Guide To Starting And Operating A Small Business

Guide to starting and operating a small business

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Guide to
Starting and Operating
a Small Business
Introduction 1
Personal Assessment 2
Steps to Starting a Small Business 3
1. Select a Business Idea 4
2. Market Research (Feasibility) 4
3. Startup Cost/Financial Resources Analysis (Feasibility) 8
4. Write a Business Plan 12
Business Plan Outline 13
5. Develop Your Business Management Team 18
6. Complete the Startup Checklist 18
7. Obtain Financing 19
8. Start Your Business! 19
Ways to Legally Structure a Business and Registering a Business Name 20
Licenses, Permits and Other Regulations 25
Business Taxes 28
Being Self-Employed 31
Hiring Employees 33
Financing a Business 39
Managing a Business 43
Marketing Your Business 44
Marketing Plan Guidelines 46
Insurance 48
Selling to Government - Procurement Technical Assistance Centers (PTAC’s) 50
Now What? 52
Appendix A – Employee or Independent Contractor? 53
Appendix B – Required Workplace Posters 55
Appendix C – Small Business Development Centers (MI-SBDCs) 57
Appendix D – Business Resource Centers (BRCs) 59
Appendix E – MI-SBDC Business Education 60
Appendix F - Index of State and Federal Government Websites 61
Appendix G – About the Small Business Administration (SBA) 63
Revised May 2015
Welcome to the Guide to Starting and Operating a Small Business:
Starting a business can be a complex and difficult process. This Guide is designed to ease a person’s
entry into the business world, outlining as clearly as possible many of the issues and questions facing
prospective and existing entrepreneurs

Information included in this guide is both general and Michigan-specific: Steps and process for starting a
business; different forms of business organization; key elements of a business plan; complying with
federal, state and local tax obligations; basics related to management, hiring, marketing, and more

Though this guide is not a substitute for legal or financial counsel, it is an information resource and quick
reference designed to make the process of starting and operating a business in Michigan a little less

The information in this publication was accurate at time of publication, but it is subject to change due to
revisions in law and administrative policies. Between published revisions, an online version is updated
periodically if significant changes occur. The online PDF version can be accessed at:
In addition to this Guide, there are many other resources available for starting and operating a business
in Michigan:
• Michigan Small Business Development Centers (MI-SBDCs)
• SCORE -- Counselors to America’s Small Businesses
• Assistance and counseling are also available from local economic development organizations,
trade associations, local chambers of commerce, schools, community colleges, universities and
public libraries

The Michigan Small Business Development Center (Michigan SBDC) provides counseling, business
education, information based planning and technology commercialization to new and existing businesses
throughout Michigan’s 83 counties from 10 regional centers across the state

The Michigan SBDC state headquarters is located at the Seidman College of Business, Grand Valley State
University in Grand Rapids, Michigan. SBDC regional offices across the state include locations in Detroit,
Lansing, Traverse City, Bay City, and other locales. For the complete list of locations, or for entrepreneurs
and small business owners interested in the services of their nearest MI-SBDC, visit or call 616.331.7480

Keith Brophy
State Director
Michigan Small Business Development Center
Are You Ready to Start a Business? – A short personal assessment tool

Being your own boss is wonderfully exciting, but isn’t for everyone. Anyone considering starting a
business needs first to consider if they are suited for it, personally and professionally

There is no right or wrong answer to each of these questions. This is a self-evaluation to help you think
through critical aspects of your personal and business readiness to be self-employed. It is designed to
help you assess your reasons and qualifications for going into business, to help you set personal and
business goals, consider if this is the right time to start a business, if you have the freedom, flexibility
and resources to start a business, to consider your health and stamina, and how you will balance family
and business

Suggestion: It is recommended that you bring a completed version of this self-assessment to your first
MI-SBDC counseling session. It will provide a profile of you and your readiness and help your counselor
become acquainted with you

To self-assess, ask yourself the following questions and answer as honestly and in as much detail as

SELF ASSESSMENT: Are You Ready To Be In Business?
1. Why do I want to start a business? OR Why am I in business?
2. Specifically, what kind of business do I want to start (or am I in)?
3. Why do I believe I can make this type of business work?
4. Why do I believe this type of business is sustainable?
5. What education, skill or experience do I have in this industry?
6. What is my true purpose and/or the goal I hope to accomplish with this business?
7. What is the financial goal I am seeking to achieve?
8. If I will need financing, do I have the resources and credit worthiness necessary to be eligible?
[High credit score plus assets, collateral and good financial history.]
9. What are my strengths?
10. What are my weaknesses?
11. What is my physical, mental and emotional health and stamina?
12. What knowledge and skills do I have to start and control the day-to-day operations of a
13. Do I know and understand the technology necessary to be competitive in this business?
14. Do I have good judgment in people and ideas?
15. What sacrifices and risks am I willing to take to be successful?
16. What will it take for me to balance personal life and business demands?
“W hat do I need to do and w hat com es first?” That’s the question most often asked by people
considering starting a business. There is a logical sequence of actions and a process for starting a
business. MI-SBDC has created a “checklist” of that process: “Steps to Starting a Business” charts the
tasks in recommended order to help you stay on track, manage the various steps, and give you the
confidence of knowing you have considered all the essential elements. An explanation of each step
follows the chart

1. Select a business idea

Step #1 is deciding on what type of business you want to start. Many people choose to start a business
around something they know and are passionate about. The first question every would-be business
owner needs to ask about his/her product or service idea: “W hat P ROBLEM does it SOLVE or w hat
NEED does it FI LL?” There are many reasons why consumers make purchase decisions, but the
primary one is need. Market research will help you answer this question

2. Market Research (Feasibility)
Market research is the first and most important task you need to accomplish BEFORE you start your
business, to determine if your idea is feasible, which according to Webster’s Dictionary means “capable of
being done; suitable.” Market research is the gathering of facts and figures to make an informed decision
about the market potential for your business, about the prospects for success and the direction your
business will take – both at the start and periodically as you continue on your business journey

A. Type of Research Needed: The following describes the type of research needed using the
example of a pizza parlor, which is part of the fast food industry:
 Industry is the BIG PICTURE of what’s happening in the “total world” of your particular type
of business. Look for answers to questions like: What’s happening in the fast food industry
these days – how many pizzas get sold in the US or Michigan each year, are there increased
sales, specialty pizzas, healthier alternatives, changes in sizes or packaging, more or less
pizza parlors in and out of business, etc? What’s the BIG PICTURE in the pizza world?
• Market is population of consumers or businesses that buy your particular product or service
– you can generally define them by a common set of characteristics. Market segments are
groups within that population that you can define by even more specific set or sets of
characteristics. Questions to answer could include: Who and how many folks are buying fast
food in the area or location I’m considering? How often do they buy? Can I group and
identify them based on any common characteristics such as age or ethnicity?
 Customers are the individual people or businesses that will buy your product or service. A
good exercise is to define your ideal customer and work backwards – where there’s one you
can find another just like it, then another, and so on. How many households exist in my
geographic area? How many of these eat pizza, and how often? How much pizza are these
prospective customers likely to purchase in a year? (Customers x frequency x price = market
• Competition is any business that sells a product or service that is exactly like what you
want to do (DIRECT) or that may be similar to or an alternative to your product or service
(INDIRECT). Where are other pizza shops? What are they like? What and where are other
fast food, and/or grocery store food options? Why would these prospective customers buy
your pizza (and not the other choices)? Is there an unmet need, am I offering something
totally unique, are they dissatisfied with other choices?
B. How and where to do research (secondary)
• Local Library. The best source of information is still the library. Many have business
librarians and/or space dedicated to business reference materials. Look for information in
sources and references related to your particular type of business, such as periodicals, trade
journals, newspapers, industry association and other reference books. Some of the books in
which you might find information include:
o Directory of Trade Associations
o Trade Journals and Industry
o Encyclopedia of American Industries
o Standard and Poor’s Industry Surveys
o IBIS World Industry Market Research
o Encyclopedia of Global Industries
o Standard Industrial Classification
Manual (statistics)
o Economic Census, i.e., Census of Retail
Trade, Census of Wholesale Trade, or
Census of Selected Services
o Other governmental statistic sources
published by federal, state, and local
o RMA (Risk Management Association) Annual Statement Studies
• Many libraries also have subscriptions to online market research tools that your librarian will
be able to access for/with you. Or the librarian can assist you in how to locate information
through the Michigan Electronic Library at Library,which provides all
Michigan residents with free access to online research tools, full-text articles, books, and

o From the home page, select the “Business” button to see a long list of research tools and
business information resources such as data generators “Business Decision” and
“Demographics Now: Business and People” as well as the Encyclopedia of American

o These research resources are available to you 24/7. It may take a little effort for you to
learn how to use them on your own but they will be very valuable for periodically
checking on marketplace conditions as well as for developing target marketing

• Internet. To get the most out of internet searches and make the best use of your time, it is
important to define your search terms/strings as precisely as possible. The following are
suggestions for more effective and efficient internet searches:
o Make a list of all the keywords and strings of keywords associated with your type of

o As you search, keep track of which key words or strings of key words you used so you
don’t end up duplicating the search at a later time

o Save time by visually scanning the search results to see if a result site contains
potentially significant information. If it does, print out the materials for later reading and
highlighting of relevant facts and the URL so you can find your way back to the site if
you need to, and also to be able to cite the source in your business plan

o Valuable websites for checking on competitors:
• DemographicsNow: Business and People
• Talk to people in the industry. Gain some valuable insights on opportunities and
challenges by speaking to people who know it from the inside. Even better, you might find a
mentor if you can connect with someone who owns a successful business like the one you
want to start, preferably someone who won’t be a direct competitor and is outside the
geography of your intended service area

C. Other forms of research (primary)
• Surveys. Build and conduct your own survey or focus group to gather information from
businesses or persons who might be potential customers

• Visit and “shop” the competition. Observe your closest competitors from the perspective
of a customer based on what matters most to customers related to purchasing this product
or service. Compare their business model to yours: Strengths that you’ll have to work hard
to overcome; weak points that may be opportunities of which you could take advantage

• View similar businesses’ advertising and websites. Study what they do, the image
they present, the character of their marketing

• Talk to successful business owners. You might find a mentor if you can connect with
someone who owns a successful business like the one you want to start, preferably someone
who won’t be a direct competitor and is outside the geography of your intended service area

• Hired or paid research. There are many companies that will conduct market research for
a fee and can easily be found through the internet. If you find a modestly priced offering,
keep in mind that high quality market research is very expensive. Keep in mind, too, that the
information is free if you’re willing to take the time and effort to search for it, as noted

• College or university marketing students. Many schools offering business courses,
specifically in marketing, are looking for “real world” projects in which to involve their
students. Check around your area for schools that offer marketing courses. Identify the
professors teaching those courses and contact them directly. Timing may be an issue as they
would have to plan your project into their course and it might take a term or two before that
could happen

Additional Resource:
Market Research Information Checklist – pg. 7
Market Research Information Checklist
Gather information for all the items that relate specifically to your type of business

Industry  Quantity of product/service purchased
 Associations related to my industry at each purchase
 Size of industry  Average dollars spent annually on this
 Growth potential type of purchase
 Historical trends (growth/decline)  Customer preferences and perceptions
 Seasonal or economic trends (quality, convenience, brand and image,
 Other related industries exclusiveness, mass appeal….)
 Distribution channels
 Opportunities indicated Customer Profile – Businesses by
 Threats indicated segment
 Other  Industries, markets, or segments
 Products or services
Market  Number of employees
 Businesses (B2B) or consumers (B2C) or  Length of time in business
both  Geography, location
 Total number of potential buyers  Purchasing patterns – how much, how
 Segments – groups with similar often
attributes  Purchasing process
 Segment with greatest need, demand  Outsourcing
 Market trends – political, social,  Local, national, or international
environmental purchaser
 Economic factors that influence the
Customer Profile – Consumers by market
segment  Government policies that influence the
 Size of group market
 Predominant gender
 Age Competition
 Ethnicity  Direct competitors
 Education level  Indirect competitors
 Occupation  Potential future competitors
 Income level  Annual sales and revenue
 Average amount of debt  Marketing and advertising methods and
 Home owner or renter results
 Car owner  Geography, location
 Marital status  Distribution channels
 Family status - # of children or not  Outsources
 Pets – Type and number  Sources for production, services,
 Media activity – magazines, newspapers, inventory, other
social media, television, radio, smart
phone, other Competition Comparison
 Purchase preferences – in person,  Strengths
internet, phone, catalog, other  Weaknesses
 Product and/or service characteristics  Opportunities to differentiate
most highly valued by purchaser  Other ___________________________
 Payment preference – cash, credit
 Frequency of purchase
3. Startup Cost/Financial Resources Analysis (Feasibility)
The business you have in m ind m ay not be the business m odel you
can afford

One of the most common reasons businesses fail is “hitting a financial wall”
either before opening or soon thereafter, as a result of one or more
contributing factors such as:
• An insufficient estimate of the true cost of starting what you have in
mind; finding out you need to spend more than you have to get it
open or keep it going;
• An unrealistic expectation about resources you might tap into because you find out too late that
there aren’t any grants and startup loans are difficult to obtain;
• Or a misconception about how quickly you will start making money, meaning you might need
sources of cash to keep a business afloat until it does start making money

You need a well-researched estimate of what it will cost to start the business you have in
mind so you can match it to the reality of your available resources and/or your ability to get
conventional financing. This may lead to refining your idea to make your startup possible, based on
your personal situation

The good new s is that w here there’s a w ill there is a w ay! Determining that you would not be
able to pull together or be loan-eligible for that level of funding resources does not mean you won’t be
able to start the business

• It does mean you will have to rethink how you’ll start. The majority of businesses start
by “bootstrapping” – starting with what you have at hand, perhaps working at it part time,
building slowly but steadily. Every large business started as a small business, many of them
building and growing one success or customer at a time

The following page shows a summary of categories of common startup costs. Some of these may apply
to your business and some may not but chances are there are some on the list you hadn’t thought of

For example: If you are relying on your business to pay your personal bills, you need to factor in living
expenses for a moderate period of time until the business can afford to “pay you a wage.” Another
example: One of the top reasons for business failures is not having enough cash to ride out the business
ramp-up time. It’s important to factor in cash to cover expenses until the business is projected to reach
breakeven. In other words, if sales are not generating enough cash to cover all the bills and you have no
other savings or loans to tap into, how will you pay the rent, or utilities, or…..?
Startup Cost Analysis Summary
For each item on this list, there should be an accompanying list itemizing the detail

Land and Buildings
Purchase down payment or pre-paid lease $ _______________
Closing costs $ _______________
Remodeling/build out $ _______________
Utility deposits $ _______________
Other $ _______________
Furniture $ _______________
Fixtures $ _______________
Production machinery/equipment $ _______________
Computers/software $ _______________
Telecommunication equipment $ _______________
Cash registers/POS systems $ _______________
Vehicles $ _______________
Signs $ _______________
Shipping and installation $ _______________
Other $ _______________
Materials and Supplies
Starting inventory $ _______________
Production materials/components $ _______________
Office supplies $ _______________
Marketing, Image and Branding
Marketing and design consultants/planning $ _______________
Advertising $ _______________
Promotional items/activities $ _______________
Other $ _______________
Operations Fees and Expenses
Professional fees (accountant, lawyer, etc.) $ _______________
Patent/trademark fees $ _______________
Insurance (Health, Life, Fire, Liability, other) $ _______________
Licenses and permits $ _______________
Trade association memberships $ _______________
Personal Living Expenses
From last paycheck to opening day $ _______________
3-6 months after opening day $ _______________
Moving expenses $ _______________
Cash Reserve/Contingency/Working Capital
Opening expenses $ _______________
Wages/salaries $ _______________
Other $ _______________
TOTAL $ __________________
Sources of Financing / Startup Resources
Once you know the cost to start your business, there are resource and finance issues to consider:
• How much do you need to start and where will it come from? Your savings? Selling your car? Asking
your friends or family? Some of the more common forms of personal financial resources are:
o Savings
o Home Equity
o Cash Value of Life Insurance
o Credit Cards
o Retirement Plans
o Keeping your day job
o Working part time as you build your business
• GRANTS: Are you hoping for a grant? We’ve all seen the infomercials, websites, advertising, or
received robo-phone calls, telling us there is "millions in free money." The myth of “free money”
has been around for decades, and clever scammers are only too happy to sell you a book or offer
to write a grant – for a very hefty fee without delivering anything that provides you with the
results you sought. The fact is that the U. S. government does have grant programs but
generally speaking, virtually all grant money flows to local governments, state agencies, and
nonprofits. If you still want to look for grants, you can search at The
following is excerpted from
“SBA does not provide grants for starting and expanding a business. Government grants are
funded by your tax dollars and, therefore, require very stringent compliance and reporting
measures to ensure the money is well spent. As you can imagine, grants are not given away
indiscriminately. Some business grants are available through state and local programs,
nonprofit organizations and other groups. These grants are not necessarily free money, and
usually require the recipient to match funds or combine the grant with other forms of
financing such as a loan.”
• LOANS: Are you hoping to get a loan? Traditional and non-traditional lenders have criteria on
which they qualify or reject business loan requests. The following are key lender considerations:
o CHARACTER: What is your credit history and score? Lenders are looking for reliable
borrowers who have demonstrated responsibility and have a high credit score (700 and
above) over a period of at least 3-5 years

o CASH: Lenders expect you to have “skin in the game” and be able to put up 20-30% of the
total startup cost either as cash or cash plus equity investment

o COLLATERAL: Lenders generally expect you to pledge assets against the loan that have a
net value greater than the loan amount. Keep in mind that purchase value isn’t resale value
and banks discount the value of even brand new equipment to what they think they could
get if they have to sell it to satisfy the debt

o SBA Loans: The SBA does not directly make loans but does have a variety of loan
guarantee and/or support programs available through commercial lenders and Certified
Development Financial Institutions (CDFI’s). For more information visit

• ON-LINE BROKERS/DEALERS: Web sites that provide a platform for submitting your loan
request documents/application for financing consideration by conventional lenders or investors


Start and grow your business with the help of a Business Consultant! The Michigan SBDC’s team provides one-on-one consulting, business education, market research and technology commercialization to entrepreneurs in all 83 counties. Starting a small business can feel tough, but you don’t have to do it alone! The Michigan SBDC is here to

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Frequently Asked Questions

How to start and operate a small business?

Part 3 Part 3 of 6: Managing Your Finances

  1. Secure start-up costs. Most businesses require capital to start. ...
  2. Manage your running costs. Keep a close eye on your running costs and keep them in line with your projections.
  3. Have more than the minimum. You may determine it will take $50,000 to start your business, and that's fine.
  4. Pinch those pennies. ...
  5. Decide how to accept payment. ...

What are the initial steps to starting a small business?

Starting a small business requires determination, motivation, and know-how. Here are nine critical steps to provide you with the know-how to have a successful small business startup : 1 . Identify Your Business Opportunity: Choosing what kind of business to start can be an immobilizing task when confronted with a multitude of opportunities.

What are the advantages of starting a small business?

  • Flexibility and independence Starting your own small business means that you are the owner and the boss! ...
  • Sense of pride Nothing will give you pleasure like starting your small business from scratch. ...
  • Financial results Starting a business means that you will reap all the perks of your business. ...

More items...

What are some tips for starting a small business?

The following is a good checklist of items to consider when establishing your business:

  • Choose your business name. Make it memorable but not too difficult. ...
  • File business formation paperwork with your state. ...
  • Apply for an Employer Identification Number. ...
  • Apply for the licenses and permits you need. ...
  • Open a business bank account. ...
  • Apply for business insurance. ...
  • Choose a bookkeeper or get accounting software. ...