STARTING YOUR BUSINESS -- 31 MOST ASKED QUESTIONS
Provided by the US Small Business Administration
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 business? How well do I
plan and organize? Are my attitudes and drive
strong enough to maintain
motivation? 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 and performance balance sheet, an
income statement and a cash
flow analysis. It helps you allocate 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.
NOTE: A complete online training module on
how to develop a business
plan can be found in the Starting Your Business
selection of our Home
Page.
4. Why do I need to define my business in detail?
It may seem silly to ask yourself, "What business
am I really in," but
some owner-managers have gone broke because
they never answered that
question. One watch store owner realized that
most of his time was
spent repairing watches while most of his
money was spent selling them.
He finally decided he was in the repair business
and discontinued the
sales operations. His profits improved 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.
* Planning ability.
Few people start a business with all of 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 require
additional 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?
Choose your 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.
Remember, 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?
Frequently, family members of the owner "help
out in the business." For
some small business owners it is a rewarding
experience; for others it
can cause irreparable damage. Carefully consider
their loyalty and
respect for you as the owner-manager. Can
you keep your 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 the
many other pressures of your
business. Computers are not cure-alls, however,
and considerable care
should be given to:
(1) deciding if you need one, and
(2) selecting
the best system (or personal computer) for your
business.
14. What about telecommunications?
All small businesses share some common functions:
sales, purchasing,
financing, operations and administration.
Depending on your individual
business, telecommunications can support your
objectives in any or all
of these areas. In its basic form, the telephone
(the terminal) and the
network (local or long distance) make up the
basic components of
telecommunications. It is an effective tool
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
business 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
(SIC) 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:
1. Your tax returns under Federal
and State laws, including
income tax and
Social Security laws;
2. Your request for credit from vendors or a loan from a bank;
3. Your claims about the business, should you wish to sell it.
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 my 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:
1. How will this record be used?
2. How important is this information likely to be?
3.
Is the information available elsewhere in an equally
accessible form?
21. What financial statements will I need?
You should prepare and understand two basic financial statements:
(1) the balance
sheet, which is a record of assets,
liabilities and capital; and
(2) the income
(profit and loss) statement, a summary of
your earnings and expenses over a given period of time.
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 product 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 just 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?
The 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 where
to locate your business can
mean the difference between success and failure.
The kind of business
you are in, the potential market, availability
of employees and the
number of competitive establishments all determine
where you should put
your business.
27. Is it better to lease or buy the store (plant) 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
for finding suppliers
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 U.S. Small Business Administration has
offices in nearly every
major city in the country. SBA's Office of
Business Initiatives
operates the toll-free "Answer Desk" at 1-800-8-ASK-SBA,
to give
callers direct referral to appropriate sources
of information.
Sponsored by SBA are a variety of counseling,
training and information
services including the Service Corps of Retired
Executives (SCORE),
Business Information Centers (BICs) and Small
Business Development
Centers (SBDC). In addition, procurement center
representatives can be
found at each major military installation.
More than 2,700 chambers of
commerce are located throughout the country
to provide additional
assistance.
31. What do I do when I'm ready?
You have done your homework: you have a complete
business plan; you
know where you want to operate; you know how
much cash you will need;
and you have specific information on employee,
vendor and market
possibilities. You now may want someone to
look over your plans
objectively. Contact the business department
at a local college for
another opinion. A SCORE representative at
the Small Business
Administration can also review your work and
help with the fine tuning.
Then, when you have made the final decision
to go ahead, it is time to
call the bank and get going. Good luck!
All of SBA's programs and services are extended to the public on a
nondiscriminatory basis.