boss supp final 8-22-09financial statements are an absolute necessity for any business seeking...

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Supplementary Materials

Beth Keeton Keeton Consulting

B B

______________________________________________________________________________________ BOSS Supplementary Materials of 147

Acknowledgements

The development of these supplementary materials was made possible through funds from the Agency for Persons with Disabilities in conjunction with the Start-Up Florida Project. The preparation of this item was provided by Start-Up-USA, Start-Up/Florida , Virginia Commonwealth University (#E-9-4-6-0111) and Griffin-Hammis Associates, LLC, funded by cooperative agreements from the U.S. Department of Labor, Office of Disability Employment Policy (USDOL, ODEP). Local activity is funded in part by a cooperative agreement from USDOL, ODEP to the Florida Agency for Workforce Innovation (#E-9-4-6-0110). Sub-recipients of the Florida grant include the Florida Agency for Persons with Disabilities, the University of South Florida’s Center for Inclusive Communities, and Regional Workforce Boards WorkSource, Inc and WorkForce One. Keeton Consulting would like to thank the following individuals and organizations for their help with the creation of these Supplementary Materials. We would like to begin with thanking JB Black and Debra Noel of Florida’s Agency for Persons with Disabilities, without whose support and input this would not have been possible. Additionally, we would like to thank Nestor Monllor, of Monllor Rods, for his commitment to allowing others to learn through the sharing of his personal experience and journey. Special thanks to the team at Griffin-Hammis Associates, LLC: Cary Griffin, David Hammis, Molly Sullivan, and Tammara Geary. We would also like to thank the original members of the BOSS Team, including Peggy Mannering, Willa Tyler, and Mike Capps for their original vision and ongoing support. This document does not necessarily reflect the views or policies of the Office of Disability Employment Policy, U.S. Department of Labor, nor does the mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government.


Table of Contents Introduction ………………………………………………………………. 5 Business Financial Basics …………………………………………….. 7 Identifying Start-Up Costs ………………………………………… 11 Projecting Profit & Loss ……………………………………………. 19

o Sales Revenue ……………………………………………….. 22 o Cost of Goods Sold ………………………………………….. 29 o Gross Profit …………………………………………………… 32 o Operating Expenses ………………………………………… 35

Developing Cash-Flow Statements ………………………………. 43 o Beginning Balance and Cash-In …………………………... 46 o Cash-In …………………………………………………………. 46 o Cash-Out ………………………………………………………. 48 o Calculating the Ending Balance …………………………… 50

Break-Even Analysis …………………………………………………. 55 Funding Sources ………………………………………………………….. 64 SSA Benefits Analysis ……………………………………………………. 70 SSA Benefits Overview …………………………………………………… 73 SSI Program Basics ……………………………………………………….. 74 Unearned Income ……………………………………………………… 78 Earned Income …………………………………………………………. 81

o Net Earnings from Self-Employment (NESE) ……………... 88 o Cash Benefit Calculation ……………………………………… 92

SSI Work Incentives ……………………………………………………. 92 o Impairment Related Work Expense (IRWE) ……………….. 93 o Blind Work Expense (BWE) …………………………………… 98 o Student Earned Income Exclusion (SEIE) ………………….. 102 o Plan for Achieving Self-Support (PASS) ……………………. 106

Medicaid ………………………………………………………………….. 120 Property Essential to Self-Support (PESS) ………………………… 122


SSDI Program Overview …………………………………………………… 123 Earned Income …………………………………………………………… 125

o Trial Work Period (TWP) ……………………………………….. 131 o Extended Period of Eligibility (EPE) ………………………….. 136

SSDI Work Incentives …………………………………………………… 136 o Impairment Related Work Expense (IRWE) ………………… 136 o Unpaid Help ……………………………………………………….. 140 o Unincurred Expenses …………………………………………… 143

Termination ……………………………………………………………….. 147 o Expedited Reinstatement ………………………………………. 147 o Extended Medicare Coverage ………………………………… 147


Introduction In 2005, a collaborative group of Florida visionaries completed work on the original BOSS Manual. This original BOSS Team included staff from the Martin County School District Department of Vocational Adult and Community Education and HPS, Helping People Succeed, Inc., formerly Tri-County TEC, a not-for-profit 501(c)3 Florida Corporation. The project was made possible through the Adult Education and Family Literacy- State Leadership funds provided by the Florida Department of Education, Office of Workforce Education, Adult Education and Family Literacy Act State Grant Programs of the Workforce Investment Act of 1998. Originally conceived as a sort of “tool-kit” for educators and human services professionals, the BOSS Manual provides an overview of micro-enterprise and self-employment along with specific forms and examples to guide interested individuals through the development of a business plan. It represented the first significant grant-funded self-employment effort in the State of Florida. Since that time, Florida’s self-employment efforts and opportunities have changed significantly. Both the Office of Disability Employment Policy (through the Start-Up USA and Start-Up Florida projects) and the Florida Developmental Disabilities Council have funded large scale efforts to provide self-employment training and technical assistance to individual entrepreneurs and human services professionals. Additionally, the Florida Division of Vocational Rehabilitation has launched the first national effort to train, certify, and fund vendors of self-employment services. Even though the opportunities to receive self-employment training and technical assistance have increased, the need for comprehensive “leave-behind” materials remains. The original BOSS Manual provides an excellent overview of the self-employment process. Additionally, users have consistently requested materials that provide more in-depth consideration of the development of business financials, analysis of Social Security Benefits, and updated resources. These Supplementary Materials address those requests and, as the title implies, are intended to be used as a supplement to (not replacement for) the original BOSS Manual.


Developing the Business Financials


Business Financial Basics

Business financial statements must be developed to “provide a clear and precise picture of the company’s financial condition.” (BOSS pg. 36) As a general rule of thumb, it is recommended to develop at least three years of financial projections for new or expanding companies. For existing companies (e.g., not start-up companies), historical financial statements must be included as well. Financial statements are an absolute necessity for any business seeking funding. This holds true regardless of the funding source- these documents must be included whether the entrepreneur is approaching Bank of America, the Social Security Administration, or the Division of Vocational Rehabilitation. Businesses not seeking funding could, in theory, get away with not developing financial projections. However, it is strongly recommended that ALL businesses, large and small, develop solid and comprehensive financial statements. Doing so allows business owners to predict income and expenses far more accurately. Additionally, drafting the financials guarantees more thorough analysis of potential financial needs and challenges, and funding requirements that may have otherwise been overlooked are more likely to come to light. While there is no one “right” way to develop the business financial plan, the following key sections/information are typically required:

Projected Financial Statements: • Profit & Loss • Cash-Flow • Break-even Analysis • Balance Sheet

Projected Start-Up Costs Historical Financial Statements (for businesses already in operation) Description of how your accounting records will be maintained (and by

whom)


Fearless Financial Planning Developing the financial statements is typically cited as the most intimidating part of business plan development. First-time entrepreneurs likely have little to no experience with this, and often the team members providing support have limited experience with it as well. It is important to keep a few things in mind when approaching this task:

1. 100% accuracy is not the goal

No one, not even Bill Gates, can guarantee complete accuracy when developing projections. What if an entrepreneur intends to do the majority of her marketing via the internet only to discover that personal networking is more effective- and fuel costs for sales calls increase as a result? Or a hurricane forces the business to close for two months? The goal should be to develop reasonable predictions based on logic and research- not perfection.

2. No MBA, Economics Degree, or Math Major required

The best projections come from thorough research and from asking and answering a series of progressively more in-depth questions. At their core, financial projections must be based on logic, not an understanding of higher mathematics. Projections are guesses; however, they should be logical, well-researched ones.

3. Other business owners and team members can help

Anyone running a business should have a fundamental understanding of business financials. Specific expenses and/or expense categories may change across businesses, but the basic process will be the same. Independent Support Coordinators and/or accountants for the provider agency frequently have valuable experience and insight to share.

4. Community resources are available

Local Small Business Development Centers, Small Business Administration, and Service Corps of Retired Executives offices are available in most communities. Additionally, business plan software, books, and internet sites can be excellent resources as well.


Sources of Information Many entrepreneurs and members of their teams report that they have no idea how to begin formulating the numbers. However, by the time the team is ready to develop the business financials, several things should already have occurred:

Discovery and person-centered planning to develop better understanding of both the entrepreneur and the community in which s/he lives.

Market research/feasibility studies conducted to evaluate potential

business concepts Business concept selected that both fits the individual and appears

profitable has been selected

Information gathered through each of the processes can be used to jump-start the financial documents. Whether team members realize it or not, in doing these things, they have already started the process of developing the business financials! Additionally, while there will always be an element of guesswork involved in developing business financials, it should be very educated guesswork. The best way to start is by doing quality research.

Methods for Researching Business Expenses

(including start-up costs)

1. Interviews 2. Trade Associations 3. Trade Shows 4. Libraries and web-sites

Steve Strauss, Microsoft Small Business Center http://www.microsoft.com/smallbusiness/resources/expert/strauss102005.mspx


Interviews Interviewing owners of similar businesses or industries is one of the best possible research methods. It is frequently assumed that owners won’t want to talk to potential competitor; however, experience has proven time and time again that many are more than willing to talk about their experiences and share their insights. It may take several calls (e.g., don’t stop after calling just one business), but it is definitely worth the effort. One or two calls with other owners can yield a depth and breadth of information that might take weeks of looking online to find otherwise. Trade Associations & Trade Shows Most industries have a trade association that can be an excellent source of information. Addtionally, if there are trade shows associated with the industry, attending can provide a fantastic opportunity to talk with others involved in all aspects of the industry. Libraries and Web-sites Reference librarians can be a great resource in tracking down necessary information; larger branch libraries frequently have a business desk. The internet also provides a wealth of information (for example, this list comes from an internet article). A word to the wise, however: be sure to verify the source. Anyone can post almost anything on the internet; no one wants to base their financial future on misinformation. Again, some (or most) of this information may already be available to the entrepreneur and his/her team based on the market research that has previously occurred. If a feasibility study was conducted, financial information (e.g., how much it cost to produce the products, how many sold at what price, etc.) from it can and should be incorporated into the financial statements.

BOSS TIP!

If local business owners in the local area seem reluctant to talk, try calling outside the state or local community.

If an entrepreneur or team member

knows someone in the industry, try using that person as the starting point.


Identifying Start-Up Costs According to the Accounting Standards Executive Committee, start-up costs can be broadly defined as “… those one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, or commencing some new operation.” (www.bizjournals.com/albany/stories/1999/03/15/focus6.html) Essentially, start-up costs identify exactly what is needed (and how much it will cost) to get the doors to the business open. Start-up costs can vary widely across businesses, but the following items should be considered:

Expense Category

Possible Expense Items

Location Expenses

Rent Renovation Utilities

Fees

Licenses (e.g., business licenses, licenses related to specific industry, etc.)

Incorporation or LLC fees Permits Accounting Legal Insurance

Supplies & Equipment

Office supplies Office equipment (e.g., computer,

fax machine, copier, etc.) Computer software Machinery Office furniture

Advertising/Marketing

Promotional mail-outs Yellow Pages ad Signage

Initial Inventory

Stocks Raw materials


Timing Considerations Some of the expenses in the list above might also occur after the business has opened. Rent, for example, would be an ongoing expense, but only the rent payments due prior to the opening of the business would be included in the start-up expense category. For example, an entrepreneur opening a scrapbooking shop in March 2008 would probably need to rent the location for at least 2 months prior to the grand opening in order to prepare the space for customers. In this case, rent paid in January & February would be included in the start-up expenses. Additionally, marketing and promotion will occur throughout the life of the business. If an initial mail-out was sent announcing the grand-opening in March 2008, the costs associated with the initial mail-out would be included with the start-up expenses. Owner Contribution Based on consideration of the list above as well as on interviews with other business owners (and any other research methods listed in the previous section), entrepreneurs and their team members should be able to generate a list of the expected start-up costs for the business. This list should not include just the new items/associated costs needed but also any funds or items/associated values that the entrepreneur already owns and plans to contribute to the business. Most community lending sources (e.g., banks) like to see that entrepreneurs are bringing financial resources of their own to bear in the starting of the business. It is assumed that this both serves as an indicator that entrepreneurs are committed to the business as well as to reduce the funding requirements. Individuals with limited resources (and in order to meet eligibility requirements many SSA beneficiaries are individuals of limited resources), however, rarely have substantial (or any) funding of their own to contribute to the business. In detailing the items the individual already owns that will be dedicated to the business, commitment to the process can be demonstrated. Additionally, careful analysis and utilization of all possible funding sources (e.g., DVR, SSA, etc.) can reduce the funding requirements for any one organization and strengthen the business plan.


Projected start-up costs can be captured in a simple Excel spreadsheet such as the following:

Start-Up Costs: New Business A

Item Needed Cost Funding Source

Licenses/Fees Business License LLC formation fee

Equipment Computer

Computer Software Printer/fax/copier 3-line telephone

Location Expenses

Business phone line- installation

Furniture Office desk/chair

Filing cabinet

Supplies Basic paper supplies Basic office supplies

Printing Grand Opening Flyer

Business Cards

Total Start-Up Funds Required

Owner Contribution

Total Start-Up Funds Sought


Calculating Start-Up Costs Example: Rods & Reels

A prospective entrepreneur in Polk County was interested in producing high-quality, hand-crafted bamboo fly-fishing rods. Although he had previously made such rods, he had done so only on a rod-by-rod basis and needed to ensure that he had thought through the full-range of potential equipment necessary.

To get specific feedback on what would be necessary to get this business going, he spoke with three other rod-makers throughout the United States. Through these conversations, he was able to generate a list of rod-making materials and equipment necessary to start his business. During these conversations he also learned that the primary marketing methods for most rod-makers were internet/web-sites and tradeshows.

In order to start the business, the team decided that a quality web-site must first be developed so that customers could have a method for seeing the products. Two trade shows were occurring within a month of the technical business opening, so the costs associated with them were included in the start-up costs as well.

Additionally, the team also identified that he would need a new computer, printer, and fax machine, along with computer software such as MicroSoft Office and Quickbooks (for accounting purposes).

All of these items were listed separately, along with their associated costs. As the chart on the next page shows, the anticipated start-up costs for the rod business were calculated to total just over $18,000.


Start-Up Costs: Rods & Reels

Equipment

Lathe w/ stand* $3,000

Mill w/stand* $2,800

Tooling (machine)* $2,800

Materials

24 pieces bamboo (36 rods) $860

Nickel-silver rod (ferrul material) $100

Wood inserts/guides/tip tops $1,088

Bar stock & rod reel stocks $200

Tube & sock/ID labels $424

Reel Materials/reel cases $230

Rod-Making Tools

Threads/Drill Doctor $280

Planing forms $850

LLC/Business License $350

Web-site Development $1,250

Computer/Software* $1,100

Digital camera $200

Marketing- show booth fees $1,600

Travel expenses (shows) $1,150

$18,282 *Depreciable Items


Owner Contribution: Rods & Reels

Through the years, the rod-maker had been slowly purchasing items for making rods as his finances would allow. In order to represent the costs of starting the business as accurately as possible, he itemized all the supplies and equipment he had previously purchased that he planned to contribute to the business. Individually these items may not have appeared impressive; however, all together they totaled $3640 (see chart on the next page). Not only did this demonstrate that the owner was willing to make a financial contribution of his own, but it also highlighted his dedication and determination to the business. Given limited income and resources, he had been putting every extra dollar towards this business for several years- a true testament to his commitment.

Beyond this, at the time he was starting the business, the owner lived with his two young children in a relatively small apartment. In spite of the high premium placed on living space, he had dedicated what otherwise would have been the dining area as his shop. When the family wanted to eat together, they had to set-up a temporary table in the living room instead. This information was also shared with the entrepreneur’s VR Counselor as an added indicator of his dedication to his business.


Owner Contribution: Rods & Reels

Bamboo $660

Hand Saw $25

Specialty Files $10

Rubber Mallet $5

Bench Vise $10

Hand Planes/Hand torch $110

Sandpaper $25

Heat Gun $50

C Clamps/Drill Press $100

Lathe $500

Epoxy $50

Oven $100

Drying Cabinet $25

Drill Bits/Reamer/Jig $130

Dial Calipers/ Micrometer $240

Lathe Tools/ Binder $225

Drill Press Vice $25

Rod Components $150

Nickel Silver $50

Planing Forms $1,150

$3,640

Total Start-Up Requirements: Rods & Reels

Funds Sought from VR $18,282

Owner Contribution $3,640

Total Start-Up Requirements $21,922


And a Few Surprises Along the Way: Rods & Reels

In spite of thorough research efforts, the rodmaker and his team members still managed to miss a few expenses. For example, two of the machines he purchased (the lathe and the mill) weigh approximately 1,000 lbs. apiece. Although the machines were purchased and delivered with no problem, the delivery man brought them only to the driveway- not inside the home shop!! A mad scramble to find someone to help him get the machines into the house ensued (ultimately, efforts were successful).

Additionally, in order to support the high-tech equipment, an electrician had to come to re-wire his home. Fortunately the additional costs were not excessive, and his local DVR counselor was supportive.

Helpful Hint: It is a good idea to let funding sources such as DVR know that while all effort is made to ensure accuracy with numbers, there frequently

are a few minimal surprises along the way!


Projecting Profit and Loss Statements (P&L) Among the most important financial documents to develop is the Profit and Loss (P&L) projections. As the name implies, Profit & Loss statements project both the monthly business income and the monthly business expenses to calculate whether or not the business will make money (profit) or lose money (loss) on a monthly and annual basis. P&L statements are generally the first of the financial documents to be developed. The information contained in them can then be pulled into the other financial statements. P&L statements can be dissected into three main sections: income, expenses, and net profit (loss) calculation. Income and expenses are projected based on research results; net profit or loss is calculated based on the income and expense information. In order to develop sound P&L projections, business owners must do enough research to reasonably predict (project) answers to the following questions:

1. How much the business will be able to sell on a monthly basis? • Should account for factors such as seasonality, etc.

2. How much it will cost to produce the product? • For a company selling painted mugs, what is the cost of the

materials for producing 1 mug? ( clay, paint, glaze, etc.) • Referred to as the Cost of Goods Sold or COGS

3. What will the monthly operating expenses for the business be? • Licenses, accounting, marketing, rent, utilities, etc.


Projection Timelines It is generally recommended that three years of financial projections be developed. So if the business will start in January 2008, financial projections would be developed for 2008, 2009, and 2010. Typically, the most time and care is spent on developing the initial year of projections (whether calendar year, e.g. January-December 2008, or business year, e.g., March 2008-March 2009). Once the information for the initial year has been detailed, financial information for subsequent years will frequently be calculated as a percentage increase of the Year 1 numbers. In some instances, however, particular funding sources might dictate other timeframes for financial documents. For example, individuals seeking funding through a Plan for Achieving Self-Sufficiency (PASS), an incentive available to SSI recipients (discussed in the next section), are required to submit financial statements for all years the PASS is in operation plus one-year after the end of the PASS. If the entrepreneur intended to use the PASS for four years, this would mean that s/he would need to develop five years worth of financial statements. Formatting the P&L All P&L statements follow the same basic format. Generally, spreadsheets are utilized, with the months of the year listed across the top. Revenue from sales is the first item listed in the P&L statement. The Cost of Goods Sold (COGS- the cost of production) is calculated and then subtracted from the gross sales to calculate the gross profit. Operating expenses are then listed and totaled in the next section. Total operating expenses are then subtracted from the gross profit to calculate net profit or loss. Sole-proprietorships, partnerships, and Limited Liability Companies (LLC’s) will all follow the calendar year for operation and tax purposes; corporations have the flexibility to establish a business year that differs from the calendar year.

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