how to start and manage your own business

HOW TO

START and MANAGE

YOUR OWN BUSINESS

www.score476.org

Introduction

The intent of this workshop is to provide each entrepreneur with the fundamental information that should be considered in planning and conducting a successful business. In selecting the workshop subjects and their content, SCORE has oriented its approach to the needs of persons who are planning to go into business and those who have recently started a business. 

It has become apparent during the conduct of these workshops that some attendees have been in business for a considerable period of time. We find that many of these individuals attend because their business experience has taught them to search for the fundamentals of how to plan and operate a business, or because they feel a need for a refresher, or both. In any case, they too benefit from what they learn at this workshop.

3 Rev. 08/08

Agenda

The Owner / Manager’s Role

The Business Plan

Issues for a Small Business

Business Record-Keeping

Business Organization and Regulations

Financial Factors and Sources of Capital

Marketing & Advertising

Sources of Information

Rev. 08/084

TheOwner / Manager’s

Role

Rev. 08/085

America’s Small Business –

The Pride of America

28 Million Small Businesses…

Generate 55% of All Goods & Services

Employ 57% of the Nation’s Workers

Rev. 08/086

Small Business Provides

Long-Term Rewards

• Substantial Income

• Financial Security

• Independence

• Recognition

• Satisfaction

Short-Term RisksFailure Can Mean the Loss of:

• Income

• Investment

• Home or Other Collateral

• Self-Esteem

• Personal and Family Relationships

Rev. 08/087

Why Businesses Fail

Owner/Manager Shortcomings

• Inadequate Understanding of Business

• No Experience or Knowledge of Specific Business

Owner/Manager Inability

• To Manage Tasks

• Direct Others

• Lack of Passion

POOR PLANNING!!!Rev. 08/088

Owner/Manager Wears Nine Hats

1) Leadership2) Planning3) Decision-Making4) Problem-Solving5) Controlling6) Marketing / Advertising7) Financial Records8) Business Records9) Personnel

Rev. 08/089

You May be Uncomfortable Wearing Many Hats

Find a Mentor

Establish an Advisory Board

Request Help from SCORE

Hire an Expert in That Area

Rev. 08/0810

Your Business Plan

Rev. 08/0811

Why Do You Need It?

A Means to Communicate to:◦Employees◦Investors◦The Bank

A Guide to:◦Measure Performance◦Manage the Business

A Roadmap to:◦Represent Your Direction◦Define Your Resources◦Guide Your Success

Rev. 08/0812

Business Plan Outline

Executive Summary

Objectives / Goals

Mission Statement

Business Description

Market Analysis

Financial Projections

Rev. 08/0813

Executive Summary

Brief Outline and Description of the Business Marketing Plan Unique Features Overall Strategy and Direction Financial Glimpse Objectives and Proposal Brief Management Profile Financial Need and for What Purpose

Rev. 08/0814

The Plan Itself

IS A WRITTEN STATEMENT ABOUT THE BUSINESS

What the Business Is

How the Business Will:

◦Be Operated and Managed

◦Address the Marketplace

◦Function Financially

The Strengths and Weaknesses of Your Competition

Rev. 08/0815

Business Description

Ownership and Legal Structure History Services and/or Products Offered Intellectual Property Location Facilities and Other Fixed Assets Sources of Supply Manufacturing / Retailing / Service Processes

Rev. 08/0816

The Marketing Plan

Who Are Your Target Customers?

Where Are They?

Who and Where is Your Competition?

How Does Your Competition Operate?

Trends…

And How You Intend To Capitalize On It

Rev. 08/0817

Basic Business Objectives

Align with Personal Goals Should be Measurable

• Sales

• Profits

• Costs

• Market Share

• Number of Customers

• New Product and/or Service Introductions ACHIEVABLE

Rev. 08/0818

Business Objectives

Quantifiable, Measurableand

Achievable

Establish a Website by: July 1, 2007

Make 20 Cold Calls per Day

Achieve $1 Million in Sales by December 31, 2007

Attain Break-even by August 2007

Rev. 08/0819

Planning

Provides for…

Staffing

Materials

Equipment

Facilities

Operating Systems (Methods and

Procedures)

Money

Rev. 08/0820

Financial Projections

Establish Pricing and Margins

Determine Operating Expenses

• Fixed/Variable

Establish Budgets

Develop Cash Flow Projections

Determine Start-up Expenses

Rev. 08/0821

Proforma Financial Statements

Cash Flow Statement

Profit and Loss Statement

Balance Sheet

Break-Even

Rev. 08/0822

Inadequate Controls

Could Mean Failure, so…

Start with Good Records

Review Records Regularly – A MUST!

• “Too Busy” is Unacceptable

Measure Results Against Budget

Implement Corrective Action Without Delay

Rev. 08/0823

Discussion Review

The Owner/Manager’s Role

Risks and Rewards of Business Ownership

Steps to Minimize Risk

The Business Plan

Rev. 08/0824

HELP is AVAILABLE

SCORE can HELP YOU BEAT THE ODDS!

Workshops FREE Counseling

• At Your Place of Business

• At a SCORE Counseling Site www.score476.org

• Telephone – 718 727 1221

• E-mail Info@score476.org

Rev. 08/0825

Issuesfor a

Small Business

AGENDA

The Start-Up Process

Lenders

Real Estate

Considerations for Success

Rev. 07/200827

Make a Checklist of Necessary Steps

Obtain Licensing Establish a Separate Bank Account Make Credit Card Arrangements Create Purchasing Arrangements

• Inventory and Supplies Develop Marketing and Sales Materials Create an Internet Website Find a Location Hire and Train Employees Set-up Accounting Controls

Rev. 07/200828

Research Opportunities in San Diego

Small Business Administration (SBA)

• www.sba.gov SCORE - Free Business Resources

• www.score476.org Trade Associations Suppliers Customers Competitors Business Improvement Districts (BIDs) Franchise Prospectuses

Rev. 07/200829

Dealing with Professionals

Attorneys• Proper Paperwork

Form of Organization, Contracts, Leases, etc.

• How Do They Bill?Hourly or Fraction Hours, Fixed Project Price

• Kick-out Clause“This contract is subject to approval by my attorney, no

later than 3 days from the date below.”

Rev. 07/200830

Dealing with Professionals(Continued)

Accountants (CPA vs. Bookkeeper)• QuickBooks• Understand Cash Flow• Tax Preparation

Insurance Brokers• Litigious State• Use Broker Who Represents Numerous

Companies Real Estate and Business Brokers

• “Caveat Emptor” – Buyer Beware• Brokers are paid by the Seller or Lessor

But, the money comes from the Buyer or Lessor

Rev. 07/200831

Franchise – Is It The Best Way?

Buy Only Proven Concepts Up-Front Fees Location Financing % of Gross Revenue Obtain a Prospectus

• Provides All the Details Talk to Existing Franchisees

Rev. 07/200832

Lenders

Family and Friends• Have a Completed Business

Plan• Provide All Details of Loan or

Equity Investment in Writing Bankers – Institutional

Lenders• MUST HAVE a Business Plan• Sources of Loans

SBA Guaranteed Loans Certified Development

Company (CDC) AcciÓn Home Equity

Suppliers, Business Sellers

Customers Landlords Credit Cards Good Credit =

Availability at Low Rates

Know Your FICO Score• 300 – 850• www.myfico.com

Obtain Free Credit Report• Experian, Equifax,

TransUnion Auto & Equipment

Leasing

Rev. 07/200833

Real Estate

Rent or Buy – Comparable Rates

Location

• If in Retail, DO NOT Compromise on Location

Space

• Add 15-20% More Space Than Immediately

Needed Parking Availability

Rev. 07/200834

Real Estate(Continued)

Type of Lease / Terms / Option to Renew

• Sublease and Assignment“Lessee reserves the right to sublet to any

reasonable person.”“Lessee reserves the right to cancel with

two months penalty payment.”

• Basic LeaseExample: 2 Years with 3 One-Year Options

• Everything is Negotiable

• Triple Net (Gross Lease / Net Lease)

• Have an attorney review before signing

Rev. 07/200835

Considerations For Success

Capital Requirements• Company Finances + One Year of Living

Expenses Employee Compensation and Retaining

Key People Theft Protection Systems Accounts Receivable Collection Policy Visa / MasterCard / American Express Partners / Investors

Rev. 07/200836

Discussion Review

Make a Checklist

Conduct Research

Work With Professionals

Seek Financing

Determine Real Estate Needs

Consider Keys to Success

Rev. 07/200837

Business Record-Keeping:

How to Keep Scoreon Your Operations

What Are the Uses

Information on the Financial Health of Your Business

Reports to Insurers, Lenders, etc.

Reports to Governmental Agencies

Rev. 08/200839

Accounting Methods

Cash

Accrual

Rev. 08/200840

Elements of a Record-Keeping System

Chart of Accounts

Documents

Financial Statements

Rev. 08/200841

Pro-Forma Financial Statements

Rev. 08/200842

Cash Flow

Rev. 08/200843

March April

Plan Actual Plan Actual

Beginning Cash on Hand A $5,000 X $1,000

+ Cash In B $2,000 Y $4,000

- Cash Out C ($6,000) Z ($3,000)

Ending Cash on Hand (A + B) - C $1,000 (X + Y) - Z $2,000

Sales (Revenues) $2,000

Less Cost of Sales (1,000)

Gross Profit 1,000

Less Operating Expenses

Rent $250

Advertising 100

Insurance 100

Office Supplies 50

Transportation 0

Equipment 0

Utilities 100

Total Operating Expenses (600)

Net Profit (Before taxes) $400

Rev. 08/200844

Profit and Loss

Balance Sheet

Assets

Current Assets

Cash on Hand (Deposits) $5,000

Accounts Receivable 500

Reserve for Bad Debts

Inventory 0

Prepaid Expenses 300

Total Current Assets $5,800

Fixed Assets

Equipment $4,000

Less Depreciation (400)

Net Fixed Assets $3,600

Total Assets $9,400

Liabilities & Net Worth

Current Liabilities

Accounts Payable $4,000

Total Current Liabilities $4,000

Owner’s Equity

Investment $5,800

Profit Year-to-Date 400

Net Worth $5,400

Liabilities & Net Worth $9,400

Rev. 08/200845

Break-Even

Tells You… When the Business Will Stop Costing Money How Much Cash You Will Need

Made Simple…

$40,000 in Sales Required to Reach Break-Even

Rev. 08/200846

Monthly Costs A $10,000

Gross Profit B 25%

Sales Needed to Earn $10,000 A ÷ B $10,000 ÷ 25% = $40,000

Chart of Accounts

Revenues

Cost of Goods Sold

Expenses

Current Assets

Fixed Assets

Other Assets

Current Liabilities

Long Term Liabilities

Equity

Rev. 08/200847

Supporting Documents

Vendor Invoices

Checks & Bank Reconciliations

Customer Records

Employee Records, Personnel Files, etc.

Records related to Tax Filings

• Car, home, etc.

Other

Rev. 08/200848

Daily / Weekly Procedures

Record Transactions

Prepare and Mail Invoices

Deposit Receipts / Pay Bills

File Documents

Follow-Up on Accounts Receivable

Count New Customer Accounts Opened

Rev. 08/200849

Semi-Monthly Procedures

Prepare Payroll for Processing

Review Payables

Rev. 08/200850

Monthly / Quarterly Procedures

Prepare Financial StatementsAnalyze ResultsTake Necessary Corrective ActionReconcile Bank StatementPrepare Reports to Government AgenciesAge Accounts ReceivablesPay Sales and Payroll Taxes, etc.Check and Reconcile Inventory on Hand

Rev. 08/200851

Annual Procedures

Prepare Financial Reports

Prepare and File Annual Reports with

Government Agencies

Prepare Operating and Cash Flow Budgets

for Coming Year

Rev. 08/200852

Selecting the Record-Keeping Method

Manual Spread Sheets

Personal Computer - QuickBooks

Computer Systems - ERP

Outside Service Providers

Rev. 08/200853

Evaluation of Operations

Balance Sheet

Income Statement

Statement of Cash Flow

Financial Ratios

Rev. 08/200854

Business Organization

andRegulations

Legal Structure

Proprietorships Partnerships

• General• Limited• Joint Venture

Corporations• Statutory Closed• General Law• Chapter S Election• Out of State (Foreign)

Limited Liability Companies• Member Managed• Manager Managed• Operating Agreement

56 Rev. 08/2008

Business Name and Other Intellectual Property

Fictitious Business Name Statement• Filing• Publication

Trade Name, Trademark and Service Mark• Difference between Trade Name and Marks• Reason for Use of Marks• Common Law Protection vs Federal Protection• Reservation of Corporate Name

E-Commerce• Domain Site Registration• Domain Names vs. Trademarks

57 Rev. 08/2008

Independent Contractors

Who are they?

Distinction between:

• Independent Contractors

• Employees

IRS Guidelines

Rev. 08/200858

Financial Factorsand

Sources of Capital

Types of Financial Institutions

Commercial Banks and Size of Loan

Credit Unions

Commercial Finance Companies

CDC Micro Loans (from $1,000 to 50,000)

Start-ups can qualify.

Acciòn

Type of Loans

Short

Intermediate Term

Long Term

SBA Guaranteed Loans

Purpose of Loans, Terms & Conditions

Working Capital

Inventory

Equipment

Business Acquisition

Real Estate

Other

Interest Rates

Risk vs. Rate

Type of Lender

Competition

Finding the Best Rate

Credit Qualifications

Five C’s of Credit• Character• Capacity• Collateral• Capital• Conditions (Loan and Economic)

Lender’s Point of View• Don’t like much risk• Safety Concerns• Qualification for Start-ups

Good credit Business plan 25-35% Own cash

Loan Interview Decision Making Process

The Loan Package / Proposal

See Recommended Checklist (attached)

Borrower Must Know the Package (Details)

Borrower Must Do the Homework

Marketingand

Advertising

What is Marketing?

The Process of…

Identifying potential customers

Creating customers

Keeping customers

Successful Marketing Depends on…

Knowing who your customer is

Knowing all about your competition

Understanding your market trends

Why Do You Need to Know All About Your Customer?

Project market size

Identify customer needs

Select Price, Product, Presentation

What Do You Need to Know About Your Customers?

Where they live Where they work Gender Educational level Income level and how they spend Age Race and nationality Family size and status How you locate and reach them

What Do You Need to Know About Your Business Customers?

Business Type

Business Size

Location

How is the purchase decision made

The key decision maker

Financial strength

How Can You Learn More About Your Business Customers?

Experience

Someone else in the same business

Communication

Trade associations

Suppliers

What Do You Need to Know About Your Competition?

EVERYTHING!

Who and where they are

Strengths

Weaknesses

Customer Policies: Pricing / Terms / Variety

Understand Your Market Trends

What Creates a Demand for Your Product or Service?

Technology changes in your industry Distribution changes Consolidation changes Technology changes that create new

opportunities Population and demographic changes Lifestyle changes Changes in local or federal government

Image

Create an Image for Your Business that . . .

Matches your customer needs

You feel comfortable with

Separates you from your competitors

Marketing Strategies

Existing Products to Existing Customers

Establish an image that makes customers feel

comfortable

Build high level of trust and confidence with customers

Train employees to learn more about each customer

Target promotions on incentives to buy more

Direct advertising

Create a Newsletter or other communication

Focused sales calls

Existing Products to New Customers

Identify the competitor from which you are most

likely to gain customers

Direct advertising and promotion toward these

customers

Develop customer referrals

Focus sales presentations and advertising to

show advantages over competitors

Train employees to stress these advantages

New Product to Existing Customers

Develop a clear understanding of existing customers

Introduce product or service to meet their needs Create image of trust and confidence with

existing customers Use sales of existing products or services to

promote new products or services Direct advertising Make sales calls Train employees on benefits

New Product to New Customers

Find a niche – Find a need and fill it

Create promotions

Focus advertising on niche customers

Offer seminars and presentations

Make sales calls on customers

Train employees about needs of potential

customers

Focus on product benefits

Pricing

Price is Determined by…

The value of your product or

service to the client

Competition

Effective Advertising

Know Your Customer

Focus advertising on current and potential

customers

Establish advertising goals and measure results

Effective Ads

AI

DA

ttentionnterestesirection

Advertising Media

Direct Mail TV Radio Newspapers Internet Email Press Releases

Newsletters Seminars Trade Shows Yellow Pages Sponsorships

Referrals

From other businesses

From satisfied customers

The Sales Call

Build a relationship

Offer incentives

Coordinate with advertising and promotions

Follow-up, Follow-up, Follow-up, Follow-up

Sources of Information

About Competitors

Suppliers Trade Associations Visual Interview Customers RMA (Risk Management Association)

• Annual Statement Studies Prepare a Competitive Matrix

www.score476.org