What is business planning?

Business planning involves laying a proper foundation for a new, or even an existing business.  When initiating a new business enterprise, there are many considerations that must be well thought out, and deliberate action must be taken to ensure that your business has an optimum chance of success.  This is precisely the reason to focus on the groundwork in the infant stages of your business’ existence, rather than waiting until you become too distracted and busy.  Below are some important aspects to consider when undertaking the promising and challenging goal of forming a new business.

Forming a business

When starting a business, one of the most important things that you need to do is determine the best form of ownership, and there are many issues that need to be addressed. 

For example:  What is the best way to minimize liability exposure?  How can I help protect my personal assets?  What form of business organization makes the most sense when it comes to taxes?  How can we minimize any unforeseen future conflict between the owners?  These are just a few of the questions that need to be thought about when deciding which organizational structure is best for you and your business. 

Depending on your specific needs, your choices of business organization in Texas include:

Sole Proprietorship

A sole proprietorship is a business that has only one owner.  They are the simplest form of organization, and require no legal formalities in formation or operation.  However, if the business is operating under a trade name, certain documents may need to be filed.  The major downside to operating as a sole proprietorship is that there is no liability protection for the owner, and the owner’s personal assets are subject to being taken for the satisfaction of business obligations, debts, and judgments.  It’s often times very important to have insurance if you’re operating as a sole proprietor.

General Partnership

A partnership is defined in the Texas Business Organization Code as two or more persons that carry on a business, for profit, as owners.  While a written partnership agreement is not needed to form a partnership, there are many things that should be addressed in writing so that future conflicts are minimized, and the rights and responsibilities of each partner are clear.  Like a sole proprietorship, a partnership is not recognized as a separate entity, and thus does not afford the owners/partners any liability protection.  It’s also important to note that each partner in a general partnership may be liable for any actions of another partner or the partnership itself.  Having insurance is also very important if you are operating as a partnership.

Limited Partnership

Limited partnerships have both general partners and limited partners.  The limited partners are afforded certain liability protections, but may not participate in the management of the company.  In order to form a Texas limited partnership, you must file formation documents with the Texas Secretary of State.  Limited partnerships have tax benefits in that partners may be able to write off partnership losses against income from other sources.  However, the general partners still face personal liability for the business’ obligations.

Limited Liability Company

Limited liability companies are quickly becoming the best choice for business organization in Texas.  They provide tax advantages and liability protection, while simplifying formation and operation.  A mix of partnership and corporation, LLC’s allow pass through taxation while protecting the owners from certain business liabilities, and allowing all to participate in the management of the company.

Corporation

Corporations are considered individuals by the state.  Like people, they enjoy certain protections and privileges.  A corporation can also provide limited liability protection to its owners, directors, and officers.  Interests may be transferred easily, and they can last indefinitely.  The various forms of incorporation include for-profit, non-profit, Subchapter C corporations, and Subchapter S corporations.  

Professional Entity

Professional entities are reserved for those who render professional services, and are licensed to provide such services in the state of Texas.  Professional corporations (P.C.) and professional limited liability companies (P.L.L.C.), can be nonprofit, for-profit, domestic, or foreign.  They render professional services only through owners, members, managerial officials, employees, or agents, each of whom is a professional individual or professional organization.

Associations

An association is an entity governed under Title 6 or 7 of the Texas Business Organization Code, which includes provisions for cooperative associations, nonprofit associations, and professional associations.  Associations are useful in organizing a large number of people or a group of organizations. 

Business plans

It’s important to have a map to help you reach your destination and keep you on track during your journey.  This is just as true for a new business.  Business plans are an organized and focused way to help keep your business on the right track.  A well drafted business plan will address your business’ mission, objectives (goals), strengths, weaknesses, opportunities, treats, financials, products and services, strategies, and will often include a marketing plan.

Marketing plans

Like business plans, marketing plans can help you plan for your business’ success.  Marketing plans usually address the 4 P’s of marketing:

Product

What are you offering to the world?  Whether it’s a product, service, or some combination thereof, you need to make sure it’s desirable and competitive with other similar products or services in your target market. 

Price

What is your pricing strategy?  Are you planning on undercutting the market, or are you offering a superior product or service at a premium price?  What about discounts and trade terms?

Place

Where will your products or services be available?  What are the demographics?  What about distribution?  Shipping?  Travel?

Promotion

Are you planning on creating a demand for your products and services, or are you going to aggressively sell them?  Who’s going to buy your business’ products or services, how can they be informed, and how can you target them?  Advertising is another item of great importance that should be thoroughly addressed in your marketing plan.    

Business licensing and permit application

Do I need to register my business?  Do I need any permits or licenses? It’s crucial to identify and obtain any state, county, or city licenses and permits that are needed to operate your business legally and remain in good standing with the state.

Examples of licenses or permits that your business may need:

• Alcohol permits and licenses
• Food permits and licenses
• Agricultural licenses
• Motor carrier registrations
• Motor vehicle dealer licenses
• Environmental permits / registrations / licenses
• Builder, contractor, and construction permits / registrations / licenses

Trademark availability search and application

You probably already have a name picked out for your business.  Have you checked to be sure that it is available for use?  Another company might be using the same or a similar name.  Once you’ve found a name that’s available, it might be a good idea to protect it by filing for trademark protection.

Contract negotiation, drafting, and review

As a business owner, many documents will come across your desk.  Some of these documents might be complex, and demand great attention to detail.  It can be beneficial to have a professional assist you in the drafting of documents such as contracts and leases, negotiate their terms, and review them for any omissions or errors that can wreak havoc on your business in the future.

Employment agreements

It’s a good idea to have your employees sign an employment agreement.  Having such an agreement between an employer and employee will outline what the rights, duties, and expectations of both parties will be so as to minimize or eliminate any future conflict. An employment agreement should address:

• Employee’s job description
• The rights, duties, and expectations of both the company and the employee
• Compensation
• Term, or duration of employment
• Termination
• Protection of trade secrets or confidential information
• Outside employment / Competition
• Intellectual property rights and ownership of such rights
• Official contact information of both the company and the employee

Insurance

Do I need insurance?  How much?  What kind?  Your business structure may provide some liability protection, but it is often a good idea to have insurance to protect against things unforeseen.

Taxes

Arguably one of the most complicated, confusing, and uncomfortable aspects of planning your business, ample time must be given to navigating the applicable tax laws.  A tax professional can be a life saver when it comes to understanding what taxes will have to be paid, and helping you keep your business’ financial information organized.