Thirty Most Asked Questions about Small Business Ownership

1. Do I have what it takes to own/manage a small business?

You will be your own most important asset, so an
objective appraisal of your strengths and weaknesses is
essential. To determine if you have what it takes, YOU need to
answer some questions about yourself: 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. For example, it you are trained
as an auto mechanic, you may want to consider opening a shop
related to auto repair. As you review your options, it is
advisable to consult local experts and business persons about the
growth potential of various businesses in your area. Matching
your background with the local market characteristics will
increase your chance of success.

NOTE: If you don’t have an idea of what type of business you wish
to start, consider visiting with one of SBA’s major training and
counselling resources:

* SCORE — Service Corps of Retired Executives
* BICs — Business Information Centers
* SBDC — Small Business Development Centers.

Locations of these resources are found under the Local
Information Section of SBA ONLINE.

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 market study, marketing/promotional
strategy, current 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 TRAINING MENU of SBA ONLINE.

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. Clearly defining your business or
your purpose will give a true sense of direction as your venture
develops.

5. What legal aspects do I need to consider?

Licenses, permits, zoning laws and other regulations vary
from business to business and from state to state. You will need
to consider requirements of the Americans With Disabilities Act
in order to accommodate needs of your customers and your
employees. Your local Small Business Administration (SBA) office
and/or chamber of commerce can 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).

6. What do I need to succeed in a business?

There are four basic needs for 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. A
successful partnership usually occurs when partners compliment
each other so that one’s weakness is another’s strength. If you
decide a partner is a good idea, make certain each of you has a
clear, written understanding of your responsibilities and your
rights.

8. How can I hire 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 requirements 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 and by some states 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 from all
wages and salaries, 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 should consult local information sources
and/or SBA offices.

NOTE: A list of all SBA offices can be found under the Local
Information section of SBA ONLINE.

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.

Also consider developing a plan for coping with disaster as
part of your security measures. It is impossible to predict when
fire, flood, earthquake, tornado, explosion or other disaster
will strike. Being prepared — with a spare set of essential,
regularly updated business records kept off premises — can spell
the difference between WHEN or IF you will reopen for business
after the emergency is controlled.

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.
A question of paramount importance that you must be able to
answer: Can you keep your family and business decisions separate?

13. Do I need a computer?

Small businesses today face growing inventory requirements,
increased customer expectations, rising costs and intense
competition. Moreover, if you plan to do business with the
federal government you will need electronic commerce capability.
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,
(2) selecting the best system (or personal computer)
for your business,
(3) selecting the most relevant software for your
needs, and
(4) ensuring that you can easily operate the system.

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. The telephone (the
terminal) and the network (local or long distance or INTERNET)
make up the basic components of a telecommunications system.
These are effective tools that can easily adapt to changes in
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 (fixed and variable costs) for at least one 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.
Writing a business plan will provide you with accurate
information on your needs for capital.

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 to others
who may 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
ties up less of your cash. Ask your local SBA office for
information about these various sources as well as materials
produced by SBA including business management publications.

NOTE: A list of banks which frequently work with SBA in providing
loans to small businesses can be found in the Local Information
section of SBA ONLINE.

17. What do I have to do to get a loan?

Initially, the lender will ask three questions:

*How will you use the loan proceeds?
*How much do you need to borrow?
*How will you repay the loan?

When you apply for a loan, you will be asked to provide
projected financial statements along with a cohesive, clear
business plan which supplies the name of the firm, location,
production facilities, legal structure, marketing and sales
goals, financial analyses and operating plan. 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, and you need to consider income and
expenses before you even start to think about profits. However,
there are standards of comparison called “industry norms and
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 for assets 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 local library. Help is also available through the SBA,
through SBA’s Business Information Centers 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 financial records, you cannot
determine how well your business is doing or 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; and

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 type 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 three basic financial
statements:

(1) the balance sheet, which is a record of assets,
liabilities and capital at a specific point in
time;

(2) the income (profit and loss) statement, which is a
summary of your earnings, expenses and net profit
(or loss) over a given period of time; and

(3) the cash flow projection, which shows the actual
inflows and actual outflows of cash into and out
of your business.

22. What does marketing involve?

Marketing is your most important operational concern. There
are four basic aspects of marketing, often called the “four P’s”:

*Product: A description of the item or service you sell.

*Price: The amount you charge for your product or
service.

*Promotion: The ways you inform your market as to who, what
and where you are.

*Place: The distribution channels you use to offer 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/promotion?

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/
promotional 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 (the share
of facilities, utilities, taxes, insurance, security and other
general operating costs of the business attributable to the
product or service — for example, if one product accounts for 10
percent of your business, 10 percent of your overhead is assigned
to it). After these costs are determined — the “break-even”
cost — you factor in the profit desired. Because pricing can be
a complicated process and you must remain competitive as well as
profitable, 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, the number of competitive establishments and
customer accessibility all determine where you should put your
business.

Location is critical to small retailers where traffic flow
spells the difference between success and failure. Home-based
businesses initially operate out of the founder’s home and, as
they grow, the issue of location becomes vital to their continued
success.

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 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 counselling, training and information services
including the Service Corps of Retired Executives (SCORE),
Business Information Centers (BICs) and Small Business
Development Centers (SBDCs). 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.

The bulletin board, SBA ONLINE and SBA’s World Wide Web page
sba.gov on the Internet are excellent areas to get pertinent
information.

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. SBA has Business
Information Centers in nearly every state where you can utilize
state of the art technology yourself, and also receive
counseling. 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.

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SMB Reviews
SMB Reviews 473 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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