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HomeMy WebLinkAboutBuilding Business Basics Workshop #3How Will Your Business Operate?Ben Russell,Commercial Banking OfficerMember FDIC Develop Your Management Team•The role of the management team•Management team skill sets•Building the team•Training and development of managers•Professional performance measurement•Personal performance evaluation and rewardswww.infoentrepreneurs.org Choose Your Business StructureSole Proprietorship•Simplest and most common structure chosen•Unincorporated, owned and run by one individual•No distinction between business and owner•No formal action required to form one•The business is not taxed separately from youwww.sba.gov Choose Your Business StructureLimited Liability Company (LLC)•Legal structure that provides the tax efficiencies and flexibility of a partnership and the limited liability features of a corporation•Owners are referred to as “members”•Not taxed as a separate business entity, but profits and losses are passed on to each member of the LLC (paid through their personal income tax)•LLCs must file taxes as a corporation, partnership, or sole proprietorshipwww.sba.gov Choose Your Business StructureCooperative•A cooperative is owned by and operated for the benefit of those using its services•Typically, a board of directors and officers run the cooperative and members have voting power•Common in healthcare, retail, restaurant, art and agriculture•Taxes–Cooperatives operate as corporations and receive a “pass-through” designation from the IRS–Do not pay federal income taxes as a business entitywww.sba.gov Choose Your Business StructureCorporation•Independent entity owned by shareholders•The corporation itself is held legally liable•Costly administrative fees and complex legal requirements•Generally suggested for established companies with multiple employees•Must pay federal, state, and sometimes, local taxes•May be taxed twice – on profits and when dividends are paid to shareholders on their personal tax returnswww.sba.gov Choose Your Business StructurePartnership•Single business with two or more owners•All partners contribute to each aspect of the business, and share in the profits and losses•It’s recommended to develop a legal partnership agreement to document how business decisions will be made and how partners will divide profits, change owners, etc. •Types of partnerships–General partnerships–Limited partnerships–Joint ventures•Taxes–Must file an “annual information return” to report income, deductions, gains and losses–The business “passes through” profits and losses to partnerswww.sba.gov Choose Your Business StructureS Corporation•Eligible domestic corporations can avoid being taxed twice (once to the corporation, once to the shareholders) by being treated as an S Corporation•Has the Subchapter S designation from the IRS•Profits and losses can pass through to personal tax returns (unlike a traditional corporation)•Only the shareholders are taxed – not the business•LLCs can request S corporation statuswww.sba.gov Financial Position: The Process1. Financial statements–Obtain three to five years’ financial statements, balance sheets and income statements–Transfer the figures to a spreadsheet–Observe and analyze the trends of various accounts2. Ratio Analysis–Calculate ratios for each year–Analyze ratio trends–Compare ratios against industry averages–Compare ratios to your objectivesFinagraph Financial Position: The Process3. Financial Impact Analysis–The seriousness of problems can be determined by conducting a financial impact analysis in dollars4. Cause and Effect Analysis–Complete a cause and effect analysis to identify the areas that need attention5. Problem and Solution Identification–This is a useful skill in determining and implementing corrective steps to solve a problemFinagraph Balance SheetCurrent Assets•Cash•Accounts receivable•InventoryFixed Assets•Land•Building•Equipment•Furniture & fixturesCurrent Liabilities•Accounts payable•Short-term debtLong-term liabilities•Long-term debt=Equity•Retained earnings•CapitalFinagraph Income StatementSalesCost of Goods SoldGross ProfitOverhead ExpensesProfit Before TaxIncome TaxNet ProfitsFinagraph Short-Range Planning•Example Questions?