Small business owners need a plan that leaves room for change

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For entrepreneurs thinking about starting a small business this year, having a well-thought out business plan that contemplates how to adapt to change is essential, says Natalie Matychak, senior counsel at the Harris Beach law firm.

“Once thing we’ve learned from the pandemic is that things change very quickly,” Matychak says. “Businesses, now more than ever, need to figure out how to adapt and pivot. Coming up with a very solid business plan from the start helps people be adaptable in how they sell their products and services, whether it’s because of changing government regulations or changing consumer desires.”

The New York State Small Business Development Center offers counseling sessions for small businesses on developing business plans, Matychak says.

Seth Hiland, co-leader of Harris Beach’s tax law practice group, says it’s important to talk to a legal advisor with experience in a small business owner’s industry with the licensing, permitting and other regulatory issues specific to that industry.

Hiland also suggests connecting to local economic development organizations that have connections to Industrial Development Agencies and other similar organizations that can provide financial assistance and tax abatement. He also notes that many localities have business incubators.

Hiland also notes that having a good set of bylaws and other necessary legal documents can help to obtain financing.

“A new business owner will be so excited about starting their new business — and they should be — but they often overlook those details,” Hiland says.

Timothy Jones, executive vice president and chief lending officer for Genesee Regional Bank, says that one of the main ways that entrepreneurs get their small businesses off the ground is taking advantage of loans through the federal Small Business Administration.

“We certainly have financed small businesses getting off the ground and people purchasing existing small businesses,” Jones says. “We take advantage of the programs out there like the SBA.”

Jones notes that the SBA has been able to raise the standard guarantee on 7(a) loans to 90 percent from 75 percent if you close on the loans via September 30.

“A borrower that comes to us that has the need for financing, we’re telling them we may want to go down the road of a SBA loan because it provides you a benefit and it provides a bank a 90 percent guarantee,” Jones says.

Jones also notes that the SBA will make at least three months of payments and up to six months of payments at the start of loans.

Jones says that it helps entrepreneurs “keep businesses growing and acquire more product and hire more people.”

Entrepreneurs embarking on starting new businesses or acquiring businesses should be prepared for the worst this year, Jones says.

“When you start putting together your financial projections with the bank always see that you are realistic with your expectations,” Jones says. “Be more conservative than aggressive. I would suggest you think about being overcapitalized instead of being undercapitalized.”

Mark Verdi, a partner at Lawley Insurance and a certified insurance counselor, says that new enterprises need to be aware that the standards for insurance underwriting are currently very strict right now.

“We are right in the middle of a hard market,” Verdi says. “It’s the hardest I have ever seen in 30 years. Along with a hard market comes tight underwriting. What is happening now with the hard market the underwriters are asking way more questions. The underwriters are being much more strict and asking for way more information.”

Verdi says he is not recommending that entrepreneurs should not try to open a new business or acquire a new business in 2021, but that they need to have everything in order to embark on their new ventures like business plans and estimated profits and losses and sales in order to secure insurance protection.

Insurance needs will depend upon the business, but the typical types of insurance coverage include general liability coverage, property insurance coverage, business automobile coverage, umbrella/excess liability coverage and workers compensation/disability coverage for employees, Verdi says.

Having protection for cyber liability like malware attacks or social engineering attacks also is important, Verdi says. Malware attacks and social engineering “often cause a loss of business income,” Verdi says.

According to Verdi, it is also important to not just buy the cheapest insurance policies but to find policies that have comprehensive coverage in the event the insurance coverage is needed.

“Everyone thinks they’re going to buy the cheapest,” Verdi says. “Find an agency with experience and knowledge and that has many markets to go to.”

Steven Terrigino, a partner at accounting firm The Bonadio Group and practice leader for the firm’s Small Business Advisory Group, says that it is important for entrepreneurs and startups to surround themselves with a team of advisors made up of an accountant, insurance professional, attorney and a lender.

“One of the first people to talk to is an accountant,” Terrigino says. “They can help guide you to put your team together. If you are going to start a business and you’re not in business already you are going to need any number of business advisors.”

Accountants are usually the quarterbacks of the team of business advisors for most clients and can be helpful in making referrals to other needed business advisors like lawyers, financing and payroll services, Terrigino says.

A certified public accountant can help you with cash flow projections and ensure you are set up to collect sales tax and other necessary business taxes, Terrigino says.

New business owners also need to secure a domain address for a website and also consult with an attorney about a corporate structure that meets their needs and protects them from liability, Terrigino says.

Entrepreneurs who want to start a business in an industry in which they don’t have a track record also need to secure some source of funds like a home equity line of credit or funds from family or friends, Terrigino says.

“Banks are not going to give you a loan if you are starting a new business in an industry you don’t have a track record in,” Terrigino says.

For entrepreneurs buying an existing business, Terrigno says it’s important to engage a certified value analyst to make sure they are not overpaying for it.

In terms of acquiring existing businesses, Terrigino also says new owners should keep in mind some implications from stimulus efforts to assist businesses.

Under the 2021 Employee Retention Credit, an eligible employer that has operations that were fully or partially suspended or experienced a significant decline in gross receipts can get a tax credit for the employee and employer portion of Social Security and Medicare taxes as well as the employee federal withholdings.

Terrigino also notes that for companies that are able to get the Paycheck Protection Program loans forgiven it has finally been announced that the forgiven debt is not going to be counted as taxable income on which taxes have to be paid.

Hiland adds that President Joe Biden has proposed changes in the marginal tax rates for higher earners and taxes on capital gains.

“You may see some M&A activity that may be accelerated if that becomes more and more certain,” Hiland says.

Amaris Elliott-Engel is a Rochester-area freelance writer.