Rehabilitation Services Commission Guidelines

Small businesses are the fastest growing section of the American economy. Helping people with disabilities evaluate their interests, abilities and opportunities in running a successful small business is an important part of the vocational rehabilitation process.

In the Ohio economy it can be expected that more Rehabilitation Services Commission (RSC) consumers may seek self-employment due to the shrinking labor market in sectors such as manufacturing.

Through EnterpriseWorks, RSC assists counselors and consumers in the business start-up process.

The following guidelines were developed to assist Vocational Rehabilitation consumers and counselors in planning for self-employment. RSC fully supports self-employment as an attainable employment option for people with disabilities; however, as with any other option, there must be a reasonable expectation of success. These guidelines include questions and answers designed to reflect best practices.

Several RSC rules cannot be waived and should be considered as you review these guidelines:

• All RSC consumers must have an attainable, written “business plan” developed before Individualized Plan for Employment (IPE) services are authorized to implement the business.
• When a consumer is purchasing an existing business, RSC’s financial participation must be preceded by a legal and fiscal review for liens, potential litigation or other hidden costs.
• RSC funds shall be used to implement businesses only when the consumer is an owner.
• RSC must not participate as an ongoing investor in the business. The consumer must have an alternate plan for continued funding.
• Business-related equipment must be justified in the business plan. Equipment purchases, as appropriate, may be included in the IPE.
• RSC does not erect buildings, including homes, and does not purchase land, buildings or vehicles (in whole or in part), experimental items, or representation for appeal hearings for a referral, an applicant, a consumer or a former consumer.

Frequently Asked Questions

Q: What is a business plan? Must all consumers interested in developing a small business first draw up a business plan?
A: A business plan is a technical term describing the way that a person intends to focus, finance, market and operate his/her proposed business. It is a written document and serves as a road map for the business owner in the development of the business. The business plan helps the owner assess the risks to the business and manage these risks as the business develops.

Since a majority of new businesses fail, it is imperative that consumers take the time necessary to thoroughly explore and develop a proposed business venture. The business plan must be prepared in addition to the IPE but does not replace any of the IPE’s components. The IPE should reflect a specific vocational goal (not just the term “self-employment”) and any IPE expenditures for the business must be justified in the business plan.

Early in self-employment planning, the RSC Vocational Rehabilitation Counselor (VRC) and/or EW coordinator and consumer should obtain and review the consumer’s credit report, especially if the business idea will require commercial loan funding. Credit reporting companies are listed on the last page.

Q: Is a business plan necessary for a home-based business?
A: Yes. If the consumer owns the business, it doesn’t matter where the business is located. The business plan must address the location of the business and any future plans for relocation. A home-based business should not be confused with the situation where a person works out of the home as an employee of a separate company.

Q: What is included in the business plan?
A: While there is no standard format, the business plan should address the following:

• a statement of the owner’s skills, experience and ability to operate the business;
• a financial forecast for a minimum of three years, showing all projected sources of revenue and expenses;
• a marketing plan that includes a statement of the products or services to be sold, and how marketing activities will be implemented;
• an operating plan that describes in detail, the location, personnel and process to be used in starting the business;
• a statement addressing all known risk factors including competitors to the proposed business; and,
• a list of equipment to be purchased for the business and justification for its need.

Just as the business plan plots a successful route for the potential business owner, it can also show that risks to a proposed business are too great. A plan that allows a potential owner to decide against a proposed business idea is also successful.

Q: Do consumers wanting to work as independent contractors such as barbers, nail techs and realtors need a business plan?
A: Although a business plan is not mandatory for independent contractors, referrals can be made to the new EnterpriseWorks Independent Contract Education through your EnterpriseWorks coordinator. Consultation is available to assist such consumers in developing an abridged version of a business plan dealing with issues such as taxes, legal contracts, licensure and insurance.

Q: Can RSC and/or a consumer pay an individual or organization to develop the business plan other than using EnterpriseWorks?
A: There may be times when a consumer chooses to work with someone other than EnterpriseWorks and requests that RSC pay for all or part of the service. In that instance, the RSC VRC must be certain that the vendor has the education and experience to assemble a business plan. This experience might include technical knowledge in the proposed business area, or availability of professionals such as attorneys or accountants who specialize in small business consulting.

Organizations or individuals not possessing the required experience should not be retained as consultants. If the consumer comes to the RSC VRC with a business plan already developed, the VRC can request that their EnterpriseWorks coordinator evaluate the plan's feasibility and make recommendations. Regardless of what consulting services are used, the potential business owner must direct the planning process, since he/she will ultimately be responsible for implementing the plan.

Q: What role should RSC play in financing a small business?
A: As with all RSC services, this question must be answered during the development of the IPE. Special concerns must be considered in the planning process.

Please note that some of the RSC rules referred to above are repeated here:

• RSC should not participate by providing services to any business start up if no business plan has been developed. If the business plan does not justify the investment of either time or money in the business, RSC will not participate.
• When a consumer is purchasing an existing business, RSC’s financial participation must be preceded by a legal and fiscal review for liens, potential litigation or other hidden costs.
• RSC must not participate as an ongoing investor in the business. The consumer must have an alternate plan for continued funding.
• The consumer will be expected to have income sufficient to support him/herself during the inception of the business and its first few years. Because RSC may not assume living expenses for the consumer, the business plan should clearly explain the consumer’s plan to continue supporting himself/herself. Expecting the business to pay a salary during the initial start-up phase often puts the venture at serious risk.
• RSC funds shall be used to implement businesses only when the consumer is an owner. RSC funds must not be used to establish or fund an entity where the consumer is not an owner. For example, establishing a nonprofit corporation where the consumer serves as executive director but has no business ownership would not be fundable as self employment under an IPE.
• Since RSC’s role is to assist the consumer in the process rather than to assume full financial responsibility, it’s important that the consumer participate in locating funding resources for the business. One of the most common ways to help fund a start up is asking family, friends, investors and others to provide financial assistance.Because of the perceived risk of a new business start-up, initial bank financing may not be available.

Creative financing options are vital for funding small business start ups. Borrowing money against the value of equipment, leveraging income from assets, bartering and borrowing against savings are all creative methods that sometimes can be appropriate for funding start ups. The consumer must be prepared to identify and explore all available options, including in-kind or “sweat equity” contributions. The consumer must be aware that he/she will be taking on some element of financial risk.

Q: What other pitfalls or cautions must be considered in small business planning?
A: Many potential small business owners are too quick to purchase expensive computers for inventory, payroll, word processing or accounting needs of the proposed business. Consider first whose time will be spent on these activities. The cost to the business, in both time and money, would often be far less if these services were contracted for.

For many businesses especially those housed in a residential area or a home, zoning and other city regulations must be considered in the business design and operation. The local chamber of commerce is a good source of information on these issues.

Many businesses have tax, insurance and/or licensure requirements. A consumer may have to hire an attorney or accountant to help with the initial start up. While partnerships and group ventures are good ways to reduce the cost of a business start up, any agreements and understandings are best put into writing with appropriate legal advice. This is true even when family members are involved in the business relationship.

If a consumer is seeking RSC’s financial participation in a business following a prior business failure or sale, the counselor must closely scrutinize the causes of the earlier failure or sale, and work with the consumer to determine if self-employment continues to be a realistic option. If self-employment is appropriate, it's highly recommended that the business plan be reviewed by a qualified consultant before RSC financially contributes to it.

Q: Can developing and operating a nonprofit organization be considered a consumer’s viable self-employment goal?
A: No. In nonprofits there are no shareholders and no owners. A consumer employed by a nonprofit would have no ownership rights in the entity.

Q: When do you close a self-employment case?
A: A self-employment case is no different from other rehabilitation cases and the same standards are used for closure. A good method for determining closure success is to establish a benchmark for self-employment success with the consumer in self-employment planning. Your EnterpriseWorks coordinator can assist you in establishing this benchmark.

Q: How are wages determined at closure?
A: Estimating wages presents a problem for the entrepreneur in many arenas, including credit reporting, tax obligations and business forecasting. This is caused by the need to show as little income as legally possible. In addition, most business owners choose to reinvest money in the business rather than pay themselves wages. Therefore, the counselor should consider income to the business when determining wages at closure. Your EnterpriseWorks coordinator can assist you in making this wage determination. The following formula is a suggestion for determining an hourly wage:

Gross business income minus expenses* divided by actual hours worked equals the hourly wage.**

* For this purpose, expenses do not include capital purchases or depreciation costs.
**If the consumer is paying him/herself a wage, add that wage to the wage calculated above. In addition, if the consumer also has other employment, those hours and wages being paid to the consumer should also be added to this wage calculation.

Remember the written business plan isn’t a one-time effort. As the business develops, it will be necessary to continuously rethink strategy and revise the business direction. Regular review of the business plan can help a business remain successful.

CREDIT REPORTING COMPANIES
Below are the major companies from which credit reports can be purchased. A recent amendment to the federal Fair Credit Reporting Act requires each of these nationwide consumer reporting companies to provide individuals with a free copy of their credit report once every 12 months from www.annualcreditreport.com. Ohioan’s can order their free reports beginning March 1, 2005.

Trans Union Corporation
P.O. Box 390
Springfield, PA 19064-0390
Telephone: 1-800-888-4213
24 hour automated service
www.truecredit.com

Equifax
P.O. Box 105873
Atlanta, GA 30348
Telephone: 1-800-685-1111
24 hour automated service
www.econsumer.equifax.com

Experian
P.O. Box 2104
Allen, TX 75013-2104
Telephone: 1-888-397-3742
Monday to Friday, 7:30 a.m. to 7:00 p.m. CST
www.experian.com