1. DO I HAVE WHAT IT TAKES TO OWN/MANAGE A SMALL BUSINESS?
You will be your own most important employee, so an objective
appraisal of your strengths and weaknesses is essential. Some
questions to ask yourself are: Am I a self starter? How well do
I get along with a variety of personalities? How good am I at
making decisions? Do I have the physical and emotional stamina
to run a firm? How well do I plan and organize? Are my attitudes
and drive strong enough to stay motivated? How will the business
affect my family?
2. WHAT BUSINESS SHOULD I CHOOSE?
Usually, the best business for you is the one in which you are
most skilled and interested. As you review your options, you may
wish to consult local experts and businesspersons about the growth
potential of various businesses in your area. Matching your background
with the local market will increase your chance of success.
3. WHAT IS A BUSINESS PLAN AND WHY DO I NEED ONE?
A business plan precisely defines your business, identifies your
goals and serves as your firm's resume. Its basic components include
a current balance sheet, an income statement, and a cash flow
analysis. It helps you allot resources properly, handle unforeseen
complications, and make the right decisions. Because it provides
specific and organized information about your company and how
you will repay borrowed money, a good business plan is a crucial
part of any loan package. Additionally, it can tell your sales
personnel, suppliers and others about your operations and goals.
4. WHY DO I NEED TO DEFINE MY BUSINESS IN DETAIL?
It may seem silly to ask, "What business am I really in,"
but some owner-managers have gone broke because they never answered
that question. One watch store owner realized most of his time
was spent repairing watches while most of his money was spent
selling them. He decided he was in the repair business and discontinued
the sales operations. Profits rose dramatically.
5. WHAT LEGAL ASPECTS DO I NEED TO CONSIDER?
Licenses required, zoning laws and other regulations vary from
business to business and from state to state. Your local Small
Business Administration (SBA) office and/or chamber of commerce
will provide you with general information, but you will need to
consult your attorney for advice specific to your enterprise and
area. You also must decide about your form of organization (corporation,
partnership or sole proprietorship) or tax status (e.g., should
you opt for a Subchapter S status?).
6. WHAT DO I NEED TO SUCCEED IN A BUSINESS?
There are four basics of success in small business: sound management
practices, industry experience, technical support, and planning
ability. Few people start a business with all these bases covered.
Honestly assess your own experience and skills; then look for
partners or key employees to compensate for your deficiencies.
7. WOULD A PARTNER(S) MAKE IT EASIER TO BE SUCCESSFUL?
A business partner does not guarantee success. If you need added
management skills or start-up capital, engaging a partner may
be your best decision. Personality and character, as well as ability
to give technical or financial assistance, determine the ultimate
success of a partnership.
8. HOW CAN I FIND QUALIFIED EMPLOYEES?
Pick employees carefully. Decide beforehand what you want them
to do. Be specific. You may need flexible employees who can shift
from task to task as required. Interview and screen applicants
with care. Good questions lead to good answers-the more you learn
about each applicant's experience and skills, the better prepared
you are to make your decision.
9. HOW DO I SET WAGE LEVELS?
Wage levels are calculated using position importance and skill
required as criteria. Consult your trade association and accountant
to learn the most current practices, cost ratios and profit margins
in your business field. While there is a minimum wage set by federal
law for most jobs, the actual wage paid is entirely between you
and your prospective employee.
10. WHAT OTHER FINANCIAL RESPONSIBILITIES DO I HAVE FOR EMPLOYEES?
You must withhold federal and state income taxes, contribute to
unemployment and workers compensation systems, and match Social
Security contributions. You may also wish to inquire about key
employee life or disability insurance. Because laws on these matters
vary from state to state, you probably should consult local information
sources and/or SBA offices.
11. WHAT KIND OF SECURITY MEASURES MUST I TAKE?
Crimes ranging from armed robbery to embezzlement can destroy
even the best businesses. You should install a good physical security
system. Just as important, you must establish policies and safeguards
to ensure awareness and honesty among your personnel. Because
computer systems can be used to defraud as well as keep records,
you should check into a computer security program. Consider taking
seminars on how to spot and deter shoplifting and how to handle
cash and merchandise; it is time and money well spent. Finally,
careful screening when hiring can be your best ally against crime.
12. SHOULD I HIRE FAMILY MEMBERS TO WORK FOR ME?
Family members often "help out in the business." For
some small business owners, this is a rewarding experience; for
others it can cause problems. Carefully consider their loyalty
and respect for you as the owner-manager. Can you keep family
and business decisions separate?
13. DO I NEED A COMPUTER?
Small business today faces growing inventory requirements, increased customer expectations, rising costs, and intense competition. Computers can provide information that leads to better returns on investment. At the same time, they help you cope with many other pressures of business. Computers are not cure-alls, however, and considerable care should be given to:
14. WHAT ABOUT TELECOMMUNICATIONS?
All small businesses share some common functions: sales, purchasing,
financing, operations, and administration. Depending on the individual
firm, telecommunications can support your goals in any or all
of these areas. The phone (the terminal) and the network (local
or long distance) make up basic components of telecommunications.
They are effective tools that can easily change with seasonality
and growth. How you use telecommunications can affect how efficiently
and profitably your company grows in the future.
15. HOW MUCH MONEY DO I NEED TO GET STARTED?
Once you have taken care of your building and equipment needs
you also must have enough money on hand to cover operating expenses
for at least a year. These expenses include your salary as the
owner and money to repay your loans. One of the leading causes
of business failure is insufficient start-up capital. Consequently,
you should work closely with your accountant to estimate your
cash flow needs.
16. WHAT ARE THE ALTERNATIVES IN FINANCING A BUSINESS?
Committing your own funds is often the first financing step. It
is certainly the best indicator of how serious you are about your
business. Risking your own money gives confidence for others to
invest in your business. You may want to consider family members
or a partner for additional financing. Banks are an obvious source
of funds. Other loan sources include commercial finance companies,
venture capital firms, local development companies, and life insurance
companies. Trade credit, selling stock, and equipment leasing
offer alternatives to borrowing. Leasing, for example, can be
an advantage because it does not tie up your cash. Ask your local
SBA office for information about these various sources as well
as materials produced by SBA including publications such as "Focus
on the Facts".
17. WHAT DO I HAVE TO DO TO GET A LOAN?
Initially, the lender will ask three questions: How will you use the loan? How much do you need to borrow? How will you repay the loan?
When you apply for the loan, you must provide projected financial
statements and a cohesive, clear business plan which supplies
the name of the firm, location, production facilities, legal structure,
and your goals. A clear description of your experience and management
capabilities, as well as the expertise of other key personnel,
will also be needed.
18. WHAT KIND OF PROFITS CAN I EXPECT?
Not an easy question. However, there are standards of comparison
called "industry ratios" which can help you estimate
your profits. Return on investment (ROI), for example, estimates
the amount of profit gained on a given number of dollars invested
in the business. These ratios are broken down by Standard Industrial
Classification (SlC) code and size, so you can look up your type
of business to see what the industry averages are. These figures
are published by several groups, and can be found at your library.
Help is also available through the SBA and the trade associations
that serve your industry.
19. WHAT SHOULD I KNOW ABOUT ACCOUNTING AND BOOKKEEPING?
The importance of keeping adequate records cannot be stressed too much. Without records, you cannot see how well your business is doing and where it is going. At a minimum, records are needed to substantiate:
But most important, you need them to run your business successfully
and to increase your profits.
20. HOW DO I SET UP THE RIGHT RECORD KEEPING SYSTEM FOR BUSINESS?
The kind of records and how many you need depend on your particular operation. The SBA's resources and an accountant can provide you with many options. When deciding what is and is not necessary, keep in mind the following questions:
21. WHAT FINANCIAL STATEMENTS WILL I NEED?
You should prepare and understand two basic financial statements:
22. WHAT DOES MARKETING INVOLVE?
Marketing is your most important organizing tool. There are four basic aspects of marketing, often called the "four P's" -- Product: The item or service you sell. Price: The amount you charge for your good or service. Promote: The ways you inform your market as to who, what, and where you are. Provide: The channels you use to take the product to the customer.
As you can see, marketing encompasses much more than advertising
or selling. For example, a major part of marketing involves researching
your customers: What do they want? What can they afford? What
do they think? Your understanding and application of the answers
to such questions play a major role in the success or failure
of your business.
23. WHAT IS MY MARKET POTENTIAL?
Principles of determining market share and market potential are
the same for all geographic areas. First determine a customer
profile (who) and the geographic size of the market (how many).
This is the general market potential. Knowing the number and strength
of your competitors (and then estimating the share of business
you will take from them) will give you the market potential specific
to your enterprise.
24. WHAT ABOUT ADVERTISING?
Your business growth will be influenced by how well you plan and
execute an advertising program. Because it is one of the main
creators of your business image, it must be well planned and well
budgeted. Contact local advertising agencies or a local SBA office
to assist you in devising an effective advertising strategy.
25. HOW DO I SET PRICE LEVELS?
The price of a service or item is based on three basic production
costs: Direct materials, Labor, and Overhead. After these costs
are determined, a price is then selected that will be both profitable
and competitive. Because pricing can be a complicated process,
you may wish to seek help from an expert.
26. ARE SOME LOCATIONS BETTER THAN OTHERS?
Time and effort devoted to selecting a business location can mean
the difference between success and failure. The kind of business
you're in, the potential market, employee availability, and the
number of competitors all determine where you should put your
business.
27. IS IT BETTER TO LEASE OR BUY THE STORE AND EQUIPMENT?
This is a good question and needs to be considered carefully.
Leasing does not tie up your cash; a disadvantage is that the
item then has no resale or salvage value since you do not own
it. Careful weighing of alternatives and a cost analysis will
help you make the best decision.
28. CAN I OPERATE A BUSINESS FROM MY HOME?
Yes. In fact, experts estimate that as many as 20 percent of new
small business enterprises are operated out of the owner's home.
Local SBA offices and state chambers of commerce can provide pertinent
information on how to manage a home-based business.
29. HOW DO I FIND OUT ABOUT SUPPLIERS/MANUFACTURERS/DISTRIBUTORS?
Most suppliers want new accounts. A prime source is the Thomas
Register, which lists manufacturers by categories and geographic
area. Most libraries have a directory of manufacturers listed
by state. If you know the product line manufacturers, a letter
or phone call to the companies will get you the local distributor-wholesaler.
In some lines, trade shows are good sources of getting suppliers
and looking over competing products.
30. WHERE CAN I GO FOR HELP?
The Small Business Administration has offices in nearly every
major city. SBA's Office of Business Initiatives runs an "Answer
Desk" at 1-800-8-ASK-SBA, to give callers direct referral
to sources of information. Sponsored by SBA are many counseling,
training, and information services including the Service Corps
of Retired Executives (SCORE), Business Information Centers (BICs),
and Small Business Development Centers (SBDC). More than 2,700
chambers of commerce are located throughout the U.S. to provide
further assistance.
31. WHAT DO I DO WHEN I'M READY?
You have done your homework: you have a business plan; you know
where you want to operate; you know how much cash you will need;
and you have information on employee, vendor, and market possibilities.
You may want someone to look over your plans objectively. A SCORE
representative at the SBA can review your work and help with fine
tuning. When you have made a final decision to go ahead, it is
time to call the bank and get going. All SBA programs and services
are extended to the public on a nondiscriminatory basis. Good
luck!
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