Back to top
What is a Business Plan and why do I need one?
A business plan is considered to be the "road map" for your
business operation. A well written business plan will set forth the
goals for your business and guide your current and future operations.
Every plan should include information on the history and development
of your business, the product or service you offer, your marketing
strategy, the ownership structure, personnel requirements, and the
financial plan of of the business. For the startup business, a business
plan acts as a "feasibility study" to determine whether the
potential business is viable.
A completed business plan can also be used as a tool to gain financing
for the business, or to recruit employees. However, the greatest benefit
of the plan is that you, the business owner, will have a clear understanding
of your business, industry, and marketplace. This knowledge will lead
to better decision making, and ultimately, increased profitability.
Back to top
Where can I get money to start or expand my business?
Money to start your business can come from a variety of sources. The
following are some of the possibilities:
- Personal
Savings
- Family
and Friends
- Banks
Loans
- SBA Guaranteed Loans
- Local
SBA lenders
- Venture
Capital
- Small
Business Investment Companies (SBIC)
- Angels
(Wealthy Individuals)
- Local
Community Redevelopment Loans
- Micro
Loans
- Home
Equity Loan
- Personal
Line of Credit
- Credit
Cards
There
are two types of financing methods: debt and equity. Debt financing
consists of a loan that must be repaid by
a certain
date, at an agreed upon interest rate and payment schedule. Equity
financing consists of an investment made in your business by another
individual or company, in return for a certain percentage of ownership.
Equity investors expect a reasonable rate of return on their investment
and a share of the company's profits in return for the use of their
money.
Back to top
How does a lender evaluate my loan proposal?
When evaluating a loan proposal, a lender looks at the following items:
- Management
Experience - Do you have sufficient experience and
training to operate a successful business in your chosen industry?
- Capital - how much money you have to invest in the business or project.
For a start-up business, most lenders look for at least 30% of
the total
amount needed to be contributed by the owner.
- Credit - your personal and business credit history. Bad credit can impact
your ability
to get a loan.
- Collateral - what items of value you have to secure the
loan. Examples of collateral include stocks, real estate,
equipment, inventory, and accounts receivable.
- Business
Plan – A clear,
detailed business plan illustrates the ability of the business
to generate a sufficient cash flow and profit to pay back the debt.
Back to top
What
documentation do I have to submit to get a loan?
Most lenders will require a business to submit a comprehensive,
written business plan with current and projected financial information.
In
addition, you will be required to submit a current personal financial
statement, personal and business tax returns for the last three
years, and insurance coverage information.
Back to top
Which form of ownership is best for my company?
The following are the most common forms of organization for small businesses:
- Sole
Proprietorship - A sole proprietorship can be conducted by a single
individual, or by an individual and his or her spouse.
This
is the
easiest method of organizing your business. The major disadvantage
of the sole proprietor is that the individual owner is personally
responsible for all debts and liabilities of the business. This
means that all
of your personal assets, not just the assets of the business,
are at risk.
- General
Partnership - this is an association between two
or more
individuals to conduct business. The major disadvantage to
a partnership is that each partner is personally liable for his
share of the
businesses debts and is liable for the other partner's actions.
- Limited
Partnership - is a partnership formed by two or more persons which
has one or more general partners and one or more limited partners.
Limited
partners
are limited in their liability to the amount they have
invested in the partnership, and are limited in their participation
in
the management
of the business.
- C
Corporation - is an organization that is organized under specific
provisions of the General Corporation Law. As the owner, you
will be an employee, and your earnings taxed. A corporation can be
expensive to start, but offers the protection from personal liability
for the owners.
- Subchapter
S Corporation - Similar to the "C" Corporation,
the "S" corporation offers all the benefits
of a corporation, but with a different tax structure.
S corporations are limited
to one class of stock and no more than 35 shareholders.
- Limited
Liability
Company
(LLC) - combines the limited liability protection
of a corporation with the flexibility and pass through taxation
of a partnership.
Like the shareholders of a corporation, the owners
(members) of an LLC are
not personally responsible for the debts or liabilities
of the LLC.
Back to top
Where
do I get a business license for my company?
Depending
on what you do and where you plan to operate, your business will
be
required to have various state and/or municipal licenses, certificates
or permits. Check with a counselor to determine which licenses
you will need and how to obtain these.
Back to top
What
types of insurance do I need to have for my business?
By law, you are required to have Workers Compensation insurance
if you hire employees. Other types of insurance you should
consider having
include:
- General
Liability
- Property
- Business
Owners Policy
- Automobile
Coverage
- Errors
and Omissions
- Natural
Catastrophe
- Bonding
- Business
Income Interruption
- Business
Rider to Homeowners Policy (for home-based business)
- Pre-paid
Legal
Back to top
Can
you help me if my business is set up as a not-for-profit business?
Because of the SBDC's funding guidelines, the center is
not able to assist those businesses that are established
as not-for-profit.
Back to top
Does
the SBDC offer services for existing businesses, or are they just
for startups?
Why, yes -- in fact, a healthy majority of SBDC services are geared specifically towards those challenges faced
by existing
businesses – management
reorganization, expanding into Internet commerce, redesigning
a business or marketing plan, financing an expansion, entering
international
markets . . . and many more.
Back to top
How can I get a
loan from the SBA?
The SBA generally does not
give a loan, they will guarantee
a loan. In
order to take advantage of this, you must first take
your loan proposal to a bank. The bank will say yes, no, or maybe. A
maybe means that you are right on the line; you had a good proposal but the
bank is worried it may be a little too risky. At
this point, everything that was given to the bank to
evaluate your loan proposal
will be sent to the SBA to evaluate. The SBA may agree
to guarantee up to 80% of the loan. This reduces
the bank's risk so they may be more likely to approve
the loan request.
Back to top
How do I get a government grant?
With very few exceptions, there are no grants that give you money to start a business.
Have More Questions? Try our Resources & Tools page
FAQ:
What is a Business Plan and why do I need one?