Common
Questions Asked by Small-Business Owners
Q: Should I start a small
business?
Yes, provided you know what you are getting into and provided you
feel comfortable with your state of knowledge about the business you have chosen. You
should also have a strong drive to succeed even when the hours get long and the decisions
difficult. All types of people make it in small business and all types fail. There is no
personality type or educational level that qualifies or disqualifies anyone from
succeeding in small business.
Hundreds of thousands of people do it every year. It is an
individual choice that should be made only after serious study, self-examination, and
counseling. Your individual preparation is your key to success. For more information on
this topic, see your local SBDC.
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Q: How do I start a small
business?
Begin with a feasibility study that answers these three questions:
- What am I going to do?
- What will it take in money and skills to do it?
- What will it give me in terms of money and satisfaction?
Get counseling from a Small Business Development Center, S.C.O.R.E.,
or some other organization that regularly deals with business start-ups. Set out to learn
all you can about your new business BEFORE you make the decision to start it. Learn about
the market, your target customers, the competition, pricing practices, typical profit
margins, sources of supply, and anything else that will help you fully understand the
nature of your new business.
If you can talk to business owners in similar businesses or work as
an employee for a time in such a business, do so. Talk to suppliers who sell to your type
business. Read trade publications and magazines dealing with your chosen business. Attend
seminars that deal with subjects important to your business. If there are franchises doing
what you plan to do, study them. Request information about them and talk to franchise
owners.
When you have finished your research and feel comfortable that you
are doing the right thing, prepare a business plan to outline in detail the start up of
your new business. Gather together the money you need and get the equipment, people, and
other things you need to start. When all this is in place, start. BUT NOT BEFORE! For more
information on this topic, see your local SBDC.
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Q: Where can I get money for a
small business?
Three out of four new business start-ups use only money from the
owner or owners. Some start-ups can borrow from banks, but it is difficult. You must have
a good equity investment in the business (usually 30% or more) and you must have a sound
business plan. The Small Business Administration will guarantee a bank loan for a new
start-up, but it also has requirements for equity and business plans.
Personal and business credit cards can provide money for a business,
but it comes at a high cost. It is recommended that credit cards be used sparingly and
only for short term needs.
Relatives and friends often can provide money. Care is suggested,
however, for mixing business with relations and friendships can be risky. It is best to
keep these money relationships as business-like as possible and not depend heavily on the
personal relationship to make the transaction. Ask: "Would this deal stand up with a
non-relative or non-friend?"
Mortgaging personal assets and borrowing against cash value life
insurance can also be sources of money.
Local and state government agencies sometimes have money available
for new businesses, but it is not common and it is usually restricted to very special
circumstances. Nevertheless, it might pay to check around. Business counselors and
agencies involved in economic development usually know about these programs. For more
information on this topic, see your local SBDC.
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Q: Can I get a grant?
Contrary to popular belief, grants of cash for business are
virtually nonexistent. There are rare instances where a cash grant has been given for some
highly specialized type of business or for some unusual situation, but for the great
majority of business situations, there are no cash grants.
There are many government grants designed to assist business, but
these usually don’t go directly to the business. Instead, they go to agencies and
organizations that perform some service for business or benefit business in some way. The
Small Business Development Centers throughout the United States operate partly on a grant
from the federal government.
The books and late-night television infomercials that tout
government grants for business are usually exercises in cleverly misleading
entrepreneurship. Read the fine print carefully and "buyer beware." For more
information on this topic, see your local SBDC.
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Q: How much money will I need to
start?
You will need two pots of money. One pot will pay for the things you
need just to get your new business started. The other pot is to pay your operating costs
until your business reaches break-even – that point where you are taking in the same
amount of money you are paying out.
To estimate the first pot of money, make a list of all the things
you will need to just get open. This might include equipment, tools, inventory, fixtures,
lease costs, office supplies, vehicles, signs, pre-opening advertising, fees and permits,
and everything else you can think of. Opposite each of these items, put an estimated cost.
If you don’t know the cost, find out. If you have uncertainties, estimate on the high
side. Add up the amounts and you have the size of this first pot.
The second pot of money, to be used for operating expenses, involves
estimating your cash outflow for all the things you will have to pay for after you start
your business. This might include such things as rent, utility bills, gas for vehicles,
supply replacement, payroll, payroll taxes, advertising, insurance, bookkeeping or legal
fees, etc. If you will estimate each of these items for one month, you can multiply the
months’ totals by the number of months you think it will take you to reach cash
break-even.
When you will reach cash break-even is a judgment call by you based
on what you know about your business and like-type businesses. If you are going to err,
err on the side of conservatism. It will be far better to have too big a pot of operating
money than to run out of operating money.
The sum total of these two pots is the amount of money you will need
to start your business. Do not start before you have this amount or know where it
will be coming from. For more information on this topic, see your local SBDC.
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Q: How long will it take to start
a small business?
As long as it takes you to complete your feasibility study, prepare
your business plan, gather together your money, buy what you need to buy, and arrange your
business operation affairs. This could take a few weeks or many months. If you have
difficulty with any of these items, the time to learn and solve problems must be added.
Each individual entering this process brings his or her unique set
of skills, knowledge, confidence, and time. If you already know a lot, have good skills,
feel confident of what you are getting into, and have time to do this work, you can be up
and running in short order. If, on the other hand, you lack basic business knowledge, need
development of some of your skills, do not feel confident of what you are doing, and/or
have limited time to do the research and planning, your time frame will be longer –
months or even years.
It is critical that you not allow your enthusiasm or need to hurry
to push you into business before you are ready. Premature starts are a common reason for
small business failure. You will know when you are ready. It is a gut feel. Don’t go
against this gut feeling. For more information on this topic, see your local SBDC.
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Q: Where can I get help in
starting a small business?
Go to the people who know about small business. This includes Small
Business Development Centers. There are over 950 in the United States and their counseling
services are free. S.C.O.R.E., which is staffed by retired business executives, is another
free source of help. Colleges and universities often have specialists in small business
and business topics. Private seminars, books and videos are readily available. Public
libraries carry many books on small business.
Some C.P.A.’s specialize in advising small businesses. The
Small Business Administration has significant information available, as does the Internet.
Type in "small business help" or "free business assistance" on any of
the Internet search engines and you will get more information than you could ever read.
Some banks have small business specialists and are glad to help.
Chambers of commerce, economic development associations, and other community agencies
offer information and contacts. Most states have agencies devoted to assisting small
business. Private consultants in small business and business topics are everywhere. Check
your phone book.
Finally, people who have been in small business or are presently in
small business are excellent sources of information. Some will gladly help you learn and
gather information. For more information on this topic, see your local SBDC.
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Q:What business should I choose?
Choose a business activity that you will enjoy doing. Look at your
interests, hobbies, and aptitudes. Don’t pick one that has an uncertain market. There
are a lot of small business start-ups that are doomed from the beginning because there
simply are not enough customers wanting that product or service. If you look in the back
of some magazines you will find many products and services being offered as potential
businesses for which there is very little market potential.
Avoid over-crowded areas of business. Many cities have far too many
restaurants, retail stores, auto service centers, etc. for the population. The same is
true in many smaller communities. One of the disadvantages of our free enterprise system
is that too many business often start.
Study the businesses you think you might like. Satisfy yourself that
they will fit your needs. There are so many alternatives available, you shouldn’t be
too quick to choose. Understand that there are few inherently bad businesses or few that
are inherently good. Just about any business can fail and any can succeed.
Be sure to do a quick feasibility study on any business you pick
before making up your mind for certain. Remember, your choice needs to work for YOU, in
YOUR situation, in YOUR location, in YOUR market, and given YOUR special set of
circumstances. Your circumstance is unique. You should test it as a unique opportunity,
unlike any other. For more information on this topic, see your local SBDC.
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Q: What is a business plan and do
I need one?
A business plan is an outline or road map for your new business. It
tells what it is, where it is, how it will operate and whom it will serve. It includes
information about your customers, your employees, and you. It explains something about the
industry you will be a part of and briefly explains the market for your product or
service. It expresses these things with both words and numbers.
The numbers of a business plan are especially important, for they
translate the anticipated activities of the business into the language common to all
business. If your business plan will be viewed by bankers or other financial types, your
income statements, balance sheets and cash flow statements will take center stage. You
will use them to paint a picture of your businesses near term financial future.
Yes, you need one. You need one for your own use and you may need
one for others: partners, investors, bankers, relatives, employees, etc. They are great
tools for analysis and they help in communicating with others. Bankers usually insist on
them when considering loan requests. Investors won’t work without them.
They take many forms and can be brief or lengthy, informal or
formal, optimistic or pessimistic, and typed or hand written. The important thing is that
they be. For more information on this topic, see your local
SBDC.
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Q: If I can’t find a job,
should I start a business?
Probably not. Making the decision to start a business solely because
you can’t find a job is usually not a good idea. Self-employment might be an
alternative, but starting a business – no.
The differences between self-employment and business ownership are
considerable. You don’t need to know near as much to work as a self-employed person
as you do to successfully operate a small business. If your primary concern is making a
living just for yourself, keep looking for a job or go the self-employed route. For more
information on this topic, see your local SBDC.
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Q: Can I operate a small
business from my home?
The chances are you can, but you had better check with
your local zoning authority to be sure. Many types of small businesses can
be run from the home. With improving technology in communications and computers, many
small business owners choose to avoid the expense of a separate business location.
Thought should be given to your neighbors in making this decision.
If your business activity will bother them or be objected to because of noise, odors,
parking, or other issues, perhaps you should not do it.
Your personal home situation should also be seriously
considered. Can you effectively allocate your time between personal and
business matters? Will family members object?
Home based businesses are becoming increasingly popular. For many
new business start-ups, they are a good idea. For more information on this topic, see your
local SBDC.
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Q: Should I buy a franchised
business to start?
You should consider it. There are some definite advantages to
starting out with a franchised business. Of course, there are all different kinds of
franchises. Some are good and some are not. Some offer fair value for what you pay and
others are rip-offs.
Usually, the advice is to seriously consider a franchise if you are
not very knowledgeable about business and don’t have any experience. A franchise can
often get you off to a running start. The franchisor has done some of the market study and
other start-up work for you. Depending on the franchise, you might be able to buy a
turnkey business that will train you and put you in a good position to succeed.
It is smart to consider both a franchise and a start-up
on your own without the franchise. The franchise will cost you, but you will
receive some benefits. Evaluate whether the benefits are worth the costs to you. Also
remember that a franchise is often an on-going relationship that is not always
easy to break. You are not totally independent and
can not always do as you please. The franchisor usually has something to say about how you
operate your business.
Research is key. Investigate any franchise
thoroughly. Talk with other franchisees. Study the franchise agreement and
understand what it says. Get legal or business counseling advice. Look hard
before you leap, but look. With something like 40 percent of present day retailing done
through the franchise method, there must be something very good about it. For more
information on this topic, see your local SBDC.
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Q: Should I buy an existing
business to start?
A good idea if you can make it fit. The advantage of buying an
existing business is that it is already established in the market. It has customers and is
carrying on business. You avoid the hassle and expense of starting from scratch. The trick
is making it fit your desires and capabilities. Is it the kind of business you want? Can
you afford it? Can you operate it?
Businesses that are offered for sale are offered for all kinds of
reasons. Often the business is in less than good condition. That’s okay if you know
it and the price reflects it – and you can fix it. Sometimes the owner is just tired
of it and wants to retire. Knowing the real reasons for the sale helps in your evaluation.
Sound financial and business analysis is a key to buying an existing
business. The business analysis is to determine if you want to buy it. The financial
analysis is to determine how much you should pay for it. It may be a good business, but it
costs too much. It may be cheap in price, but a failing business. For more information on
this topic, see your local SBDC.
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Q: Should I incorporate my new
business?
You should definitely consider it. Incorporation gives you certain
liability protection that you can’t get if unincorporated. It also can make it easier
to borrow money because the business is a separate legal entity with its own assets and
liabilities. It is independent of you, the owner, and has a life separate and apart from
yours. It makes the business easier to sell and offers tax flexibility because of the two
taxing entities (your and the corporation).
Incorporating does cost more and requires some ongoing added
expenses for separate tax returns, but these expenses are not large. For more information
on this topic, see your local SBDC.
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Q: What is a sole
proprietorship?
A sole proprietorship is an individual carrying a business activity
without incorporating and without a partner. The business and the owner are one in the
same. There is no legal distinction between them. The debts and obligations of the
business are the debts and obligations of the owner. What is owned by the business is
owned by the owner. If the business is sued, it is really the owner who is being sued. If
judgments are awarded against the business, they are awarded against the owner. The life
of the business is tied to the life of the owner. If the owner dies, the business dies.
Approximately 70% of all businesses in the United States are
operated as sole proprietorships. They are easy and inexpensive to set up. For more
information on this topic, see your local SBDC.
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Q: What happens if a corporation
and a sole proprietorship have the same name?
If both parties have properly registered their names, then either
the parties need to work it out and come to some agreement – or the courts will
decide in a lawsuit. Working it out between the parties with compromises is a much better
alternative. Issues like who was using the name first often become important in court
decisions. For more information on this topic, see your local SBDC.
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Q: Must I file an assumed name
certificate if I am only going to use the name I incorporated under?
No. When you incorporate with the Secretary of State in your state
of incorporation, you may do business anywhere in the state without the need for any
further filing. For more information on this topic, see your local SBDC.
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Q: Why file an assumed name
certificate?
Many states, including Texas, require businesses to file assumed
name certificates if they are not incorporated. Even without this requirement, filing is a
good business practice. It informs the public about the existence of the business and is often
required by banks before they will open business checking accounts or grant business
loans.
While this filing gives the business no state protection against
other businesses or imparts any rights, it is an accepted business practice that gives
your business legitimacy and credibility. For more information on this topic, see your
local SBDC.
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Q: Can I use my own name as my
business name?
Yes. Many people do.
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QUESTION LIST
Q: What should I do if the name
I want to use is already being used by someone else?
Pick another name or some variation of the name that will not
conflict.
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QUESTION LIST
Q: How different does my
business name have to be?
It should be different enough to avoid confusion with
other businesses. The reason you use a business name is to help customers
identify you. If your name is similar to others, this identification is made difficult.
Customers may hear or read your costly ads, but trade with a competitor because they are
confused by the similarity of the names.
Picking a name that is similar to one already in use
might trigger disputes or lawsuits. This benefits no one. Avoid trouble by
picking a name that is unique and different enough not to be confused. For more
information on this topic, see your local SBDC.
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Q: What if I plan to do business
in multiple countries?
If you are not incorporated, you need to file an assumed name
certificate in each country you plan to do business. If incorporated, file an assumed name
certificate in the country of the corporation’s registered office. If the registered
office is different from your principle place of business, you should file a certificate
in both countries. For more information on this topic, see your local SBDC.
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Q: Should I form a partnership?
A partnership is a form of business organization used by two
or more people who want to go into business, but do not want to form a
corporation. Instead, they choose to operate like two sole proprietorships joined together
in a partnership.
Often, this form of business organization is chosen by people who
already have a personal or business relationship – as opposed to two or more people
who don’t know one another. Because of this pre-existing relationship, they often do
not define the activities and responsibilities of each partner. They deal with this only
in general terms, such as, "We will split the profits down the middle and we will
each do half of the work."
This casual approach can lead to trouble.
If one of the partners functions in a way unacceptable to the other partner(s), disputes
can arise that are argued with "he said that" and "I said this"
statements. With no written point of reference, these disputes are difficult to resolve.
To reduce this potential problem, a written partnership
agreement laying out the duties and responsibilities of each partner is recommended. For
more information on this topic, see your local SBDC.
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Q: What is a Subchapter S
Corporation?
This is a modification of a regular C corporation to permit taxes of
the corporation to be treated in the same way as a sole proprietorship. It is a tax
election. With this "Sub – S" election, profits are not taxed at the
corporation level. Instead, profits flow through to the owners (shareholders) who include
them on their personal tax returns. Without this election, the corporation pays taxes on
its profits. For more information on this topic, see your local SBDC.
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Q: Which form of business
organization should I pick?
Pick the one best suited to your individual and business needs. No
one form is best for everyone. Most small businesses start as sole proprietorships and
stay that way. Some start with that form and change to corporations or sub-s corporations
later. Groups of owners sometimes choose the corporate form and sometimes prefer
partnerships.
The best advice is to learn about each form – the advantages
and disadvantages – and match your personal situation to those alternatives for the
best fit. For more information on this topic, see your local SBDC.
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Q: Where do I get a tax number?
A federal tax identification number is obtained from the IRS. Call
them (consult your local directory or the Internet) and request the forms needed to apply.
This number is for a business what a social security number is for an individual. For more
information on this topic, see your local SBDC.
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Q: Do I need any permits?
Most small businesses do not need special permits. However, many do.
To find out if you need one or more, consult local and state authorities having
jurisdiction over your area of business and ask. People in your trade or industry can
often tell you. SBDC’s often know.
While not technically a permit, every business should be registered.
A corporation is registered with a state agency via papers of incorporation and a sole
proprietorship and partnership usually register with a local county courthouse by way of
an "assumed name certificate." For more information on this topic, see your
local SBDC.
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Q: How should I pick a name for
my new business?
Business names are very individual and often personal. A good name
is usually considered both descriptive of what the business does and consistent with the
public image the business wants to project. "Bubba’s Savings and Loan
Association" or "The First Capital Paint and Body Shop" are not real good
names. They are confusing by sending mixed signals.
It is often suggested that a name be chosen by selecting three or
four alternatives and testing these on friends, relatives and potential customers. Note
the reactions and listen to the feedback. If you want to project a highly personal image,
use your name in the business title. If you want a more formal, "business-like"
image, don’t use your name. For more information on this topic, see your local SBDC.
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Q: What is a market analysis?
It is an organized study of customers and competition.
It can be quite simple and include just a few facts about the population, an approximate
count of people who fit your customer profile, and information about existing businesses
now serving these customers. It can also be extensive and include all sorts of data about
economic trends and conditions, demographics, psychographics, industry characteristics,
pricing, demand trends, etc.
Any new business start-up should do some type of market
analysis. The more the better. It does not have to be expensive or
sophisticated. It should, however, be thorough enough to provide an understanding of the
nature and extent of local customers likely to trade with your business. A common mistake
is to assume a market when no market exists – or such a small market exists that
sustaining a business based on that market is impossible. For more information on this
topic, see your local SBDC.
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Q: What is a feasibility study?
This is a preliminary business plan used to answer the question,
"Should I do that?" It includes facts and projections that outline what will
happen IF something is done. It does all this before the fact.
It allows a businessperson to look at probable results before anything is done to produce
those results.
These studies can be brief or lengthy. They should fit
the subject. A feasibility study to answer the question, "Should I buy
or lease that piece of equipment?" is less involved than one aimed at answering,
"Should I build a new restaurant?" On the question, "Should I start a new
business," the work should be extensive. For more information on this topic, see your
local SBDC.
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Q: What is equity?
Equity has two different, but related meanings.
On the one hand it is the term applied to the money the owner puts into the business
– money that is not borrowed or is borrowed from relatives without any requirement to
pay it back.
Equity also means the same as "net worth," which is the
difference between the assets and liabilities of a business. It is the portion of the
assets that the owner would get after all the liabilities were paid.
Equity is one of two sources of capital (money) for a business. The
other is debt. Equity comes from the owner and debt comes from others, usually banks or
other financing agencies. For more information on this topic, see your local SBDC.
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For free help in analyzing or understanding any aspect of your
business, contact your nearest SBDC
or Bob Wall, Director of the Small Business
Development Center at Northest Texas Community College, (903) 572-1911. |
