Guide for the start-up entrepreneur

GUIDE FOR THE

START-UP ENTREPRENEUR TALLINN – STEPS FOR ESTABLISHING A BUSINESS

COMPILED BY: Tallinn City Enterprise Department Vabaduse v채ljak 7, 15199 Tallinn Phone: +372 640 4219 E-mail: ettevotlus@tallinnlv.ee Website: http://ettevotja.tallinn.ee DESIGN: Disainikorp PRINTING: AS Folger Art TRANSLATION: Juta Ristsoo

Table of Contents

HOW DO YOU START A BUSINESS? BUSINESS MODEL SUCCESS STORIES STEPS FOR ESTABLISHING A BUSINESS STARTING A BUSINESS REGISTERING THE BUSINESS EMPLOYEES MARKETING ACCOUNTING TAXES BUSINESS PLAN USEFUL LINKS

4 5 6 10 12 14 19 20 21 22 24 32

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HOW DO YOU START A BUSINESS? Before starting your business, you should ask yourself at least three questions: • What should I do?

• How should I do it?

• For whom I am doing it?

Most important when establishing a business is having a good idea.

However, having a good business idea, and knowing how to implement it is not enough. All the other aspects also need to be analysed. These include the following: • you must have designed product or service for which there is a market; • you must know whether you or your company needs a license or operating license for producing the product or providing the service; • you must choose the most suitable location for manufacturing your product or providing your service; • if necessary, you must find qualified workers, who can help you produce the product or provide the service; • you must analyse what your competitors are doing; and • you must outline a marketing strategy for your product or service – how will you reach your customers?

Once you have thought all this through and found that you also have some of the personality traits that are important for an entrepreneur, such as the need to succeed, self-confidence and an organisational ability, you are probably ready to delve into running your own business.

Here, the Osterwalder business model can be of help. If you want to create your own business model based thereon, then you alone, or with your team, can just take a sheet of paper and start to answer the questions. The start-up entrepreneur must first describe the target customers – who they are and how many possible customers there are. As the next step, based on the possible customers, the entrepreneur can describe the value proposition of the product or service. Based thereon, you can ascertain how many products or services you should provide. Now, the key resources that are needed can be described, and how much money is needed can be determined.

KEY ACTIVITIES

WHAT?

KEY RESOURCES

VALUE PROPOSITION

CHANNELS CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS

HOW?

KEY PARTNERS

FOR WHOM?

BUSINESS MODEL

COST STRUCTURE

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SUCCESS STORIES SÄ

ÄS TV

THE FOLLOWING SUCCESS STORIES TOOK OFF WITH THE HELP OF GRANTS PROVIDED BY THE CITY OF TALLINN:

• Säästvad Ehituslahendused OÜ • Professional Wear Group OÜ • Tolm OÜ

AD

EH

IT

L US

EN AH

S DU

ED

OÜ

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SÄÄSTVAD EHITUSLAHENDUSED OÜ www.ehituslahendused.ee Säästvad Ehituslahendused OÜ is a small construction company that places great importance on natural building materials and traditional techniques. The company does finishing and restoration work, recycles old building materials, sells building materials, as well as provides training and consultations. The main activity is providing services in Tallinn – in the unique wooden districts of the city, which are under protection for their cultural and environmental value. Increasingly, the company is working on interesting restoration and conservation projects, as well as ecological building projects, outside the capital.

According to Kermo Jürmann, the company’s managing director, the company can also be seen as a social undertaking, since it is involved in work training programmes for the long-term unemployed, and in several projects to increase youth employment.

Kermo Jürmann says this about the path to establishing his own company: “At university, I specialised in ecological technologies, and after acquiring a theoretical base, I strengthened this knowledge with practical training. After school, I worked in small companies, travelled the world, and renovated my own home and those of my friends. After the building boom, there were no building companies in the marketplace that were specialised exclusively in the use of natural building materials. Since, the demand for such a builder was already great within my circle of acquaintances, and the protected areas like Kalamaja, Kadriorg, etc. were becoming increasingly popular, I assembled a competent building team.”

He says that a positive side to being an entrepreneur is that one can deal with a field of activity that has greater meaning than just earning money. Using local and natural materials is beneficial to the Estonian economy and the surrounding environment, but most importantly – homes built with natural materials create a pleasant atmosphere and do not damage the residents’ health. He is very appreciative of the emotional feedback that he gets from satisfied customers – the beautiful and unique interiors and the sincere joy and thanks of the homeowners are often worth more than the financial returns. He is also very happy about the recognition received at home beautification competitions for the homes that his company has built. Kermo Jürmann is tight-lipped about his failures, but says that, although the temptation is often great, it is very difficult to operate with a wide range of things.

Many years of experience have shown that it is better, and also more profitable, to be a good specialist in a narrow field.

His recommendation for start-up entrepreneurs is to find out everything they can about their future field of activity. Before starting a company, it is very useful to strengthen your theoretical knowledge with practical training – working on the actual job and dealing with customers reveal the shortcomings in the organisation. The best advertising is high-quality work.

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PROFE SS

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L WE

AR G ROU P

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PROFESSIONAL WEAR GROUP www.professionalwear.ee The Professional Wear Group is a clothing manufacturer, which is owned 100% by Estonian capital. Under the Professional Wear brand, they design, develop and manufacture occupational apparel and uniforms. The company also provides a full service for designers, which includes patternmaking, product development and manufacturing.

In 2010, the company’s founder, Anu Karu, was working as a salaried employee for a local company that organises the manufacturing of occupational apparel, but she wanted to the boss of her own thoughts, ideas, ambitions and time, and she decided to start her own manufacturing company. The company is still young – its first full financial year is behind it. However, even it this short time, it has grown very rapidly and is collecting more orders from the local market, as well as international markets.

Anu Karu admitted that there are always great risks when starting a company. She considers people to be the greatest asset of her company. Considering their wellbeing, she has created good working conditions and bought modern machines. She says that she has assembled the best specialists in the field, with whom she can make the best products and provide high-quality services.

She says the fact that Professional Wear Group is a finalist in the European enterprise competition for 2012-13 is its greatest success. Yet, she considers the existence of a respectable and valuable client base and partners, who have trusted the company and valued the services it provides, to be no less important. Professional Wear Group’s best-known partners are the Tallinn City Theatre, Vanemuine Theatre, Tervis Sanatorium, Tallinn Municipal Police, Swissôtel in Tallinn, and Pohjanheimo Couture.

Anu Karu considers her strength, and also her weakness, to be the fact she trusts people, because trust is often the thing that is misused by others. Some incompetent people were working at the company, and ending the work relationship with them incurred financial damages. However, in the long term and keeping human relations in mind, these steps were necessary at the time.

Anu Karu’s advice for start-up entrepreneurs is to dream big and to believe in yourself and your idea. She stresses that partners and colleagues have to be valued, since working together provides support and strength. At the same time, it would good to start thinking about operating in other countries as soon as you start your business.

TOLM

TOLM

OÜ

www.tolm.ee Tolm is a company providing an animation and visual communications service. Joosep Volk, a member of the company’s management board, says that he became an entrepreneur because he wanted to do things differently from what he had seen from the sidelines while working in the field. He also wanted to be motivated from morning to evening and, thereby, to fulfil himself. However, he admitted that he would never have arrived where he is today, if he had not found good people to join his team – together they have established objectives toward which they can strive.

and devoted time to your family. However, he still finds that the positive “bonuses” outweigh the negatives, at least in his case.

He thinks that one of the good things about being an entrepreneur is that it forces him to focus on the everyday questions that he would otherwise avoid. However, since the business is his own handiwork, he has to get his hands dirty anyway, and to learn thereby. Joosep Volk believes that a minus is the fact that when you have your own company, it is an inseparable part of you, which means working overtime and thinking about work even when you should be resting

His advice for start-up entrepreneurs is to remain realistic. Don’t expect instant success. Don’t think that money will just start to flow in. You must be patient, to believe in your undertaking, and look around and learn from the mistakes and successes of others. You have to be willing to invest more time than you might wish. But nothing is achieved easily. And if you succeed don’t take it for granted.

As far as the mistakes he has made, Joosep Valk says simply that mistakes are made so you can learn from them. But, if he could give start-up entrepreneurs only one piece of advice, he would tell them that their future as entrepreneurs depend on how carefully they choose the people with whom to start their business. Any later corrections just waste the participants’ time and can be nerve-racking, without even considering the inevitable financial consequences.

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STEPS FOR ESTABLISHING A BUSINESS

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SELECTING THE FORM OF BUSINESS E-ESTONIA GATEWAY TOPICS FOR ENTREPRENEURS www.eesti.ee/eng/topics/business PUBLIC LIMITED COMPANY (AS), PRIVATE LIMITED COMPANY (OÜ), SOLE PROPRIETOR (FIE) GENERAL PARTNERSHIP, LIMITED PARTNERSHIP (UÜ), COMMERCIAL ASSOCIATION

1

BUSINESS IDEA

COMPILING THE FOUNDING RESOLUTION AND SUBMITTING IT TO THE COMMERCIAL REGISTER Applications for entries can be submitted electronically through the COMPANY REGISTRATION PORTAL AT www.rik.ee/en/company-registration-portal or by having the founding resolution compiled by a notary CHAMBER OF NOTARIES www.notar.ee

CHOOSING AND CHECKING THE BUSINESS NAME CENTRE OF REGISTERS AND INFORMATION SYSTEMS www.rik.ee/en/e-business-registry/queries

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REGISTERING EMPLOYEES

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PROCURING OPERATING PERMITS/LICENSES Information about the fields of activity requiring a license available from the MINISTRY OF JUSTICE Tõnismägi 5a, Tallinn, www.just.ee/11985 (Estonian only) If necessary, the

Application forms available on the

HARJU COUNTY RESCUE SERVICE Raua 2, Tallinn, tel 628 2000, www.rescue.ee

TALLINNA CITY ENTERPRISE DEPARTMENT Vabaduse väljak 7, Tallinn, tel 640 4219, www.investor.tallinn.ee ENTERPRISE ESTONIA (EAS) Lasnamäe 2, Tallinn, tel 627 9700, www.eas.ee UNEMPLOYMENT INSURANCE FUND Tallinna ja Harjumaa osakond, tel 15501, www.tootukassa.ee

MINISTRY OF ECONOMIC AFFAIRS AND COMMUNICATIONS website at mtr.mkm.ee

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ESTONIAN AGRICULTURAL REGISTERS AND INFORMATION BOARD (PRIA) Harju Office, Tuleviku 3, Laagri, tel 639 1640, www.pria.ee ENTERRPISE ESTONIA GRANT DATABASE http://easbaas.5dvision.ee (Estonian only)

AT THE LABOUR INSPECTORATE notification of a business start-up; registration of employment contracts (when the emploeyr is a FIE) Labour Inspectorate, Northern Inspectoriate, Gonsiori 29, Tallinn, tel 640 6000, www.ti.ee

REGISTRATION IN THE REGISTER OF ECONOMIC ACTIVITIES

VETERINARY AND FOOD BOARD Väike-Paala 3, Tallinn, tel 621 1441, www.vet.agri.ee and

FINDING FINANCING

AT THE HEALTH INSURANCE FUND Harju branch, Lastekodu 48, Tallinn, tel 16363, www.haigekassa.ee

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In Tallinn, the district administrations also execute the registration: www.tallinn.ee/eng/services Haabersti District Administration, Ehitajate tee 109a, tel 640 4812 City Centre District Administration, Nunne 18, tel 6457226, 645 7227 Kristiine District Administration, Tulika 33b, tel 645 7126 Lasnamäe District Administration, Pallasti 54, tel 645 7708 Mustamäe District Administration, Tammsaare tee 135, tel 645 7519 Nõmme District Administration, Vabaduse pst 77, tel 645 7314 Pirita District Administration, Merivälja tee 24, tel 645 7608 Northern-Tallinn District Administration, Niine 2, tel 645 7015

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STARTING A BUSINESS SELECTING THE FORM OF BUSINESS Before starting your business, you should decide what form of business to choose. Before making your final decision, consider the following.

• Will the enterprise be your main activity or is it just a sideline?

• Is your goal to just create a job for you (and your family) or do you plan to create a company that which will also employ others?

• Is your business idea to earn a quick profit with a short-term project or do you plan to establish a company with long-term prospects?

• How great is the business risk? If the business should fail, are you ready to risk your personal assets?

The start-up entrepreneur can choose among the following forms of enterprise based on his or her needs and possibilities: a private limited company, public limited company, general partnership, limited partnership, commercial association, or sole proprietorship (FIE).

THE FORMS OF ENTERPRISE DIFFER BASED PRIMARILY ON THE FOLLOWING FACTORS: • the principles, size and percentage of the owners’ liability; • the company’s management bodies and decision-making processes, rights of representation; • the size of the necessary share capital and means of payment; • auditing requirements of the company; • simplicity of organising the everyday operations (e.g. accounting).

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TALL IN

NA LO

O M E IN

KUBAAT OR

The private limited company (OÜ) is the most popular form of business in Estonia. The main reason is the limited liability of the owners – generally, the owners do not incur personal liability for the obligations of the private limited company and, compared to a public limited company, a private limited company has a smaller share capital requirement and simplified management scheme.

WHEN ESTABLISHING A PRIVATE LIMITED COMPANY, IT IS USEFUL TO KNOW THE FOLLOWING: • a private limited company may be founded by one or more legal or physical persons; • the owners do not incur any personal liability for the obligations of the private limited company; • a private limited company can be established without making an initial share capital contribution; • the share capital contribution can be made in cash or in kind; • if a cash contribution is made, the minimum share capital is € 2,500.

If the future field of activity does not require capital investments, as of 1 January 2011, a private limited company can be founded without making an initial share capital contribution. The share capital of the companies established in this way is recorded as a claim against the

shareholders, who are responsible for the unpaid contribution to the extent of the amount that they have promised to contribute.

The other popular form of enterprise in Estonia is the sole proprietorship (FIE).

WHEN ESTABLISHING A SOLE PROPRIETORSHIP, IT IS USEFUL TO KNOW THE FOLLOWING: • the sole proprietorship does not have a share capital requirement; • there is no need to compile articles of association; • until turnover reaches the amount making it subject to VAT (€ 16,000), FIEs may do their accounting on a cash-basis; • If the business fails, the sole proprietor is legally liable (to the extent of all his or her assets) for any claims made by creditors; • Compared to private limited companies, sole proprietors have a larger tax burden.

Once you have found a suitable form of enterprise, you can start to register your company. There are two ways to do this: • registering it electronically through the Company Registration Portal; • registering it with the help of a notary.

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REGISTERING THE BUSINESS ELECTRONIC REGISTRATION THROUGH THE COMPANY REGISTRATION PORTAL

REGISTRATION WITH THE HELP OF A NOTARY

Electronic registration is the most convenient and fastest way to establish a company. To enter the Company Registration Portal and register your company, you need an ID card or mobile ID, and digital signature software.

You will need the help of a notary to establish your business if: • The contribution for company’s share capital is not in cash, but is comprised of an item or proprietary right that can be given a monetary value (e.g. equipment, software, etc.); • the founders of the company cannot provide a digital signature for the founding resolution.

YOU CAN REGISTER YOUR COMPANY ELECTRONICALLY THROUGH THE COMPANY REGISTRATION PORTAL ONLY IF: • the share capital contribution is made in cash and you pay the share capital and state fee electronically through the Portal; • all the concerned persons can digitally sign the foundation resolution.

Private limited companies, general partnerships and limited partnerships can be registered in the Company Registration Portal and activities as a sole proprietor can be started. It is not possible to establish a commercial association or public limited company electronically. To register a company electronically, you must enter the information on the founders and the business enterprise being created, compile standard articles of association, pay the state fee and make the contribution of share capital.

Electronically registering a company can take less than an hour, but it sensible to count on it taking one workday.

THE COMPANY REGISTRATION PORTAL CAN BE FOUND ONLINE AT: www.rik.ee/et/ettevotjaportaal

The notary will help you draw up the necessary documents and submit them to the Commercial Register. Notary offices have all the forms and/or samples of the necessary documents. You will have to pay a notary fee to establish your company, and it generally takes two to three days to complete the registration.

CHOOSING A FIELD OF ACTIVITY The field of activity for the company must be chosen from the Estonian Classification of Economic Activities (EMTAK), and one main activity must be chosen from the list of classifications In addition, you must ascertain if you need a license or operating permit.

ESTONIAN CLASSIFICATION OF ECONOMIC ACTIVITIES: www.eesti.ee/teenused/ettevotja/emtak/emtak.html

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CHOOSING A BUSINESS NAME Choosing a business name is one of the most important steps in establishing a company. A business name that is different and memorable can help your company gain recognition and be successful.

WHEN CHOOSING A BUSINESS NAME, YOU SHOULD CONSIDER THE FOLLOWING RESTRICTIONS: • the business name must include a reference to the form of enterprise (e.g. OÜ or osaühing at the beginning or end of the name); • The business name of a sole proprietorship must include the first and last name of the entrepreneur; • The business name cannot include the name of a person who is not a shareholder; • The business name must not be similar to the business name of a registered company; • The company’s business name and field of activity must not be contradictory. The business name must not be similar to a registered trademark, except if the companies operate in different fields of activity. In Estonia, in addition to the local trademarks, European Union trademarks are also protected; • The company’s business name and field of activity must not be contradictory.

The suitability of your chosen business name can be checked in advance through the e-register information system www.rik.ee/en/ e-business-registry/queries, where the search results will compare the new name to those already entered in the register. The decision regarding the distinctiveness and suitability of the business name is made by the court that maintains the register. In addition to the business name, every company has the right to register its trademarks.

16 KALAMAJA

KELMIKÜLA

VANALINN

SÜDALINN

M KOM

MAAKRI KASSISABA

TATARI TÕNISMÄE

SIBULAKÜLA

17 CHOOSING A LOCATION The company’s location is the address entered in the Commercial Register, from which the company is managed. In case of sole proprietorships, the home address of the sole proprietor entered in the Population Register is entered in the Commercial Register. The company may have several operational locations (branch offices, production sites throughout Estonia) but it can have only one location that is entered in the Commercial Register. When deciding on the location to be entered in the Commercial Register, make sure you choose an address where any notices sent to you by mail will reach you.

SADAMA

KADRIORG

RAUA

MPASSI MPA

KELDRIMÄE

When establishing a business, finding the right location and place of business is very important. You cannot open a store, service or food service business in a dwelling. The space must be registered in the Register of Construction Works as a commercial space and have the corresponding occupancy permit, which should definitelty be checked on the Register’s website (www.ehr.ee, Estonian only) before signing a rental or purchase agreement. For example, when opening a food service establishment, it is recommended that you begin by having the compliance of the space with the Food Act checked. This can be done by the Veterinary and Food Board. You should also have the Rescue Board approve the safety of the premises.

Start-up entrepreneurs, who only need office space, can also rent offices under favourable terms in enterprise incubators, where additional benefits in the form of advisory, training, networking and information services are also provided. (www.inkubaator.tallinn.ee)

REGISTER OF CONSTRUCTION WORKS WEBSITE: www.ehr.ee

18 WHAT’S THE DIFFERENCE BETWEEN A LICENSE AND OPERATING PERMIT? An operating permit or license is a right granted to a person to operate in the given field of activity pursuant to the conditions prescribed by law. If we are dealing with a start-up company, it must be precisely determined in advance, whether you need a license or operating permit for the chosen field of activity, and what conditions must be fulfilled and what the applications costs will be. Therefore, the start-up entrepreneur should already familiarise him- or herself with the laws regulating the planned field of activity when compiling the business plan.

More information about the fields of activity that require licenses, and the organisations that issue them, can be found on the Ministry of Justice website at www.just.ee/11985 (Esonian only).

In addition to procuring an operating permit or license, start-up entrepreneurs should determine whether they should register their activities in the Register of Economic Activities.

The Register of Economic Activities replaces the earlier system of issuing trade licenses. It is generally mandatory in the following fields of activity: food service, trading and services. The registration application should be submitted to the rural municipality or city government based on the location of the place of business. In Tallinn, it should be submitted to the city district government based on the location of the place of business or electronically through the Gateway to e-Estonia www.eesti.ee/eng/topics/business. Before, submitting the registration application, you must pay the state fee.

The Register of Economic Activities is public and available on the website of the Ministry of Economic Affairs and Communications at mtr.mkm.ee. The application forms are also available on this website.

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EMPLOYEES If you have decided to establish a company that will provide work to others besides you and your family, you will have to deal with personnel issues. The company’s success depends to a great extent on the entrepreneur’s skill at choosing workers and motivating them.

In order to launch the recruitment process successfully, an analysis must be made of the positions that will be offered and based thereon, the personality traits, skills and abilities that the specific job requires must be determined. Then a search strategy can be selected, which depends primarily on the nature, specificity and requirements of the job.

Once you have found a suitable candidate, and agreed on the conditions, it would be useful to compile a job description, in which you can take the skills of the worker you have found into consideration, and if necessary, make some changes. You should also sign an employment contract, even if they employee will not be starting work for a few months. This gives both parties a sense of security regarding the validity of future agreements. Working on the basis of an employment contract is regulated by the Employment Contracts Act (www.riigiteataja.ee Estonian only).

All the employees with whom you, as the employer, have concluded employment contracts that have a term of more than one month or have no term, must be registered with the Health Insurance Fund within seven day of the employee starting to work.

If you hire a worker, you must inform the Labour Inspectorate of the company’s activities.

As an employer you need to know that when an employee starts work, it is your responsibility to ensure the appropriate work environment, tools and wages, from which the taxes and payments paid by the employer are withheld.

IN ESTONIA, THE FOLLOWING TAXES ARE PAID ON WAGES: • social tax • income tax • the employee’s unemployment insurance premium • the employer’s unemployment insurance premium • funded pension Wages are definitely not the only thing that motivates an employee.

Good working conditions, varied work assignments with responsibility and relevant feedback are also important motivators. Good working environments induce people to try harder. The truth is that a manager that takes care of providing a pleasant working environment will also take care of the clients and the company’s profits.

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MARKETING Marketing is very important for a company, and includes all of the following: market studies, analyses of the market situation, product development, pricing policies, selection of distribution channels, advertising, sales, etc.

In order to interest the clients in your product/service, you have to be visible to them. Therefore, you need to consider, how and to whom you will sell your product or service.

• Determine who the customers are for your product or service.

• Determine which channels will enable you to reach the specific target group.

• Determine the sales arguments that should convince the customers to choose a product or service in your field of activity.

How does your product or service differ from those of your competitors – is it cheaper, more expensive, better quality, more available, etc.?

• Determine the annual budget that you can spend on marketing.

• Establish the goals for how many products/services you wish to sell, during what period and at what price.

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ACCOUNTING Is accounting mandatory for a company? In the Republic of Estonia, all legal persons and physical persons that are enterprises are required to keep financial accounts, the organisation and reporting of which must be based on the Accounting Act (www.riigiteataja.ee), its articles of association and the guidelines and recommendations of the Accounting Board (www.easb.ee).

The enterprise can establish its own internal regulations. The company’s manager has the obligation to organise the accounting – he or she may hire a bookkeeper, contract to have the accounting done by an outside bookkeeper, or used an accounting service.

RECOMMENDATIONS OF THE ACCOUNTING BOARD: www.easb.ee

THE MAIN REQUIREMENTS FOR THE COMPANY’S ACCOUNTING • The accounting records should correctly and objectively reflect the financial status of the company, the financial results, and cash flows, and the information that is presented must be up-to-date.

• All the financial transactions must be documented.

• All the financial transactions must be entered in the bookkeeping registers.

• All bookkeeping documents must be saved.

• The entrepreneur must compile and submit an annual report to the Commercial Register.

ACCRUAL-BASIS AND CASH-BASIS ACCOUNTING Two different systems are used in Estonia for recording financial transactions: accrual-basis and cash-basis accounting. Estonian companies must use accrual-basis accounting, but sole proprietors can also use cash-basis accounting, until their turnover reaches the amount making them subject to VAT (€ 16,000).

In the case of accrual-basis accounting, the financial transactions must be recorded when the transactions occur, regardless of whether the money has actually been received or paid out. If cash-basis accounting is used, the financial transactions are recorded when the money has been received or paid out.

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TAXES The Estonian tax system is comprised of national and local taxes.

NATIONAL TAXES ARE PAID INTO THE NATIONAL BUDGET • Income tax • Social tax • VAT • Excise tax • Land tax • Heavy vehicle tax • Gambling tax • Customs duties LOCAL TAXES ARE PAID INTO THE BUDGET OF THE LOCAL GOVERNMENT • Advertising tax • Road and street closure tax • Motor vehicle tax • Animal tax • Entertainment tax • Parking fees The most important taxes that every entrepreneur must consider are income tax, social tax and VAT. TAX AND CUSTOMS BOARD WEBSITE: www.emta.ee

23 INCOME TAX

SOCIAL TAX

VAT

Income tax is a tax levied on the incomes of physical and legal persons.

The revenues from social tax are used for pension insurance and national health insurance. The employer pays the social tax for the employee.

The goods and services sold in the course of doing business, the import of goods from outside the European Union, and the acquisition of goods from the European Union member states are subject to VAT. VAT is value added tax and paid by the end consumer.

TAXING THE INCOME OF LEGAL PERSONS Companies must pay income tax on distributed profits, and on costs and expenditures that are not related to the enterprise – gifts, donation, receptions costs, and fringe benefits provided to employees. In addition, the amounts related to the reduction of the company’s equity, repurchase of the stocks or shares, and payments related to the liquidation proceeds, which exceed the monetary and non-monetary contributions made to the company’s equity, are taxable.

TAXATION OF FIE REVENUES If a person is functioning as a sole proprietor (FIE), he or she must pay income tax on the income received from the enterprise, from which the costs related to the enterprise have been deducted. The taxation period is the calendar year and as a FIE, you will need to declare your income once a year. If you received income in the previous period, you must also pay advance income tax payments on 15 June, 15 September and 15 December.

TAXING THE EMPLOYEES’ INCOME The incomes of physical persons are also taxed. And companies must withhold the relevant amounts and make the corresponding payments based on the employee’s gross wages, additional remuneration, bonuses, vacation pay and other payments that are considered to be wages.

LEGAL PERSON’S SOCIAL TAX A company must pay social tax on both wages and fringe benefits. In some special cases, the social tax is paid by the Estonian government. The taxation period is the calendar month and, by the 10th of the following month, the company must declare and pay the social tax to the Tax and Customs Board.

SOCIAL TAX FOR FIES If you are operating as a FIE, you also have to pay social tax on the income you receive.

Unlike companies, the taxation period for FIEs is the calendar year, because the taxable income is ascertained once a year based on the income declaration. If you are operating as a FIE, you have to pay advance social tax payments four times a year, on the 15th of each quarter.

LEGAL PERSON’S VAT Once a company’s annual turnover that is subject to taxes exceeds € 16,000 for the calendar year, the company must register as a VAT payer with the Tax and Customs Board. If the turnover is smaller, registration is not mandatory. The VAT taxation period is the calendar month. A company must submit a VAT declaration to the Tax and Customs Board on the 20th of the month following the taxation period.

FIE’S VAT A FIE must pay VAT if it is registered as a VAT payer. Similarly to a company, it must register as a VAT payer, if turnover exceeds € 16,000 per year.

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BUSINESS PLAN A well-thought-out business idea that is formalised as a business plan will help you achieve success and is important for investors and other business partners.

SUMMARY OF THE BUSINESS PROJECT The summary, which is one to two pages long, is written after the business plan is completed. The summary must provide a quick overview of the entire business plan and answer the following important questions: • what has been done to date; • why was this business idea chosen and does the management or key employees have previous experience in the chosen field of activity (work experience, education, training); • do you plan to devote yourself to the company full-time; • what is the product/service and who will it be sold to (markets, customers); • who are the main competitors and what is your competitive advantage; • what is the budget for starting up the new company or project, and what are sources of financing.

More details should be provided on the nature of the connections and work functions – describe how these will help to make the company financially successful. The sellers of the fixed assets should also be included, as well as the total cost of the project, and how the expenditures will be covered.

GENERAL INFORMATION ABOUT THE COMPANY Include the general information about the company: name, address of the place of business, registration address, registration date, Commercial Register code, phone numbers, e-mail and website addresses, size of the share capital, shareholders and their share of the capital, members of the management board, contact person, and his or her phone number and e-mail address.

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BUSINESS IDEA, VISION, MISSION AND OBJECTIVES BUSINESS IDEA This should explain the following: what business you are in; in which target group do you expect to find your customers; which needs of this target group do you plan to satisfy; how you will satisfy these needs; and how do you differ from your competitors.

VISION What is your ultimate goal? The vision is a description that is as realistic as possible about the future you would like see for your enterprise. The vision is determined with a perspective of at least five years. The vision reflects certain ideals and does not include any numbers.

MISSION How will you accomplish your vision? The business mission – the main principle of the company’s existence – describes the needs that

will be satisfied by the company in the long term, how this will be achieved and for whom.

OBJECTIVES This is a formulation of the company’s short- and long-term objectives, and how they will be achieved. It is important that the shortterm and mid-term objectives be based on the long-term ones and that they support their achievements.

Longer term goals are formulated more generally. The closer the objective, the more concrete the description should be.

• short-term goals (up to one year); • mid-term goals (1–5 years); • long-term goals (over 5 years).

26 TEAM AND MANAGEMENT MANAGEMENT • Describe the competency of the management: work experience, education, and personal data. Work experience should include references to entrepreneurial and management experience, and work experience in similar business fields. Education should be included, as well as information on any courses or training related to the given field of activity and entrepreneurship.

• Include the obligations and responsibilities of the management.

• Describe the structure of the company.

• Describe the wage system and calculation of possible performance pay.

EMPLOYEES • Describe the company’s labour needs, existing workers and their qualifications.

• Analyse the company’s labour needs during the next few years – how many people are required, and what should their qualifications be.

• Describe the wage system and the calculation of possible performance pay.

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PRODUCTS AND SERVICES PRODUCT/SERVICE • Detailed description of the product/service and its potential target group. The product/service prices are included, along with the pricing principles. The product/service prices are compared to the competitors’ product/service prices.

• Position of the product in the added value chain, i.e. whether it is a raw material, component or finished product.

• Is the product/service already available on the market or it is a new product/service.

• Any supplementary products/services provided with the main product/service (transport, consultations, maintenance, repairs, and/or spare parts).

PRODUCT DEVELOPMENT Describe how the product/service range will be changed/developed in the future; how the products/services are developed, and where the ideas are found for developing the product/service.

COMPETITIVE ADVANTAGES Describe the advantages of the product/service compared to competing products/services.

OPERATING PREMISES • Describe the premises, buildings, and lands that the company will use for its activities, and indicate their owner(s).

• Indicate the size the premises, and their conformity to the requirements for production/provision of services. If the premises required renovation, include the renovation costs.

• If the company is renting the premises for its activities, provide a summary of the lease contract. Include the following: the landlord, term of the lease contract, address of the rented premises, size of the premises, and general costs related to the premises (rent, electricity, heating, security, etc).

• Describe the advantages of the location (geographical location, service area).

PROVISION OF SERVICES/PRODUCTION PROCESS • Describe the main processes of the company: what the company must do to produce the product or provide the service.

• Describe the production process in detail: what raw materials are needed, where the production will occur.

• Describe the technical needs: what production or office equipment is needed, and what vehicles.

• Describe any possible restriction on the production/provision of services (e.g. licences, operating permits).

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MARKET ANALYSIS TARGET MARKET • Describe the market in detail.

• Assess how the market has changed in the last few years and what changes can be expected in the future.

• Describe the demand for similar products/services in the market: how large is the total volume of demand; what should the company’s market share be.

• Assess the demand seasonally. If the demand is seasonal, how do you plan to “survive” the off-season?

• Describe the prevailing price level in the market, or what prices do similar products/services command on the market.

TARGET GROUP Describe the company’s existing and potential customers, to whom you plan to sell your product/service. The following information should be included for the business clients: location, size (turnover, profit), number of workers, provided services, and other relevant information. The following information should be included for private customers: gender, age, education, residence, jobs, income, etc.

If the customers are from different target groups (e.g. 30% companies and 70% private individuals), specifications for both groups should be

compiled. Based on the above, compile a sales forecast – what volume of product/service do you plan to sell to your customers and at what price.

COMPETITION Describe the company’s main competition.

• Include the general information on the competitors: names, time in operation; place of business/service provision; website address; the number of employees; distribution channels; and sales methods. If possible, provide an overview of the competitors’ turnover, profits and other financial indicators.

• Thereafter, describe the product or service of the direct competitor, by including the following information: product/service, its quality, warranty conditions, price, payment terms, delivery times, target group, market share, market niche and reputation.

Highlight the competitor’s strengths and weaknesses.

• Describe the similarities and differences between the new company and the competitor.

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MARKETING PLAN The marketing plan is the programme for conducting the marketing activities (time schedule, people in charge, deadlines, budget and expected results). In addition to the activities described below, which require financial resources, also think about the advertising channels that are available for free (e.g. effective website, output from google.ee searches, social media, etc.).

YOU SHOULD PLAN THE FOLLOWING ACTIVITIES. • ADVERTISING. Where to advertise? Explain why you would advertise in these channels (newspaper, magazine, radio, online, etc.). How often will you advertise? How much will the advertising cost? How will the results be controlled?

• SALES PROMOTION ACTIVITIES. This includes campaigns, discounted prices, direct sales, client events, articles, etc. Sales support is also provided by all kinds of promotional items that are related to the product or service. Which promotional methods will you use and why? Where will you order them from and why? To whom will you distribute them, how and why?

• PARTICIPATING IN FAIRS. Which fairs will you participate in? Where and when will they take place? What do you wish to achieve by participating? What is the budget?

30 SWOT-ANALYSIS SWOT analysis a very well-known and popular analysis model, which is used to map an organisation’s strength (S), weaknesses (W), opportunities (O) and threats (T).

FINANCIAL PLAN FINANCING • Assess and describe the volume and sources for the financing necessary to start up the company/project.

• Reasons for the investment(s): what you plan to procure, for what reason, from where and at what price.

• Assess the risks of finding and used the financing sources.

FINANCIAL FORECASTS A financial forecast is comprised of a cash flow statement, income statement and balance sheet for at least the last three financial years (the most recent year by months and the next two years by financial year).

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USEFUL LINKS TALLINN CITY ENTERPRISE DEPARTMENT, THE ENTREPRENEUR’S INFORMATION POINT WWW.INVESTOR.TALLINN.EE Tallinn City Enterprise Department, the entrepreneur’s information point is a city agency, which is assigned the task of managing the development of entrepreneurship and the economic environment in Tallinn. The entrepreneur’s information point provide advice on the following issues: starting a business, support measures from the national government and Tallinn City, (free) consultations on business plans and financial forecasts, issues related to labour law.

FREE CONSULTATIONS ON BUSINESS PLANS AND FINANCIAL FORECASTS

WWW.INKUBAATOR.TALLINN.EE The Tallinn Enterprise Incubator is directed at start-up entrepreneurs with an ambitious business idea. We offer advisory, training, networking and information services and the opportunity to rent office space under favourable conditions. In addition, we also provide help for strengthening sales in foreign markets, and thereby supporting the globalisation of creative individuals and companies throughout Estonia. The Tallinn Enterprise Incubator operates three enterprise incubators in Tallinn: the Creative Incubator, Ülemiste Business Incubator and Kopli Business Incubator.

WWW.EAS.EE Enterprise Estonia is one of the largest institutions in the Estonian governmental business support system, providing funding possibilities, counselling, collaboration possibilities and training for entrepreneurs, research institutions, as well as the public and third sector.

WWW.EESTI.EE/ENG/TOPICS/BUSINESS Eesti.ee – the gateway to e-Estonia – is a secure online environment for communicating with the state, which provides reliable information and e-solutions for the citizenry, entrepreneurs and officials.

33 WWW.TEHNOPOL.EE The Tallinn Science Park Tehnopol is a science and business campus for start-up and growing businesses, located close to the Tallinn University of Technology and IT College. Over 150 companies operate in Tehnopol, and it is Estonia’s largest business incubator for start-up technology companies. The Tehnopol companies deal mostly with ICT, electronics, mechanical engineering, biotechnology and material technology.

WWW.ULEMISTECITY.EE Ülemiste Smart Business City is a business campus for innovative, knowledge-based companies. The Ülemiste Business Incubator is located in the Ülemiste Smart Business City.

WWW.GARAGE48.EE Garage48 HUB is an open co-working space with the goal of increasing knowledge about, and popularising start-up enterprises, where start-up companies focused on IT can gather.

WWW.TELLISKIVI.EU Telliskivi Loomelinnak for creative industries

EASBAAS.5DVISION.EE (Estonian only) The database on grant opportunities includes more than 150 local and foreign grants, which primarily provide help to the public, private and third sector.

WWW.KREDEX.EE KredEx Credit Insurance Ltd. WWW.NORDEN.EE Nordic Council of Ministers’ Office in Estonia WWW.TOOTUKASSA.EE Estonian Unemployment Insurance Fund WWW.EMTA.EE Tax and Customs Board

USEFUL LINKS FOR COMPILING A BUSINESS PLAN • www.eas.ee/et/alustavaleettevotjale/eas-i-lahendused-jatoetusvoimalused/starditoetus/taotluseesitamine-ja-juhendid (Estonian only) Enterprise Estonia questionnaire and self-generating financial forecasts • www.eas.ee/et/alustavale-ettevotjale/ ettevotlusega-alustamine/tegevusaladeabc (Estonian only) Fields of activity ABC • www.tootukassa.ee/index.php?id=12502 Unemployment Insurance Fund requirements for compiling a business plan

WWW.STAT.EE Statistics Estonia

• www.netekspert.com iPlanner (free counselling and account available on the Tallinn City Enterprise Department information point)

WWW.JUST.EE/7714 Commercial Register

• trendwatching.com http://www.ulemistecity.ee/

MTR.MKM.EE Register of Economic Activities

• www.springwise.com ja www.entrepreneur.com/businessideas Sources for business ideas

START IN TALLINN! WWW.INVESTOR.TALLINN.EE

NOTES:

CONTACTS:

TALLINN CITY GOVERNMENT

TALLINN CITY ENTERPRISE BOARD Vabaduse v채ljak 7, 15199 Tallinn, Estonia Tel: +372 640 4219, fax: +372 640 4208 invest@tallinnlv.ee investor.tallinn.ee