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Frequently Asked Questions
Do I need a Business Plan? How do write a Business Plan?
How do I, or do I need to register my business name?
Do I need a License to run my business?
Do I need to have a Tax ID Number?
Do I need to pay taxes?
I need money to start my business, how do I obtain funding?
I’m a Woman Business Owner. Are there any programs for me?
What is SCORE and how can they help my business?
The biggest mistake would-be entrepreneurs make is in not planning effectively for operating a business. Research shows the people who spend six to nine months preparing to run a business (completing a business plan) double their chances of success.
The steps involved in planning for a small business start-up are best accomplished through the development of a detailed business plan.
A business plan can provide you with a pathway to profitability. Not only will the plan provide much needed direction to help guide the business owner, it will also serve as an essential introduction to the business. It helps you focus on critical questions which must be answered if your business is to thrive and grow. A business plan offers at least four primary benefits:
- A plan gives a clear path to follow (in writing). It will help you make the future what you want it to be.
- A plan can be a communication tool for employees and customers.
- A plan can help develop management criteria and concepts.
- A plan provides banks/investors insight into your particular venture.
- An effective business plan also answers a variety of questions, such as:
What service or product does your business deliver?
What is unique about your business? Have you researched your competition and determined your niche in the market? (Know your competition's strengths and weaknesses.)
Who are the potential customers? Why will they use your services?
How will you market to potential customers?
Who are the principal participants in your business? What are their skills and backgrounds?
An effective business plan answers these questions and many others. A complete plan also includes a financial analysis of the business - where it is now and a projection of where the business is going. The time invested in completing a business plan will be your best investment. A business plan is the same as a map; you wouldn't begin a long trip or vacation without a map. You certainly shouldn't begin a business venture without a plan!
By outlining all your plans and ideas in writing, you will provide yourself with a valuable document to show bankers, lenders and investors the feasibility of the business you have in mind. Sample Business Plan
How do I, or do I need to register my business name?
If your business is to be conducted as a sole proprietorship or general partnership, contact the County Clerk's Office to register your business at the county level with an Assumed Name or "Doing Business As" (DBA) Application. Livingston County Clerk’s Office, 200 E. Grand River, Howell, MI 48843, (517) 546-8177 or online at the County Clerk's Office
If your business is to be conducted as a corporation, you file a certified copy of the corporation articles of in-corporation and any amendments with the Department of Consumer & Industry Services.
Register your business name by contacting the Bureau of Commercial Services, Corporation Division, at (517) 241-6400. Additional information and assistance is available at the Corporation Division of the Department of Consumer & Industry Services www.michigan.gov/cis
Copies of forms, statues, and publications are available at that site.
Do I need a License to run my business?
While there is no such thing as a “small business license” in Michigan, some occupations, professions, and business activities require certification or licensing. You may check the Michigan Economic Development Corporation (MEDC) website at www.medc.michigan.org for licensing and permit information (Look for “search for State Licenses” in the Business Service section).
Business owners may also call the MEDC at (517) 373-9808. Also check with the county and/or city/village/township clerk to determine if any local licenses or registrations are required.
Locally, check into zoning and building codes. When starting or expanding a business, it is necessary to verify that the facilities you use are in compliance with all laws. To do this, first contact the city or village assessor or township clerk to assure compliance with local zoning codes. Second, contact the local building inspector to assure compliance with regulations affecting construction (e.g., building, electrical, mechanical and plumbing codes, and rules on construction, alterations, demolition, occupancy and use of buildings). If you will be operating your business out of your home, check with the city, township, village or county clerk regarding a zoning variance.
For information on trade/service marks, patents or copyrights, contact your attorney or local SBTDC.
Do I need to have a Tax ID Number?
Arrange for an Employer Identification Number (EIN). This number identifies your business for federal and state tax purposes. Many financial institutions will not open a commercial account under an assumed name without it. Sole proprietorships with no employees DO NOT require an EIN. This type of business uses the owner’s social security number for tax purposes. An EIN must be obtained if the business is set up as a partnership, corporation, “S” corporation, non-profit organization, limited liability company, trust or estate, or a sole proprietorship that pays wages to one or more employees. Remember: if services are performed for a corporation, the owner is an employee of the corporation and subject to all employment taxes. AN EIN is required on any return, statement, or other document if you are an employer. Individuals who file Schedule C or I (form 2040) must use EINs when filing excise, employment, alcohol, tobacco or firearms returns. An EIN form (SS-4) can be obtained at the IRS website at www.irs.gov/. The Application should be completed early enough to allow processing time for an EIN number to be issued. To obtain an EIN immediately, call (866) 816-2065
Do I need to pay taxes?
Self-Employment Tax
Just as employers must withhold tax and report it to various government agencies, so must individuals who work for themselves or are self-employed. You are self-employed if you operate a trade, business, or profession, either by yourself or as a partner. Anyone who owns a business and has net earnings of $400 or more as the sole owner or partner is subject to the self-employment tax. The self-employment tax is a percentage of wages up to a maximum social security tax. Quarterly estimated payments are required.
Personal Income Tax
As a sole proprietor or a general partner, the owner pays taxes on the income from the business on a personal income tax return with the state and federal governments. You will also file an additional schedule that identifies income and expenses of the business. Partners file a partnership return in addition to the personal income tax return, which distributes profits and losses between the partners according to the partnership agreement. Corporations pay taxes on the business income at corporate tax rates. Shareholders and employees (including paid corporation officers) pay individual income tax on any salary and dividends received from the corporation. Most businesses are also required to make “Estimated Tax” payments on a quarterly basis for Michigan income tax, federal income tax and self-employment tax. For more information about your tax obligations and the proper forms, contact the Michigan Department of Treasury at (800) 487-7000 and the IRS at (800) 829-1040 and online at www.irs.gov/
Sole Corporation Income Tax
If your business is a corporation, it pays federal taxes on profits. You also pay an individual income tax on any salary or dividends received from the corporation. Corporations are also required to file “Estimated Tax” returns quarterly.
State Business Taxes
In Michigan, it is easy to register for taxes. Fill out one form – Registration for Michigan Taxes (Form 518). This form allows a business to register for sales, use or withholding taxes, the single business tax, motor fuel or tobacco products tax. It can be obtained by contacting the Michigan Department of Treasury, (517) 373-0888 or (800) 367-6263 or access the tax information online. Questions and answers about registering a business can also be accessed online at www.michigan.gov/treasury
Sales, Use and Withholding Taxes
Anyone who engages in the retail sale of tangible personal property from a Michigan location needs a sales tax license. The Michigan sales tax is 6% of retail sales receipts. For more information on sales and use tax, contact the Michigan Department of Treasury, Sales Use and Withholding Division, Treasury Building, Lansing, MI 48909, (517) 636-4660
State Single Business or Alternative Profits Tax: In general, all forms of business organizations pay either the Single Business Tax or the Alternative Profits Tax although business exempt from federal income taxes are generally exempt from the Single Business Tax. Commercial farming businesses are also exempt.
The Alternative Profits Tax: enacted late in 1988, provides an alternative to the Single Business Tax for any business that would qualify for the Small Business credit. Generally, this includes businesses with less than $6,000,000 in gross receipts, less than $475,000 adjusted business income for corporations or partnerships, and less than $95,000 adjusted business income for individuals. For further information on the Single Business Tax and the Alternative Profits Tax, contact Michigan Department of Treasury, Single Tax Division, Treasury Building, Lansing, MI 48909, (517) 373-3200.
Local Taxes
Local governments in Michigan levy property taxes. Recent reforms have slashed business property taxes by an average of 33%. Since property tax rates vary by locality, it is important to consult your local city, township or village treasurer’s office. The local treasurer’s office can also provide information about other local taxes that may apply along with information about registration and payment requirements.
Note: Tax abatements may be available for industrial projects. Local governmental units make the decision whether to provide abatements and for what length of time. Applications must be filed to meet imposed time constraints.
Questions and answers about the Single Business Tax can be found online at www.michigan.gov/treasury or by calling Michigan Department of Treasury at (517) 636-4660.
Single Business Tax
The Single Business Tax (SBT) is a modified value-added tax administered by the Michigan Department of Treasury. It was enacted to replace several business taxes, including a corporate net income tax, franchise tax, personal property tax on business inventories and others. While the SBT is Michigan’s only general business tax, 70.4% of Michigan businesses pay $1,000 or less in SBT, and 59% of all businesses pay no SBT. A business with annual gross receipts of less than $250,000 has no liability under the SBT.
Questions and answers about the Single Business Tax can be found online at www.michigan.gov/treasury or by calling Michigan Department of Treasury at (517) 636-4660.
I need money to start my business, how do I obtain funding?
OBTAINING FINANCING FOR YOUR BUSINESS
It is a common misconception among small business start-ups that once you have an idea, the next logical step is to go to the bank for a loan. It is important to realize, however, that before you approach a banker for a loan, you must be prepared to answer a number of questions about your business and the way you plan to use the money.
It is first important to realize that your banker should be considered a source of assistance. Your commercial lender is familiar with the process of starting a small business and with the economic conditions in your area. As a professional your banker will have a specialized insight into your specific venture. Once your business is in operation you will want to establish a continuing relationship with your banker as a resource you can use not only for additional funding throughout the life of your business, but also as an advisor in many of your financial decisions. It is important to select a commercial lender with whom you are comfortable and to establish a solid relationship from the beginning.
One of the best ways to begin this relationship is to come to your banker fully prepared to answer the following questions.
- What type of business do you plan to open? - This question can best be answered by presenting your banker with your business plan. This should include a summary of the business, a description of the product or service, and an analysis of the projected market.
- What will be the management structure of your business? - In other words, how many principal partners will it have and what will be the responsibilities of each. Also include a personal resume for each of these individuals and a description of the type of experience they've had that allows them to contribute to your new business.
- What type of equity and collateral are you prepared to provide? - As a general rule, you should be prepared to provide 25 to 50 percent of the amount of the cash you will need on your own, without borrowing. Beyond that, you will need to provide sources of collateral that can be used to secure the loan.
- What kind of cash flow and income do you expect in the first few years of business? - Your accountant should be able to help you prepare forms that outline projected cash flow and income over the first year of operation, as well as a sample balance sheet. These forms should also be included as part of your business plan.
- What is your personal financial situation? - Be prepared to present your own personal financial statement, as well as one for each partner in the business and anyone else owning at least 20 percent of the business. It is also a good idea to include personal income tax statements for the past 3 years.
- How do you plan to use the money loaned to you? - Banks offer several different types of loans and the type you qualify for depends on the way you plan to use the money. Will you be constructing a new building or modifying an existing one? How much will you be spending for initial equipment, office supplies, and inventory? Answering these questions in detail should also help you to establish exactly how much money you will need.
Many of these questions will be answered through the process of developing your business plan. Be sure to pay special attention to these aspects of your planning. This shows your banker that you have given the business considerable thought. You will be expected to leave a copy of your business plan with the loan officer but this verbalized part of the loan review process is one way a lender can determine if you really understand the business in which you are involved. If you approach your banker unprepared, you will likely be asked to provide additional information and told to make a second appointment.
Remember, you only get one chance at a first impression, let's make it a positive one.
Your banker may come back to you with a request for further information or to express some concerns and give you a chance to respond. Because this can be a somewhat lengthy process, most banks recommend that you schedule your financial appointment several months before actual start-up and as soon as you have access to the necessary information.
I’m a Woman Business Owner. Are there any programs for me?
Woman Business Centers provide a wide range of services to women entrepreneurs at all levels of business development, including the principles of finance, management, and marketing, as well as specialized topics.
For further information of what the Women Business Centers can do for you or to find a Center near you. Visit: http://www.onlinewbc.gov/.
What is SCORE and how can they help my business?
SCORE (Service Corps of Retires Executives), is a 11,500-member volunteer associates sponsored by the U.S. Small Business Administration. It matches volunteer business-management counselors with present and prospective small business owners in need of expert advice. SCORE has experts in virtually every area of business management and maintains a national skills bank to help identify the best counselors for its clients. The collective experience of SCORE counselors spans the full range of American enterprise.
SCORE volunteers are either retired or active business owners or managers. They can meet with you at a local SCORE chapter office, an SBA office or, oftentimes, your place of business. SCORE members volunteer because they have enjoyed successful careers in business and want to give something back to their communities. These volunteers serve without pay, enabling SCORE to provide counseling services without charge or obligation to the client. For more information, please call SCORE at (313) 226-7947 or visit www.scoremichigan.org
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