Part One: The Where, What and Who

The next section of your business plan is the time to delve into the core of who is your business, and what your business does. The business description covers a lot of information, so you might wind up with several sub-headings…

The Where
The first task is to cover the basics of where is your business. The first question you must answer, is where is the business based? Depending upon your business location, the business will be subject to different regulations and laws. These can range from the company’s tax rate to the strictness of local zoning ordinances.

To learn about the local business climate, you can check out your department of state, local development corporations or business improvement districts as well as Small Business Development Centers. For example, if you want to operate a store in New York City, you should learn about New York State’s requirements as well as New York City’s. To do this, you can check out the following websites: http://www.dos.state.ny.us/ and http://www.nyc.gov.
These organizations often have answers to frequently asked questions and can point you to the resources you might need, saving the entrepreneur much valuable time and energy.

So the first task is for you to decide where to locate your business on a few levels. The first level is where will your business be legally formed. Second, where will your business operation be based? Thirdly, where will the bulk of your business transactions take place?

In some cases, a business will be legally formed in one state, but actually perform the bulk of its business and have a physical location in another state. For example, I had one client who formed a corporation in the state of Delaware and opened a retail store located in the East Village of Manhattan, New York State. However, as her business evolved, the bulk of the purchases for her product took place on-line. In a sense, she had three business “locations”.

The What
Along with identifying the location(s) of your business, you need to state the legal formation of your business. There are three basic types of legal forms: a sole proprietor, partnership and corporation. Many people ask me, “Which is the best one?” The right answer varies according to your individual situation.

Legal forms of organization differ according to the amount of personal liability an owner might have, the tax rate, cost of formation, the ease of transferring ownership and the level of control. The legal form can also impact the ability of the business to raise funds.

For example, Joanne is a sole proprietorship. In a sole proprietorship, the owner is the business. Therefore, any money Joanne makes from the business is reported on her personal taxes. Therefore, the tax rate is lower. Since the Joanne is the business, she can make any and all decisions and does not need to check in with anyone. The drawback is that should the business face a lawsuit, Joanne’s personal assets are on the line.

On the other hand, Joanne might form a corporation in which she is 100% owner. The corporation files its own, separate tax returns and is taxed at another rate. In order to make major decisions, technically Joanne must get the majority of the vote from her corporate board. A major benefit of forming a corporation is that should the business face a lawsuit, in most cases, the business would be responsible for the settlement, not Joanne.

To learn more about the specifics of each legal form, first steps can include checking out information posted at www.sba.gov and www.irs.gov. When deciding which form to choose, it is a good idea to consult a lawyer and a CPA, as the tax laws and liabilities can vary according to your industry.

The Who
Thirdly, you should identify the ownership of the company: who owns what. The reader wants to know upfront, who has control and is responsible for this business!

The Result
Ultimately, you are doing substantial research for a fairly short and very important paragraph. Your final result might look something like, “XYZ Clothiers is a New York State based corporation, which is owned 80% by Allison Lehr and 20% by Ms. Smith.”

In this sentence you’ve demonstrated to the reader that you have chosen the legal form and tax structure of your business as well as who are the owners. The reader already understands the level of liability, who are the key players in the business, and what laws pertain to it. This is very helpful information!

Next issue, we’ll focus on the bigger “what” of your business, the description of your product and services.