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Business Frequently Asked Questions

Owning your own business is a big responsibility, but armed with the right information, you can be confident that you're making the right business decisions. The following are frequently asked questions (FAQs) and answers to help your business succeed.

Q: What is a business plan and why do I need one?

A: A business plan defines your business, identifies your goals and serves as your firm's resume. Its basic components include a current and pro forma balance sheet, and 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. It can tell your sales personnel, suppliers and others about your operations and goals.

Q: What legal aspects do I need to consider?

A: Licenses required, zoning laws and other regulations vary from business to business. The 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).

Q: What do I need to succeed in a business?

A: There are four basics of success in small businesses:

  • Sound management practices.
  • Industry experience.
  • Technical support.
  • Planning ability.

Q: Would a business partner(s) make it easier to be successful?

A: 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.

Q: How do I set wage levels?

A: 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 employee.

Q: How much money do I need to get started?

A: 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.

Q: What are the alternatives in financing a business?

A: Committing your own funds is often the first financing step. It is the best indicator of how serious you are about your business. 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. Your credit union is an obvious source of funds.

Q: What do I have to do to get a loan?

A: 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.

Q: What should I know about accounting and bookkeeping?

A: 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. Records are needed to substantiate:

  • Your tax returns under Federal and State laws, including income tax and Social Security laws;
  • Your request for credit from vendors or a loan from your credit union;
  • Your claims about the business, should you wish to sell it.
  • Most importantly, you need them to run your business successfully and to increase your profits.

Q: What financial statements will I need?

A: You should prepare and understand two basic financial statements:

  • the balance sheet, which is a record of assets, liabilities and capital; and
  • the income statement, a summary of your earnings and expenses over a given period of time.

Q: What does marketing involve?

A: 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 used to take the product to the customer.

Q: Is it better to lease or buy the store (plant) and equipment?

A: 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.

Q: What do I do when I'm ready?

A: 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. A SCORE representative at the Small Business Administration can also review your work and help with the fine tuning.

Q: How much money do I need to have in order to qualify for an SBA loan?

A: A borrower's capital contribution generally must be 20% cash injection.

Q: Where can I get a loan application?

A: Click here and print the loan application.

Q: Where do I get a business license?

A: Your state and local government provides business licenses.

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