You have the outlines of the business you are starting or enhancing. Now, to put some meat on the bones, your operating plan will do that. This part of the business plan will focus on details about how you will run your business. What is the legal structure of your business? This will outline your management requirements.
For example, if you are an LLC, you will want to address whether there is a member-manager of the business and who that is, or whether the business will be run by a Board or membership group; whether executive officers will be appointed, etc. If your business is a corporation, you will need to address creating a Board of Directors. Most small businesses have Board of Directors who serve without compensation. The issue for those Board members is liability. Board members are liable for business management decisions and, even though they might not receive compensation for serving on a Board, directors want to be assured they are protected from liability through officer/director liability insurance.
If you are creating a business, want to be advised by an outside group and cannot afford officer/director liability insurance, you should consider forming an informal advisory group to help you with the business. The advisory group will have no liability for business decisions, but will be there for you to offer advice. Tap into those human resources you have to sit on this group. Even semi-annual meetings with a group of advisors who have agreed to serve as your mentors without compensation will offer you so much more perspective on your business and operations. And, don’t discount the value of listing your advisors in your marketing materials (with their permission, of course).
Depending on your structure and what it is you are delivering as a product or service, you need to address what it will take to deliver your product or service. Creating a short summary of the job skills necessary for the employee positions you must fill is necessary. Once you do that, you can also estimate the salaries you will have to pay for the positions you need to fill.
One of the major issues to be determined by the new business owner is whether your employees are full-time employees who work only for you or whether they are independent contractors who also work for others. The Internal Revenue Service is focused on this issue because so many business owners have mistakenly classified their employees as independent contractors that catching and punishing employers for this is easy. This subject, alone, deserves an article. However, to summarize, if someone works for you full-time at your direction, they are employees and you must withhold taxes from their paychecks and pay over the taxes to the government. If they do not work for you full-time and collect salaries from other employers and meet other criteria, they can be classified as independent contractors. In that case, when you pay them, you do not withhold taxes. They are responsible for paying their own taxes. The IRS loves to challenge the classification of employees as independent contractors since most business owners do not back up their classifications with evidence and the IRS can easily re-classify employees, requiring the employer to pay back taxes on amounts not withheld that should have been, along with penalties and interest.
To protect yourself and your business, any employer who deals with independent contractors must have an independent contractor agreement signed by the employee and employer that recites all the IRS guidelines and represents that the employee and employer are following such guidelines.
Other issues to be determined and addressed in the operating plan involve the pricing of your products or services, whether you will accept credit in payment and, if yes, through what mechanism. Credit card processing machines are available through many sources, including your bank. But, processing rates vary and it is wise to shop around to find the best processing rates. These days, there are credit card processing “machines” that can fit onto your smart phone. Transactions can also be completed easily online through a number of services, such as PayPal.
Since you have already researched your competition when you created your marketing plan, there will probably be operational issues your competitors deal with that will apply to what you are planning so address those in your operating plan.
Finally, don’t neglect the issue of whether your business has obtained the proper licensing and permits. Your particular business may require a license from the Federal, state or county government. Fortunately, the Internet has many resources you can check to determine if you need a particular license. Permits to open and operate a business will probably also be required by your local community and local regulations should also be checked.
If all of the above seems like a lot of detail, it is. But, the time to focus on the necessary details of operating your business is when you are creating the business plan and not after you open the doors.
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.