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The Decisions of a Business Planner

Posted by Brandy on January 8, 2013

When you first start thinking about owning or running your own business, you may expect to make a lot of decisions on a day-to-day basis. Well, there are decisions a business planner needs to make even before the business opens, too. 

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Ownership

One of the first types of decisions that need to be made is the type of ownership. Common business types include Limited Liability Company (LLC), Partnership, S Corporation, C Corporation, and Sole Proprietorship. These different business types are used to indicate how a business owner will be paid and what sort of liability a business owner is willing to assume. For example, in a Limited Liability Company (LLC), Partnership, and Sole Proprietorship, you cannot be paid a salary. Instead you would be paid a monthly owner distribution and will need to pay federal and state self-employment taxes on the distribution. If you decide to form an S Corporation or C Corporation, you will be able to draw a salary. The salary should be included in the Expenses section of your business plan.

Customer Payment

Another decision a business planner will need to make is about how the company will be paid by its customers. For example, will your customers pay by credit card, cash, check, purchase order, or on credit? If you plan to allow your customers to buy on credit, you’ll need to have a credit policy. You may be able to use a credit policy in two different ways: first, to close new business and second, to attract new business. If a customer really wants to make a purchase, but needs assistance with financing that purchase, a credit policy will help to close that sale. However, you should be aware of how a liberal credit policy may lead to some bad debt. If you extend credit to high-risk customers, some of them may not pay their bill at all.

A credit policy may also help to attract new business. For example, some companies often heavily advertise the terms of their credit policy in hopes that those messages will give prospective new customers the idea that they may be able to afford something new and will entice them to come into the store to look at their merchandise. A credit policy may also be used as a competitive edge against neighboring businesses.

Deciding how and when to get paid is an important decision for an entrepreneur to think about before starting to write a business plan. You’ll need to add the salary or monthly owner distribution amount into the Expenses section of a business plan. If you choose to have a liberal credit policy, you’ll have to predict a certain amount of bad debt for the financial statements in your business planner software. And, you may be able to utilize the information about financing as part of your marketing plan.

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