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 for at least a
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.
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 for others to invest in your
business. You may want to consider 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 does not tie up your cash. Ask your local SBA office for
information about these various sources.
What do I have to do to get a loan?
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.
What kind of profits can I expect?
Not an easy question. However, there are standards of comparison called
"industry 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 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 library.
Help is also available through the SBA and the trade associations that serve
your industry.
What should I know about accounting and bookkeeping?
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. At a minimum, 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 a bank;
- 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.
How do I set up the right record keeping system for my business?
The kind 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:
- How will this record be used?
- How important is this information likely to be?
- Is the information available elsewhere in an equally accessible
form?
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.
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