21
of Taxation, or with the Virginia Employment Commission. To
register online go to www.tax.virginia.gov and select business
and register new business. You may also file Virginia Employment
Commission form VEC-FC-27 by going to www.vec.virginia.gov
and selecting forms. If you are already registered as a business
in the Virginia Department of Taxation site, but need to register
with the VEC, log into your Virginia tax account and select Virginia
Employment Taxes.
You are liable for unemployment tax if: Your business has one
or more employees who work for any portion of a day in twenty
different weeks in a calendar year, or if your total gross payroll for
any calendar quarter is $1,500 or more. If you are an agriculture,
domestic service or household employer different rules apply.
Please see Virginia tax web site for more detail information.
If you are liable for unemployment taxes, you are required to file
form VEC-FC-20 and VEC-FC-21 each quarter. This form reports
wages, taxes and employment information and is due at the end
of the month following the end of the calendar quarter. For a copy
of the form go to www.vec.virginia.gov and click on forms, then
employer. If you registered for this tax, you should receive this
form in the mail each quarter. You may also file and pay this tax
by using the Virginia iFile system.
The current taxable wage base is $8,000, which means you pay
Virginia State unemployment taxes (SUTA) on each employee
up to their first $8,000 in wages. The tax amount is based on the
historical claims of your business. For a new business, you will
start at 2.5% (this number can change). When you receive forms
from the VEC, your tax rate will be listed on form VEC-FC-20.
Estimated Taxes: If you are required to file individual estimated
taxes (and are operating on a calendar year), payments must be
made by April 15
th
, June 15
th
, September 15
th
and January 15
th
.
For individuals (if sole proprietor, partner or owner in S-Corp) you
would file form 760ES. If filing for C-corporation, then file form
500ES.
Pass Through Entity Tax: Any business whose tax entity is treated
as separate from the owner must file Virginia Form 502, Virginia
Pass-Through Entity Return of Income. This includes subchapter
S-Corporations, General and Limited Partnerships and Limited
Liability Companies (except those taxed as sole proprietors).
Form 502 is required to be file by April 15
th
of each year.
Corporate Income Taxes: Any business that is taxed as a
C-Corporation must file a corporate tax return (form 500) by the
15
th
day of the 4
th
month following the close of the corporations’
tax year. Current corporate tax rate is 6%.
Virginia Sales Tax: For the privilege of making retail sales
in Virginia, a seller is subject to a sales tax imposed on gross
receipts from retail sales of tangible personal property. The seller
collects the tax from the customer by separately stating the
amount of the tax and adding it to the sales price. Retail sales are
defined as sales to a consumer or to any person for any purpose
other than for resale.
To register for Virginia Retail Sales Tax go to www.tax.virginia.
gov and complete form R-1 or by using iReg. If using iReg, be
sure you select Retail Sales Tax. The current sales tax rate is
4% for state and 1% local (total of 5%). There may be additional
local taxes, but these additional local taxes are paid directly to
the Commissioner of Revenue.
Due Date: Retail sales tax return and payment must be made
by the 20
th
day of the month for the preceding month’s gross
receipts. You may send in sales tax return and payment either by
mail or by EFT using iFile. If the Virginia Department of Taxation
determines that your business should file quarterly, the return
must be filed and tax paid by the 20
th
of the month following the
close of each quarter. Until you are informed by the state that
your business is a quarterly filer, you are required to file monthly.
Special note for sales of food items & drugs: The tax on food
items for home consumption is 1.5% state & 1% local (2.5% total).
The definition includes most staple grocery food items and cold
prepared foods, packaged for home consumption. Specifically
excluded from the definition of food for home consumption are
alcoholic beverages, tobacco, and prepared hot foods sold for
immediate consumption on and off the premises. The reduced
sales and use tax rate does not apply to seeds and plants, which
produce food for human consumption. Prescription drugs and
some non-prescription drugs are exempt from sales tax. Please
visit www.tax.virginia.gov to find the exact qualifications.
Special note for contractors: Contractors who perform
construction or reconstruction and thus take tangible personal
property and through the construction process converts to real
property (part of real estate) is considered the end user and will
be required to pay sales tax on all purchases. The contractor
does not charge their customers sales tax on final product. There
are exceptions so check with the Virginia Department of Taxation
to ensure you are paying and collecting the appropriate taxes.
If your company is purchasing tangible personal property for
resale then you are not required to pay sales tax to the vendor
from which you are purchasing items (provided you are charging
your customer sales tax). You will need to provide your vendor
a form ST-10, Exemption Certificate (or other correct exemption
certificate, see www.tax.virginia.gov for a list of the different
exemption certificates), in order to be exempt from sales tax.
If you have a customer, who is purchasing product from your
business, but will be reselling and charging sales tax, the
customer must provide you with a form ST-10 (or other correct
exemption form) that must be maintained in your file. Be sure the
file is current with the business’s sales tax number and is signed
by designated individual.
Out of State Sales – Virginia is a designation tax state as it
applies to sales tax. If your business is shipping an item to a
Virginia address, regardless of where the customer is residing,
sales tax must be charged and kept track of and reported by
locality using sales tax form ST-9CO If an item is shipped out of
state, sales tax is not required to be collected.
Other Virginia Taxes not covered in this document. Visit www.
tax.virginia.gov for more information.
These include taxes such as: Aircraft Tax, Communications Tax,
Consumer’s Use Tax, Motor Vehicle fuel tax, Vending Machine
Tax, Watercraft Sales Tax, Cigarette Tax, Tobacco Products, Tax,
Corn Assessment, Cotton Assessment, Egg Excise Tax, Forest
Products Tax, Litter Tax, Peanut Excise Tax, Sheep Assessment,
Small Grains Assessment, Soft Drink Excise Tax, Soybean
Assessment, Tire Recycling Tax.
Cigarette Sales: every pack sold in Virginia will be required to
have both a state and local (if required) tax stamp affixed to it.
There are other requirements; visit www.tax.virginia.gov/site.
cfm?alias=CigaretteTax for more information.
Alcoholic Beverages Sales: you will be subject to taxes by the
Virginia Alcoholic Beverage Control (ABC). For information, visit
www.abc.virginia.gov/licensing.html or (800) 552-3200.
Vehicle or Bulk Fuel: If your business is selling vehicles, or
dealing with bulk fuel storage, operating a truck, etc. you will need
to register with the Virginia Department of Motor Vehicles. Go to
www.dmv.state.va.us or call 804-497-7100 for more information.
Policy Library: To view tax policy and determination by the
department of taxation on previous tax cases, visit the Virginia
Policy Library: www.policylibrary.tax.virginia.gov/OTP/Policy.nsf
Mailing Address:
Virginia Department of Taxation
Office of Customer Service
P.O. Box 1115
Richmond, Virginia 23218-1115
Forms Request Unit:
Virginia Department of Taxation
Forms Request Unit
P.O. Box 1317
Richmond, Virginia 23218-1317
Toll free: 1-888-268-2829 or
www.tax.virginia.gov/site.cfm?alias=busforms
Local Taxes – At this time, there is no local employment tax in the
Roanoke Valley Alleghany Regional Commission area.
Business License (Business Professional Occupation
License, also known as BPOL) - Required for any business
operating in any jurisdiction and must be renewed on an annual
basis. Renewal applications are normally sent out in January of
each year and usually must be paid by March 1
st
. Businesses are
tax based on their gross receipts and category of the business.
Check with your local Commissioner of Revenue’s Office for
more information.
Tangible Business Personal Property Tax – Any tangible
property that is owned by a company, this includes machinery
and tools, furniture, fixtures, computers, (software excluded)
etc. must be listed on the tangible personal property form your
business receives each January. Each item must be listed with
purchase date and original cost. Form must be filed (not paid)
by February 1
st
of each year. You will be sent a tax bill that will
be due in May. Filing and due dates in your jurisdiction may be
different, so check with your Commissioner of Revenue’s office
for more information.
Other local Taxes – If you will be operating a food or beverage
business, you will need to register with the local Commissioner of
Revenue for both Meals and Beverage Taxes. There are certain
requirements for grocery, convenience stores, and caterers; check
your local jurisdiction for specifics. In addition, there is a lodging
tax for hotels and travel campgrounds and an admissions tax on
public amusement, entertainment, performance, exhibition, and
sport/ athletic events. There may be other taxes related to utilities,
telephone, right of ways, etc. For any questions regarding local
tax requirements, check your local jurisdiction.
See chart on page 24 for Current Local Tax Information. Taxes
are subject to change; check your jurisdiction for current amount
and taxes required.
Federal Taxes:
For businesses that have employees (counting the owners of
corporations):
Employment taxes – this includes Social Security, Medicare, and
employee withholding. Deposits can be made with a coupon and
payment to a local financial institution, mailing directly to the IRS
or using the Electronic Federal Tax Payment System (EFTPS).
When to deposit – your business will either be a monthly or
semi-weekly depositor. Determination is made each year based
on tax liability reported on your Form 941 during the lookback
period. Lookback period is the 4-quarters beginning on July 1
and ending on June 30
th
of each year. If your business reported
$50,000 and less for the entire 12-month period, your business
is designated as a monthly schedule depositor. If you reported
more than $50,000 then you are a semi-weekly depositor.
Monthly depositors must deposit by the 15th for the previous
month.
Note: New businesses are considered monthly depositors for the
first calendar year of operation.
Required Tax Reporting:
Form 941, Employer’s Quarterly Federal Tax Return, is required
to be filed by the last day of the month following the end of each
quarter. This report lists the total payroll of all employees, the
amount of tax withheld, and what payments have been made.
The report may be mailed or filed electronically using the e-file
system.
22
Form 940, Employer’s Annual Federal Unemployment (FUTA)
Tax Return, must be filed by January 31
st
of each year reporting
data from the previous year. FUTA deposits must be made
quarterly by the end of the month following the end of a quarter
if your liability is more than $500. If liability is less then $500, you
may wait until the end of the next quarter to deposit.
Estimated Taxes – Individuals and corporations are required to
make estimated tax payments by April 15
th
, June 15
th
, September
15
th
, and by January 15
th
. Complete form 1040-ES for individual
estimated payments, or form 1120-W for C-corporations.
Form 1099 - There are three primary 1099 forms businesses
may be required to use. The most common is 1099-MISC, which
is used to report miscellaneous income to non-employees for
services rendered for more than $600 in a calendar year. The
1099-INT is to report interest paid to individuals or non-corporate
entities of more than $600 in a calendar year. The 1099-DIV would
be to report dividends paid to stockholders in a C-corporation.
Federal E-File System – The e-file system allows your business
to electronically file your returns. The IRS does not offer this
service, but is offered through third party providers only. In order
to use the E-File system you will need to find an IRS e-file provider
by going to www.irs.gov/efile. Some of these providers include
most payroll services, accounting software such as QuickBooks
and online providers such as www.filetaxes.com.
Federal EFTPS – Electronic Federal Tax Payment System, is the
IRS electronic payment system. You are not able to file tax forms,
but only make payments to the U.S. Treasury. There is no charge
to use this system. To register or find out more, visithttps://www.
eftps.gov/eftps. Starting January 2011, if your business is
classified as a semi-weekly or monthly filer, you are required
to use the EFTPS system.
Due to the ongoing modification of tax laws, the information
provided here is strictly a guide. To be sure you are properly filing
and paying all taxes, your business should contact the Virginia
Department of Taxation and local Commissioner of Revenue, and
the IRS.
Additional Information:
To download the Virginia Employer’s Handbook, go to:
www.vec.virginia.gov/vecportal/employer/pdf/emphandbook.pdf
To download the Virginia Tax Facts, go to:
www.tax.virginia.gov/Documents/TaxFacts.pdf
For information on Federal Taxes visit www.irs.gov and download
the following publications.
Publication 15 Employer’s Tax Guide
Publication 15-A Employer’s Supplemental Tax Guide
Form 1040 ES Estimated Tax payments
If you have employees, you will need to display labor posters that
are visible to each employee. To determine which posters you
need, visit: www.doli.virginia.gov/publications/required_posters.
html
Workman’s Compensation Insurance: For information as to
requirements visit: www.vwc.state.va.us

Other Required Filings:
W-2: Must be given to each employee by the end of January of
each year.
1099: Must be sent to each vendor or person, by the end of January
of each year, that meets the particular 1099 requirements.
W-3: Must be filed with a copy of each W-2 by February 28
th
if
filing by paper; if filing electronically, the due date is March 31
st
.
1096: Must be filed with a copy of each 1099 by February 28
th
if
filing by paper; if filing electronically, the due date is March 31
st
.
If semi-weekly payroll tax schedule depositor -
State – Deposits must be made with form VA-15, or filed using
EFT within 3 banking days following payroll payment.
Federal – Deposits must be made on the following schedule. If
payroll is paid on Wed, Thurs or Fri, deposit must be deposited
by the following Wednesday. If payroll is paid on Sat, Sun, Mon
or Tues. deposit must be made by Friday.
Tax Calendar: See chart on page 25 for a listing of when tax
filings and payments are due.
*Note: Does not include semi-weekly tax payment schedule.

This document is only a guide in understanding the taxes
associated with your business. Research was done to obtain
the most accurate information possible; however, check with the
appropriate taxing agency, or your accountant to ensure that you
are properly accounting for all taxes and reports required for your
business.
23
24
With Whom
You Register
Meals
Tax
Lodging
Tax
Admissions
Tax
Cigarette
Tax
Business
License
Tax
Business
Personal
Property Tax
Roanoke
City
Department of Finance
215 Church Ave, Rm 212
Roanoke, VA
www.roanokeva.gov
(540) 853-6825
5% paid
monthly; due
by the 20th
day following
the month tax
was collected
8% paid
monthly; due
by the 20th
of the month
for preceding
month sales
5.5% paid
monthly; due
by the 20th
of the month
for preceding
month sales
*Roanoke Civic
Center Admis-
sions Tax = 9%
54¢ per
pack
Due
March
1st
Filed by
February 15th;
paid by
May 31st
Roanoke
County
Commissioner of Revenue
5204 Bernard Drive, 1st Fl.
Roanoke, VA
www.roanokecountyva.gov
(540) 772-2046

4% paid
monthly; due
by the 20th
of the month
for preceding
month sales

5% paid
quarterly; due
by the 20th of
the month for
the preceding
quarters sales
5% paid
monthly; due
by the 20th
of the month
for preceding
months sales
15¢ per
pack
Due
March
1st
Filed by
February 1st;
paid by
May 31st
City of
Salem
Finance Department
114 North Broad Street
Salem, VA
www.ci.salem.va.us
(540) 375-3061
4% paid
monthly; due
by the 20th
of the month
for preceding
months sales
6% paid
monthly; due
by the 20th
of the month
for preceding
months sales
5% paid
monthly; due
by the 20th
of the month
for preceding
months sales
Due
March
1st
Filed by
April 15th;
paid by
December 5th
Botetourt
County
Commission of Revenue
1 West Main Street
Fincastle, VA
www.co.botetourt.va.us
(540) 473-8270
4% paid
monthly; due
by the 20th
of month for
preceding
month’s sales
5% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
Due
March
1st
Filed by
May 1st;
paid by
December 5th.
Franklin
County
Commissioner of Revenue
1255 Franklin Street
Rocky Mount, VA 24151
www.franklincountyva.org
(540) 483-3083
4% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
5% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
not
required
Filed by
May1st;
paid
December 5th
Town of
Rocky
Mount
Finance Department
345 Donald Ave
Rocky Mount, VA 24151
www.rockymountva.org
(540) 483-5243
5% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
5% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
Due May
31st
Paid Feb 28th
Town of
Boones
Mill
Town of Boones Mill
120 Easy Street
P.O. Box 66
Boones Mill, VA 24065
(540) 334-5404
4% paid
monthly; due
by the 20th
of the month
for preceding
month’s sales
Due
January
1st
Filed by
May1st;
paid by
December 5th
*Chart is provided only as a guide. Taxes are subject to change; check your jurisdiction for current amount and taxes required.
Current Local Tax Information
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25
Tax Calendar - see pages 20-23 for tax requirement explanation
Capital (Funding) Terms:
Start-up Capital: Capital you need before the business opens.
See the start-up expense sheet in the Appendix X on page 42 for
a list of expenses that might be necessary.
Working Capital: Money needed for day-to-day operations. For
a startup business, this means having enough capital available
until you reach a break-even point. This sometimes takes from a
few months, to several years depending on the industry. When
doing financial projections, be sure there is enough extra capital
to allow for unexpected expenses or delays in reaching the break-
even point.
Debt Financing: Financing you receive from an entity that must
be paid back over a specific period. Debt financing does not give
the lender any ownership rights. Debt financing could include:
• Bank financing
• SBA guarantee loans through local bank
• Microloan programs - small loans from $500 - $50,000.
• Loans from friends/relatives – be sure to complete a
Promissory Note
• Loans from stockholders – be sure to complete a
Promissory Note
• Asset based lender – company that provides loans against
Account Receivables, Inventory or Purchase Order
• Credit Cards
• Crowd Funding sites -Kickstarting.com, lendingclub.com,
prosper.com to name a fee.
Equity Financing: Money put into a business in exchange for
ownership rights to the company. This money is not paid back
on any specific time schedule and is considered an investment in
the business. Equity financing could include:
• Personal savings – retirement funds, home equity loan,
savings, life insurance, etc.
• Friends or relatives
• Private Investors
• Angel Investors
• Venture Capital Firms
• Crowd Funding
Internal Financing: Using the sources within the business. This
could include:
• Customers – customers may provide a down payment
• Vendors – businesses from which you buy may provide
you extended terms.
• Retained Earnings – if your business is producing profits
then there is additional money left in the company to
provide needed cash.
Leasing: Leasing is an option for many businesses for the
purchase of equipment. Banks, manufacturers, distributors,
franchisors, etc. usually have leasing programs. Leasing come
in two types:
• Operational Lease – also known as a Fair Market Value
lease, this is where you pay a specific payment each
month and at the end of the contract, if you want to buy the
equipment you would pay a “fair market value.” Normally
these lease payments are treated as an expense so you
are able to deduct 100% of the payment each month.
Additionally, the item is not added to your fixed assets
and neither is the lease amount added as a liability.
• Capital Lease – also known as a $1.00 buyout, this form
of a lease is similar to a loan in that the item would have to
be capitalized, meaning you would need to add the item
to the fixed assets and the item cost as a liability. The
item would then be depreciated over the normal life of the
product. For tax purposes, you would only be allowed to
expense the interest and then depreciate the equipment.
There are several advantages and disadvantages to leasing:
• Advantages –
• Upfront cost are usually less
• Usually easier to get than a loan
• Could be better tax incentives
• Good for equipment that needs frequent updating
such as computers or copiers
• Disadvantages –
• You cannot pay off the lease early without significant
penalties
• If you have a Fair Market Value lease then there is no
equity
• Interest rates are usually much higher than traditional
loans
• Limitation use, such as in cars and the number of
miles driven
• If lease is for equipment that would normally be
exempt from sales tax, in a Fair Market Value lease
you would still have to pay sales tax
Grants: Are there really grants available for a small business, or
is that just a myth? Most of the information you hear about grants
available for “for-profit” businesses are myths, if not outright
scams. The government does not hand out money for you to
start your coffee shop or other small business. There may be
grant programs available for small businesses tied to a specific
industry, such as social programs, or a product that might be
available for use by the government, such as for the military,
Department of Education or National Institute for Health. These
grants are complex and usually very competitive. To find out
more, go to www.grants.gov.
Angel Investors/Venture Capital: Both Angel Investors and
Venture Capital businesses are interested in taking businesses
with high growth potential and investing in the company in the
form of ownership. Each is different in their goals:
• Angel Investors are usually local business people or
entrepreneurs that want to help a startup or existing
business move to the next level. Their interest is in the
investment, but to also be a mentor and contributor to the
success of the business. If you consider angel investment
for financing, be sure you know the investors’ goals.
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• Venture Capital is provided by firms that are looking for
high growth business opportunities in businesses that can
grow and be sold within a short time frame. They require
an active role in the business, which may conflict with
the goals and objectives of the owner(s). Most venture
capital firms are looking for investments in the $500,000+
range and usually in the high-tech or bio-science field.
Private Placement Offerings: If you will be seeking private
investors beyond your family, then you will need to create a
Private Placement Offering. It is best to seek the advice of an
attorney who has experience in this field.
Facts About Small Business Loans:
• You will need to have good credit
• You will need to put some capital into the company as
banks or investors will not loan or invest in your company
unless you have
• If borrowing funding, you will be required to sign a
personal guarantee
• Getting a loan is not quick, so expect several months to
go through the process
• Startup businesses are harder to finance than existing
businesses
Buying or Selling a Business:
Buying a Business:
Starting a new business can be daunting and take months or
sometimes years to become profitable. Additionally, finding
capital to start a new business is becoming more and more
difficult. Buying an existing business can eliminate many of these
issues, or at least make it easier.

Advantages:
• Proven track record of profitability
• Reduction in up-front costs
• Immediate positive cash flow
• Existing customer base
• Existing and trained staff
• Easier to find capital to include loans/owner financing
Disadvantages:
• Initially higher price than what it would cost to start from
scratch
• Problems of which you are unaware – legal, customer
service, employees, etc.
• The owner may be the business and employees and
customers won’t follow new owner
• Paying more than what the business is worth; the owner
may have an unrealistic opinion of the business’ value.
Tips to Buying a Business:
• What do you want to do? - In which type of business
would you enjoy working? You will be committing
numerous hours and capital to this business, so you want
to be sure that you are doing something you will enjoy.
• Capital Available - How much capital do you have available
to invest? There is risk, so you need to understand the
worst case scenario.
• Look online - Start your search with online business
listing services to see what types of businesses are for
sale and listing price.
• Ask others - Ask friends, relatives and business associates
if they know of businesses for sale that meet your criteria.
Additionally, many businesses are sold that were never
for sale; if you see a business you would enjoy owning,
ask the owner if they ever consider selling.
• Seek Professionals - Many of the best businesses for sale
are not publicly listed and are handled strictly by business
brokers. Talk to different business brokers to see what
markets they serve, what businesses they currently have
for sale, and to keep you updated of new ones.
• Be diligent - When you find a business that might be of
interest, you need to conduct a thorough investigation.
You will be asked to sign a letter of confidentiality to
proceed.
• Questions to answer - When you proceed with your due
diligence, here are some questions you need to answer:
• Why is the owner selling the business? If the owner
is retiring or ill and has owned the company for years,
this could be a legitimate reason. Other reasons
include burnout, career change, etc. Dig deep to find
the real reason.
• Review the business’ last three years (if not more)
tax returns, and the internal financial statements (by
month or quarter) for last three-five years.
• Are sales trending up or down?
• Is the industry trending up or down?
• Is the business profitable? Is there enough
cash-flow to service the debt and have sufficient
excess?
• If there is A/R, what is the aging and are there
numerous bad debts? This could signal
problems.
• Do not believe internal financial statements unless
audited by a CPA. Compare the financial documents
to the tax returns to see if they match. Ignore all
claims by owner of unreported income. If the income
is not on the tax return, it is not real income.
• Obtain a list of all assets that will be sold with business
to include date purchased, initial cost, and current
book value.
• Will you need to immediately replace or add
equipment, which will use capital resources?
• Is the Accounts Receivable or any debt being
sold with business?
• How will you determine the value of inventory? Is
there any old or outdated inventory?
• How is the business structured (as a corporation,
LLC, etc)? Will you buy the business, or just the
assets of the business? This could have legal and
tax implications.
• Does the company have any contracts and if so are
they long term and safe?
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• Who are the biggest customers? Compare their
last three years’ sales. Are their sales increasing or
decreasing?
• Get a list of employees with job descriptions, length
of service, pay rate, etc. What is the likelihood they
will stay with new owner?
• How long will the current owner stay on during
transition?
• Is the current owner “The Business”? In other words,
how easy will it be to transition the employees and
customers to a new owner?
• Is there a lease on the location? If so, how long and
what are the terms? If location is critical then a long-
term lease is necessary. If location is not critical, then
a short-term lease may be more favorable.
• What sort of marketing has the company been doing?
What marketing will you need to do to expand and
how much more capital will this require?
• Who are the main competitors? Is there a likelihood
this could change in the future and take market share?
What are the barriers to entry for new competitors?
• Is the price the owner asking reasonable? Will the
owner provide any owner financing?
• Are there any issues with customers, employees,
legal or environmental that could cause problems in
the future?
• Are there any new laws that could affect the business,
or a new traffic pattern that could deflect traffic from
your location?
Once you have all your answers, you need to determine your own
business valuation. This can be done using several valuation
techniques discussed later in this section. Part of your evaluation
process is developing income and cash flow projections for the
next three-five years.
Regardless of the price you come up with, the cash flow from the
business will have to pay your debt service with sufficient cash
reserves unless you are willing your own additional capital.
Selling a Business:
You have built your business for years and are now ready to sell.
Do not let all your hard work and investment go down the drain
because you made a quick decision to sell. In most cases, you
should be planning 1-2 years out to sell your business if you want
to maximize your selling price. Here are a few tips to selling your
business and getting the best price.
Tips to Selling Your Business:
• Plan ahead to sell and understand what buyers will be
looking for.
• Clean up your financial documents
• Be sure the business is not paying for personal or
unnecessary expenses. You need to show increased
profitability.
• Be sure all income is being run through the company,
no off-the-book income. You want your sales as
strong as possible and showing growth.
• Get rid of worthless inventory and turn into cash.
• Clean up A/R and get as current as you can and
collect past dues and get bad debt off books.
• Look at ways you can increase sales over the next few
years. Can you improve your marketing, update web site,
sell to new markets, or offer new services or products.
You want to show growth.
• Increase profitability, cash flow in particular. Can you buy
more efficiently? Can you cut costs, such as payroll or
other expenses? Do what you can to show improved
profitability.
• Look at your customer list. If you have several customers
providing the bulk of your income, look to diversify.
Potential buyers get nervous when they see the bulk of
sales coming from only a few customers, regardless of
how safe those customers may be.
• Sell under-performing assets, or assets you do not need.
• Buy new assets if they will make the business more
attractive to buyers and immediately produce new revenue
and profit streams.
• Clean up location. This could mean painting, new carpet,
and uniforms for employees, etc. Buyers are looking at
the appearance, and customers will notice.
• Develop written operational procedures so that a new
owner would feel comfortable with understanding the
business. Find ways the business can operate without
you. You need to show that the company can run and
make money without you having you hands in ever facet
of the operation.
• Write a business and marketing plan so the new owner
can see the possibilities of the business.
• Consider using a business broker to sell your business.
The broker can screen out any lookers and only present
serious potential buyers. They can also find buyers you
could not and usually get a higher price than you could.
Be sure you pick the best broker for you and that they
have a marketing plan on how they will sell the business.
• Be sure to understand what the real value of your business
is. Do not try to overprice the business and chase away
legitimate buyers, and do not ask too little and leave
money on the table. Consider having a professional
business valuation performed.
• Be prepared to either take a lower amount, or be willing to
owner finance part of the sale.
• Before releasing any information to potential buyers,
be sure you get signed a legally binding Confidentiality
Agreement.
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• Check out any potential buyers by doing credit and
background checks. If there is no way they can get
financing, do not waste your time.
• Keep quiet, as you do not want your employees,
customers, or vendors knowing about your interest in
selling. If you believe they will find out, then be sure you
get their buy-in. To most buyers the staff will be a critical
component of the sales price.
• Do not expect the business to sell in a short time; some
businesses take 1-2 years to sell.
• Be sure you are selling at the best time, so you can
maximize the sale price. Sell when sales and profits are
rising.
• Be sure you understand the tax and legal issues involved
with the sale of a business. Consult with an attorney or
CPA who understands these issues.
• If you have a buyer interested, keep the negotiations
moving. Once you have a signed purchase agreement,
the buyer should not take more than 2-3 weeks to
complete their due diligence. Do not let this stage drag
on too long.
There are many issues involved in selling a business. To protect
you and to get the maximum selling price, hire people who are
experienced in this area. This would include a business broker,
an attorney familiar with business purchases, and a CPA that is
familiar with the tax consequences of selling a business.
Business Valuations:
A realistic business valuation requires more than just looking at
the current financial statements. To get the most realistic value
of the company, you must analyze historical financial information
going back 3-5 years, looking at the future projected income
statements and an understanding of the industry, the economy
and how your company will compete in the marketplace.
There are several different techniques used to evaluate a
business. Smaller businesses are usually evaluated mainly on
cash flow, while larger small businesses may be evaluated on
capitalized earnings, or comparing several different techniques.
Use the method(s) that works best for you.
Cash Flow Method:
Unless you have additional capital to handle costs above the
cash flow of the business, you will need to have positive cash flow
starting on day one to cover all debts. When using this approach,
it is assumed it does not matter how many assets the business
has, if there is not enough cash flow to pay the debt service, the
business is over-priced for the terms of the financing.
You determine the actual cash flow by taking the profit and adding
back non-cash items, or costs assigned to previous owner. This
is sometimes referred to EBITDA (Earnings before Interest, Taxes,
Depreciation, and Amortization).
Step 1: Items to add to profit include, but are not limited to:
• Depreciation
• Amortization
• Interest Expense
• Income taxes (not business or property taxes)
• Owner’s Salary & Benefits
• Any other expense that would not normally occur
Step 2: Once you have determined cash flow, you will need to
determine your new additional costs. Take the cash flow in Step
1 and subtract:
• Interest and Principal of all debt, including new debt
• New owner’s salary & benefits
• Any new expenses you will need such as equipment or
additional marketing expenses
After you have subtracted all your costs there should still be
sufficient cash remaining to allow for other unanticipated costs,
or a decrease in sales.
Profit or Sales Multiple:
A good method to value a small business is using an industry
multiple times the profits, or sales.
Profits method: Using the cash flow method created in Step
1 above, you would then multiply this amount by the industry
multiple. To find an industry multiple you would need to do
research. There are many industry resources to include web
sites, industry groups, etc. If you are dealing with a business
broker, they will usually have access to this information.
Example: There is a dry cleaner for sale with annual revenues of
$800,000 and a cash flow of $125,000. The industry multiple for
a dry cleaner doing more than $500,000 and less then 1 million
is 2.5. To determine a fair price you would take $125,000 x 2.5=
$312,500. In this case, the business would be worth around
$312,500. There are variables that could affect price such as
age and condition of equipment, length of lease, and whether the
cash flow trend is increasing or decreasing.
Sales method: Some industries use the sales multiplied by an
industry factor, not taking profit into consideration; these are
usually service businesses such as accounting and legal firms.
Book Value: This is a simple approach to valuation by taking the
current book value of the assets and subtracting the liabilities. It
is not usually a good value, as the book value may not reflect the
true value of the assets especially if the assets are inventory, or
intangible assets such as intellectual property, or goodwill.
Tangible Book Value: This approach is similar to book value, but
the intangible assets, such as goodwill and intellectual property
are not included.
Asset Market Value: This is similar to the Book Value approach
except you get true market value of the assets which may be
larger or smaller than the book value. In particular inventory and
intangibles need to be evaluated as to realistic market value.
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Inventory may be overstated due to the fact that it is old, outdated
or damaged. Goodwill may not be properly stated, and patents
may be ready to expire and no longer have value.
Capitalized Adjusted Earnings: This approach uses the buyer’s
expected rate of return from this business. Since most investors
could recoup 8-10% in the general market, small business risks
are usually evaluated with a rate of return of 15-25%. Longer
established businesses would be lower, while newer less
established businesses would be higher. The lower the rate of
return the higher the price for the seller so the seller and buyer
need to agree on what is a fair rate of return for this business.
The formula is taking the cash flow of the business using a
weighted average over the past five years, or taking the previous
year and dividing by the rate of return (if the business is trending
up you may just take last year, or average the last two years). This
will give you the selling price of the business.
Example: A dry cleaner is for sale, and the buyer is expecting a
25% rate of return; the cash flow for the past five years is listed
below.
Weighted Average Approach:
Year
Cash Flow
(CF)
Weight Adjusted CF
2005 $75,000 1 $75,000
2006 $85,000 2 $170,000
2007 $90,000 3 $270,000
2008 $100,000 4 $400,000
2009 $125,000 5 $625,000
Total 15 $1,540,00
Average
CF
$102,666

If you use the weighted average approach:
$102,666/.25 = $410,664 is the value of the business
If you take the last year’s cash flow:
$125,000/.25 = $500,000 is the value of the business
If the seller believes the rate of return should only be 20%, then
the value of the business changes dramatically.
Weighted average approach:
$102,666/.20 = $513,330
If you take the last year’s cash flow:
$125,000/.2 = $625,000
As you can see from the examples, determining a reasonable
rate of return can have dramatic differences in the business
valuation.
Franchising:
A franchise is a system a company (franchisor) uses to market
their products/services by granting individuals or groups
(franchisee) the right to use the franchise’s brand (trademark &
name) and their proven system of operation within a well defined
territory.
The franchisee must adhere to the operational and marketing
standards that have been established by the franchisor and to
operate within a defined geographical area. The agreement is
usually a long-term contract lasting upwards of 20 years.
Why Choose a Franchise: A franchise may be a perfect fit for
someone who has not been in business before, or likes the idea
of operating under a proven system, and wants to own his or
her own business. They also want to reduce some of the risk
associated with starting a business from scratch. Franchises are
available for almost all retail or service industries. To out more
about franchises, visit the SBA approved franchise list (allows
faster approval for SBA loans) www.franchiseregistry.com, or the
industry trade association www.franchise.org.
Advantages of a Franchise:
• Established name recognition
• Business has developed a proven system of success
• Provides training and advice in how to start and operate
the business
• There is an established branding and marketing system
• Better buying power for supplies or services
• Networking with other franchisees
• Award systems within the franchise operation
• Exclusive rights to a geographical territory
• Usually easier to get financed than traditional startup
• Franchisor may have special financing arrangements
• Higher success rate than traditional startup
Disadvantages of a Franchise:
• Loss of independence on how you want to run and
operate your business
• Startup costs are higher
• Royalty and advertising fees last as long as contract
• Growth restrictions as you have a territory. To expand you
have to buy additional territories
• Usually an inability to sell online, carry new products/
services without franchisor’s approval
• Franchisor may not be reliable or provide necessary
support
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• Could be harder to sell business as franchisor has right to
approve new owner
• Other franchisee could give your location bad name if
they provide poor service
• Long term commitment, usually with no easy termination
• In some cases there is an increase in cost of supplies
as the franchisor may charge more for inventory than
purchasing elsewhere
Franchise Disclosure Document (FDD):
The Franchise Disclosure Document (FDD) is a legal document
that franchisors are required to furnish franchisees at least 10
days prior to signing a Franchise Agreement. The FDD contains
critical information about a franchise operation and is designed to
help franchisees analyze whether the franchise is right for them.
The FDD contains these and other items:
• Information on the franchisor
• Litigation history to include bankruptcy, lawsuits, etc.
• Initial franchise fee and other initial payments
• Royalty, advertising and other fees and expenses
• Obligations of franchisee to purchase or lease from
approved vendors
• Obligations of the franchisor
• Exclusive/Designated territory
• Trademarks, Service Marks, Trade Names, Logos, Patents,
Copyrights
• Obligations of the franchisee
• Restrictions on goods and services offered by franchisee
• Renewal, termination, modification or resell of agreement
• Actual, average, projected or forecasted franchise sales
or profits
• Financial Statements
• Contracts
Note: While a disclosure document is required by law, no legal
body has reviewed its contents to ensure its accuracy, which is
why retaining an attorney that is familiar with franchise laws is
usually appropriate.
Franchise Agreement: Document that legally binds both
Franchisor and Franchisee. This document lays out the rights
and obligations of each party.
Tips Before Deciding Whether the Franchise is Best for You:
• Ask current franchisees how their experience has been.
Has the franchisor provided what was promised? Has
the business generated the results they thought? Are
they pleased they went with this franchisor? Be sure to
find franchisees yourself, not just the ones the franchisor
provided to you.
• Do they have at least 25 locations? The more locations
and more successful locations show that the system they
have works. You should beware of franchises just starting
and only have a few locations.
• Have you done market research to see if this type of
franchise will work in your geographical area? Just
because a franchise is successful in California does not
mean in will be successful in Southwest Virginia.
• Do they have good training and support staff? Some
franchisors operate on a shoestring with one or two
people doing everything. You need to be sure they have
well trained and qualified staff.
• Are they financially viable? Is there any reason to believe
they cannot provide support due to lack of capital?
• Is the franchise agreement something you can live with
for the term of the contract? Even if the franchisor does
not do what you thought they would do, it is usually hard
to break an agreement, which means you will continue to
pay fees regardless of the support you are receiving.
• Do a detail analysis of the income and profit projections.
Be sure you can make money with the sales you have
forecasted. Be conservative in your estimates.
• How much of the advertising allowance you pay to the
franchisor is put back into the local market? Some
franchisors place your ad dollars in areas that are of no
benefit to you, which means you need to project additional
marketing dollars.
Legal Documents:
Incorporation-
• Articles of incorporation – Key document submitted
to the State Corporation Commission (SCC) to legally
establish a corporation in Virginia.
• Bylaws – Document that defines how the company will
operate and the rights and powers of the shareholders.
• Unanimous Consent – The adoption of resolutions, etc.
where each board member agrees to an action without
formal meeting of the board.
• Resolutions – Corporate resolutions approved by the
Board of Directors with one of the key elements containing
a list of individuals who are authorized to conduct specified
actions on behalf of the company. Typical authorization
would include the ability to sign checks and commit to
loans, or to buy and sell assets of the corporation.
• Stock Certificates – Documents reflecting legal ownership
of a specific number of stock shares in a corporation.
• Corporate Minutes – Documents formalizing agreements
made by the board of directors. You are required to have
the board meet once a year to elect officers. Meetings
are also conducted whenever a significant action will take
place within the corporation.
Limited Liability Company-
• Articles of Organization – Form required to be completed
in order to become established as a Limited Liability
Company in Virginia. This form is completed and sent
to the SCC.
• Operating Agreement – Document used by a Limited
Liability Company to outline how the LLC will operate.
This will include such items as who the members are,
what ownership rights they have, how much capital was
contributed, how one member sells their ownership
interests, etc. This document is not required if it is a single
member LLC. The Operating Agreement is an internal
document between the owners and is not recorded with
any government agency. The agreement should be
updated when necessary, signed by all parties, notarized,
and given to each party and the company’s attorney.
Buy/Sell Agreement – Agreement between owners of a business
(applies to all legal entities) as to how ownership of the business
is transferred. Usually has limitation on who ownership can be
sold to, the value of the ownership, what happens in event of
death, divorce or bankruptcy. This is an extremely important
document for every business if there are multiple owners. In
many instances, a “Key Man” insurance policy is purchased
for each partner so in the event one partner dies, the insurance
proceeds will allow the other partners to purchase the stock from
the estate of the deceased partner.
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Promissory Note – document that specifies the terms, rights,
and obligations that apply to a loan. It should include interest
rate, payment terms, due dates and be signed by the borrower.
Should be completed any time the business borrows money.
Non-Disclosure Agreement (NDA) – agreement under which
a party(s) agree(s) not to disclose confidential or proprietary
information which they receive or have access to from another
party. Used when a company may want to hire a manufacturer to
build a product, or hire a consultant to provide services and will
be exposed to critical business information.
Subcontractor Agreement – agreement between a company
and someone who is performing duties for that company in a
subcontracting basis. Is not just for contracting companies, but
can be used by any company to confirm a relationship between
a company and another company or individual to reaffirm there
is not an employee relationship.
Lease – agreement between a landlord (or lessor) and a tenant
(or lesser) where the lesser is leasing property (real estate or
business property) from the lessor under specific terms (length
of lease and cost). Be familiar with tax and legal issues involved
in leases.
Personal Guarantee – agreement where one individual
guarantees another person, or entity, his or her personal
guarantee that an agreement will be fulfilled. This is usually
associated with loans, leases or the purchase of equipment and
supplies. Regardless of how your business is legally structured
(corporation, LLC, etc) a personal guarantee operates outside of
these restrictions.
Sales Contract – document stating the terms of sale between the
company and another party. This document will state the exact
items being provided, the cost, dates, and terms.
Bill of Sale – document under which a seller transfers property
to a buyer. Not used for real estate, but can be used for any
real property to include vehicles, machinery, tools, etc. This
document should state what the item is and that it is free and
clear of all liens.
UCC/Lien – legal document that is filed with the State Corporation
Commission and a local courthouse to show property that has
been pledged against a note or other security agreement.
Hold Harmless Agreement – legal contract designed to protect
one party from the liability of another party. Used when one party
uses the services/property of another party, yet the first party
does not want to be responsible for the second party’s actions.
Should be properly drafted by an attorney who understands
liability law.
Copyright - laws that regulate the use of work by the creator of
a work. Examples would include artist, photographer, designer,
or author. This includes copying, distributing, altering, and
displaying creative, literary, and other types of work. Unless
otherwise stated in a contract, the author or creator of a work
retains the copyright. Copyrights do not have to be registered
to be enforced. Registering a copyright establishes a date and
proven ownership and will allow for additional compensation in
the event of a copyright infringement. Copyrights are registered
at www.copyright.gov.
Patent – set of exclusive rights for a period of time for an
invention in exchange for public notification. An invention can
be a product, system, useful improvement, etc. Patents do have
an expiration date. This is commonly referred to as Intellectual
Property Rights (IP). Patents are registered at the United States
Patent and Trademark Office www.uspto.gov.
Trademark/Service Mark - word, name, symbol, or device
that is to indicate the source of the services or products and
to distinguish them from the services or products of others. A
service mark is the same as a trademark except that it identifies
and distinguishes the source of a service rather than a product.
The terms “trademark” and “mark” are often used to refer to both
trademarks and service marks. Trademarks and Service Marks
are registered at the United States Patent and Trademark Office,
www.uspto.gov.
Partnership Agreement – similar to an operating agreement,
except for a partnership.
Letter of Intent – in general, an agreement to agree. It outlines
the terms between parties who have not formalized an agreement
into a contract and want to continue formal negotiations. Letters
of intent are generally not binding and unenforceable. Such
letters indicate an intention to do something later.
End User License Agreement – licensing the use of a product
(such as software) rather than selling the item (CD or DVD).
This gives the user the right to use the product, but not allow to
resale. To determine if this agreement is right for your product
seek professional guidance from an experienced attorney in
intellectual property rights.
Private Placement Offering – If you will be selling ownership
in your business to investors (besides family/relatives) you may
need to create a Private Placement Offering to be sure you are not
in violation of security laws. Contact an attorney who is familiar
with private placement offerings before contacting investors.
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Appendix I: Checklist to Starting a New Business
Items to Complete: Completed
Start business plan, Marketing Plan, Financial projections, Break-Even analysis
Determine if any special professional licenses, permits or requirements are required from the Department
of Professional & Occupational Regulation (DPOR), ABC Board, or from the Departments of Health,
Mental Health, and Social Services
Determine possible locations – use for estimating costs
Determine estimated start-up costs and necessary funding, including working capital
Locate possible funding sources – can you get the money you need
Select Accountant & Attorney to help in business plan development
Determine business location and negotiate lease – (do not sign), check on zoning, parking, sign, days of
operation, or other restrictions. Be sure you can obtain your business license.
Determine Business Name – see if available (no conflicts, trademark issues, etc.)
Check to see if URL is available for the business name or something close
Reserve name at SCC, purchase URL (you can wait on this step for financing)
Complete business plan and financial projections
Complete Marketing Plan and develop Marketing Calendar
Submit business plan to potential lenders and investors
Receive confirmation of business loan, or have access to necessary capital
Submit for any special licenses, permits, requirements, etc. This would include DPOR, ABC Board, and
the Departments of Health, Mental Health, and Social Services
Determine business legal entity
Set-up legal structure of business - (file with SCC)
Purchase URL if you have not done so
Apply for FEIN & submit any necessary tax information to IRS (S-Corp. section)
Setup bank account in name of business
If taking credit cards, select credit card processor
Setup accounting system to start tracking expenses & income
Finalize lease with landlord – setup phone, utilities, etc.
Obtain funds from financing – deposit in business account
Obtain necessary insurance to include workman’s compensation
Purchase necessary equipment
Obtain Business License and register for any local taxes (meals, entertainment, etc.)
File fictitious name registration with courthouse
Register with Department of Taxation for all Virginia Taxes and VEC registration
Hire employees – complete all necessary hire paperwork, setup payroll system
Obtain all necessary employment posters and display
Design logo, print business cards, letterhead, brochures, etc. (can be done earlier)
Design and get live business Web site.
Register any trademarks, service marks, patents or copyrights (can be done earlier)
Develop marketing plan for pre-opening and implement
Open for business
Schedule Grand opening
Send out Press Release about opening
*Note: Not all items are needed for every business. Place an N/A in the completed column if the item is “Not Applicable”
to your business. This checklist is just a guide and some items for some businesses will need to be completed in different
sequences. Adjust the list to meet your particular schedule.© RRSBDC 2013
34
Appendix II: Are You Ready to Own Your Own Business?
Answer these questions to see if you are ready to start a business:
Yes No
1. Are you committed to doing whatever it takes to start a business?
2. Are you a self-starter and self-motivated?
3. Do you like to be challenged and find new ways to do things?
4. Can you work independent of someone giving you directions?
5. Do you consider yourself honest and ethical, and will you treat customers the same way?
6. Do you get along well with different personalities?
7. Are you good at solving problems?
8. Are you good at managing people and projects?
9. Are you creative?
10. Can you make timely decisions?
11. Are you emotionally and physically capable of working long hours?
12. Are you good at managing your time?
13. Are you well organized?
14. Do you have the support of your family to make the necessary sacrifices?
15. Are you willing to put in the necessary time and energy?
16. Are you willing to make the financial sacrifices of putting your assets at risk and being the last one to be paid?
17. Are you good at multi-tasking?
18. Do you have the background and knowledge to operate this business?
19. Do you understand what your strengths and weaknesses are?
20. Have you worked in the type of business you are interested in starting?
21. Are you willing to take the extra steps to improve the knowledge areas that you are lacking?
22. Do you possess general business skills?
23. Are you good at managing money?
24. Are you a good salesperson so you can sell your business to others?
25. Do you enjoy networking or speaking about your business to other?
26. Are you good at public speaking and making presentations?
27. Are you willing to do any job needed to include taking our trash, etc.?
28. Are you able to overcome discouragement when things do not go right?
29. Can you handle stress?
30. Have you identified key advisors and/or mentors?
31. Do you know what your personal goals are and do they align with your business goals?
32. Do you have a written business plan?
33. Do you have good credit?
34. Do you the assets available to start the business and are you willing to risk those funds?
35. Are the conditions right in your life and in the economy to start a business?
36. Do you have a plan for meeting your personal living expenses until the business is profitable?
© RRSBDC 2013
Appendix III: SWOT Worksheet
Business Name: _______________________________ Date __________
Item S W O T Comments
Pricing
Quality
Convenience/Location
Customer Service
Product Selection
Hours of Operation
Yrs in Business
Reputation
Employees
Web site
Add Ons
Refund Policy
Warranties/Guarantee
Low Price Guarantee
Free Delivery
Free Training
Parts/Service Dept
Customer Service
Marketing Strategy
Ease of Doing Business With
Distribution
Target Market
Appearance – store, emp, cars
© RRSBDC 2013
Select S (Strength) if this is a strength for your business. In the comment section, list the exact strength and explain how you can
develop this opportunity.
Select W (Weakness) if this is a weakness for your business. In the comment section, explain how you can improve upon this item.

Select O (Opportunity) if there is an opportunity for your business to take advantage of this item. In the comment section, list the exact
opportunity and explain how you can develop this opportunity.
Select T (Threat) if there is a threat in this area. In the comment section, explain how you can eliminate or reduce the affects of this
item.
*Note: This is a sample of items to compare. Your list may include more or different items.
35
Name of Competitor Business _______________________ Date ____________
Item S W Comments
Pricing
Quality
Convenience/Location
Customer Service
Product Selection
Hours of Operation
Yrs in Business
Reputation
Employees
Website
Add On’s
Refund Policy
Warranties/Guarantee
Low Price Guarantee
Free Delivery
Free Training
Parts/Service Dept
Customer Service
Marketing Strategy
Ease of Doing Business With
Distribution
Target Market
Appearance – store, emp, cars
© RRSBDC 2013
S = Strengths of the business, W = Weaknesses of the business
You can either use an x, or use a number between 1-5. A (1) would be minor strength or weakness. A (5) would mean
that this business has either a strong strength or weakness. You can add the numbers up to see what the totals are. In
the comment section list specific items.
36
Appendix IV: Competitor SWOT Worksheet
37
Appendix V: Marketing Techniques
Developing a marketing plan
Use of a marketing calendar
Develop and use elevator speech
Professional logo
Business card – use of back
Invoices/stationary show company
image
Process of asking for referrals
Hours & days of operation
Quick return of calls & e-mails
Proper demeanor on phone
Following up with customers after
sale
Comment cards
Thank you cards
Exceeding expectations
Fusion marketing – strategic
alliances
Community involvement
Web site
Collecting e-mail addresses
Selling on your web site
Use of SEO on your web site
Pay Per Click ads (PPC)
Google, Yahoo and Bing Business
Center listings
Getting reviews for business center
listings
Starting a Blog
Participation on a Blog
Testimonials – video/audio
Presence on LinkedIn, Twitter
Facebook, YouTube,
Write and E-Book, or E-article
Tele-seminar
Conduct a webinar
Develop Podcast/Webcasts
Affiliate links on web site
E-commerce/Ebay Store/etc.
Professional color brochure
Door hangers
Frequent buyer programs
Customer reactivation letters
Offer free workshops
Remain “Top of Mind” with
customers
Signature line on e-mail with web,
tag, etc
Warranty/guarantee
SWOT of competitors
Establish advisory board
Secret shopper program
Add ons – free delivery, free training,
etc.
Bundling – multiple products, one
price
Networking – plan to do properly
Write articles for papers, etc.
Vehicle wraps on company vehicle
Employee sales training
Employee customer service training
Employee appearance
Store, vehicle, etc. appearance
800 Number
Conducting free seminars
Giving speeches for groups,
associations
Offering free refreshments
Free gift to customers
Survey customers
Small Business Awards – or other
awards
Member of groups, associations,
chambers
Pricing
Contests/sweepstakes
Phone on hold marketing
Postcards
Gift cards (personalize to your store)
Point of purchase signs (POP)
Yellow page ads
Publishing a newsletter
Radio ads
TV & cable ads
Classified ads – newspaper/trading
post, etc.
Craigslist
Autoresponders
Newspaper ads
Online yellow page ads
Place your product in other ads
Movie theatre ads
Free samples
No hassle return/refund policy
Flyers on bulletin boards
Smile & greet you customers
Proper literature in waiting area
Sales/prospecting letters
Inserts in paper
Trade show display
Assisting with other workshops
Write a column for paper
Public Relations – writing press
release
Displays in other businesses
Focus groups
Frequent customer discount
programs
Photographic business cards
38
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Appendix VI: Marketing Calendar
39
Appendix VII: Sample Income Statement
40
Appendix VIII: Sample Cash Flow Planning Sheet
41
Appendix IX: Sample Projected Balance Sheets
42
Appendix X:
Start-up Expenses
Pre-paid expenses
• Insurance
Licenses & Permits
• Business License
• Building Permits
• Vehicle Registration
• Corporation Fees
• Special Licenses
• ABC license
• Contractor license
• Other
Professional Fess
• Attorney
• Accountant
• Consultant
Deposits
• Rent
• Phone/Utilities
Pre-opening Advertising
• Logo Design
• Web site
• Business Cards
• Stationary, etc.
• Printing: brochures, etc.
• Pre-opening media
Beginning Inventory
Leasehold Improvements
• Location Improvements
• Signs
Other Fixed Assets
• Furniture & Fixtures
• Computers
• Software
• Manufacturing Equipment
• Vehicles
Supplies
• Office
• Cleaning
Cost of Financing
• Down payment on loan
• Closing costs
• Appraisals
• Pre-paid interest or payments
Employee Costs
• Hiring Costs
• Cost to Train
• Wages before opening
Research Costs
• Market Analysis
• Business Plan Development
• Travel Costs, etc
• Product Development Costs
Unanticipated Costs: add 10% to total
Note: Be sure to add enough working capital to cover
your business until you reach breakeven.
Break-Even Analysis
A break-even point is when sales are equal to expenses.
In other words, you are not making or losing money. In
order to determine your break-even point, which is an
extremely important tool, you will need to know your fixed
expenses and your gross margin as a percent of sales.
Fixed expenses are expenses that are independent of
either production or revenue. In other words, if you had
no sales for the next month, what costs would you still
have? Listed below is the procedure for determining your
break-even point.
Sample Profit & Loss Statement:
Sales $100,000
Cost of Products $40,000
Direct Labor $20,000
Gross Profit $40,000
Fixed Expenses:
Advertising $2,000
Insurance $1,000
Rent $1,500
Telephone $500
Salaries $5,000
Utilities $1,000
Interest Expense $1,000
Leases $1,500
Supplies $500
Total Fixed Expenses $14,000
Step 1:
Calculate your gross profit margin:
Gross Profit / Total Sales = Gross Margin
$40,000/$100,000 = 40% or .4
Step 2:
Your total fixed costs are $14,000.
Step 3:
Calculate your break-even point:
Total Fixed Expenses / Gross Profit Percentage =
Break-Even Point
$14,000/.4 = $35,000
Your break-even point per month would be $35,000.
If you were selling a single item that sold for $100 then
you could calculate how many units you would have to
sell. Take $35,000/$100 = 350. To break even you would
have to sell 350 units at $100.
If you are selling multiple items at different margins, you
will need to do a more thorough analysis by determining
product mix and using a weighted average.

Appendix XI: Estimating Payroll Requirement
If your business will have multiple employees, you will need to determine your anticipated payroll. Based on your business,
payroll may be based on sales, production, or even hours of operation.
Use this chart to help determine your payroll.
Payroll estimate based on number of hours store is open:
Example: The store is open 50 hours a week, you need 2 employees in the store at all times, and you pay $10.00 an hour.
Weekly hours
open
Monthly hours open
Column 1*52/12
# Employees
Needed
Average
Wage
Total
Payroll
50 50*52/12 = 217 2 $10/ hour 217*2*10 = $4,340
In this case your monthly payroll would be $4,340. You could make this even closer by determining the exact days in
the month the store will be open. In the case above, we took the average hours per month. This also does not take into
consideration seasonality of a business.
Payroll estimate based on production, or the need for people based on what they produce:
(This could be the hours needed in manufacturing to create the product, or in a childcare facility where you have to have
an employee for each 10 children.)
Example: A day-care has to have one employee for each 10 children. Average wage is $9.00 an hour. Employees work 40
hours a week, 52 weeks a year.
Month # Children # Employees Wage Total Payroll
January 8 1 $9.00 $1,557
February 12 2 $9.00 $3,114
March 25 3 $9.00 $4,671
Quarterly Total $9,342
The formula for March would be 3 x 173 x 9 = $4,671. There are 3 employees, 173 is the average hours per month and
$9 is the hourly wage.
43
44
Appendix XII: Organizational Chart
Techniques for Developing Revenue Projections
In order to properly project revenue in the future you need to develop a realistic model that works for the business you are
developing.
Example: You want to open a restaurant downtown. You have done proper market research by surveying potential customers,
and observing other restaurants during different times of the day.

Given these assumptions, develop your revenue projections.
• The location is 2000 square feet and will have 20 tables that seat four people.
• The average table use is 3 people per table.
• You will serve lunch and dinner, and you estimate you can turn your tables twice at lunch and three times at
dinner.
• The average cost of lunch is $10 per customer and in the evening is $15.
• Your business will be open 7 days a week.
• Take the total tables of 20 and then multiply by 3 (number of people per table) = 60 people you serve at a time.
For lunch you turn your tables twice at $10 per customer so multiply 60 x 2 x 10 = $1200. This shows that you will produce
$1,200 a day for lunch.
For dinner you turn your tables three times at $15 per customer so multiply 60 x 3 x 15 = $2700. This shows that you will
produce $2,700 a day for dinner.
To determine your monthly and yearly sales take the above numbers.
• Monthly Sales – $1,200 + $2,700 * 30 = $117,000 a month in sales (assuming 30 days per month)
• Annual Sales - $117,000 * 12 = $1,404,000 in sales in a year.
This is a simple approach and does not take into account such variables as seasonality, or changes based on the day of
the week, etc. However, using this approach with whatever you are selling will help you estimate sales and provide you
somewhat realistic assumptions. You do not want to project sales that are physically impossible to achieve. Such as
producing the same sales above with 3 tables. If you were preparing this for a new business, you would need to factor in
slower sales in the beginning months until you reach a break-even point.
Appendix XIII: Useful Web Sites
Local:
www.ci.salem.va.us – City of Salem
www.roanokeva.gov – City of Roanoke
www.roanokecountyva.gov – Roanoke County
www.co.botetourt.va.us – Botetourt County
www.vintonva.gov – Town of Vinton
www.franklincountyva.org - Franklin County
www.rrsbdc.org – Roanoke Small Business Development Center
www.rvarc.org – Roanoke Valley Alleghany Regional Commission
State:
www.scc.virginia.gov – Virginia State Corporation Commission
www.tax.virginia.gov – Virginia Department of Taxation
www.newhire-reporting.com/va-newhire/default.aspx - Registering new hires
www.vec.virginia.gov – Virginia Employment Commission
www.abc.virginia.gov – Virginia Alcoholic Beverage Control
www.dmv.state.va.us – Department of Motor Vehicles
www.vwc.state.va.us – Virginia Workman’s Compensation Board
www.doli.virginia.gov – Virginia Department of Labor
www.dba.virginia.gov – Virginia Department of Business Assistance
www.cit.org – Virginia Center for Innovative Technology
www.dpor.virginia.gov – Virginia Department of Professional and Occupational Regulation
www.vdh.state.va.us – Virginia Department of Health
www.dss.virginia.gov – Virginia Department of Social Services
www.dbhds.virginia.gov – Virginia Department of Behavioral Health & Developmental Services
www.vdacs.virginia.gov/consumers/registrations.shtml - Department of Consumer Affairs which licenses charities, Health Spas,
Travel Clubs, extended service contracts, campgrounds, etc.
www.dmbe.virginia.gov – Department of Minority Business Assistance – Handles SWaM certification
www.eva.virginia.gov – eVA system which handles Virginia State Procurement
www.vsb.org – Virginia Bar Association – assistance with locating attorney
www.vscpa.com - Virginia Society of CPA – assistance with locating CPA
www.virginiasbdc.org – Virginia SBDC Network
www.vetbizresourcecenter.org – Virginia Veteran Resource Center
www.vawc.virginia.gov/analyzer/default.asp - Virginia Labor Statistics
www.VAWorkConnect.com - Virginia Workforce Connection – special programs for employers
www.vatc.org – Virginia Department of Tourism
Federal:
www.dol.gov – Department of Labor
www.census.gov – United States Census Department
www.grants.gov – Federal government grants
www.irs.gov – Internal Revenue Service
www.uscis.gov/i-9 - Citizenship & Immigration Services – I-9 form
www.uscis.gov/e-verify - E-verify service for verifying immigration status
www.doe.gov – Department of Energy
www.vetbiz.gov – Veterans in business web portal
www.sba.gov – Small Business Administration
www.uspto.gov – United States Patent and Trademark Office
www.copyright.gov – United States Copyright Office
www.franchiseregistry.com - SBA franchise registry
www.business.gov – Official business link to federal government
www.stats.bls.gov - Bureau of Labor Statistics
www.bea.gov – Bureau of Economic Analysis
www.export.gov – Export assistance
www.govloans.gov/loans/type/3 - Available government small business loans
www.map.sba.gov/hubzone/hzqry.asp?state=VA – HUB Zone listing
www.sbir.gov – Small Business Innovative Research Grant info
45
Appendix XIII: Useful Web Sites
Local:
www.ci.salem.va.us – City of Salem
www.roanokeva.gov – City of Roanoke
www.roanokecountyva.gov – Roanoke County
www.co.botetourt.va.us – Botetourt County
www.vintonva.gov – Town of Vinton
www.franklincountyva.org - Franklin County
www.rvarc.org – Roanoke Valley Alleghany Regional Commission
State:
www.scc.virginia.gov – Virginia State Corporation Commission
www.tax.virginia.gov – Virginia Department of Taxation
www.newhire-reporting.com/va-newhire/default.aspx - Registering new hires
www.vec.virginia.gov – Virginia Employment Commission
www.abc.virginia.gov – Virginia Alcoholic Beverage Control
www.dmv.state.va.us – Department of Motor Vehicles
www.vwc.state.va.us – Virginia Workman’s Compensation Board
www.doli.virginia.gov – Virginia Department of Labor
www.dba.virginia.gov – Virginia Department of Business Assistance
www.cit.org – Virginia Center for Innovative Technology
www.dpor.virginia.gov – Virginia Department of Professional and Occupational Regulation
www.vdh.state.va.us – Virginia Department of Health
www.dss.virginia.gov – Virginia Department of Social Services
www.dbhds.virginia.gov – Virginia Department of Behavioral Health & Developmental Services
www.vdacs.virginia.gov/consumers/registrations.shtml - Department of Consumer Affairs which licenses charities, Health Spas,
Travel Clubs, extended service contracts, campgrounds, etc.
www.dmbe.virginia.gov – Department of Minority Business Assistance – Handles SWaM certification
www.eva.virginia.gov – eVA system which handles Virginia State Procurement
www.vsb.org – Virginia Bar Association – assistance with locating attorney
www.vscpa.com - Virginia Society of CPA – assistance with locating CPA
www.virginiasbdc.org – Virginia SBDC Network
www.vetbizresourcecenter.org – Virginia Veteran Resource Center
www.vawc.virginia.gov/analyzer/default.asp - Virginia Labor Statistics
www.VAWorkConnect.com - Virginia Workforce Connection – special programs for employers
www.vatc.org – Virginia Department of Tourism
Federal:
www.dol.gov – Department of Labor
www.census.gov – United States Census Department
www.grants.gov – Federal government grants
www.irs.gov – Internal Revenue Service
www.uscis.gov/i-9 - Citizenship & Immigration Services – I-9 form
www.uscis.gov/e-verify - E-verify service for verifying immigration status
www.doe.gov – Department of Energy
www.vetbiz.gov – Veterans in business web portal
www.sba.gov – Small Business Administration
www.uspto.gov – United States Patent and Trademark Office
www.copyright.gov – United States Copyright Office
www.franchiseregistry.com - SBA franchise registry
www.business.gov – Official business link to federal government
www.stats.bls.gov - Bureau of Labor Statistics
www.bea.gov – Bureau of Economic Analysis
www.export.gov – Export assistance
www.govloans.gov/loans/type/3 - Available government small business loans
www.map.sba.gov/hubzone/hzqry.asp?state=VA – HUB Zone listing
www.sbir.gov – Small Business Innovative Research Grant info

doc_791639397.pdf