Start-up Information

So you want to start a business?

Realize first, that this is a difficult and risky endeavor. That's not to say that for mcany people, it is the only way they will ever be happy. Clearly many people find great financial reward and self-fulfillment through entrepreneurship. But many others find failure and economic loss. Since you clearly don't want to be one of those, what should you do from here?

How the Delaware Small Business Development Center can help:

Step 1: Get some basic training

BEST OPTION

Start Your Business Right classes and those offered by other organizations, will answer your questions and many more. You will get info on financing options, how to apply, business planning, licenses, marketing and so on. Plus printed materials and a CD with forms and templates galore.  These three hour sessions are taught frequently throughout the state. 

These classes often fill up - To register, click the link, it will take you to our seminar and workshop calendar. Then select Start-Up Assistance under the Topic pull-down. You can then sort by time frame and/or by location. Or you can call 302-831-0783. Links to other organizations who offer training are below.

On-line Options

If your schedule just won't work with one of our live classes, the following on-line classes may be substituted. You must take them in their entirety and complete the evaluations.
Click SBDC Online Training to register for:

Developing a Business Plan
Targeting your Market
Preparing a Cash Budget

STEP 2:  PUT SOME THINGS ON PAPER

We cannot help you until we understand what you are trying to achieve and what you have done so far. 

After you finish Start Your Business Right or the on-line series you need to fill out the simple information sheets that you can download by clicking below and send them back to us. The information on where and how to send them is on the Start-Up Progress Check List. If you have written or have started a Business Plan, send that along too.

Readiness Assessment Tool

Business Development Questionnaire

Start-Up Progress Check List

We cannot assign a Business Advisor to help you until you with your new business until you have done both these things.

It is a long road, and while there are many routes to the end, here is a way to get started. A document filled with useful information is our New Venture Guide which you may download.

Other organizations who offer training:

SCORE Delaware

Womens’ Business Center

Delaware State University’s Center for Enterprise Development.


A document filled with useful information is our New Venture Guide which you may download.

Next Steps to Starting a Business

Step 1: Examine your motivation for business ownership

Step 2: Choose a business suitable for you

Step 3: Evaluate the feasibility of your chosen business

Step 4: Consider start-up requirements and common pitfalls

Step 5: Develop your business plan

Step 6: Develop your financing request and obtain initial capital

Step 7: Finalize all start-up requirements

Step 1: Examine your motivation for business ownership

Although businesses are started each day, owning and operating a business is not for everyone. If you open a business without an honest evaluation of your motives, you may find yourself unhappy and disillusioned. Please consider:

• Your Personal Objectives

  Have you defined your personal needs and your financial objectives? Why do you think you will be happy as a business owner? Are you mainly interested in money, power, or flexibility? Have you examined your family needs?

• Your Talents

  Do you have special skills or education in a particular industry? How will these talents help you in the development and operation of your own business? Do you like to sell? Can you sell? You will be required to sell yourself, your company, and your products and services.

• Your Personality Traits

  Are you an authoritarian or a team player? How will this affect your relationship with employees, customers, and suppliers? Can you handle the stress of time deadlines from customers? Can you live with yourself if you have to fire an employee? Are you willing to risk everything you own? Will you be able to live with the fear of failure? Will your family?

  Answering questions such as these is the first and one of the most important steps in your decision-making process to enter the world of business ownership.

   

Step 2: Choose a business suitable for you

A question often asked is "What kind of business should I start?" No one can answer this question for you. Businesses of all types are both successful and unsuccessful. A business generally succeeds or fails based on the customer market, the skills of the owner(s) and workers, and the quality of the products, not because of the type of business.

Personal Areas to Consider When Choosing Your Business

• Your experience
• Your talents
• Your interests

  Your experience is most important when you are considering starting a new business or buying one because past experience in that particular industry will help you understand your customer market and avoid costly mistakes. It is less important when buying a proven franchise because your purchase should include a developed technical support system.

   

Step 3: Evaluate the feasibility of your chosen business

At this point, you have examined your personal motivation for business ownership and chosen an interesting possibility. Most likely, you are anxious to run to the bank, get a loan, and open your business. STOP!

A common mistake made by many people is to blindly begin a business without evaluating whether it is feasible. A feasibility evaluation will allow you to make a more informed "go" or "no go" decision. It involves a detailed examination of financial, personal, and market realities. A sampling of topics that should be honestly appraised includes:

• Do you have enough money to start your business without going into debt?
• If you need to borrow money, do you have some cash and own other legible assets?
• Are you willing to risk these assets to borrow money?
• If not, where are you going to get your money?
• Can the business generate enough cash to pay its expenses as well as your desired level of owner profit?
• Are the rewards from the business, both monetary and personal, worth the effort and investment you will make?
• Are your management skills adequate to oversee and develop the business operation?
• Is there really a demand for your product or service?
• Have you researched market demand or have you just assumed that people need or want your product or service?
• What is the worst thing that could happen if you go into business for yourself?
• Are you capable and willing to deal with the worst possibility if it occurs?

You need to know if your idea is feasible before you progress to the next step.

Step 4: Consider start-up requirements and common pitfalls

You have completed the three preliminary steps and have decided you still want to continue. You have decisions to make that will affect the development of your business. Please be aware that there are many common errors people make because they act out of haste or without thinking about future consequences.

Many Start-Up Requirements Are Ahead of You

• Learn about the legal forms of organization you may choose and what steps you must take to establish a legal business entity.
  • Learn which permits, licenses, taxes, rules and regulations are applicable to your proposed business. The Quick Guide to Starting a Business in Delaware
• Determine the types of records you will have to keep for tax purposes and for management and control.
• Consider your professional needs, such as legal, accounting and tax, insurance, and banking. The DSBDC has a database of professionals who serve small business; it's a good place to start to identify the help you need.

Some of the Common Pitfalls to Avoid:

• Thinking others will do your work for you. You should not expect or depend upon others to write a business plan. This is your business, not theirs. Once you have your basic plan in writing, seek outside evaluation of it.
• Entering into verbal partnership agreements. Partnerships should be entered into with caution and legal guidance. You may be in general agreement now, but future events can cause serious problems. Prepare a written partnership agreement, identifying each partner's responsibilities. Be specific in the way a break-up of the partnership will be handled.
• Paying licenses and fees before you have adequate funds to start the business. Your business may be legally established, but you may be unable to obtain financing.
• Entering into contracts before securing funds to open the business. Do not legally commit yourself to any contracts before you are certain you have the funding to begin. You will be responsible for contract performance regardless of whether you actually open your business or not. In some instances, it may be possible to make an agreement contingent upon obtaining business financing.
• Thinking it will cost less and take less time to get into business than it actually will. It will cost more and take longer than you imagine.

This discussion by no means covers all start-up requirements that you must be prepared to handle or all the common errors we see potential business owners make. Be cautious, be prepared, and be flexible.

Step 5: Develop your business plan

Many people talk about a business plan when they really mean a financing request. If you are seeking significant private investment, the two documents will require much of the same information. If you will seek traditional commercial financing, which is much more likely, the financing request will usually be less comprehensive.

A Business Plan Is:

• A strategic plan for development and operation of your business.
• For your internal management use.

A Financing Request Is:

• A document to raise money.

A Business Plan is a Management Tool You Should:

• Use to help you think through the development of your business and ensure that you have considered options and anticipated potential difficulties.
• Use to evaluate progress against your business goals.
• Update and modify for operational and strategic planning purposes as the business environment changes.
• Use in the development of financing proposals.

Some of The More Obvious Differences Between the Two:

• Your business plan should contain more detailed information than will be required for a financing request.
• Your business plan is for managing your business. A financing request is for providing information to a lender.

A wide variety of materials on how to write a business plan are available on the internet, from the SBDC, or on the shelf of your local bookstore. This Business Planning section contains an outline and links to some helpful resources as well as some sample plans.

Step 6: Develop your financing request and obtain initial capital

In reaching this step, you have determined you have personal money to cover a "down payment" or the "full cost" of starting your business. If you did not do an honest analysis of your financial position in Steps 3 and 5, you have probably invested a lot of time only to learn that you will not be able to borrow the money to start your business.

If you skipped the other steps (which is common), there are facts you should know about borrowing money to finance your business. You should also go back to Step 1.

• Most businesses are started with money from personal savings, family, or friends.
• There are no grants to start a small business.
• Only about 20% of new business owners start their business with money borrowed from commercial lenders.
• No conventional lending source, private or governmental, will make a commercial loan for 100% of the funds you need to start your business.
• As a rule of thumb, you will need to provide a minimum of 25-30% of personal investment toward the total start-up costs of your business. If you have less than this, your chances of obtaining outside financing are not good.
• Your "sweat equity" will not be considered relevant by the lender.
• As a general rule of thumb, you will need $1.50 in quality collateral for every $1 you want to borrow.
• Although you may think your collateral's true worth is its appraised value or its original cost, its worth to the lender will be far less than either of these values.
• Your financial projections must show that any loan proceeds plus interest and other business expenses can be repaid from business revenues. The assumptions that you base your financial projections on will be examined carefully for reasonability. When the lending decision is being made, having adequate collateral will not override the business's inability to generate positive cash flow.
• Acquiring a loan will be more involved and time-consuming than you think. In the best of circumstances, it will normally take 60-90 days to close a loan. If you have a complex situation or if the lender needs additional information, the time span may be significantly longer.

Caution: Be realistic. Do not assume your loan request will be approved. Lenders are in the business of making money, not buying ideas.

Delaware Financial Resources contains information on sources of financial for your business.

Step 7: Finalize all start-up requirements

You have completed your planning and have acquired the funding needed to start your business. Now is the time to sign contracts and lease agreements, pay various licenses, permits, and fees, obtain utility services and complete all other requirements.

Different Forms of Business Structures

The legal form under which a business operates can greatly impact the owner's tax obligation, liability for business debts, control in business decision making, and financing alternatives. The basic legal forms that are used for operating a business are: sole proprietorship, partnerships, limited liability companies and corporations. Other forms of business organization include limited liability companies and joint ventures. Each form has its own advantages and disadvantages depending upon the nature of the business and the prospective owner's plan of operations.

It is important that you consider each form of business organization carefully to evaluate the most appropriate structure for your business. While it is possible for a business to start out under one organizational form and change to another later, proper planning can prevent difficulties caused by an unsuitable legal structure. We recommend that you seek counsel from an accountant and an attorney early on to determine the form of business organization that best suits your business.

Sole Proprietorship

The sole proprietorship is a business that is owned by a single individual. It is the easiest legal structure to adopt and is the most common form of business organization.

Partnership

A partnership is the combining of one or more individuals or businesses as co-owners under a partnership agreement. Each co-owner, or partner, contributes money, labor, property, or skills to the partnership, and shares in the profits and losses of the business. You will need a written and signed partnership agreement. The agreement determines the powers, liabilities, and authorities of each of the partners and it should be in writing. A partnership may have general and limited partners.

General partners actively participate in the management of the business and have unlimited liability. The income of the general partnership is directly taxable to each individual partner based on his or her proportionate interest in the company.

Limited partners, or investors, cannot actively participate in the management of the business and have limited liability. Limited partnerships must have at least one general partner who is responsible for all debts, liabilities, and obligations of the firm. Generally, the liability of the other partners is limited to the amount of the investment by each partner. Both general and limited partners share in the profits and losses of the business.

Corporation

A corporation is a separate legal entity that has duties, powers and responsibilities in and of itself. This usually means that when individuals act on behalf of a corporation, these actions are attributable to the corporation but not the individual, thus limiting the liability of the owners. Incorporation, however, will not exempt you from personal responsibility for business loans. Your banker, and possibly your suppliers and landlord will require you to guarantee repayment personally and will ask for you to pledge your personal assets as collateral. The profits of a regular corporation are taxed twice if distributed in the form of dividends, at the corporate as well as the individual level.

There are two types of corporations: regular or "C" corporations and Subchapter S corporations. A regular corporation must file a tax return each year to pay tax on the corporation's income. Any profits left after taxes are paid may be given to stockholders, who must then pay tax on the amounts they receive. The S corporation has the legal benefits of a regular corporation and the tax benefits of a partnership. Like a corporation, it enjoys limited liability. But like a partnership, it is not subject to corporate federal income tax. Although it files a tax return, the income and expenses of the S corporation are divided among its stockholders, who report the profits on their individual returns. Thus, it is taxed only once. Because the S corporation avoids double taxation while providing stockholders the protection of a regular corporation, this form of organization is popular among small businesses. However, Subchapter S status may create disadvantages that should be considered, please seek advice from an attorney if you are considering this option.

Limited Liability Company

A Limited Liability Company (LLC) is a relatively new form of business organization that incorporates components of both a partnership and a corporation. The Internal Revenue Service has issued "Check the Box" regulations, which permits an LLC to choose how it wishes to be taxed. The LLC can elect to be taxed as a corporation, to be disregarded as an entity or to be treated as a partnership in some cases. Special rules apply to LLC's who do not make an election. Please see Division of Revenue Regulation 98-1 and Addendum for State treatment of LLC's.

Limited Liability Partnerships

Current limited liability partnership (LLP) laws provide for an entity similar to an LLC, with limited liability, that can be formed simply by registering an existing partnership.

Joint Venture

A joint venture is a partnership of one or more sole proprietorships, partnerships, or corporations for the purpose of pursuing a specific business activity or transaction. The main advantage of a joint venture is that existing businesses can join together without having to form a new entity and without having any continuing obligations to each other beyond the joint venture agreement. The primary disadvantage is that parties of the joint venture are liable for the actions of each partner.

How to Set Up the Business Entity (Flow Chart)

While this is not the most fascinating topic, this section can save you time and trouble. This list includes everything that you need to do to properly start up a business in Delaware. If you will follow each of these steps, you will be registered with all of the proper tax authorities, and you will receive all of the proper forms at the proper time. If you follow these steps in sequence, you will always have the Information you need for the next steps. These are the regulations that exist as we go to press. Please consult your tax and legal advisor before proceeding.

Step 1 - Determine Business Entity Type

Choose the type of organization that is best for your needs: sole proprietorship, conventional corporation, sub-chapter S corporation, Limited Liability Company or partnership. For assistance with tax or accounting questions, contact your accountant. For legal questions, see your attorney. For information on incorporating in Delaware, call the Secretary of State Division of Corporations Office at (302) 739-3073 or go to www.state.de.us/corp/index.htm

Step 2 - Determine legal status

Except for operating as a sole proprietorship, you must form your business entity under the laws of some state. For information concerning forming your business entity in Delaware, call the Secretary of State, Division of Corporations Office at (302) 739-3073 or go to www.irs.gov.

Step 3 - Register with the IRS

To get an IRS Employer Identification Number (EIN), call or visit your local IRS office, or call 1-800-TAX-FORMS (1-800-829-3676) or go to www.state.de.us/revenue. Ask for form SS-4. (This is not a requirement for sole proprietors with zero employees; they can use their social security numbers.) It will take them approximately six weeks to reply after you mail the application. To save time, you can get your EIN by telephone. After you have received the SS-4 and completed it, call the IRS on weekdays from 7:30 a.m. - 2:30 p.m. They will ask you for the information on your SS-4, and then they will ask you to write the new number on the form, sign it, and mail it back to the IRS. Be sure to make a copy before mailing.

After you have received your federal EIN, call the Delaware Division of Revenue or go to www.state.de.us/revenue to obtain a business license. Ask them to send you a "CRA," Combined Registration Application.

Step 4 - Determine if you will have employees

If you operate your business as a sole proprietorship or as a partner in a partnership, you are not considered an "employee." You are personally responsible for paying estimated taxes to the IRS and the Division of Revenue. If you decide to have employees you will need to register with the Division of Revenue and the Department of Labor.

By law, any non-incorporated business entity (sole proprietorship, or partnership) must also register with the Prothonotary at the local county office of the Superior Court. You must register separately in each county where you will do business. For more information go to the web site http://courts.state.de.us/superior/forms.htm. You will need to do a name search to be sure your chosen name has not already been used. Take a $15 check and identification, the form has to be notarized. Doing this will protect your trade name from use by others in each county where registered. In case of a lawsuit, a business not registered could be fined $500. Also, they could lose use of the name to whoever properly registered it. Some banks require registration of names by business customers.

New Castle 577-6470
Kent 739-3184
Sussex 856-5740

Step 5 - Register with Division of Revenue and the Department of Labor

In addition to registering with the Division of Revenue as a withholding agent, you will need to obtain a business license to conduct and active trade or business. To register and apply for a business license, request Form CRA, Combined Registration Application or go to www.state.de.us/revenue.

If the business is located in a town or city, call the local government to determine local business requirements.

If the business will have employees, call the State Unemployment Insurance Office and get an UC-1 form required for unemployment insurance. The telephone number is (302) 761-8446 or go to http://www.delawareworks.com/. If you are a corporation (C or S), also ask for a copy of UIS-39, "Coverage of Corporate Officers."

Obtain Workman's Compensation Insurance for your employees through an independent insurance agency. Prepare an employee policy manual to save you trouble down the road.

Step 6 - Satisfy Local Zoning and License Requirements

Before commencing a new business you should contact the local zoning or planning office to determine if your activity is permitted at the location you have chosen. Many cities and towns also require a business license to operate in the respective jurisdiction. The City of Wilmington imposes a net profit tax on businesses located within the city. It is suggested that you contact the local government office in which you intend to conduct business.

Step 7 - Contact other State Agencies

The Division of Revenue business license is not a regulatory license nor does it attest to the workmanship of the licensee to perform the listed activity or the quality of goods sold. The Division of Professional Regulation issues regulatory licenses, which require certification of the applicant. Additionally, other Delaware agencies require licensing and certification of selected business activities.

Step 8 - Other Registration Considerations

You should register your trademark(s) with the U. S. Patent & Trademark Office (PTO) if your business, especially a consumer business, uses a name or symbol worth protecting and it may someday sell beyond the local area. You still have common law rights to a name even if it is not a federally registered trademark. To be eligible, your business must be engaged in interstate commerce of some kind. You qualify if any good or service you sell crosses state lines, or if any customers come from out of state. The PTO number is (800)-786-9199. Their web site is a great source of information: www.uspto.gov.

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